SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC. 20549

-------------------------------------------------------------------------------

                                    FORM 20-F


          [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                                       OR
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended
                                DECEMBER 31, 2003
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
        For the transition period from _______________ to _______________


                         Commission file number 1-13750






             (Exact name of Registrant as specified in its charter)

                    JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
                 (Translation of Registrant's name into English)

                           PEOPLE'S REPUBLIC OF CHINA
                 (Jurisdiction of incorporation or organization)

     NO. 9 LONGTAN STREET, LONGTAN DISTRICT, JILIN CITY, JILIN PROVINCE, PRC
                    (Address of principal executive offices)


               Securities registered or to be registered pursuant
                          to Section 12(b) of the Act.


  Title of Each Class                 Name of Each Exchange on which Registered
  AMERICAN DEPOSITARY SHARES                   NEW YORK STOCK EXCHANGE
CLASS H ORDINARY SHARES,                THE STOCK EXCHANGE OF HONG KONG LIMITED
PAR VALUE RMB 1.00 PER SHARE

               Securities registered or to be registered pursuant
                          to Section 12(g) of the Act.


                                      NONE
-------------------------------------------------------------------------------
                                (Title of Class)


              Securities for which there is a reporting obligation
                     pursuant to Section 15(d) of the Act.


                                      NONE
--------------------------------------------------------------------------------
                               (Title of Classes)


Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.

                              964,778,000 H SHARES
                     2,596,300,000 DOMESTIC INVESTED SHARES

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X             No
    -                --

Indicate by check mark which financial statement item the registrant has elected
to follow.

Item 17           Item 18  X
        ---               ---



<PAGE>


                                TABLE OF CONTENTS




  ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS..........5
  ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE........................5
  ITEM 3.    KEY INFORMATION................................................5
  ITEM 4.    INFORMATION ON THE COMPANY....................................13
  ITEM 5.    MANAGEMENT'S DISCUSSION AND ANALYSIS..........................35
  ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES....................44
  ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.............50
  ITEM 8.    FINANCIAL INFORMATION.........................................55
  ITEM 9.    THE OFFER AND LISTING.........................................56
  ITEM 10.   ADDITIONAL INFORMATION........................................58
  ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....70
  ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES........72
  ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES...............72
  ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
                AND USE OF PROCEEDS........................................72
  ITEM 15.   CONTROLS AND PROCEDURES.......................................72
  ITEM 16A   AUDIT COMMITTEE FINANCIAL EXPERT..............................73
  ITEM 16B   CODE OF ETHICS................................................73
  ITEM 16C   PRINCIPAL ACCOUNTANT FEES AND SERVICES........................73
  ITEM 17.   FINANCIAL STATEMENTS..........................................75
  ITEM 18.   FINANCIAL STATEMENTS..........................................75
  ITEM 19.   EXHIBITS......................................................75







<PAGE>



                           FORWARD LOOKING STATEMENTS

Certain information contained in this Annual Report which does not relate to
historical financial information may be deemed to constitute forward looking
statements. These statements are made under the "safe harbor" provisions of the
U.S. Private Securities Reform Act of 1995. You can identify these forward
looking statement by terminology such as "will likely result," "are expected
to," "will continue," "is anticipated," "estimate," "project," "believe,"
"intends to" or similar expressions. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results and those presently anticipated or projected. We wish to
caution readers not to place undue reliance on any such forward looking
statements, which speak only as of the date made. Factors that could cause our
actual results in the future to differ materially from any opinions or
statements expressed with respect to future periods include, but are not limited
to, crude oil allocation and pricing, increased foreign competition, effects of
PRC macroeconomic policy and the PRC transport system. We do not undertake any
obligation to update this forward-looking information, except as required under
applicable law.


EXCHANGE RATES

Unless otherwise specified, references in this Annual Report to "US dollars" or
"US$" are to United States dollars, references to "HK dollars" or "HK$" are to
Hong Kong dollars and references to "Renminbi" or "RMB" are to Renminbi yuan,
which is the legal currency of the PRC.

Translation of amounts from Renminbi to US dollars for the convenience of the
reader have been made in this Annual Report, except as otherwise noted, at the
exchange rate published daily by the People's Bank of China, or the PBOC Rate,
on December 31, 2003 of US$1 = RMB 8.2767. No representation is made that the
Renminbi amounts could have been or could be converted into US dollars at that
rate or at any other rate.


OTHER CONVENTIONS

As used in this annual report, unless context otherwise requires, the following
terms have the meaning set forth below:

"Combined Offering" means the initial global public offering of our securities
in 1995.

"Parent" or "Parent Company" means prior to November 5, 1999, Jilin Chemical
Group Corporation, or Jilin Group, and from November 5, 1999, PetroChina Company
Limited, or PetroChina.

"PRC" or "China" means the People's Republic of China.

"Predecessor" means Jilin Chemical Industrial Complex as the operator of the
chemical businesses transferred to us in the Restructuring.

"Restructuring" means transfer to us, effective as of October 1, 1994, of the
principal chemical businesses and certain assets and liabilities of the
Predecessor, including certain ancillary and businesses support functions, and
the formation of us as the wholly-owned subsidiary of Jilin Chemical Group
Corporation.



                                       3


<PAGE>

"Rated Capacity" is the output capacity of a given production unit or, where
appropriate, the throughput capacity, calculated by estimating the number of
days in a year that such production unit is expected to operate, including
downtime for regular maintenance, and multiplying that number by an amount equal
to the unit's optimal daily output or throughput, as the case may be.

"Tons" or "ton" means metric ton(s) and "t/a" means tons per year.

"We", "our" and "us" are references to Jilin Chemical Industrial Company
Limited, and unless the context otherwise requires, joint ventures we control
and, prior to the Restructuring, relate to the chemical business carried on by
the Predecessor.



























                                       4


<PAGE>



PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
-------------------------------------------------------------

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
-----------------------------------------------

Not applicable.

ITEM 3. KEY INFORMATION
-----------------------

SELECTED FINANCIAL DATA

The following financial data as of December 31, 2002 and 2003 and for each of
the years ended December 31, 2001, 2002 and 2003 are derived from our audited
consolidated financial statements included elsewhere in this annual report. The
financial data as of December 31, 1999, 2000, and 2001 and for each of the years
ended December 31, 1999 and 2000 are derived from our historical consolidated
financial statements not included in this annual report. You should read the
selected financial data set forth below in conjunction with our Consolidated
Financial Statements and the corresponding notes thereto and ITEM 5. OPERATING
AND FINANCIAL REVIEW AND PROSPECTS. Consolidated Financial Statements have been
prepared in accordance with International Financial Reporting Standards
("IFRS"), which differ from United States generally accepted accounting
principles ("US GAAP"). For a discussion of the significant differences between
IFRS and US GAAP, see ITEM 18. FINANCIAL STATEMENTS -- CONSOLIDATED FINANCIAL
STATEMENTS -- NOTE 31.


<TABLE>
<CAPTION>

                                                                           SUMMARY FINANCIAL INFORMATION
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF SHARES)

                                                  1999         2000            2001         2002         2003         2003(a)
                                                 -----------------------------------------------------------------------------
                                                 (RMB )       (RMB )          (RMB )       (RMB )       (RMB)          (US$)

STATEMENTS OF OPERATIONS DATA
Amounts in Accordance with IFRS:
<S>                                            <C>           <C>          <C>           <C>           <C>         <C>
   Net sales:                                     10,554,892   13,396,247   12,518,532    13,138,387   20,652,809    2,495,295
    Petroleum products                             3,413,288    5,410,401    5,207,953     5,166,188    9,320,066    1,126,061
    Petrochemical and organic chemical
products                                           4,944,614    5,830,795    5,386,480     5,750,075    7,783,091      940,362
    Synthetic rubber                                 687,270      878,455      781,690       782,559    1,133,031      136,894
    Chemical fertilizers and inorganic
chemical products                                    626,899      458,212      107,090       123,325      164,861       19,919
    Other                                            882,821      818,384    1,035,319     1,316,240    2,251,760      272,059
   Income/(loss) from operations                     828,230     (334,593)  (1,308,480)     (506,036)     895,318      108,173
   Interest expenses                                (599,133)    (641,124)    (598,882)     (474,370)    (429,782)     (51,926)
   Net income/(loss)                                 148,800     (835,990)  (1,817,369)   (1,023,099)     427,609       51,664
   Basic and diluted earnings/(loss) per share          0.04        (0.24)       (0.51)        (0.29)        0.12         0.01
Amounts in Accordance with US GAAP:(b)
   Net income/(loss)                                 165,641     (782,117)  (2,160,673)     (685,579)     369,709       44,669
   Basic and diluted earnings/(losses) per
   share                                                0.05        (0.22)       (0.61)        (0.19)        0.10         0.01
CASH FLOW DATA
   Net cash provided  by/(used for) operating
activities                                           350,567     (545,537)   1,772,458     1,329,003    3,578,324      432,337
   Net cash used for investing activities           (490,798)  (1,396,895)    (867,158)     (863,352)    (722,137)     (87,249)
   Net cash provided by/(used for) financing
activities                                           157,427    1,924,700   (1,097,347)     (469,763)  (2,853,493)    (344,762)
OTHER FINANCIAL DATA
   Depreciation and amortization                     843,300      867,028      966,795     1,108,522    1,032,007      124,688
   Purchase of property, plant and equipment        (491,101)  (1,396,985)    (866,858)     (791,725)    (675,078)     (81,563)
     Capital Stock                                 3,411,078    3,561,078    3,561,078     3,561,078    3,561,078      430,253








                                       5






<PAGE>

                                                                                As of December 31,
                                                      1999          2000        2001         2002         2003            2003(a)
                                                 ----------------------------------------------------------------------------------
                                                     (RMB )        (RMB )      (RMB )       (RMB )        (RMB)            (US$)

BALANCE SHEET DATA

Amounts in Accordance with IFRS:
    Net working capital                              144,495    1,302,811   (2,061,875)   (5,256,695)  (5,660,445)    (683,901)
    Fixed assets                                  11,251,039   11,417,297   10,426,277    10,687,084    9,929,535    1,199,697
    Total assets                                  16,053,758   17,973,843   13,829,838    13,665,141   12,665,589    1,530,270
    Short term debt (including current             2,396,466    3,043,831    3,541,485     5,536,685    4,101,999      495,608
portion of long-term debt)
    Long term debt (excluding current portion)     6,112,982    7,580,101    5,985,563     3,826,805    2,407,898      290,925
    Owner's/shareholders' equity                   6,199,476    5,873,895    3,106,046     2,082,947    2,510,556      303,328
Amounts in Accordance with US GAAP: (b)
    Fixed assets                                  10,203,207   10,336,870   10,407,165    10,995,294   10,170,684    1,228,833
    Owner's /shareholders' equity                  5,358,160    5,086,452    2,924,327     2,240,200    2,609,909      315,332

<FN>
----------
(a)   Translated solely for convenience into US dollars based on the exchange
      rate prevailing on December 31, 2003 as quoted by the People's Bank of
      China of US$1 = RMB 8.2767.
(b)   Amounts for 2000 have been restated.
</FN>
</TABLE>

         DIVIDENDS

The following table sets forth certain information concerning the dividends paid
by us since 1999:

          DIVIDEND PERIOD                   DIVIDEND AMOUNT (PER SHARE)
      JANUARY 1 - DECEMBER 31            RMB                   US$ EQUIVALENT
      -----------------------            ---                   --------------
                1999                     0.01                      0.0012
                2000                 No dividends                No dividends
                2001                 No dividends                No dividends
                2002                 No dividends                No dividends
                2003                 No dividends                No dividends

         EXCHANGE RATES

The PRC government imposes control over its foreign currency reserves in part
through direct regulation of the conversion of Renminbi into foreign exchange
and through restrictions on foreign trade. See ITEM 10. ADDITIONAL INFORMATION.

The noon buying rate in New York City for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of New York on May
28, 2004 was US$1.00 = RMB 8.2769. In addition, the following table sets forth
certain historical information concerning exchange rates between Renminbi and US
dollars for the periods indicated:


                                                        NOON BUYING RATE
                                                   (EXPRESSED IN RMB PER US$)
                  PERIOD                                   AVERAGE(1)
                  ------                                   -------- -
                  1999.........................              8.2783
                  2000.........................              8.2784
                  2001.........................              8.2770
                  2002.........................              8.2770
                  2003.........................              8.2771

                  NOTES: (1)  The average rate means the average of the exchange
                 rates on the last day of each month during that period.

                                                          NOON BUYING RATE
                                                     (EXPRESSED IN RMB PER US$)
                 PERIOD                                HIGH             LOW
                 ------                                ----             ---
                 December, 2003..................    8.2772           8.2765
                 January, 2004...................    8.2772           8.2767
                 February, 2004..................    8.2773           8.2769
                 March, 2004.....................    8.2774           8.2767
                 April, 2004.....................    8.2772           8.2768
                 May, 2004.......................    8.2773           8.2768





                                       6


<PAGE>


CAPITALIZATION AND INDEBTEDNESS

Not Applicable.

REASONS FOR THE OFFER AND USE OF PROCEEDS

Not Applicable.

RISK FACTORS

      THE PRICE OF CRUDE OIL, OUR PRINCIPAL RAW MATERIAL, IS SUBJECT TO THE
CONTROL OF THE PRC GOVERNMENT.

Crude oil is our primary raw material. In the PRC the price of crude oil is
subject to a system of government control adopted in 1998. Under this pricing
scheme, the State Planning Commission (together with its successor, initially,
the State Development and Planning Commission and subsequently, the National
Development and Reform Commission) has established, on a monthly basis, a single
indicative price for each grade of domestic onshore crude oil based on
comparable international market prices inclusive of any duties that would have
been imposed had the oil been imported. To this single state indicative price, a
surcharge within certain government stipulated guidelines is imposed on all
domestically produced onshore crude oil as determined and agreed to by China
National Petrochemical Corporation, or CNPC, and China Petrochemical Group
Corporation, or Sinopec Group, to reflect any transportation and other
miscellaneous costs that would have been incurred in having the oil delivered to
various refineries. Accordingly, since June 1998 we have been purchasing crude
oil at prices that reflect the applicable state indicative price plus the
applicable surcharge. We believe that this oil pricing regime has resulted in
costs of crude oil that more closely reflect trends in international markets;
however, there may be a lag in timing between the changes in international
prices and any changes to the state indicative price, which may expose us to a
potentially higher price than the then current international market price. While
we believe that the current pricing policy will not change in the foreseeable
future, any changes in this pricing scheme could affect the price of our crude
oil and could adversely affect our operating results. As the PRC oil pricing
scheme reflects prices of crude oil in international markets, the cost of our
crude oil is subject to fluctuations in the price of crude oil in international
markets. These fluctuations may materially and adversely affect our operating
results. See ITEM 4. INFORMATION ON THE COMPANY -- RAW MATERIALS AND ENERGY
SUPPLY -- CRUDE OIL.

     WE ARE DEPENDENT ON OUR PARENT FOR SUPPLIES OF OUR PRINCIPAL RAW MATERIALS.

We are required to purchase crude oil and cracking feedstock, the raw materials
for the production of ethylene such as naphtha and light industrial oil, through
our Parent. Therefore neither the availability nor prices of crude oil nor other
cracking feedstock can be predicted by us, and no assurance can be given that
limited availability of crude oil or other cracking feedstock or substantially
higher prices will not have a material adverse effect on our operating results.

