**SETTLEMENT
      AGREEMENT**




**THIS
      SETTLEMENT AGREEMENT** (the
      “ Settlement
      Agreement ”)
      is
      entered into by and between Chinamerica Fund, LP (“ Chinamerica ”)
      and
      China BAK Battery, Inc. (the “ Company ”)
      and
      its subsidiary BAK International, Ltd. (“ BAK
      International ”
and,
      together with the Company, “ CBAK ”).
      Chinamerica and CBAK are also each referred to separately as a “ Party ”
and
      together as the “ Parties .”
The
      Parties, in order to resolve disputed and contested issues and to limit the
      hazards, uncertainties and inconvenience of potential litigation, enter into
      this Settlement Agreement.




1.  **Escrow
      Agreement** **.** On
      January 20, 2005, BAK International consummated a private placement of its
      common stock with unrelated investors whereby it issued an aggregate of
      8,600,433 shares of common stock for gross proceeds of US$17,000,000 (the
“ Private
      Placement ”).
      Immediately thereafter, the shares of BAK International were exchanged for
      shares of the Company. Chinamerica was an investor in the Private Placement
      and
      entered into a subscription agreement (the “ Subscription
      Agreement ”)
      in
      connection therewith. In conjunction with the Private Placement, pursuant to
      an
      Escrow Agreement dated January 20, 2005, Mr. Li Xiangqian, the Chairman and
      Chief Executive Officer of the Company, placed 2,179,550 shares of the Company’s
      common stock owned by him (the “ Make
      Good Shares ”)
      into
      an escrow account. The terms and conditions regarding release of the Make Good
      Shares from escrow was set forth in the Escrow Agreement. A dispute has arisen
      between Chinamerica and CBAK regarding 1,089,775 Make Good Shares (herein
      referred to as the “ Released
      Shares ”)
      released from the escrow account to Mr. Li and subsequently delivered by Mr.
      Li
      to BAK International, which then delivered the shares to the Company.





The
      Parties have agreed, without any admission of liability, that it is in the
      interests of all of the Parties and their respective Affiliates and investors
      to
      resolve the issues relating to the Released Shares amicably.





2.  **Definitions** **.** Capitalized terms not otherwise defined herein shall have the following
      meanings:




**a.**
            **Affiliates**means all persons and entities controlling, controlled by or under
                common
                control with a Party. Investors in Chinamerica shall not be deemed
                Affiliates of Chinamerica for purposes of this Settlement Agreement,
                except to the extent of any rights that they may derive as an investor
                in
                Chinamerica.




**b.**
            **Claims******means
                any and all claims, demands, causes of actions, or liabilities, of
                any and
                every character, kind and nature whatsoever, in law or in equity,
                whether
                known or unknown, foreseen or unforeseen, past, present, or future,
                accrued or unaccrued, contingent or fixed, arising out of or related
                to
                any or all of the Subscription Agreement, the Escrow Agreement, the
                Make
                Good Shares (including the Released Shares), and the Private Placement,
                including any registration rights (other than the registration rights
                granted pursuant to Section 3.b. of this Settlement Agreement) related
                thereto.


**SETTLEMENT
        AGREEMENT**


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**c.**
            **Release
                Date**means the earliest of (x) such time as all of the Chinamerica Shares
                have
                been sold by Chinamerica; (y)such
                time as all of the Chinamerica Shares may be sold by Chinamerica
                without
                volume limitations pursuant to Rule 144 under the Securities Act,
                as
                determined by the counsel to the Company pursuant to a written opinion
                letter to such effect, addressed and acceptable to the Company’s transfer
                agent;
                and (z) the date a Registration Statement on Form S-3 (or other
                appropriate form) covering the resale by Chinamerica of the Chinamerica
                Shares is declared effective by the SEC as set forth in Section
                3.b.




**d.**
            **SEC**means the U.S. Securities and Exchange
                Commission.




**e.**
            **Securities
                Act**means the U.S. Securities Act of 1933, as
                amended.




3.  **Settlement
      Terms** .