Since July 1998, PetroChina has been responsible for allocating all of our crude
oil from domestic sources. Our Parent has confirmed to us its intention to
allocate to us sufficient amounts of crude oil and other cracking feedstock
necessary to meet our needs for 2004.



                                       7



<PAGE>


         OUR OPERATIONS HAVE BEEN AND MAY CONTINUE TO BE ADVERSELY AFFECTED BY
THE CYCLICAL NATURE OF THE PETROLEUM AND PETROCHEMICAL MARKET AND BY THE
VOLATILITY OF PRICES OF PETROLEUM AND PETROCHEMICAL PRODUCTS.

Most of our revenues are attributable to petroleum and petrochemical products
which have historically been cyclical and sensitive to the availability and
price of feedstock's and general economic conditions. Regional and global
markets for many of our products are sensitive to changes in industry capacity
and output levels, cyclical changes in regional and global economic conditions,
the price and availability of substitute products and changes in consumer
demand, which from time to time have had a significant impact on product prices
in the regional and global markets. Historically, the markets for these products
have experienced alternating periods of tight supply, causing prices and margins
to increase, followed by periods of capacity additions, possibly resulting in
oversupply and declining prices and margins. As tariffs and other import
restrictions are reduced and the control of product allocation and pricing
relaxed in China, the domestic markets for many of our products have become
increasingly subject to the cyclical nature of regional and global markets.
Historically, international and domestic prices of petroleum and petrochemical
products have fluctuated widely due to many other factors that are beyond our
control. Although we have implemented various measures to overcome the
unfavorable market conditions, including streamlining internal management and
reducing expenses, our business and results of operations and financial
condition may continue to be adversely affected if the results of those measures
fail to offset the adverse effects of the market conditions.

Pursuant to PRC law, our domestic-listed shares were suspended from trading on
the Shenzhen Stock Exchange on April 30, 2003 as a result of our reporting of
three consecutive years of net losses from January 1, 2000 to December 31, 2002.
Following our report of net profits for the period ended June 30, 2003, our
domestic-listed shares resumed trading on September 25, 2003 on the Shenzhen
Stock Exchange under the "special treatment" category provided under PRC law.
The resumption of trading of our domestic-listed shares was subject to the risk
of delistment if we were unable to generate net profits for the year ended
December 31, 2003. Following the release of our financial results for the year
ended December 31, 2003, which recorded net profits for the year, our
domestic-listed share no longer face the risk of delistment unless we record
another three years of consecutive losses. Our domestic-listed shares continue
to trade under the "special treatment" category due to net asset value lower
than share par value and face increased risk of trading suspension for the
trading day if there is trading price volatility of 5% or more in that trading
day. In general, PRC law provides that companies listed on the Shenzhen Stock
Exchange will face trading suspension if there is trading price volatility of
10% or more in that trading day. Although the suspension of trading of our
domestic-listed shares will not directly affect the listing and trading of our
foreign-invested share listed on the Hong Kong Stock Exchange, or the H Shares,
and our American Depositary Shares listed on the New York Stock Exchange, or the
ADSs, the trading prices for H Shares and ADSs may be directly affected due to
lack of liquidity of our Domestic Shares.

         WE HAVE SIGNIFICANT ACCOUNTS OF FOREIGN CURRENCY DEBTS RELATED TO THE
ETHYLENE PROJECT.

In November 1993, we participated in the construction of a highly integrated
petrochemical complex, consisting of 11 principal facilities and related
ancillary and support facilities centered around an ethylene production facility
with a Rated Capacity of 300,000 tons, which we refer to in this annual report
as the Ethylene Project.


                                       8




<PAGE>


Total investment in the Ethylene Project was approximately RMB 19.88 billion of
which approximately US$889 million in foreign exchange was borrowed by us and
Jilin Group between 1993 and 1997. As a result, both we and Jilin Group have
significant indebtedness denominated in foreign currencies. Further to an
agreement between us and Jilin Group effective September 30, 1998, Jilin Group
assumed the foreign currency loans borrowed by us and agreed to make periodic
loan repayments on our behalf and in turn, we agreed to pay Jilin Group the
Renminbi equivalent of such repayments at an exchange rate determined as at
September 30, 1998. We re-assumed these foreign currency loans effective January
1, 2000. As a result, we will have significant financial risks with respect to
our ability to service and repay the foreign exchange indebtedness, given that
almost all of our revenues at the present time are received in Renminbi.
Fluctuation in the Renminbi exchange rate against the relevant borrowed
currencies may result in significant foreign exchange gains or losses for us.

         WE RELY ON OUR PARENT TO PURCHASE THE PRODUCTS PRODUCED BY THE ORIGINAL
FOUR FACILITIES.

While we own four of the Ethylene Project's 11 facilities, or the Original Four
Facilities, PetroChina and Jilin Group own five and two of the remaining seven
facilities, respectively, or the Additional Seven Facilities. As ethylene and
certain other products of the Original Four Facilities are sold to our Parent as
feedstock for the Additional Seven Facilities, the ability of our Parent to
operate profitably the Additional Seven Facilities will directly affect the
financial performance of the Original Four Facilities and success of the
Ethylene Project as a whole. Because of the impracticability of transporting
ethylene and certain other products to be produced by the Original Four
Facilities, we will not have alternative customers for the majority of these
products in the event that our Parent is unable to purchase them as feedstock
for the Additional Seven Facilities.

         WE ARE BECOMING INCREASINGLY SUBJECT TO FOREIGN COMPETITION.

Historically, the PRC government has provided the PRC chemical industry (except
for chemical fertilizers) with certain protection from foreign competition
through three primary practices: maintaining relatively high import tariffs,
imposing import license requirements and controlling the availability of foreign
exchange required to pay for imported products. These practices affect the
majority of the product types produced by us. These tariffs and import
restrictions are intended, in part, to protect domestic producers of these
products, such as us.

China became a member of the World Trade Organization, or WTO, on December 11,
2001. As part of its WTO accession commitments, the PRC government will
gradually eliminate import quotas and import license systems, reduce tariffs,
and permit foreign invested enterprises to engage in domestic distribution and
retail for all of our major products. China will also eliminate state trading
for our major products exclusive of petroleum products and chemical fertilizer.

Increased competition from imported products resulting from China's accession to
the WTO may have a material adverse effect on our business and operations. We
do, however, believe that our products have been and will continue generally to
be competitive with imported products in the PRC. Tariff reductions, however,
could reduce our profit margins or otherwise negatively impact our revenue from
certain products, including a small number of significant products. The PRC
government may also reduce the tariffs imposed on production equipment that we
may import in the future, as well as the restrictions on availability of
imported raw materials (such as crude oil) currently enforced by the PRC. We are
unable to determine accurately at this time the net effect on our business and
results of operations of China's accession to the WTO.


                                       9



<PAGE>


         THE OUTBREAK OF AN EPIDEMIC MAY AFFECT OUR BUSINESS.

The outbreak of Severe Acute Respiratory Syndrome, or SARS, in the PRC in early
2003 has had a negative impact on the PRC economy. The recent outbreak of avian
influenza in certain east and southeast Asian countries has a tendency to spread
to other countries. If there is an outbreak of SARS or avian influenza or other
widespread health problem, the forecasted economic growth in the PRC may be
negatively affected and our revenues, cost of revenues and results of operations
would be negatively impacted. If the outbreak leads to quarantine of a
significant number of our employees or closure of our facilities and other
properties, our business would be seriously harmed. Although we will take
necessary preventative measures in respect of our facilities and other
properties, the development and spread of an epidemic is usually unpredictable
and we will be unable to quantify the potential impact of any epidemic on our
operations and financial performance. We have implemented preventative measures,
including establishing a personal hygiene policy among our staff and increasing
our premises' disinfecting program, and we will continue to carefully monitor
the situation.

         POLITICAL AND ECONOMIC POLICIES OF THE PRC GOVERNMENT COULD AFFECT OUR
BUSINESS.

The economy of China differs from the economies of most countries belonging to
the Organization for Economic Co-operation and Development in a number of
respects, including:

        o    structure;
        o    level of government;
        o    level of capital reinvestment;
        o    control of foreign exchange; and
        o    allocation of resources.

Before its adoption of reform and open-door policies beginning in 1978, China
was primarily a planned economy. Since that time, the PRC government has been
reforming the PRC economic system, and has also begun reforming the government
structure in recent years. These reforms have resulted in significant economic
growth and social progress. Although the PRC government still owns a significant
portion of the productive assets in China, economic reform policies since the
late 1970s have emphasized autonomous enterprises and the utilization of market
mechanisms. We currently expect that the PRC government will continue these
reforms, further reduce governmental intervention with enterprises and rely more
heavily on market mechanisms to allocate resources. Although we believe these
reforms will have a positive effect on our overall and long-term development, we
cannot predict whether certain changes to China's political, economic and social
conditions, laws, regulations and policies will have any adverse effect on our
current or future business or results of operations.

         CERTAIN CHANGES IN FOREIGN EXCHANGE REGULATIONS MAY ADVERSELY AFFECT
OUR FINANCIAL CONDITION.

We receive almost all of our revenues in Renminbi, which is not freely
convertible into foreign exchange. However, we require foreign currency to fund
a portion of our operations. For example, we require, and expect to require in
the future, US dollars to purchase equipment for expansion projects. We will
also need foreign currency to repay foreign currency loans related to the
Ethylene Project. In addition, profits will need to be converted into United
States dollars, Hong Kong dollars and other currencies in the amounts needed for
us to pay dividends and discharge obligations denominated in foreign currency.



                                       10



<PAGE>

Under the existing foreign exchange regulations in China, domestic enterprises
and institutions are permitted to buy foreign exchange from State-designated
banks at designated times upon presentation of appropriate documentation
establishing the existence of import contracts or payment notes of overseas
financial institutions. Such enterprises and institutions also are permitted to
purchase foreign exchange for the import of certain products subject to quotas,
import permits and registration controls. Domestic enterprises are permitted to
apply to purchase foreign exchange for the payment of dividends that have been
authorized as payable in foreign currency. Conversion and payment must be
effected through certain documentation, including a written resolution on profit
distribution passed by the enterprise's board of directors and evidence that the
enterprise has paid all required PRC taxes. However, uncertainty exists as to
whether the PRC government may restrict access to foreign currency for the above
transactions if foreign currency becomes scarce in the PRC.

Foreign exchange transactions which are included in our capital account,
including principal payments in respect of foreign currency-denominated
obligations, continue to be subject to limitations and require the prior
approval of the State Administration of Foreign Exchange, or SAFE. These
limitations could affect our ability to obtain foreign exchange through debt
financing, or to obtain foreign exchange for capital expenditures.

         FLUCTUATION OF THE RENMINBI COULD MATERIALLY AFFECT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

The value of the Renminbi is subject to changes in the PRC government's policies
and depends to a large extent on China's domestic and international economic and
political developments, as well as supply and demand in the local market. Since
1994, the official exchange rate for the conversion of Renminbi to US dollars
has generally been stable, and the Renminbi has appreciated slightly against the
US dollar. However, we cannot give any assurance that the value of the Renminbi
will continue to remain stable against the US dollar or any other foreign
currency. Any devaluation of the Renminbi may adversely affect the value of, and
dividends payable on, the H Shares in foreign currency terms since we receive
revenues and express our profits in Renminbi.

         THE PRC LEGAL SYSTEM IS NOT FULLY DEVELOPED.

         THERE ARE UNCERTAINTIES REGARDING THE INTERPRETATION AND ENFORCEMENT OF
PRC LAWS AND REGULATIONS

The PRC legal system is based on statutory law. Under this system, prior court
decisions may be cited as persuasive authority but do not have binding
precedential effect. Since 1979, the PRC government has been developing a
comprehensive system of commercial laws and considerable progress has been made
in the promulgation of laws and regulations dealing with economic matters, such
as corporate organization and governance, foreign investment, commerce, taxation
and trade. Because these laws, regulations and legal requirements are relatively
new and because of the limited volume of published case law and judicial
interpretations and the non-binding nature of prior court decisions, the
interpretation and enforcement of these laws, regulations and legal requirements
involve some uncertainty.

         OUR SHAREHOLDERS MAY NOT ENJOY PROTECTIONS THAT THEY MAY BE ENTITLED TO
IN OTHER JURISDICTIONS

As substantially all of our business is conducted in the PRC, our operations are
governed principally by the laws of the PRC. As a PRC company with shares listed
and traded outside the PRC, we are subject to the PRC Special Regulations on the

                                       11


<PAGE>



Overseas Offering and Listing of Shares by Joint Stock Limited Companies issued
by the PRC State Council on August 4, 1994 and amended from time to time, or the
Special Regulations, and to the Mandatory Provisions for Articles of Association
of Companies Listing Overseas issued by the then PRC State Council Securities
Commission and the State Commission for Restructuring the Economic System on
August 27, 1994, or the Mandatory Provisions. The Mandatory Provisions contain
certain provisions that are required to be included in the articles of
association of PRC companies to be listed abroad and are intended to regulate
the internal affairs of those companies. The PRC Company Law promulgated by the
PRC National People's Congress and made effective on July 1, 1994 and the
Special Regulations, in general, and the provisions for the protection of
shareholders' rights and access to information, in particular, are less
developed than those applicable to companies incorporated in Hong Kong, the
United Kingdom, the United States and other developed countries or regions.

The PRC Company Law is different in certain important aspects from company laws
in Hong Kong, the United States and other common law countries or regions,
particularly with regard to investor protection, including in such areas as
derivative actions by minority shareholders and other minority protections,
restrictions on directors, financial disclosure, variations of class rights,
procedures at general meetings and payments of dividends.

The limited nature of investor protection under the PRC Company Law is
compensated for, to a certain extent, by the introduction of the Mandatory
Provisions and certain additional requirements that are imposed by the Listing
Rules of The Stock Exchange of Hong Kong Limited, or the Listing Rules, which
are intended to reduce the scope of differences between Hong Kong company law
and the PRC Company Law. The Mandatory Provisions and those additional
requirements must be included in the articles of association of all PRC
companies applying to be listed in Hong Kong. Our Articles of Association have
incorporated the provisions required by the Mandatory Provisions and the Listing
Rules. Despite the incorporation of those provisions, our shareholders may not
enjoy the full extent of protections that they may be entitled to in other
jurisdictions.

         WE ARE CONTROLLED BY OUR PARENT, WHOSE INTERESTS MAY DIFFER FROM THOSE
OF OUR OTHER SHAREHOLDERS.

As of May 31, 2004, our Parent owned 67.29% of our issued share capital, and is
our controlling shareholder. Our Articles of Association provide certain
protection against the abuse of a controlling shareholder's powers by
stipulating that, in addition to any obligation imposed by law, a controlling
shareholder shall not exercise its voting rights in a manner prejudicial to the
interests of the minority shareholders with respect to certain enumerated
matters of fundamental importance to shareholders. However, we cannot give any
assurance that our Parent, as controlling shareholder, will always vote its
shares in a way that benefits our minority shareholders.

         WE MAY BE ADVERSELY AFFECTED BY ENVIRONMENTAL REGULATIONS.