**a.**
            **Delivery
                of Shares**.
                Upon execution of this Settlement Agreement by the Company and
                Chinamerica, the Company shall promptly, and no later than ten days
                after
                the date this Settlement Agreement is executed by the Parties, deliver
                to
                Chinamerica at the address set out below a certificate or certificates
                registered in the name of Chinamerica Fund, LP for 32,050 of the
                Released
                Shares (the “Chinamerica
                Shares”).




**b.**
            **Registration**.
                On or prior to the date (the “Filing
                Date”)
                that is one month after the date that the Company’s Registration Statement
                on Form S-3 (Registration No. 333-148253) is declared effective by
                the SEC
                (or, if the Filing Date is not a business day, the first business
                day
                after the Filing Date), and provided that Chinamerica has provided
                the
                Company with a completed questionnaire in the form attached asExhibit
                Ahereto, the Company shall prepare and file with the SEC a Registration
                Statement on Form S-3 (or such other appropriate form for such purpose)
                covering the resale by Chinamerica of the Chinamerica Shares in an
                offering to be made on a continuous basis pursuant to Rule 415 under
                the
                Securities Act. Such Registration Statement may also include such
                other
                selling holders as the Company shall deem appropriate. The Company
                shall
                cause such Registration Statement to be declared effective under
                the
                Securities Act as soon as possible, and shall use its reasonable
                best
                efforts to keep such Registration Statement continuously effective
                under
                the Securities Act until the date which is the earliest of (i) two
                years after its effective date; (ii) such time as all of the Chinamerica
                Shares covered by such Registration Statement have been sold by
                Chinamerica; and (iii) such time as all of the Chinamerica Shares
                covered
                by such Registration Statement may be sold by Chinamerica without
                volume
                limitations pursuant to Rule 144, as determined by counsel to the
                Company
                pursuant to a written opinion letter to such effect, addressed and
                acceptable to the Company’s transfer agent. No later than 5:00 p.m.
                Eastern time on the day following the date the Registration Statement
                is
                declared effective, the Company shall file with the SEC in accordance
                with
                Rule 424 under the Securities Act the final prospectus to be used
                in
                connection with sales pursuant to such Registration Statement (whether
                or
                not such filing is technically required under such
                Rule).


**SETTLEMENT
        AGREEMENT**




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**c.**
            **Ability
                to Disclose Information**.
                The Company agrees that Chinamerica may inform other investors in
                the
                Private Placement of the terms of this Settlement Agreement. The
                Company
                agrees that it will promptly furnish or file a report on Form 8-K
                regarding this Settlement Agreement, or otherwise make information
                regarding this Settlement Agreement available in accordance with
                Regulation FD.




**d.**
            **Relief**.
                The Company acknowledges that in the event it fails to deliver a
                certificate or certificates representing the Chinamerica Shares as
                provided in Section 3.a, any remedy at law may prove to be inadequate
                relief to Chinamerica. The Company agrees that Chinamerica may require
                specific performance of this Settlement Agreement by insisting upon
                delivery of the Chinamerica Shares, and shall be entitled to seek
                temporary and permanent injunctive relief without the necessity of
                proving
                actual damages and without posting a bond or other security.




4  **Interpretation** **.** The
      Parties have participated jointly in the negotiation and drafting of this
      Settlement Agreement. If an ambiguity or question of intent or interpretation
      arises, this Settlement Agreement will be construed as if drafted jointly by
      the
      Parties, and no presumption or burden of proof will arise favoring or
      disfavoring any Party because of the authorship of any provision of this
      Settlement Agreement.




5.  **No
      Admission** **.** By
      entering into this Settlement Agreement, no Party is in any way admitting any
      liability to any other Party on account of any matter covered by this Settlement
      Agreement. Rather, this Settlement Agreement is entered into solely for the
      purpose of compromise and settlement of doubtful and contested claims and
      issues, to buy peace, and to avoid the hazards, delays, and uncertainties of
      litigation.




6.  **Mutual
      Releases** **.** Effective on the Release Date, Chinamerica, on behalf of itself and its
      Affiliates, releases,
      acquits, and forever discharges CBAK, its predecessors and successors in
      interest, its parent and subsidiary organizations, and its Affiliates, all
      of
      their respective officers, directors, employees, managers, shareholders,
      partners, attorneys, accountants, advisors, representatives, agents, insurers,
      heirs, executors and assigns (collectively, the “ CBAK
      Releasees ”)
      of and
      from any and all Claims; and Chinamerica covenants never to sue any of the
      CBAK
      Releasees upon any of the Claims hereby released. Effective on the Release Date, CBAK, on behalf of itself and its Affiliates,
      releases, acquits, and forever discharges Chinamerica and its Affiliates, and
      all of their respective officers, directors, employees, managers, shareholders,
      partners, attorneys, accountants, advisors, representatives, agents, insurers,
      heirs, executors, and assigns (collectively, the “ Chinamerica
      Releasees ”)
      of and
      from any and all Claims; and CBAK covenants never to sue any of the Chinamerica
      Releasees upon any of the Claims hereby released. For purposes of this
      paragraph, the Affiliates of Chinamerica and the Chinamerica Releases shall
      not
      include Taylor Investment Group, LLC (“ TIG ”)
      or
      Stephen Taylor (“ Taylor ”)
      as to
      any Claims other than Claims that TIG or Taylor derived from any investment
      by
      them, or either of them, directly in Chinamerica or any participation by them,
      or either of them, in the management of Chinamerica or Chinamerica Partners,
      L.P.


**SETTLEMENT
        AGREEMENT**




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7.  **Indemnification** .
      In the
      event that any of Chinamerica, its general partner Chinamerica Partners, L.P.,
      or Chinamerica Holdings, LLC institutes any proceedings or asserts any Claim
      against any of the CBAK Releasees, Chinamerica, to the fullest extent permitted
      under the law, shall hold harmless, defend and indemnify such CBAK Releasees
      with respect to such proceedings and asserted Claims.




8.  **Choice
      of Law** **.** This
      Settlement Agreement shall be interpreted and construed according to the
      internal laws of the State of New York (without giving effect to any choice
      of
      law or conflict of law provisions of any jurisdiction), and applicable laws
      of
      the United States of America.




9.  **Entire
      Agreement** **.** This
      Settlement Agreement supersedes all other prior oral or written agreements
      between the Parties with respect to the matters set forth herein and contains
      the entire agreement of the Parties with respect to the matters set forth
      herein. If
      any
      provision of this Agreement shall be held invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Settlement Agreement in that
      jurisdiction or the validity or enforceability of that or any other provision
      of
      this Settlement Agreement in any other jurisdiction.




10.  **Amendments** **.** This
      Settlement Agreement may be modified or amended only in writing, signed by
      each
      of the Parties to this Settlement Agreement prior to the effective date of
      any
      such modification or amendment. Any waiver must be in writing and signed by
      each
      Party whose interests are adversely affected by such waiver. No waiver granted
      in any one instance shall be construed as a continuing waiver or as a waiver
      applicable to any other provision. No
      exercise or failure to exercise any right shall preclude any other or further
      exercise of that right or any other right.




11.  **Representations** **.** The
      Parties acknowledge that this Settlement Agreement is executed after
      substantial, long-term negotiations between and among representatives of the
      Parties. Each Party represents that: (a) such Party and its attorneys have
      conducted their own investigation concerning the facts surrounding the matters
      covered by this Settlement Agreement and in voluntarily choosing to execute
      this
      Settlement Agreement, have relied upon their own analysis of such facts and
      not
      on any information furnished by any other Party or its representatives;
      (b) there are no oral or other written agreements concerning the subject
      matter of this Settlement Agreement; (c) the right to rely on any oral or
      written statement of any Party or any failure of any Party to state any fact
      is
      expressly waived and released; (d) it owns and has the right to release any
      Claims released herein; (e) such Party has the requisite corporate power and
      authority to enter into and to perform this Settlement Agreement; and (f) the
      person signing the Settlement Agreement on behalf of such Party has been
      authorized to execute and deliver this Settlement Agreement on behalf of such
      Party. In addition, Chinamerica represents  that
      it
      (i) is acquiring the Chinamerica Shares in the ordinary course of business
      for
      its own account and not with a view towards, or for resale in connection with,
      the sale or distribution thereof, except pursuant to sales registered or
      exempted under the Securities Act, (ii) does not have a present arrangement
      to
      effect any distribution of the Chinamerica Shares to or through any person
      or
      entity, (iii) does not presently have any agreement or understanding, directly
      or indirectly, with any person to distribute any of the Chinamerica Shares,
      (iv)
      is an “accredited investor” as that term is defined in Rule 501(a) of Regulation
      D under the Securities Act and (v) is not a registered broker-dealer under
      Section 15 of the Securities Exchange Act of 1934, as amended. Chinamerica
      understands that the Company is relying on specific exemptions from the
      registration requirements of United States federal and state securities laws
      and
      that the Company is relying in part upon the truth and accuracy of, and
      Chinamerica’s compliance with, its representations, warranties, agreements,
      acknowledgments and understandings set forth herein in order to determine the
      availability of such exemptions. When executed by all Parties and delivered
      by
      each Party to the other Parties, this Settlement Agreement will constitute
      the
      legal, valid and binding obligation of each Party. This Settlement Agreement
      shall be binding upon the assignees and successors of the Parties. This
      Settlement Agreement is personal to the Parties and is not intended to create
      any right in any third person who is not a Party or is not identified as a
      CBAK
      Releasee or a Chinamerica Releasee in Section 6 of this Settlement
      Agreement.