We are subject to PRC national and local environmental protection regulations
which currently impose fees for the discharge of waste substances, require the
payment of fines for pollution, and provide for the closure by the PRC
government of any facility that fails to comply with orders requiring us to
cease or improve upon certain activities causing environmental damage. Due to
the nature of our business, we produce significant amounts of waste water, gas,
and solid waste materials during the course of our production. We believe our
environmental protection facilities and systems are adequate for us to comply

                                       12



<PAGE>


with the existing national, provincial, and local environmental protection
regulations. However, PRC national, provincial, or local authorities may impose
additional or more stringent regulations which would require additional
expenditure on environmental matters or changes in our processes or systems.

         OUR INSURANCE COVERAGE MAY NOT BE ADEQUATE TO COVER RISKS RELATED TO
OUR PRODUCTION AND OTHER OPERATIONS.

The amount of our insurance coverage for our buildings and equipment is less
than their value, and we have no plans to increase the coverage. The amount of
our insurance coverage for our inventory is also less than its book value, and
we also have no plans to increase this coverage. In accordance with what we
believe is customary practice among chemical producers in the PRC, we insure
only high risk assets, such as production property and equipment, inventory and
explosive or otherwise hazardous facilities. However, our underinsurance of
properties, facilities and inventory in accordance with this PRC practice
exposes us to substantial risks so that in the event of a major accident, our
insurance recovery may be inadequate.

We do not currently carry third party liability insurance to cover claims in
respect of bodily injury, property or environmental damage arising from
accidents on our property or relating to our operations. We also do not carry
business interruption insurance as such coverage is not customary in the PRC.

Losses incurred or payments required to be made by us which are not fully
insured could have a material adverse effect on our financial condition. See
ITEM 4. INFORMATION ON THE COMPANY -- INSURANCE.

ITEM 4. INFORMATION ON THE COMPANY
----------------------------------

HISTORY AND DEVELOPMENT

Our legal name is Jilin Chemical Industrial Company Limited. We were established
on December 13, 1994 as a joint stock limited company in the PRC pursuant to the
PRC Company Law. Our executive offices are located at No. 9 Longtan Road,
Longtan District, Jilin City, Jilin Province, People's Republic of China. Our
telephone number is (86 432) 390-3912.

We and Jilin Group were established from the Predecessor. We were established as
a joint stock limited company in the PRC as a result of the Restructuring. The
Restructuring was carried out in preparation for the Combined Offering and in
order for us to conduct a focused line of business as a large-scale diversified
chemical enterprise. As a result of the Restructuring, we became a wholly-owned
subsidiary of Jilin Group and the Predecessor transferred to us its principal
chemical businesses and certain assets and liabilities together with certain
ancillary and business support functions. Until July 1998, Jilin Group was a
State-owned enterprise under the administrative control of the Jilin Provincial
Government. In July 1998, as a result of the restructuring of the PRC
petrochemical and chemical industries approved by the PRC State Council, or the
Industry Restructuring, Jilin Group became a wholly-owned subsidiary of CNPC.
Effective November 5, 1999, as part of a reorganization of CNPC, or the CNPC
Reorganization, Jilin Group transferred to PetroChina all of its ownership
interest in us, represented by Domestic Shares constituting 70.25% of our entire
capital stock, causing PetroChina to become our Parent. Following the issuance
of 150,000,000 additional Domestic Shares on January 27, 2000, PetroChina
remains our controlling shareholder holding approximately 67.29% of our issued
share capital. See "Business Overview -- The PRC Chemical Industry and Relevant
Markets".



                                       13



<PAGE>

The Predecessor was a large-scale chemical industrial enterprise, with a special
emphasis on the production of coal chemical and salt chemical products, which
also operated an oil refining facility and an ethylene facility. The Predecessor
also constructed 30 major chemical industrial production facilities and, in
November 1993, began construction of the Ethylene Project. During our
development, we have replaced and modified our production facilities from time
to time in order to maintain the facilities in as advanced and efficient a state
as possible, given the limitations on the availability of resources in the PRC.
None of our current principal production facilities were operational prior to
1972.

Our most significant development project has been our participation in the
Ethylene Project. The Ethylene Project is designed as a vertically integrated
complex and is comprised of 11 production facilities and certain ancillary and
support facilities. All facilities comprising the Ethylene Project have been
engaged in commercial production since October 1998. While we own four of the
Ethylene Project's 11 facilities, or the Original Four Facilities, PetroChina
and Jilin Group own five and two of the remaining seven facilities,
respectively, or the Additional Seven Facilities. We were granted an option by
our Parent to acquire all or part of the Additional Seven Facilities, which
expired on December 31, 2002 unexercised by us. Therefore, we no longer have the
option to acquire the Additional Seven Facilities. In 2001, we expanded the
Rated Capacity of our principal ethylene production facilities from 300,000 t/a
to 380,000 t/a, which increased the aggregate Rated Capacity of our ethylene
production facilities to 530,000 t/a and significantly increased our capability
to produce downstream, higher-margin ethylene-based chemical products. We have
become one of the largest ethylene manufacturers in the PRC.

BUSINESS OVERVIEW

         THE COMPANY

We are located in Jilin Province in north-eastern China. North-eastern China
contains a substantial concentration of the PRC's largest industrial complexes,
several of the PRC's most significant oilfields (including our two sources of
crude oil, Daqing oilfield, which is the PRC's largest producer of crude oil, in
Heilongjiang Province, and Fuyu (Jilin) oilfield in Jilin Province) and a
relatively well developed rail system. Growth and development of the industrial
base in north-eastern China has had and is expected to continue to have a
significant impact on the demand for our products. We believe that our location
in north-eastern China provides us with the strategic advantages of proximity to
a substantial customer base, ready access to sources of crude oil, our principal
raw material, and ready access to transportation needed for the transport of
both raw materials and products.

We are one of the largest producers of basic chemicals and chemical raw
materials, and one of the largest diversified chemical enterprises in the PRC.
We are also one of the largest producers of ethylene in the PRC, accounting for
approximately 11.18% of China's ethylene production in 2003. Our principal
businesses consist of the production of petroleum products, petrochemical and
organic chemical products, synthetic rubber, chemical fertilizers and inorganic
chemical products, and other chemical products. We are the PRC's leading
producer of certain synthetic rubber products and certain petrochemical and
organic chemical products, and we believe we have a strong market position with
respect to most of our principal products. As a result of our efforts to phase
out technologically obsolete production facilities, we ceased production of
dyestuff, certain dye intermediate products and some chemical fertilizer
products in 2000.



                                       14



<PAGE>


In 2003, we had net sales of approximately RMB20,652.8 million (US$2,495.3
million) and a profit before taxation of approximately RMB 426.1 million
(US$51.5 million). Of our 2003 net sales revenue, 45.13% consisted of sales of
petroleum products, 37.69% of sales of petrochemical and organic chemical
products, 5.49% of sales of synthetic rubber products, 0.79% of sales of
chemical fertilizers and inorganic chemical products, and the remaining 10.90%
consisted of sales of other chemical products and other goods and services.

We currently comprise 11 operating units, of which six are major production
units and the remaining five units perform ancillary functions. The six major
production units are:

         --  a petroleum refinery with facilities to produce petroleum products;
         --  an organic synthesis plant with facilities to produce petrochemical
             and organic chemical products and synthetic rubber;
         --  a calcium carbide plant with facilities to produce petrochemical
             and organic chemical products; -- a dyestuff plant with facilities
             to produce aniline, a benzene derivative used in the manufacture
             of dyes;
         --  a chemical fertilizer plant with facilities to produce chemical
             fertilizers and other chemical products; and -- an ethylene plant
             to produce ethylene.

The five units performing ancillary functions are:

         --  a power plant to supply a portion of our electricity and
             steam needs;
         --  a waste water treatment plant;
         --  a railway transportation branch;
         --  a sales and marketing branch; and
         --  a procurement branch.

Our H Shares, par value RMB 1.00 per share, are listed and trade on the Hong
Kong Stock Exchange. Our ADSs, each representing 100 H Shares, which are held by
The Bank of New York as depositary, are listed and trade on the New York Stock
Exchange under the symbol "JCC." Certain of our Domestic Shares, par value RMB
1.00 per share, are listed on the Shenzhen Stock Exchange which were suspended
from trading on April 30, 2003, but resumed trading on September 25, 2003 on the
Shenzhen Stock Exchange under the "special treatment" category provided under
PRC law. As of May 31, 2004, PetroChina was our controlling shareholder holding
approximately 67.29% of our issued share capital.

         THE PRC CHEMICAL INDUSTRY AND RELEVANT MARKETS

The chemical industry in the PRC constitutes a basic industrial sector which has
been a major focus for development by the PRC government. In the four segments
of the chemical industry in which the vast majority of our products fall
(petroleum products, petrochemical and organic chemical products, synthetic
rubber products, and chemical fertilizers and inorganic chemical products), per
capita consumption in the PRC remains significantly lower than that in major
OECD countries. We believe that, as the PRC economy undergoes further
industrialization and development of consumer markets, demand for chemical
products will increase and decrease as general economic activities in the PRC
change but on average continue to grow at rates that are high relative to more
industrialized countries.




                                       15




<PAGE>

Although historically the PRC government has asserted substantial control over
all aspects of the chemical industry, during the past decade, the PRC government
has implemented various economic liberalization measures which have materially
affected the PRC chemical industry in areas such as cost and allocation of raw
materials, product pricing and marketing and distribution of products. China's
accession into WTO is expected to continue this trend, particularly in areas of
import and distribution of raw materials. A portion of the PRC chemical industry
and certain of our product markets, including petroleum products and chemical
fertilizers, remain under various degrees of control by the PRC government. We
expect, and are preparing for, liberalization measures to continue and a more
competitive environment to develop. See "Business Overview -- Competition."

In the first half of 1998, the PRC government carried out the Industry
Restructuring to restructure and consolidate many of the then existing
governmental agencies in the chemical and petrochemical industries. Prior to the
Industry Restructuring, various governmental agencies had responsibilities for
administrative oversight of the chemical and petrochemical industries including
the Ministry of Chemical Industries, China National Petrochemical Corporation
and China National Oil and Gas Corporation. Pursuant to the Industry
Restructuring, the PRC government created the State Oil and Chemical Industries
Bureau, or the SOCIB, and transferred to SOCIB most of the responsibilities for
the national-level oversight then held by Ministry of Chemical Industries, China
National Petrochemical Corporation and China National Oil and Gas Corporation.
In July 1998, the PRC government created CNPC from China National Oil and Gas
Corporation and Sinopec Group from China National Petrochemical Corporation.
CNPC and Sinopec are currently the two corporate entities which operate a
majority of the entire petrochemical and chemical business in the PRC. Jilin
Group then became a subsidiary of CNPC, a State-owned enterprise currently
authorized to conduct business in the petrochemical industry in the northern and
western regions of China and also to oversee the exploration of oil and natural
gas resources. As a result of the Industry Restructuring, we are one of the
group companies that are owned or otherwise affiliated with CNPC. Effective
November 5, 1999, as a result of the CNPC Reorganization, PetroChina became our
new Parent Company.

In February 2001, SOCIB was dissolved by the PRC government and its functions
were assumed by the State Economic and Trade Commission. In March 2003, the
State Economic and Trade Commission was dissolved by the PRC government, and its
functions in directing the reform and management of State-owned enterprises were
assumed by the State Assets Regulatory and Management Commission, its functions
in industry planning and policy making were assumed by the National Development
and Reform Commission, and its functions in administering domestic trade,
coordinating and implementing import and export plans of critical industrial
products and raw materials were assumed by the Ministry of Commerce. We are
currently subject to the industrial oversight of these three new government
agencies at the national level.

                  CRUDE OIL AND PETROLEUM PRODUCTS

Crude oil and petroleum products are regarded as key commodities of strategic
significance to the PRC economy by the PRC government, which has traditionally
exercised a high degree of control over their production, distribution, pricing
and import and export. The PRC government maintains state plans consisting of
minimum production targets for certain domestic products. Pursuant to the state
plans with respect to the production and distribution of domestic crude oil and
most petroleum products, the PRC government sets production levels for domestic
oilfields, establishes import quotas and allocates crude oil to refineries and
other crude oil users. As part of its WTO accession commitments, the PRC
government will gradually eliminate import quotas and restrictions on domestic
distribution for crude oil and petroleum products. Nevertheless, crude oil and
petroleum products are still subject to state trading and petroleum products are
still subject to government guidance pricing. See "Business Overview -- Product
Pricing", "Business Overview -- Raw Materials and Energy Supply -- Crude Oil."
and "Business Overview -- Competition".




                                       16



<PAGE>

                  CHEMICAL FERTILIZERS

Due to the importance of agriculture to the PRC's economy, the production,
allocation, pricing and import and export of chemical fertilizers in the PRC
have always been subject to the PRC government control. Prior to March 1998, the
National Development and Reform Commission, based on suggestions from the
Ministry of Chemical Industries, set annual production and allocation plans for
chemical fertilizers. Thereafter, the SOCIB was established and assumed such
advisory role of the Ministry of Chemical Industries. In February 2001, the
SOCIB's responsibilities have been assumed by the State Economic and Trade
Commission. In March 2003, the State Economic and Trade Commission's
responsibilities have been assumed by the State Assets Regulatory and Management
Commission, the National Development and Reform Commission and the Ministry of
Commerce. Although some chemical fertilizers are subject to government guidance
pricing, the prices of the chemical fertilizers produced by us are not subject
to such controls. See "Business Overview -- Product Pricing."

         BUSINESS STRATEGY

Our strategy is focused on meeting the significant challenges and taking
advantage of the significant opportunities that we expect to encounter as the
PRC chemical industry changes and develops in the coming years. Generally, we
expect that the PRC economy will for the foreseeable future sustain growth
comparable to what has been recorded in recent years. As this economic growth
continues, we expect that both industrial and consumer-based demand for
chemicals and chemical-based products will grow. We also expect that, generally,
the economic liberalization which has been undertaken by the PRC government will
continue and is accelerating as a result of China's accession to the WTO. On
this basis, the PRC chemical industry is expected to become increasingly
deregulated, thereby providing for market forces and competition to become
increasingly important factors in determining our financial performance and
growth prospects.

In order to capitalize on these opportunities, we focus on three primary
strategic objectives. First, increasing the production capacity of certain
products by acquiring additional capacity and improving the production
efficiency of existing facilities through the use of new technologies. Capacity
expansion should enable us to build a stronger competitive position in those
products through greater economies of scale and market share gains. Second,
increasing profitability by adjusting product mix and introducing new
higher-margin products. Adjusting product mix should give us flexibility needed
to take advantage of greater cost efficiencies through vertical integration and
to increase sales of higher-margin products. Third, becoming more market- and
customer-oriented through delivery of superior service. We intend to strengthen
the incentive and management of the our sales staff and continue to improve the
quality of service through the entire sales process, from marketing to
after-sales support. We believe that by pursuing and fulfilling these strategic
objectives we will achieve significant competitive advantages and strengthen our
market position in the PRC chemical industry.

In terms of production capacity expansion, we have completed our most
significant expansion initiative, the construction of the Original Four


                                       17



<PAGE>

Facilities of the Ethylene Project in 1997. These four facilities substantially
increased our production capabilities for a number of the important chemical raw
materials, including ethylene and propylene, and for synthetic rubber products.

In addition, we increased the Rated Capacity of our butanol and 2-ethylhexanol
facility from 70,000 t/a to 130,000 t/a in 1999 and 2000. We expanded and
renovated our catalytic cracking facility during the period from 2000 to 2002,
our principal ethylene facility and aromatic abstraction facilities in 2001 and
our styrene facility from 2001 to 2002. We acquired the remaining 35.0% equity
interest in Jilian, our jointly-controlled entity, in December 2002 and
integrated its business of manufacturing petrochemical products into our
business. Jilian was subsequently dissolved in the same month. In 2003, our
300,000 t/a synthetic ammonia facility commenced operation upon completion of
technical upgrade. We also acquired certain assets from Jilin Group. Other than
the aforementioned project, we did not make any other material capital
expenditures and divestitures between January 1, 2000 and December 31, 2003.

Our capital expansion projects were and are expected to be financed with
operational income and commercial loans. We do not plan to make any material
investment in 2004.

Our domestic sales network is served by two regional sales centers in Guangzhou
and Shanghai, which are responsible for establishing and overseeing sub-regional
sales offices in the region. Through this network, we are able to improve our
services to and communications with existing customers, and develop new
customers and promote new products.

         PRINCIPAL PRODUCTS

Our principal products consist of four categories, petroleum products,
petrochemical and organic chemical products, synthetic rubber, chemical
fertilizers and inorganic chemical products. Beginning the second half of 2000,
we ceased production of dyestuff and certain dye intermediate products as a
result of our phasing out technologically obsolete production facilities.

Our production processes are highly integrated, and many of our petroleum
products and petrochemical and organic products are consumed internally as
feedstock for the production of our downstream products. The table below sets
forth our principal products, on the basis of 2003 sales volume and net sales
revenue (for third party usage only). For the purpose of this table, with
respect to "other" products in each main category of our products, no single
product constitute more than 1.0% of net sales in 2003. "Other products" do not
include those products under the category of "other" for each main category of
our products. "N/A" represents sales volume for certain products, the
measurement of which in tons does not provide a meaningful comparison vis-a-vis
products in other product categories. Sales volume under the category of "total"
does not include sales volume under the category of "other products".



                                       18


<PAGE>

<TABLE>
<CAPTION>



                                                                                   2003
                                                              -------------------------------------------
                                                                                 NET SALES        % OF NET
                                                              SALES VOLUME        REVENUE           SALES
                                                              ------------        -------           -----
PRINCIPAL PRODUCTS                                             (`000 TONS)          (RMB
                                                                                  MILLION)

PETROCHEMICAL AND ORGANIC CHEMICAL PRODUCTS
<S>                                                            <C>            <C>                 <C>
     Ethylene........................................             331.94         1,513.20            7.33
     Propylene.......................................             207.72           880.51            4.26
     Ethanol.........................................              24.47            59.73            0.29
     O-xylene........................................             127.93           565.81            2.74
     Acetic anhydride................................              52.68           258.78            1.25
     2 ethylhexanol..................................              49.71           261.43            1.27
     Acetic acid.....................................             114.92           378.74            1.83
     Xylene..........................................              17.66            62.89            0.30
     Styrene.........................................             136.62           779.96            3.78
     Aniline.........................................              68.18           347.55            1.68
     Other ..........................................             705.29         2,674.51           12.96


PETROLEUM PRODUCTS
     Gasoline........................................           1,051.27         2,335.52           11.31
     Diesel oil......................................           2,107.76         4,852.82           23.50
     Solvent oil.....................................              11.52            28.26            0.14
     Other...........................................           1,211.75         2,103.46           10.18

SYNTHETIC RUBBER
     Styrene - butadiene rubber......................             103.68           882.14            4.27
     Other...........................................              25.17           250.89            1.22

CHEMICAL FERTILIZERS AND INORGANIC CHEMICAL PRODUCTS
     Inorganic chemical products and other...........             240.97           164.86            0.79

OTHER  PRODUCTS......................................                N/A         2,251.76           10.90

Total................................................           6,589.24        20,652.81             100


</TABLE>


We introduced no new products in 2001, 2002 and 2003.

         PRODUCT PRICING

The majority of our products are priced according to market demand. The prices
of certain products, however, remain subject to the PRC government control. In
particular, certain petroleum products are subject to sale at prices determined
by the PRC government. In 2001, 2002 and 2003, 84.3%,75.0% and 58.9%,
respectively, of all petroleum products sold by us were subject to the PRC
government pricing control. In 2001, 2002 and 2003, the percentage of our total
sales revenue attributable to sales of products subject to price controls was
38.0%, 38.9%, and 51.4% respectively.

Our petroleum products are subject to guidance prices established by the
National Development and Reform Commission, which are adjusted from time to time
and permit price variations within a narrow band of the guidance price. In
addition, with respect to gasoline and diesel oil following the Industry
Restructuring, the refining and sales division of PetroChina (Northeast) Company
Jilin division (CPSC), became the only entity authorized to purchase and
distribute these products in north-eastern China. As a result, currently we are
permitted to sell our gasoline and diesel oil only to CPSC. The terms of the
sale of gasoline and diesel oil to CPSC are based on the prices set by
PetroChina on behalf of the PRC government. Accordingly, our principal petroleum
products continue to be subject to governmental controls.



                                       19


<PAGE>

With respect to our products which are not subject to price control, our product
pricing decisions are currently made at each operating unit, with reference to
prices in the major PRC chemical commodities markets in Jilin Province and other
parts of the PRC. We believe that, for the principal products with respect to
which we have pricing discretion, our production facilities have relative
economies of scale which may not be present in the operation of many of our
competitors and that, therefore, when we sell our products at similar price
levels to such competitors, our profitability is generally equal to, or better
than, the profitability of such competitors in the domestic market.

         PRODUCTION PROCESS

Our production processes are primarily based on the processing of petroleum.

                  PETROLEUM PRODUCTS

Our petroleum products are produced from crude oil, which is processed by
atmospheric and vacuum distillation, catalytic cracking, deasphalting with
solvent, liquefied petroleum gas separating and reforming and hydrogenating into
gasoline, solvent oil, diesel oil, chemical light oil and residual oil.

                  PETROCHEMICAL AND ORGANIC CHEMICAL PRODUCTS

Our petrochemical products are produced from chemical light oil, which is
separated by a cracking process into ethylene, propylene, hydrogenated gasoline
and C4 fraction. A portion of the ethylene is processed to produce ethanol,
ethylene oxide and acetaldehyde, which are then further processed to produce
acetic acid, acetic anhydride and alcohol polyoxy ethylene ether. The rest of
our ethylene is used to produce styrene. A portion of our propylene is processed
to produce butanol and 2-ethylhexanol. The rest of the propylene is used to
produce acrylic acid and its esters. Benzene, toluene and xylene are extracted
from hydrogenated gasoline through the aromatics unit. Butadiene is extracted
from C4 fraction through the extraction facility. Butadiene is further processed
to produce butene-1 and MTBE .

In our coal chemical production processes, coal is first converted into coke and
coke is then converted into synthesis gas, which is used to produce butanol and
2-ethylhexanol.

In our salt chemical production process, salt is first converted into chlorine
and hydrogen through an electrolysis process, with the chlorine then being
liquefied into liquid chlorine to be used by our organic silicon facility. The
electrolytic fluid is then used to produce caustic soda after a further
evaporation process.

                  SYNTHETIC RUBBER

The butadiene, styrene, acrylonitrile and organic silicon monomers produced by
our petrochemical products facilities are processed through a polymerization
process into styrene-butadiene rubber, acrylonitrile-butadiene rubber,
ethylene-propylene rubber, organic silicon rubber and other types of synthetic
rubber.



                                       20


<PAGE>

             CHEMICAL FERTILIZERS

Our chemical fertilizers use coke and residual oil as raw material by using the
hydrogen separated from synthesis gas and nitrogen separated from air through an
air separation unit to produce ammonia.

         THE ETHYLENE PROJECT

Our most significant development project has been our participation in the
Ethylene Project. The Ethylene Project was initially conceived to address
existing shortfalls in production and expected increases in domestic demand for
ethylene. The Original Four Facilities of the Ethylene Project and their
technological upgrades have increased our annual Rated Capacity by 380,000 tons
to 530,000 tons, making us one of the largest ethylene producers in the PRC.

The Ethylene Project as a whole produces, in addition to ethylene, substantial
quantities of relatively high value-added downstream products such as acetone,
phthalic anhydride, a-advanced alcohol, toluene, xylene, ethylene-propylene
rubber, ABS, polyethylene, phenol, acetone, phthalic anhydride and ethylene
glycol.

The Ethylene Project is designed as a vertically integrated complex and is
comprised of 11 production facilities and certain ancillary and support
facilities. The core of the Ethylene Project is a 300,000 ton Rated Capacity
ethylene production facility. Of the Original Four Facilities owned and operated
by us, the ethylene facility and the hydrocracking facility mainly produce raw
materials. The integrated aromatics facility and the ethylene-propylene rubber
facility, and the Additional Seven Facilities, mainly produce downstream
petrochemical products. Each of the Original Four Facilities began commercial
production in 1997. Four of the Additional Seven Facilities, including the
polyethylene facility, the ethylene glycol facility, the phenol acetone facility
and the phthalic anhydride, began commercial production in 1997. The remaining
three of the Additional Seven Facilities began commercial production in 1998.
Since its completion and commissioning to service, the Ethylene Project has
substantially increased our production capacity and the production capacity of
Jilin Group and PetroChina.

As part of the CNPC Reorganization, five of the Additional Seven Facilities,
namely the phthalic anhydride facility, the phenol acetone facility, the
ethylene glycol facility, the polyethylene facility and the ABS facility, were
transferred to PetroChina. The (alpha)-advanced alcohol facility and the
acrylonitrile facility remain with the Jilin Group. In connection with the CNPC
Reorganization, PetroChina and the Jilin Group have each confirmed that each
will have sole responsibility for the operation of the Additional Seven
Facilities that it respectively owns.

The total investment required for the Ethylene Project, including capitalized
interest, was approximately RMB 19.88 billion, including approximately US$889
million in foreign exchange loans. All facilities under the Ethylene Project
have been constructed on the premises of our six production units, except for
the ABS facility, which was constructed on a separate site due to space
availability and engineering restrictions. The Original Four Facilities consist
of the ethylene, hydrocracking and integrated aromatics facilities and an
ethylene-propylene rubber facility.

We had agreed with our Parent to apportion the 11 Ethylene Project facilities
among ourselves primarily because the aggregate capital expenditures which were
required to construct all 11 Ethylene Project facilities, if paid entirely by
one company, would likely have required that company to incur very substantial
indebtedness and foreign exchange exposure over a two to three year period. The
Original Four Facilities were assumed by us because three of the facilities,


                                       21



<PAGE>


namely the ethylene, hydrocracking and integrated aromatics facilities, form the
core of the entire Ethylene Project and produce products which will be used as
feedstock by the remaining facilities; furthermore, the ethylene-propylene
rubber facility will add to the variety and production volume of synthetic
rubber, a category of products already being produced by us.

The Original Four Facilities are operated at full capacity only to the extent
that the Additional Seven Facilities are commercially operating because the
majority of the products of the Original Four Facilities will be used as
feedstock for the Additional Seven Facilities; in addition, it is impractical to
transport ethylene and certain other products produced by the Original Four
Facilities to customers other than Additional Seven Facilities, all of which are
located next to the Original Four Facilities. We will not have alternative
customers for the majority of these products in the event Jilin Group and
PetroChina are unable to purchase them as feedstock for the Additional Seven
Facilities. The ability of Jilin Group and PetroChina to operate profitably the
Additional Seven Facilities will directly affect the financial performance of
the Original Four Facilities and the Ethylene Project as a whole.

                  ORIGINAL FOUR FACILITIES

All of the Original Four Facilities utilize imported technology except the
hydrocracking facility, which utilizes advanced PRC technology. The
ethylene-propylene rubber facility is among the largest of its kind in the PRC.
The total investment expended to construct the Original Four Facilities, all of
which was borne by us, was approximately RMB 7.30 billion, including
approximately US$408 million in foreign exchange.

                  ETHYLENE FACILITY
                  -----------------

The expanded 380,000 ton Rated Capacity ethylene facility utilizes proprietary
technology imported from Linde AG of Germany and sources raw materials from our
hydrocracking, atmospheric and vacuum distillation, integrated aromatics and
catalytic cracking facilities to produce:

         --     ethylene, which is used as feedstock for production of
                a-advanced alcohol, polyethylene, ethylene glycol and
                ethylene-propylene rubber, and

         --     propylene, which is used as feedstock for production of phenol,
                acetone, acrylonitrile and ethylene-propylene rubber.

                  HYDROCRACKING FACILITY
                  ----------------------

Our 600,000 ton Rated Capacity hydrocracking facility utilizes technology
obtained from the Luoyang Petrochemical Engineering Company (an affiliate of
Sinopec Group) and raw materials provided by our atmospheric and vacuum
distillation and catalytic cracking facilities to produce feedstock for the
ethylene and integrated aromatics facilities. The light diesel oil produced by
the facility can also be used to produce low freezing point, high-grade diesel
oil.

                  INTEGRATED AROMATICS FACILITY
                  -----------------------------

The 400,000 ton Rated Capacity integrated aromatics facility utilizes
proprietary technology imported from UOP Corporation of the United States and
feedstock from our ethylene, hydrocracking, atmospheric and vacuum distillation
and reformation facilities for production of benzene, toluene, o-xylene, xylene,
heavy aromatics and aromatics extraction. Benzene and o-xylene are used as raw
materials for the Ethylene Project's phenol-acetone facility and phthalic
anhydride facility. Aromatics extraction and heavy aromatics are used as
cracking materials for our ethylene facility. Toluene and xylene are sold by us
to unrelated parties.

                                       22



<PAGE>


                  ETHYLENE-PROPYLENE RUBBER FACILITY
                  ----------------------------------

The ethylene-propylene rubber facility utilizes proprietary technology imported
from Mitsui Petrochemical Co. of Japan. This facility uses ethylene and
propylene produced by our ethylene facility to produce 20,000 tons of
ethylene-propylene rubber per year.

                  THE ETHYLENE PROJECT OPTION

We were granted an option from PetroChina and Jilin Group to purchase any one or
more of the Additional Seven Facilities for a price based on the net asset value
of the relevant facility or facilities. We did not exercise this option, and it
expired on December 31, 2002.

We continue to supply substantial amounts of ethylene and other products of the
Original Four Facilities as feedstock to some or all of the Additional Seven
Facilities at market prices. Additionally, the Original Four Facilities share
certain infrastructure, research and other support facilities with the
Additional Seven Facilities. We pay a proportional amount of the costs for such
support facilities utilized in connection with the Original Four Facilities.
Similarly, to the extent that the Additional Seven Facilities share certain of
our existing infrastructure or support facilities, each of PetroChina and the
Jilin Group reimburses us for the relevant proportion of its corresponding
costs. We believe that the Additional Seven Facilities are not competitive with
our business.

                  FINANCING FOR THE ETHYLENE PROJECT

Total investment for the Ethylene Project was approximately RMB 19.9 billion
(including approximately US$889.0 million in foreign exchange), of which
approximately RMB 7.3 billion (including approximately US$408.0 million in
foreign exchange) was required for the Original Four Facilities, and
approximately RMB 12.6 billion (including approximately US$481.0 million in
foreign exchange) was required for the Additional Seven Facilities, of which
approximately RMB 2.8 billion was needed for ancillary and support facilities.
The total investment was calculated to include interest capitalized during the
construction period.