**SETTLEMENT
        AGREEMENT**




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12.  **Notice** **.** All
      notices, demands, waivers or other communications required or permitted under
      this Settlement Agreement must be in writing and will be deemed to have been
      delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,
      when
      sent by facsimile evidenced by confirmation of transmission (provided a copy
      of
      such facsimile is also sent by one of the methods provided in (i), (iii) or
      (iv)
      of this Section 12 within 24 hours of transmission); (iii) two calendar days
      after deposit with a courier service that regularly conducts deliveries in
      the
      recipient’s jurisdiction; or (iv) if the recipient is located in the United
      States, five calendar days after deposit in the United States mail, postage
      prepaid, return receipt requested, in each case addressed to the addressees
      shown below:




**If
                to Chinamerica****:**
            
            **If
                to CBAK****:**Joan
                C. Waller
              Secore
                & Waller, L.L.P.
              Four
                Forest Plaza
              12222
                Merit Drive, Ste. 1350
              Dallas,
                TX 75251
              Tel:
                (972) 776-0200
              Fax:
                (972) 776-0240
              Email:
                jo@secorewaller.com
            
            Louis
                Bevilacqua
              Thelen
                Reid Brown Raysman &
              Steiner
                LLP
              701
                Eighth Street, NW
              Washington,
                DC 20001-3721
              Tel:
                (202) 508-4281
              Fax:
                (202) 654-1804
              E-mail:
                lbevilacqua@thelen.com





Any
      Party
      may change such Party’s address for the purpose of notices, demands and requests
      required or permitted under this Settlement Agreement by providing written
      notice of such change of address to the other Party, which change of address
      shall only be effective when notice of the change is actually received by the
      Party who thereafter sends any notice, demand, or request.




13.  **Counterparts** **.** This
      Settlement Agreement may be executed in multiple counterparts, each of which
      shall be deemed an original and all of which shall constitute one and the same
      instrument. A facsimile or electronically reproduced signature shall constitute
      due execution, shall be admissible as evidence of execution, and shall be
      binding upon the signatory with the same force and effect as if the signature
      were an original.




**[Signature
      Page Follows]**


**SETTLEMENT
      AGREEMENT**




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**IN
      WITNESS WHEREOF,** the
      Parties have executed and delivered this Settlement Agreement.




**CHINAMERICA
                FUND, LP**By
                Chinamerica Partners, LPIts
                General PartnerBy
                Chinamerica Holdings, LLCIts
                General PartnerBy:Name:
            Beau
                JohnsonTitle:
            Its
                Manager**CHINA
                BAK BATTERY, INC.**By:Name:
            Tony
                ShenTitle:
            Chief
                Financial OfficerBAK
                International, Inc.By:Name:Title:


**SETTLEMENT
      AGREEMENT**


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Exhibit
      A




**CHINA
      BAK BATTERY, INC.**





**SELLING
      STOCKHOLDER QUESTIONNAIRE**