The Ethylene Project was approved by the National Development and Reform
Commission. The bulk of the foreign exchange portion of the funding for the
entire Ethylene Project was in the form of export credit in connection with the
import or licensing of foreign technology and equipment, with the balance
provided by the Bank of China primarily to fund interest payments and for
working capital during construction. At the time, Renminbi loan funding for this
purpose was provided by PRC state banks and provincial financial institutions at
the direction of the National Development and Reform Commission in coordination
with the then Ministry of Chemical Industries and the Jilin Provincial
Government. As for the balance of the Renminbi funding for the entire Ethylene
Project, we have relied primarily on cash generated through operations and
proceeds from our Combined Offering and Jilin Group has relied primarily on the
sale of corporate bonds.

The foreign exchange requirement for the entire Ethylene Project was
approximately US$889 million, all of which was borrowed by us and Jilin Group
between 1993 and 1997. As a result, we both have significant indebtedness
denominated in foreign currency. Further to an agreement between us and Jilin
Group effective September 30, 1998, Jilin Group assumed the foreign currency
loans borrowed by us and agreed to make periodic loan repayments on our behalf
and in turn, we agreed to pay Jilin Group the Renminbi equivalent of such




                                       23
<PAGE>


repayments at an exchange rate determined as at September 30, 1998. We
re-assumed some of these foreign currency loans effective January 1, 2000. These
loans were denominated in Renminbi in our financial statements until January 1,
2000. As a result, we have significant financial risks with respect to our
ability to service and repay the foreign exchange indebtedness, given that
almost all of our revenues at the present time are received in Renminbi.
Fluctuation in the Renminbi exchange rate against the relevant borrowed
currencies may result in significant foreign exchange gains or losses.

Prior to the Restructuring, all of the loan funding commitments for the Ethylene
Project were arranged by the Predecessor. After the Restructuring, all of the
funding commitments for the Ethylene Project were for the account of our Parent.
In respect of the Original Four Facilities and to the extent that funds were not
borrowed by us, funds were first made available to our Parent, and equal amounts
were then lent by our Parent to us on the same terms as to principal and
interest payments as the original funds advanced to our Parent. The Parent
obtained all necessary consents from lenders and the relevant regulatory
authorities for such lending.

         RAW MATERIALS AND ENERGY SUPPLY

Our Parent is our largest supplier for raw materials and energy. In 2003, the
costs of raw materials purchased from our Parent accounted for 72.7% of our
total raw material costs and 69.0% of our total raw material and energy costs.
In 2003, total costs of raw materials and energy accounted for approximately
65.7% of our total cost of sales. In 2003, the costs of raw materials purchased
from our five largest suppliers, including our Parent, accounted for 89.5% of
our total raw material costs and 85.0% of our total raw material and energy
costs.

                  CRUDE OIL

                  CRUDE OIL SUPPLY AND PRICING
                  ----------------------------

Crude oil is our primary raw material. Prior to February 2001, SOCIB was
responsible for industry and market oversight of China's petrochemical industry.
In February 2001 SOCIB was dissolved and its responsibilities were transferred
to State Economic and Trade Commission. Currently, Sinopec Group and CNPC
determine the allocations of crude oil among the enterprises under their
respective ownership and control.

The pricing for domestic onshore crude oil is determined with the participation
of the PRC government. Under the current pricing scheme, the National
Development and Reform Commission on a monthly basis establishes a single
indicative price for each grade of domestic onshore crude oil based on
comparable international market prices inclusive of any duties that would have
been imposed had the oil been imported. To this single state indicative price, a
surcharge within certain government stipulated guidelines is imposed on all
domestically produced onshore crude oil as determined and agreed to by CNPC and
Sinopec Group to reflect any transportation and other miscellaneous costs that
would have been incurred in having the oil delivered to various refineries.
Accordingly, we purchase domestic onshore crude oil at prices that reflect the
applicable state indicative price plus the applicable surcharge. We believe that
the pricing regime for domestic onshore crude oil has resulted in costs of
domestic onshore crude oil that reflect trends in international markets,
however, the timing of the adjustments to the indicative price may result in
prices that differ significantly from the then current international market
prices. While we believe that the current pricing policy will not change in the
foreseeable future, there can be no assurance that the PRC government will not
make significant changes in the future to the current crude oil pricing
policies. We began to purchase and use imported oil in 2000. The price of
imported oil is determined by PetroChina based on the then existing
international market price.



                                       24



<PAGE>

The following table shows the volume and purchase prices for the crude oil
purchased by us during the years ended December 31, 2001, 2002 and 2003. For
purposes of this table, price refers to a weighted average ex-works price and
includes value added tax of 17%:

                                       2001              2002            2003
                                       ----              ----            ----
VOLUME (TONS)                   4,358,940.0       4,508,600.0       5,547,700
PRICE (RMB PER TON)                 1,810.0           1,740.0           1,768


                  CRUDE OIL ALLOCATION
                  --------------------

Under PRC crude oil pricing and allocation policies, PetroChina is responsible
for allocating all of our crude oil from all sources.

In 2003, we processed 5.66 million tons of crude oil and expect to process
approximately 5.80 million tons of crude oil in 2004. Subsequent to the Industry
Restructuring, our Parent develops an annual plan for the allocation and
distribution of crude oil and cracking feedstock among its various subsidiaries,
including us. Our Parent has confirmed to us its intention to allocate to us
sufficient amounts of crude oil and other cracking feedstock necessary to meet
our needs for 2003, including for the full operation of the Ethylene Project in
2004.

As we are required to purchase crude oil and cracking feedstock through our
Parent, we are able to predict the availability or prices of crude oil or other
cracking feedstock. Limited availability of crude oil or other cracking
feedstock or any substantially higher prices could have a material adverse
effect on our operating results.

                  SOURCES OF CRUDE OIL
                  --------------------

Our principal sources of crude oil supplies are Daqing oilfield, the largest
source of crude oil in China, in Heilongjiang Province and Fuyu (Jilin) oilfield
in Jilin Province. These two oilfields are controlled by our Parent and each
supplied 33% and 47% of our crude oil consumption in 2003 while imported crude
oil accounted for the remaining 20%. We anticipate that the Daqing and Fuyu
(Jilin) oilfields will continue to be the principal sources of our crude oil and
that imported crude oil will not become a major source although we expect to
increase our usage of imported crude oil in 2004.

Due to the current PRC government policy relating to imports of crude oil, we
currently are not permitted to directly import crude oil, and the imported crude
oil purchased by us in 2003 was allocated and purchased from our Parent. As the
supply of domestic onshore crude oil is lagging behind the demand created by the
rapid economic growth in China, we believe that by increasing our use of crude
oil from alternative sources, we will gradually reduce our dependence on
domestic onshore crude oil and diversify our risk of not being able to acquire
sufficient crude oil for our production.

With China's accession into WTO, the PRC government has undertaken to open to
foreign investment domestic distribution of crude oil and gradually increase
quotas for non-state traded crude oil. We anticipate those measures will
generally expand crude oil supply sources for domestic petrochemical companies.
However, if PetroChina does not change its current policy to allocate crude oil
to us, those policy changes will not materially affect our crude oil supply.



                                       25


<PAGE>

                  TRANSPORT OF CRUDE OIL
                  ----------------------

The crude oil from the Daqing and Fuyu (Jilin) oilfields is transported through
an oil pipeline and by rail transportation. We constructed our own pipeline in
October 1995 to transport crude oil. As a result, we reduced our use of rail
transportation, enhanced our total transport capacity and satisfied the
increased crude oil requirements of the Ethylene Project. The pipeline connects
to the supply of oil from the Daqing and Fuyu (Jilin) oilfields. During 2003, we
transported by the pipeline approximately 4.12 million tons or 74.0% of our
crude oil. The transport capacity of the pipeline is 4 million tons of crude oil
per annum. We expect that we will continue to receive the rail transport
capacity necessary to meet our increased transportation needs for both incoming
raw materials and supplies and outgoing product shipments.

In 2003, in order to satisfy our transportation requirements for raw materials
and products, we obtained PRC railway transport capacity of 10 million tons, of
which approximately 1.43 million tons were used for crude oil transportation.

                  STABILITY OF CRUDE OIL SUPPLY
                  -----------------------------

In the past, we have not experienced any material disruption of production due
to lack of crude oil supplies. We have crude oil storage tanks adjacent to our
production facilities which are capable of storing approximately 150,000 tons of
crude oil, constituting 15 to 20 days of our crude oil requirements at current
production rates. Generally, in order to ensure that production will not be
affected by a temporary suspension of crude oil supplies, we store approximately
30,000 tons of crude oil or, when transport delays related to adverse weather
are anticipated in the winter, 70,000 tons of crude oil.

                  COAL

We utilize coal as an indirect raw material for our power plant.

Coal is in abundant supply and is of good quality in north-eastern China where
we are located. We purchase coal directly from mines in Jilin Province and
neighboring Heilongjiang Province. Generally, we store an amount of coal
sufficient to support one month of our coal requirements at current production
rates. We have in the past obtained, and believe that in the foreseeable future
we will be able to obtain, adequate supplies of coal for both production and
fuel purposes.

                  NAPHTHA

In 1999, we began using naphtha as a lower-cost alternative to some of the light
industrial oil we produce and use in the ethylene production process. This has
resulted in cost savings for us and has also allowed us to sell more of our
light industrial oil as diesel at a relatively high profit margin. In 2003, we
used approximately 641,000 tons of naphtha, most of which was purchased from
PetroChina. We intend to continue to use naphtha as one of our principal raw
materials in the future.

                  OTHER RAW MATERIALS

The other principal raw materials which we purchase are salt and naphthalene.
All of our naphthalene is purchased from outside sources. We believe that our
naphthalene sources will continue to provide an adequate supply of naphthalene
to meet our needs in the foreseeable future.


                                       26



<PAGE>


                  ELECTRICITY AND STEAM

Electricity is our main source of energy. In 2003, we purchased approximately
1.23 billion kilowatt hours of electricity from the PRC's north-eastern power
grid. Generally, the price of electricity in the PRC is set by the PRC
government, although under certain state regulations electricity consumed by our
chemical fertilizer production facilities is purchased at a preferential rate.

Our power plant is used primarily to produce a portion of our annual
requirements for steam. In 2003, we produced approximately 88.2% of our steam
requirements internally and purchased the remaining steam requirements from a
non-affiliated entity.

Our power plants consist primarily of several coal-fired power generating units
and their total power generation capacity is 137,000 kilowatts at any one time.
They generated an aggregate of 437 million kilowatt hours in 2003. Because of
the increasing demand for electricity in north-eastern China due to economic
growth, no assurance can be given that shortages of electricity within the
north-eastern grid will not occur in the future.

         SALES AND MARKETING

Domestic sales accounted for approximately 99.4%, 99.7% and 99.3% of our sales
revenue in 2001, 2002 and 2003, respectively. Due to the high transportation
costs and limited rail transport capacity in the PRC and the structural
development of the PRC chemical industry, sales of our products are concentrated
in the north-eastern and northern regions of China. The following chart
describes the sales of our products by geographic areas:


                                    SALES (RMB BILLION)
                NORTH-EASTERN   NORTHERN CHINA    EASTERN AND       OTHER AREAS
                     CHINA                       SOUTHERN  CHINA
   2001               8.49          1.24             1.06              1.73
   2002              10.38          1.71             0.92              0.13
   2003              14.60          1.76             1.06              0.17

North-eastern China was the first area in which PRC industries, especially heavy
industries, emerged and developed. Since then, industrial development has
continued in the north-eastern region while the northern region of China has
also developed as an industrial base. Owing to our established reputation and
experience in these regions, plus our geographic advantages, the north-eastern
and northern regions of China have become and remain the largest markets for our
products.

Among our products, virtually all petroleum products can only be sold in
accordance with the distribution scheme set by the National Development and
Reform Commission. Accordingly, for most of our petroleum products, marketing
decisions are limited and competition among producers is minimized. Under the
current distribution scheme, our petroleum products are primarily sold to our
Parent. See "Business Overview -- Product Pricing" and "Business Overview --
Competition."

Except for our petroleum products, our products can be freely sold and marketed
throughout the PRC and are generally sold to large- and medium-sized


                                       27



<PAGE>

manufacturing enterprises and large trading companies in the north-eastern and
northern regions of the PRC with whom we typically have long-standing trading
relationships. While these long-standing relationships provide us with a
generally dependable and stable customer base, we are continuously focusing on
developing new customers, with an emphasis on finding additional manufacturing
customers. We develop new customers and market our products through our domestic
sales network comprising regional sales centers and sub-regional sales offices.
As part of our efforts to become more market- and customer-oriented, in 2003, we
continued to direct greater resources towards developing our sales and marketing
capabilities. See "Business Overview -- Business Strategy."

Prior to 2001, our sales policy required our customers to make payments upon
delivery and we discontinued delivery of products to customers who did not make
timely payments. In 2001, we implemented a new sales policy requiring our
customers to provide payment in full before delivery.

In 2003, revenue from sales to our five largest customers accounted for 65.8% of
our total sales revenue. As a result of the CNPC Reorganization, a significant
number of our existing customers became subsidiaries of our Parent and our
Parent in turn became our largest customer. Revenue from sales to our Parent,
purchaser of our petroleum products and petrochemical and chemical fertilizer
products, accounted for 59.8% of our total sales revenue. Of our five largest
customers, the other four were purchasers of our petrochemical and organic
chemical products. Other than our five largest customers, none of our other
customers purchased products accounting for more than 1% of our total sales
revenue in 2003.

Jilin Group's subsidiary, Jilin Chemical Import and Export Company, currently
acts as our agent for the import of equipment and technology and raw materials
and it also purchases all of our products for export. In 2001, 2002 and 2003,
our sales revenue from exports through Jilin Chemical Import and Export Company
amounted to approximately US$8.2 million, US$4.6 million and US$9.8 million,
respectively, which accounted for approximately 0.6%, 0.3% and 0.4% of our total
sales revenue, respectively. Due to sufficient domestic demand for most of our
products, we do not have any plans to increase our exports of these products
significantly in the near future.

         PRODUCT TRANSPORT

Approximately 85.0% of our products were transported by rail in 2003. In 2003,
we used aggregate rail transport capacity of 10 million tons, approximately 9.6
million tons of which were obtained from the PRC railway system with the
remainder available from our internal railway system. Approximately 4.95 million
tons were used for the transport of our products, and the balance for the
transport of raw material and supplies. The development of the PRC railway
system still lags behind the development of the PRC economy as a whole and
discrepancies between capacity and volume of transportation are severe in many
areas of the PRC. Whether a company is allocated sufficient railroad cars to
transport its products is largely dependent on the destination of the cargo and
the approval of the railroad authority at such destination. Currently, most of
our customers are located in, and, therefore, most of our products are
transported to, either north-eastern or northern China, where capacity is
readily available to it.

The vast majority of our products are in liquid form, requiring them to be
loaded into industrial chemical tank cars when transported by rail. In order for
us to utilize the annual rail transport capacity received by us most
efficiently, we require a substantial number of industrial chemical tank cars.
We believe that the tank cars we currently own, together with our established
internal railway system and other facilities in our railway transportation unit,
will satisfy our product transportation equipment needs in the foreseeable
future.



                                       28



<PAGE>

         COMPETITION

Since approximately 99.3% of our sales revenue in 2003 was generated from sales
in the PRC, we focus on competition primarily with respect to the domestic PRC
market, and in particular, the northern and north-eastern regions of China. In
general, we believe that our current primary competitive advantages with respect
to most of our products include product quality and diversity, economies of
scale and proximity to raw materials and our long-standing relationships with
our customers. With the exception of our petroleum products, which are at
present subject to allocation and price restrictions imposed by the PRC
government and therefore do not face substantial competition in the market, all
of our products are subject to competition in the domestic market. See "Business
Overview -- Product Pricing."

                  PETROLEUM PRODUCTS

Our petroleum products are currently subject to allocation and pricing control
by the PRC government and, therefore, competition in the petroleum product
marketplace in which we compete is minimized. Prior to the PRC's accession into
WTO, import of petroleum products were also subject to strict import quotas and
import licenses. As part of its WTO accession commitments, the PRC government is
expected to eliminate many barriers to competition, including the import quotas
and import license requirements for the import of petroleum products and
restrictions on foreign invested enterprises to provide domestic distribution
and retail services for petroleum products. Although petroleum products will
continue to be subject to pricing control of the PRC government, it is not clear
whether the government's control over allocation of petroleum products will
change; the implementation of new policies and elimination of those
anti-competition barriers could significantly increase competition in the
markets for our products from both foreign and domestic competitors.

                  PETROCHEMICAL AND ORGANIC CHEMICAL PRODUCTS

We are one of the largest producers of petrochemical and organic chemical
products in the PRC. We have become one of the largest producers of ethylene in
the PRC with the commissioning to service of the Ethylene Project in 1998,
although most of the ethylene produced is used internally. Our petrochemical
products, including ethylene, constitute a broad range of the basic raw
materials for the organic chemical industry.

We believe that we are one of the largest suppliers of petrochemical and organic
chemical products in the north-eastern and northern regions of the PRC. We
believe that our competition in this marketplace is limited to a few large
petrochemical product manufacturers also serving these regional markets.

                  SYNTHETIC RUBBER

We believe that we are one of the largest PRC producers of synthetic rubber. Of
the major synthetic rubber products produced in China, styrene-butadiene rubber
comprises one of the largest shares of the PRC synthetic rubber market. We
believe that, including us, there are only three major styrene-butadiene rubber
producers in the PRC.



                                       29



<PAGE>

                  CHEMICAL FERTILIZERS

Due to the importance of agricultural development in the PRC and the significant
contribution that the chemical fertilizer industry makes to such development,
the PRC government has historically maintained significant control over the
chemical fertilizer market. In 2003, the prices of chemical fertilizers remained
the same as in late 2002. To protect domestic producers of chemical fertilizers,
in 2003 the PRC government continued to implement certain measures to control
the import of chemical fertilizers. However, import quotas and import licenses
for import of chemical fertilizers will gradually be eliminated after the PRC's
accession into WTO.

                  FOREIGN COMPETITION AND WTO

Historically, the PRC government has provided the PRC chemical industry (other
than chemical fertilizers) with certain protection from foreign competition
through three primary practices: maintaining relatively high import tariffs,
imposing import license requirements and controlling the availability of foreign
exchange required to pay for imported products. These tariffs and import
restrictions are intended, in part, to protect domestic producers of these
products, such as us and they affect the majority of the product types produced
by us. These protective actions, however, are effective only to the extent that
they are fully and consistently implemented. To the extent they are not
implemented, imported products can have a significant effect on the pricing and
demand for our products. Imports remain a significant factor in determining the
prices of many of our products.

In recent years, the PRC government has implemented a policy of gradually
lowering import barriers and reducing tariffs. As part of its WTO accession
commitments, the PRC government will gradually eliminate import quotas and
import license systems, reduce tariffs, and permit foreign invested enterprises
to engage in domestic distribution and retail sales for all of our major
products. The PRC will also eliminate state trading for our major products
exclusive of petroleum products and chemical fertilizer. We expect those
measures to increase competition from imported products.

Although we believe that our products have been and will continue generally to
be competitive with imported products in the PRC, increased competition from
imported products resulting from the PRC's WTO accession may still have a
material adverse effect on our business and operations. Based on our wide range
of production capabilities and our familiarity with regional customers and
markets, we believe that we are well-positioned to meet potential foreign
competition. The tariff reductions, however, could reduce profit margins or
otherwise negatively impact our revenue from certain products, including a small
number of our significant products. The ultimate impact of any tariff reductions
on our business and results of operations will depend on a variety of factors,
including general market conditions for various products, our ability of to
increase production efficiency or lower our costs and the extent to which other
import barriers remain intact.

The PRC government may also reduce the tariffs imposed on production equipment
that we may import in the future, as well as the restrictions on availability of
imported raw materials (such as crude oil) currently enforced by the PRC
government. We are unable to determine accurately at this time the net effect on
our business and results of operations of the PRC's accession to WTO.


                                       30



<PAGE>


         ENVIRONMENTAL PROTECTION

We are subject to PRC national, provincial and local environmental protection
regulations. According to the PRC Environmental Protection Law, the State
Environmental Protection Administration sets national environmental protection
standards, while local environmental protection bureau may set stricter local
standards. Enterprises must comply with local standards if local environmental
protection bureau have set their own standards. Since neither the Jilin
Provincial Government nor the Jilin City Government has set standards regarding
the discharge of water, gases and solid waste materials, the standards set by
the State Environmental Protection Administration for the discharge of these
materials are those which regulate our operations.

The State Environmental Protection Administration sets discharge standards for
emissions into the air and water and delegates to the Jilin City Environmental
Protection Bureau the responsibility for monitoring enterprises in Jilin with
respect to the discharge of waste water, gases and solid waste materials. The
PRC Environmental Protection Law also provides schedules of base-level discharge
fees for various polluting substances. If the polluting substances exceed a
certain limit, the Jilin City Environmental Protection Bureau may charge the
polluting entity additional discharge fees and issue an order to cease or reduce
such discharge levels which, if not obeyed, may result in fines. The PRC
Environmental Protection Law also provides that, where pollution is causing
environmental damage, the Jilin City Government has the authority to issue an
order requiring the polluting entity to cure the problem within a certain
period. Non-compliance with such an order may result in the facility being shut
down. We have never incurred any fines, nor have we ever received such an order.

Due to the nature of our business, we produce significant amounts of waste
water, gas and solid waste materials in the course of our production. We believe
that our environmental protection facilities and surveillance and management
systems are adequate to enable us to comply with applicable environmental
protection laws and regulations in all material respects. We have made
substantial efforts with respect to the prevention and treatment of pollution,
including the construction and maintenance of a comprehensive waste water
treatment plant, a sludge incinerator and a waste residue dump. Currently, our
waste water treatment plant has a daily treatment capacity of 240,000 tons and
provides waste water treatment services for us, our Parent and certain other
companies in the same area. We charge fees for the services we provide to our
Parent and other companies based on the amount and quality of the waste water to
be treated. In addition to our environmental facilities, we have an
environmental management and surveillance system, including a comprehensive set
of environmental protection procedures and a substantial professional
environmental protection staff.

We conduct a detailed analysis of the solid waste generated by our facilities
and dispose of such solid waste in accordance with applicable national,
provincial and local environmental protection regulations. The PRC Environmental
Protection Law regarding the discharge or disposal of solid waste specify that
certain toxic wastes may not be buried directly in the ground and measures must
be taken to prevent leakage. Violations of such provisions can result in fines.
However, we have not been fined for any such violations.

Our environmental protection-related expenses consist of pollutant discharge
fees paid to the Jilin City Environmental Protection Bureau and costs related to
the upgrading and maintenance of our environmental protection facilities. In
2001, 2002 and 2003, our environmental protection-related expenses were
approximately RMB 88.3 million, RMB 88.3 million and 70.7 million, respectively.



                                       31




<PAGE>

We believe that our environmental protection facilities and systems are adequate
for us to comply with the existing national, provincial and local environmental
protection regulations. However, there can be no assurance that national,
provincial or local authorities will not impose additional or more stringent
regulations which would require additional expenditure on environmental matters
or changes in our processes or systems.

         RESEARCH AND DEVELOPMENT

We have a research and development department engaged in the research and
development of technologies, products, processes and equipment for our
businesses. Prior to 2001, our research and development department comprised of
divisions located at each of our five principal production units. In order to
integrate our research and development capabilities, we consolidated those
divisions in 2001 and streamlined our research and development team. As of
December 31, 2003, the number of persons engaged in research and development
functions was 48, all of which were engineering and technical personnel.

Our expenditures for research and development were approximately, RMB 11.6
million, RMB 3.9 million and 1.8 million in 2001, 2002 and 2003, respectively.
The decrease in our research and development expenditures for 2003 was a result
of the streamlining of our research and development team. If market needs
require, we will increase our annual research and development budget.

Our research and development efforts have aided our ability to develop new
products and improve product quality. We introduced no new principal products in
2003.

         INSURANCE

We maintained insurance coverage of approximately RMB 8.50 billion on our
properties and facilities and RMB 0.30 billion on our inventory in 2003. We have
no plans to increase this coverage. The book value of our buildings and
equipment, including projects under construction, was approximately RMB 9.93
billion as of December 31, 2003. The amount of the coverage of our inventory is
also less than its book value, which was RMB1.57 billion as of December 31,
2003. In accordance with what we believe is customary practice among chemical
producers in the PRC, we insure only high-risk assets, such as production
property and equipment, inventories and explosive or otherwise hazardous
facilities. However, the underinsurance of our properties, facilities and
inventory in accordance with this PRC practice exposes us to substantial risks
such that, in the event of a major accident, our insurance recovery may be
inadequate.

Beginning November 1, 1999, we began participating in the insurance programs
established by CNPC and approved by the PRC government. See ITEM 7. MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS - RELATED PARTY TRANSACTIONS - CNPC
INSURANCE PROGRAMS.

We do not currently carry any third party liability insurance to cover claims in
respect of personal injury, property or environmental damage arising from
accidents on our property or relating to our operations. We also do not carry
business interruption insurance, as such coverage is not customary in the PRC.

Losses incurred or payments required to be made by us which are not fully
insured could have a material adverse effect on our financial condition.


                                       32




<PAGE>

ORGANIZATIONAL STRUCTURE

We are a subsidiary of PetroChina which held approximately 67.29% of our issued
share capital as of May 31, 2004. PetroChina is one of the largest companies in
China in terms of sales and engages in a broad range of petroleum-related
activities. PetroChina is currently listed on the Hong Kong Stock Exchange and
New York Stock Exchange.

As of December 31, 2003, we had the following subsidiaries:

NAME OF SUBSIDIARY                    DOMICILE    OWNERSHIP INTEREST HELD BY (%)
Jilin Jihua Jianxiu Company Limited   PRC         99.0%
Jilin Jihua Jinxiang Pressure Vessel
   Inspection                         PRC         94.0%
Jilin Xinhua Nitrochloro-benzene
   Company Limited                    PRC         75.0%
Jilin Winsway Chemical Industrial
   Store and Transport Limited        PRC         70.0%
Jilin City Songmei Acetic Acid Co.,   PRC         66.0%
   Ltd.

PROPERTY, PLANTS AND EQUIPMENT

Our corporate headquarters and production and ancillary facilities occupy an
area of approximately 8.5 square kilometers in Jilin City, Jilin Province,
located in north-eastern China. The total gross floor area of our production and
other facilities is approximately 1.5 million square meters. We own all of the
buildings and facilities on our premises and have freely transferable land use
rights for a term of 50 years in respect of the land upon which such buildings
and facilities are located.

         PRINCIPAL PRODUCTION FACILITIES

The table below sets out our principal production facilities, their Rated
Capacities, their utilization rates in 2003, the years in which they first
became operational and the sources of their technologies. For purposes of this
chart, utilization rates which exceed 100.0% represent facilities which are
currently operated at a rate higher than their respective designed Rated
Capacities.

<TABLE>
<CAPTION>


                                                ANNUAL RATED      UTILIZATION      YEAR OF FIRST        SOURCE OF
                          FACILITY                CAPACITY           RATE            OPERATION         TECHNOLOGY
                          --------                --------           ----            ---------         ----------
                                                (`000 TONS)          (%)
<S>                                                <C>             <C>               <C>             <C>
  1.             Atmospheric and vacuum
                    distillation                     5,300           106.78            1979                 PRC
  2.             Wax oil catalytic cracking          1,400           100.76            1979                 PRC
  3.             Heavy oil catalytic
                    cracking                           700           101.83            1990                 PRC
  4.             LPG separating                        250            62.48            1992                 PRC
  5.             Secondary ethylene facility           150           100.01            1982                 PRC
  6.             Principal ethylene                    380           111.79            1996             Germany
                 facility
  7.             Synthetic ethanol                     100            26.82            1982             Germany
  8.             Acetaldehyde                          160           102.95            1982             Germany
  9.             Acetic acid                           210            89.11            1982                 PRC
  10.            Butanol and 2-ethylhexanol            120           112.14            1982             Germany
  11.            Acetic anhydride                       50           109.86            1983                 PRC
  12.            Styrene-butadiene rubber               80           133.33            1982                 PRC
  13.            Aniline                                66           106.90            1985                 PRC
  14.            Concentrated nitric acid              100           102.16            1992                 PRC
  15.            Styrene                               140           114.17            1982                 USA
  16.            Hydrocracking                         600           116.98            1996                 PRC
  17.            Integrated aromatics                  400           125.66            1996                 USA
  18.            Ethylene-propylene rubber              20           102.13            1997               Japan

</TABLE>



                                       33



<PAGE>

The annual Rated Capacity of these facilities occasionally changes from time to
time as a result of technical upgrades, renovations or expansions of the
facilities. For example, in 1998, we started a technological renovation of our
synthetic ammonia facility with a Rated Capacity of 300,000 tons as part of our
efforts to achieve economies of scale for production of synthetic ammonia. The
project was completed in December 2002.

To date, our capital expansion projects have been financed with operating income
and commercial loans. In general, we believe that most of our principal
production facilities are more advanced than similar facilities of other
companies in the PRC. We further believe that, on the whole, our current and
future production facilities are adequate for conducting our current and planned
future business.

         ANCILLARY FACILITIES

We have a principal power plant which was built in 1980 and is used primarily to
provide heat to our facilities, with the provision of electrical power being of
secondary importance.

Currently, the principal power plant is equipped with six steam boilers which
provided approximately 43.5% of our steam requirements in 2003. The power plant
has three power generators with a total installed capacity of 125,000 kilowatts
which generated electricity of 410 million kilowatt hours in 2003.

Our waste water treatment plant was built in 1979. The plant has the capacity to
process 240,000 tons of waste water daily, which can satisfy not only our needs,
but also the needs of our Parent and certain other companies in the same
geographical area.

Our railway transportation unit was formed in 1958. Currently, the railway
transportation unit consists of 6 traffic control stations, 15 locomotives, 744
industrial chemical tank cars and an established internal railway network which
links many of our facilities. This railway transportation unit provides
transportation among our production facilities and facilitates the production of
our downstream products. We believe that our railway transportation unit can
enable us to utilize our allocated rail transport capacity in the most efficient
fashion.

         MAINTENANCE

The maintenance of our production facilities follows a scheduled maintenance
program. Our facilities operate 24 hours a day. We usually shut down our
production facilities once every two years for maintenance. We believe that such
shutdowns are consistent with achieving the most efficient use of our
facilities. We undertake maintenance projects, both major and minor, on an
as-needed basis. In 2001, we did not conduct any shutdown of our facilities for
maintenance purposes. In 2002, we spent approximately RMB 560.0 million on
maintenance of our facilities, which included our biennial maintenance program,
general repairs and replacement of spare parts, as well as labor costs and
subcontractors' fees which were primarily paid to third parties. In 2003, we
spent approximately RMB 265.0 million on facilities, including expenses for
general maintenance, replacement of parts and components, and labor cost and
subcontractor expenses paid to third parties. Total maintenance expenses
accounted for approximately 1.4% of our total cost of sales in 2003.



                                       34



<PAGE>

ITEM 5. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------

OPERATING RESULTS

This discussion should be read in conjunction with the information contained in
ITEM 18. FINANCIAL STATEMENTS. For numerous reasons, including those relating to
the economic reform programs of the PRC government, changes in the PRC
government policies concerning crude oil supply, pricing and allocation and the
introduction of new taxes or changes in existing taxes such as consumption tax,
income tax and value added tax, our consolidated financial statements may not be
indicative of our future financial results.

Our historical financial performance has been affected significantly by factors
arising from operating in a planned economy which are beyond our control.
Although government controls have relaxed over time, controls over allocation
and pricing of crude oil and petroleum products still exist. We believe that
these controls are intended to enable the PRC government to control and moderate
the effect of changes in availability and pricing of crude oil and petroleum
products and should provide generally for greater stability in our operating
results with respect to crude oil costs and petroleum product sales.

The PRC entered into the WTO on December 11, 2001. As part of its WTO accession
commitments, the PRC government will gradually eliminate import quota and import
license systems, reduce tariff, and permit foreign invested enterprises to
engage in domestic distribution and retail for all of our major products. The
PRC will also eliminate state trading for our major products exclusive of
petroleum products and chemical fertilizer. These commitments, as being carried
out, gradually cause the prices for our raw materials and products to be more
aligned with those in the international markets and thus affecting the stability
in our operating results.

In 2003, the world economy has gradually recovered from a recession. Although
affected by the outbreak of Severe Acute Respiratory Syndrome, China's economy
continued to grow rapidly in 2003. Due to the rise of crude oil price and
increase in demand resulting from a general growth of economy, both the price
and sales volume of most of our major products increased significantly in 2003
compared with 2002.

We have identified the accounting policies below as critical to our business
operations and the understanding of our results of operations. For a detailed
discussion on the application of these and other accounting policies, see Note 2
to the consolidated financial statements. The application of these policies may
require management to make judgments and estimates that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of our financial statements, and the reported amounts of
revenue and expenses during the reporting period. Management uses historical
experience and all available information to make these estimates and judgments,
and different amounts could be reported using different assumptions and
estimates.

   o     Revenue recognition. Our revenue recognition policy is critical because
         our revenue is a key component to our results. We follow very specific
         and detailed accounting guidelines in measuring revenue. However,
         certain judgments affect the application of our revenue policy. Should
         changes in conditions cause management to determine these criteria are
         not met for certain future transactions, revenue recognized for any
         reporting period could be adversely affected.


                                       35



<PAGE>

    o    Provision for accounts receivables. Accounts receivables are carried at
         original invoice amount less provision for impairment. We specifically
         analyze historical bad debts, ageing receivables, customer
         concentrations, customer credit-worthiness, current economic trends and
         changes in our customer payment terms when evaluating the adequacy of
         the allowance for doubtful accounts. If the financial condition of our
         customers were to deteriorate, resulting in an impairment of their
         ability to make payments, additional allowances may be required.

    o    Inventories. Inventories are stated at the lower of cost or net
         realizable value. We estimate net realizable value based on intended
         use, current market value and inventory ageing analyses. We write down
         our inventory for estimated obsolescence or unmarketable inventory
         equal to the difference between the cost of inventory and the estimated
         market value based upon assumptions about future demand and market
         conditions. If actual market conditions are less favorable than those
         projected by management, additional inventory write-downs may be
         required.

    o    Property, plant and equipment. We record property, plant and equipment
         initially at cost less accumulated depreciation. Subsequent to their
         initial recognition, the value of property, plant and equipment are
         carried at revalued amount, being the estimated fair value at the date
         of revaluation less accumulated depreciation and impairment losses.
         Revaluations are performed by independent qualified appraisers on a
         regular basis to ensure that the carrying amount does not differ
         materially from what would be determined using fair value at the
         balance sheet date. As disclosed in Note 16 to our consolidated
         financial statements, our most recent revaluation of property, plant
         and equipment was carried out as of December 31, 2003.

    o    Impairment of long-lived assets. We review long-lived assets for
         possible impairment by evaluating whether the carrying amount of assets
         exceed its recoverable amount. Our judgment regarding the existence of
         impairment indicators is based on legal factors, market conditions and
         operational performance of our assets. Future adverse changes in legal
         environment, market conditions or poor operating results could result
         in losses or an inability to recover the carrying value of the
         long-lived assets, thereby possibly requiring an impairment charge in
         the future.

The table below sets forth our sales volume, sales volume and proportions of
total net sales for the periods indicated. For purposes of the table, "N/A"
represents sales volume for certain products, the measurement of which in tons
does not provide a meaningful comparison vis-a-vis products in other product
categories. Sales volume under the category of "total" does not include sales
volume under the category of "other".

<TABLE>
<CAPTION>


                                                         2003                                               2002
                                    Sales           Net Sales                            Sales         Net Sales
                                   Volume                (RMB           % OF            Volume              (RMB            % OF
                              (`000 TONS)          THOUSANDS)      NET SALES       (`000 TONS)        THOUSANDS)       NET SALES
Petrochemical and
   organic chemical
<S>                             <C>               <C>                 <C>            <C>             <C>                  <C>
   products                       1,837.1           7,783,091           37.7           1,586.4         5,750,075            43.8
Petroleum products                4,382.3           9,320.066           45.1           2,784.1         5,166,188            39.3
Synthetic rubber
   products                         128.8           1,133,031            5.5             110.9           782,559             6.0
Chemical fertilizers and
   inorganic chemical
   products                         241.0             164,861            0.8             141.5           123,325             0.9
Other                                 N/A           2,251,760           10.9                N/A        1,316,240            10.0
                             -------------     ---------------    -----------    --------------    --------------    ------------

Total                             6,589.2          20,652,809          100.0         4,622.9          13,138,387           100.0
                             =============     ===============    ===========    ==============    ==============    ============
</TABLE>



                                       36



<PAGE>

The following chart sets forth our financial information for the periods
indicated:

<TABLE>
<CAPTION>


                                                           YEAR ENDED                                  YEAR ENDED
                                                       DECEMBER 31, 2003                           DECEMBER 31, 2002
                                               RMB THOUSANDS        % OF NET SALES        RMB THOUSANDS        % OF NET SALES

<S>                                        <C>                     <C>                <C>                     <C>
Sales                                             20,652,809                100.0            13,138,387                100.0
Cost of sales                                   (19,125,842)               (92.6)          (12,518,955)               (95.3)
Distribution   costs,   administrative
expenses  and  expenses  for shut down
of manufacturing assets                            (603,389)                (2.9)           (1,115,785)                (8.5)
Profit/(loss) from operations                        895,318                  4.3             (506,036)                (3.9)
Interest expense                                   (429,782)                (2.1)             (474,370)                (3.6)
Taxation                                               (270)                    -               (1,116)                    -
Net profit/(loss)                                    427,609                  2.1           (1,023,099)                (7.8)
                                           ==================    =================    ==================     ================

</TABLE>

         YEAR ENDED DECEMBER 31, 2003 COMPARED WITH YEAR ENDED DECEMBER 31, 2002

Aggregate net sales increased by 57.2% to RMB 20,652.8 million in 2003 compared
with RMB 13,138.4 million in 2002. This increase was due to significant increase
in both price and sales volume of most of our major products resulting from a
strong economic growth in China.

Net sales of petroleum products increased by 80.4% to RMB 9,320.1 million in
2003 from RMB 5,166.2 million in 2002, accounting for 45.1% of aggregate net
sales in 2003, up from 39.3% in 2002. This increase was due to an increase of
weighted average price of products in this segment by 12.8% and an increase of
sales volume by 57.4% in 2003 compared with 2002.

Net sales of petrochemical and organic chemical products increased by 35.4% to
RMB 7,783.1 million in 2003 from RMB 5,750.1 million in 2002, accounting for
37.7% of aggregate net sales in 2003, down from 43.8% in 2002. Weighted average
price and sales volume of petrochemical and organic chemical products increased
by 16.5% and 15.8% over 2002, respectively.

Net sales of synthetic rubber increased by 44.8% to RMB 1,133.0 million in 2003
from RMB 782.6 million in 2002, accounting for 5.5% of aggregate net sales in
2003, down from 6.0% in 2002. Weighted average price of synthetic rubber
increased by 25.0% and sales volume increased by 16.2% over 2002.

Net sales of chemical fertilizers and inorganic chemical products increased by
33.7% to RMB 164.9 million in 2003 from RMB 123.3 million in 2002, accounting
for 0.8% of aggregate net sales in 2003, down from 0.9% in 2002. Although
weighted average price of products in this segment decreased by 21.2%, sales
volume increased by 70.3%, which more than offset the adverse effect on net
sales caused by decreased price.

                                       37



<PAGE>


Revenue from other products and services increased by 71.1% to RMB 2,251.8
million in 2003 from RMB 1,316.2 million in 2002, primarily due to a significant
increase in our provision of materials and services to other companies in 2003.

Cost of sales increased by 52.8% to RMB 19,125.8 million in 2003 from RMB
12,519.0 million in 2002, representing 92.6% and 95.3% of aggregate net sales in
2003 and 2002, respectively. The increase in cost of sales was due primarily to
the significant increase of the volume of products that we produced and sold in
2003. In 2003, we processed 5.7 million tons of crude oil, up from 4.6 million
tons in 2002. The weighted average price of our crude oil increased form
RMB1,740 per ton in 2002 to RMB1,768 per ton in 2003.

Distribution costs, administrative expenses and expenses for shut down of
manufacturing assets decreased by 45.9% from RMB 1,115.8 million in 2002 to RMB
603.4 million in 2003. Administrative expenses decreased by 28.0% from RMB 797.4
million in 2002 to RMB 574.1 million, primarily because (i) there was no
write-down of carrying value of property, plant and equipment in 2003 while such
expense was RMB 323.8 million in 2002; and (ii) there were no expenses for shut
down of manufacturing assets in 2003, while such expenses in 2002 were RMB 283.4
million. Such decreases were partially offset by an increase in provision for
impairment of receivables and other current assets from RMB 51.5 million in 2002
to RMB 100.7 million in 2003.

Based on the above factors, our profits from operations in 2003 was RMB 895.3
million while there was a loss from operations of RMB 506.0 million in 2002.

Interest expenses decreased by 9.4% from RMB 474.4 million in 2002 to RMB 429.8
million in 2003. The decrease in interest expenses was primarily because our
repayment of borrowings exceeded new borrowings in 2003.

Our share of loss of an associated company was RMB 14.0 million in 2003 while we
had a RMB 0.1 million income of an associated company in 2002. Such change was
primarily because our associated company, Jilin Lianli Industrial Co., Ltd.,
made bad debt provision of RMB16.7 million in 2003 as a result of the
deteriorated financial status of two customers.

Our net profit was RMB 427.6 million in 2003, compared with a net loss of RMB
1,023.1 million in 2002. This increase in net profit was due primarily to
increase in net sales and decrease in administrative expenses and expenses for
shut down of manufacturing assets.

         YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

Aggregate net sales increased by 5.0% to RMB 13,138.4 million in 2002 compared
with RMB 12,518.5 million in 2001.

Net sales of petrochemical and organic chemical products increased by 6.8% to
RMB 5,750.1 million in 2002 from RMB 5,386.5 million in 2001, accounting for
43.8% of aggregate net sales in 2002, up from 43.0% in 2001. This increase was
primarily due to the increased product prices in the international market for
petrochemical products, which in turn resulted in similar price increases in the
domestic market. In 2002, the weighted average price for products in this
segment increased by 9.7% from 2001. In particular, the weighted average price
of styrene, a product that accounts for 10.0% of our total sales, increased by
22.6% from 2001. Sales volume for petrochemical and organic chemical products in
2002 decreased by 2.0% from 2001.


                                       38



<PAGE>

Net sales of petroleum products remained substantially unchanged, decreasing
slightly to RMB 5,166.2 million in 2002 from RMB 5,208.0 million in 2001 and
accounting for 39.3% of aggregate net sales in 2002, down from 41.6% in 2001.
Although the weighted average price of petroleum products increased by 2.3% and
sales volume increased by 5.2% over 2001, there was no corresponding increase to
net sales due to decrease in the sales volume of solvent oil, which has a
substantially higher unit price than other products in the composition of the
weighted average price.

Net sales of synthetic rubber increased by 0.1% to RMB 782.6 million in 2002
from RMB 781.7 million in 2001, accounting for 6.0% of aggregate net sales in
2002, down from 6.2% in 2001. The increase in net sales was attributable
primarily to an increase in sales volume as a result of a stronger domestic
market. The sales volume of synthetic rubber products increased by 2.1% compared
with 2001 and the weighted average price of such products decreased by 1.9% from
2001.

Net sales of chemical fertilizers and inorganic chemical products increased by
15.2% to RMB 123.3 million in 2002 from RMB 107.l million in 2001, accounting
for 0.9% of aggregate net sales in both 2002 and 2001. The increase in net sales
was attributable primarily to an increase in sales volume of inorganic chemicals
and other products that fall within this category of products. The sales volume
of chemical fertilizer and inorganic chemical products decreased by 2.3%
compared with 2001 and the weighted average price of such products increased by
17.8% from 2001.

Revenue from other products and services increased by 27.1% to RMB 1,316.2
million in 2002 from RMB 1,035.3 million in 2001, primarily due to an increase
in the sales volume of water, electricity and steam and other services to RMB
392.8 million in 2002 from RMB 197.5 million in 2001.

Cost of sales decreased by 0.2% to RMB 12,519.0 million in 2002 from RMB
12,541.9 million in 2001, representing 95.3% and 100.2% of aggregate net sales
from 2002 and 2001, respectively. The decrease in cost of sales was due
primarily to a decrease in domestic crude oil prices. In 2002, the weighted
average price of crude oil we purchased fell by 3.9% from RMB 1,810 per ton in
2001 to RMB 1,740 per ton in 2002, reflecting decreases in crude oil prices in
international markets. In 2002, we processed 4.6million tons of crude oil, up
from 4.3 million tons in 2001.

Distribution costs, administrative expenses and expenses for shut down of
manufacturing assets decreased by 12.7% from RMB 1,278.5 million in 2001 to RMB
1,115.8 million in 2002. Administrative expenses decreased by 34.4% from RMB
1,216.3 million in 2001 to RMB 797.4 million in 2002, primarily due to provision
for impairment of prepaid expenses and other current assets of RMB 51.5 million
and RMB 323.8million for the write-down of the carrying value of fixed assets
being made in 2002, whereas provision for impairment of receivables of RMB 599.6
million was made in 2001. In the meantime, expenses for shut down of
manufacturing assets was RMB 283.4 million, while there were no such expenses in
2001.

Based on the above factors, the Group's loss from operations decreased from RMB
1,308.5 million in 2001 to RMB 506.0 million in 2002.

Interest expenses decreased by 20.8% from RMB 598.9 million in 2001 to RMB 474.4
million in 2001. The decrease in interest expenses was primarily due to our
continued adjustment of our loan structure by borrowing short-term loans with
lower interest rates to repay some long term loans with higher interest rates as
well as a decrease in the total amount of the bank loans from 2001.


                                       39



<PAGE>

Exchange loss increased by 177.1% from RMB 17.6 million in 2001 to RMB 48.7
million in 2002. In addition, exchange gain decreased 88.5% from RMB 67.0
million in 2001 to RMB 7.7 million in 2002. This resulted in a net exchange loss
of RMB 41.0 million in 2002 compared to a net exchange gain of RMB 49.4 million
in 2001. The increase in exchange loss in 2002 was primarily due to the increase
in value of the Euro Dollar against RMB. The decrease in exchange gain in 2002
was primarily due to a decrease in value of the Japanese Yen against RMB.

Our net loss in 2002 was RMB 1,023.1 million, a decrease of 43.7% from a net
loss of RMB 1,817.4 million in 2001. This decrease in net loss was due primarily
to increase in net sales and decrease in cost of sales and administrative
expenses.

LIQUIDITY AND CAPITAL RESOURCES

We depend upon cash flow from operation, loans from affiliates and banks, and
equity financing to satisfy our ongoing liquidity and capital needs. Our cash
position in 2003 was an increase of 2.7 million compared to a decrease of RMB
4.1 million in 2002.

Net cash provided by operating activities increased to RMB 3,578.3 million in
2003 from RMB 1,329.0 million in 2002. This significant increase of cash inflow
was primarily due to (a) an increase in profit before taxation of RMB 1,453.7
million to a profit of RMB 426.1 million in 2003 from a loss of RMB 1,027.6
million in 2002; and (b) an increase in payables and accrued liabilities by RMB
1,831.0 million partially offset by a decrease in non-cash items such as
write-down of property, plant and equipment in 2003.

Net cash used for investing activities decreased to RMB 722.1 million in 2003
from RMB 863.4 million in 2002. The decrease was primarily due to a decrease of
expenditure on purchase of property, plant and equipment to RMB 675.1 million in
2003 from RMB 791.7 million in 2002.

Net cash used for financing activities increased to RMB 2,853.5 million in 2003
from RMB 469.8 million in 2002. This significant increase in cash outflow was
primarily due to a net repayment of borrowings of RMB 2,853.6 million in 2003
compared with a net repayment of borrowings of RMB 468.0 million in 2002. We did
not issue any new shares in both 2002 and 2003.

As at December 31, 2003, our current assets were RMB 2,055.9 million and current
liabilities were RMB 7,716.3 million. Our current liabilities slightly decreased
from RMB 7,722.9 million in 2002 to RMB 7,716.3 million.

As at December 31, 2003, we had a negative working capital of RMB 5,660.4
million, compared with a negative working capital of RMB 5,256.7 million as at
December 31, 2002. The slight increase of negative working capital was primarily
because increase of inventories and decrease of short-term borrowings were not
enough to offset a decrease of accounts receivable and an increase of accounts
payable. Inventories increased from RMB 1,394.2 million in 2002 to RMB 1,568.1
million in 2003, primarily due to an increase in our stock of crude oil.
Accounts receivable decreased from RMB 684.9 million in 2002 to RMB 184.8
million in 2003, primarily attributable to an increased payment of receivables
by PetroChina, Jilin Group and other customers in 2003 compared with 2002.


                                       40



<PAGE>


Accounts payable and accrued liabilities increased from RMB 2,186.2 million in
2002 to RMB 3,614.3 million in 2003, primarily attributable to an increase of
trade payables resulting from increased purchase of crude oil and an increase of
advance payments for chemical products. Although we need to pay close attention
to our working capital and liquidity position, we do review it on a regular
basis and have always been able to satisfy our short-term obligations through
the refinancing of indebtedness and other measures. China Petroleum Finance
Company Limited, or CP Finance, a subsidiary of our ultimate shareholder CNPC,
provides us with a loan facility up to RMB 8 billion which will expire on
December 31, 2005. As at December 31, 2003, the outstanding amount under that
loan facility was RMB 3,155.0 million. With this facility and cash generated
from our operations, we believe that we have more than sufficient resources to
meet our foreseeable working capital needs. Our gearing ratio was 49.0% as at
December 31, 2003 and 64.8% as at December 31, 2002 (gearing ratio is calculated
as the ratio between long-term debt and the sum of equity and long-term debt).

As at December 31, 2003, our liquidity ratio (current assets/current
liabilities) was 26.6%, quick ratio ((current assets - inventory)/current
liabilities) was 6.3%, and inventory ratio (cost of goods sold/((inventory
opening balance + inventory ending balance)/2)) was 1,291.3%.

As at December 31, 2003, borrowings were RMB 6,509.9 million, a decrease of RMB
2,853.6 million as compared with December 31, 2002, among which short-term
borrowings were RMB 4,102.0 million, representing a decrease of RMB 1,434.7
million as compared with December 31, 2002, and long-term borrowings was RMB
2,407.9 million, representing a decrease of RMB 1,418.9 million as compared with
December 31, 2002. These changes reflected our efforts in repayment of
borrowings in 2003. As a result, our interest expense decreased from RMB 474.4
million in 2002 to RMB 429.8 million in 2003.

As at December 31, 2003, the weighted average interest rate of our borrowings
range from 5.18% to 5.85%. Fixed-rate borrowings represent 74.9% of the total
borrowings. As at December 31, 2003, the maturity of 27.2% of the long-term
borrowings was within one year, the maturity of 9.2% of the long-term borrowings
was between one year and two years, the maturity of 49.1% of the long-term
borrowings was between two and five years and the maturity of 14.5% of our
long-term borrowings was above five years.

We do not have seasonal demands for capital. The terms and conditions of our
existing bank loans do not restrict our ability to pay dividends on our shares.

As at December 31, 2003, all of our short-term borrowings were denominated in
Renminbi. Among the long-term borrowings, foreign currency-denominated loans
were in an amount of RMB 1,658.9 million which need to be repaid in the relevant
foreign currency, among which there was a foreign currency loan equivalent to
RMB 441.7 million from Jilin Group. The foreign currencies for denomination
include United States Dollar, Japanese Yen and Euro Dollar. We also have foreign
exchange risk in making payment related to import of raw materials and
machinery, in which it needs to convert Renminbi into the applicable foreign
currency. In addition, dividends for H shares are payable in foreign currency.
We believe fluctuations in foreign currency exchange rates will continue to have
a significant impact on us. In 2003, we had a net foreign exchange loss of RMB
36.6 million, compared with a net foreign exchange loss of RMB 41.1 million in
2002. Such increase was due to the fluctuations of foreign exchange rate in
2003.



                                       41



<PAGE>

Our ability to obtain external financing in the future and the cost of such
financing are subject to a variety of uncertainties, including:

  -  obtaining the PRC government approvals required to access domestic or
     international financing or to undertake any project involving significant
     capital investment, which, depending on the circumstances, may include one
     or more approvals from the State Development and Reform Commission, the
     State Administration of Foreign Exchange, the Ministry of Commerce and the
     China Securities Regulatory Commission;

  -  our future results of operations, financial condition and cash flows;

  -  the cost of financing and the condition of financial markets; and

  -  the potential changes in monetary policy of the PRC government with respect
     to bank interest rates and lending practices.

Our cash and cash equivalents are denominated in Renminbi. We did not engage in
any hedging activities relating to foreign exchange, interest rates or other
risks in 2003.

In 2003, our 300,000t/a synthetic ammonia facility commenced operation upon
completion of technical upgrade. We also acquired certain assets from Jilin
Group. Our overall expenditures on purchase of property, plant and equipment
decreased from approximately RMB 791.7 million in 2002 to RMB 675.1 million in
2003.

We anticipate our capital expenditure for 2004 to be approximately RMB 400.0
million mainly for technical upgrades of individual equipment. The capital for
these expenditures is expected to be financed by our operating income and loans.

         US GAAP RECONCILIATION

We prepared our consolidated financial statements in accordance with IFRS, which
differs in certain significant respects from US GAAP. The following discussion
and analysis of our financial position and results of operation under US GAAP
should be read in conjunction with ITEM 18. FINANCIAL STATEMENTS -- CONSOLIDATED
FINANCIAL STATEMENTS -- NOTE 31 "SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US
GAAP".

Note 31 to the Consolidated Financial Statements provides a reconciliation
between IFRS and US GAAP of our financial position and results of operation.
Significant differences relevant to the reconciliation of our financial
information from IFRS to US GAAP primarily include revaluation of fixed assets
and deferred taxes.

Our net profit in 2003 under US GAAP was RMB369.7 million, 13.5% lower than our
net profit of RMB427.6 million under IFRS primarily due to a RMB 42.7 million
impairment charge and a RMB 28.0 million depreciation charge recorded under US
GAAP in 2003 on fixed assets previously written down under IFRS. Our net loss in
2002 under US GAAP was RMB685.6 million, 33.0% lower than our net loss of
RMB1,023.1 million under IFRS primarily due to write down of carrying amount
(net of minority interest) of fixed assets and the fact that provision for
impairment of fixed assets in the amount of RMB322.2 million could not be
charged to our income statement under US GAAP. Our loss in 2001 under US GAAP
was RMB2,160.7 million, 18.9% higher than our net loss of RMB1,817.4 million
under IFRS primarily due to the valuation allowance of RMB362.2 million on
deferred tax assets provided in 2001 as there was significant uncertainty as to
whether the deferred tax assets established as a result of the reversal of fixed
assets revaluation surplus under US GAAP can be fully realized.



                                       42



<PAGE>

Our shareholders' equity as of December 31, 2003 was RMB2,610.0 million under US
GAAP, 4.0% higher than our shareholders' equity of RMB2,510.6 million reported
under IFRS primarily due to the reversal of fixed assets written-down under IFRS
in 2002. Our shareholders' equity as of December 31, 2002 was RMB2,240.2 million
under US GAAP, 7.5% higher than our shareholders' equity of RMB2,082.9 million
reported under IFRS primarily due to write down of carrying amount (net of
minority interest) of fixed assets and the fact that the provision for
impairment of fixed assets in the amount of RMB322.2 million in 2002 could not
be charged to our income statement under US GAAP.

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

We have a research and development department engaged in the research and
development of technologies, products, processes and equipment for our
businesses.

Our expenditures for research and development were approximately, RMB 11.6
million, RMB 3.9 million and RMB 1.8 million in 2001, 2002 and 2003,
respectively.

TREND INFORMATION

Other than as disclosed in the above paragraphs or elsewhere in this annual
report, we are not aware of any trends, uncertainties, demands, commitments or
events in the period from December 31, 2003 to the date of this annual report
that are reasonably likely to have a material effect on our net revenues,
income, profitability, liquidity or capital resources, or that would cause the
disclosed financial information not necessarily to be indicative of our future
operating results or financial conditions.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2003, we did not have any off-balance sheet arrangements.

CONTRACTUAL OBLIGATIONS

The following table sets forth our obligations to make future payments under
contracts effective as of December 31, 2003.


                             As of December 31, 2003


                              Payment due by period


<TABLE>
<CAPTION>

                                            Less than 1                                                                 After 5
                             Total             year        1-2 years       2-3 years     3-4 years     4-5 years        years
                           (RMB'000)         (RMB'000)     (RMB'000)       (RMB'000)      (RMB'000)   (RMB'000)        (RMB'000)


<S>                      <C>               <C>               <C>             <C>          <C>            <C>          <C>
Short-term debt          4,101,999         4,101,999               -               -              -            -            -


Long-term debt           2,407,898                 -         303,000         276,998      1,190,779      155,573      481,548


TOTAL CONTRACTUAL
OBLIGATIONS              6,509,897         4,101,999         303,000         276,998      1,190,779      155,573      481,548

</TABLE>



                                       43



<PAGE>

OTHER INFORMATION

         SIGNIFICANT INVESTMENT

Unless otherwise disclosed in this annual report, we did not make any
significant investment in the year ended December 31, 2003.

         MATERIAL ACQUISITIONS AND DISPOSALS

Unless otherwise disclosed in this annual report, we did not make any material
acquisitions or disposals of subsidiaries and associated companies in the year
ended December 31, 2003.

         EMPLOYEES

As of December 31, 2003, the number of our employees was 21,771. Our employees'
total remuneration for the year ended December 31, 2003 was RMB 625.7 million.

         CHARGES ON ASSETS

Unless otherwise disclosed in this annual report, we did not have charges on any
of our principal assets as at December 31, 2003.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
-------  ------------------------------------------

DIRECTORS AND SENIOR MANAGEMENT

The table below sets forth certain information concerning our directors,
executive officers and members of the supervisory committee, or Board of
Supervisors. All directors and supervisors were elected on April 20, 2004. All
directors will serve terms of three years or until the election of their
respective successors.

NAME                               AGE    POSITION
----                               ---    --------

DIRECTORS
Yu Li                              44     Chairman of the Board of Directors
Xu Fengli                          57     Deputy Chairman of the
                                          Board of Directors
Shi Jianxun                        59     General Manager; Director
Zhang Xingfu                       51     Deputy General Manager; Director
Lan Yunsheng                       46     Director
Ni Muhua                           53     Director
Jiang Jixiang                      51     Director
Lu Yanfeng                         44     Independent Director
Wang Peirong                       48     Independent Director
Fanny Li                           44     Independent Director
Zhou Henglong                      42     Independent Director

OTHER EXECUTIVE OFFICERS
Li Chongjie                        41     Deputy General Manager
Zhang Liyan                        53     Deputy Chief Financial Officer;
                                          Secretary of the Board

BOARD OF SUPERVISORS
Zou Haifeng                        58     Chairman of the Board of Supervisors
Yang Jigang                        41     Supervisor
Yan Weidong                        57     Supervisor
Li Shumin                          54     Supervisor
Wang Huaiqing                      47     Supervisor



                                       44



<PAGE>


         DIRECTORS

YU LI, male, aged 44, a senior engineer, is the Chairman of the Board of
Directors of the Company and general manager of PetroChina Jilin Petrochemical
Company. Mr. Yu graduated from Northeast University and China Social Sciences
Institute. Mr. Yu has held several executive positions, including vice director
of Fushun Petrochemical Detergent Plant, assistant manager and deputy manager of
Fushun Petrochemical Company, deputy general manager of Fushun Petrochemical
Company, and manager of Fushun Petrochemical Company. Mr. Yu has extensive
experience in the administration of large scale petroleum and petrochemical
enterprises. Mr. Yu has been our director since June 2002.

XU FENGLI, male, aged 57, a senior accountant, is deputy chairman of the Company
and chief of the general office of PetroChina's board of supervisors. Mr. Xu
graduated from Xian Petroleum Institute. He was appointed as chief accountant of
Fushun Petrochemical Company, vice director of Finance and Assets Department of
CNPC, a member of Preparatory Group of Refining and Marketing Company and a
deputy general manager of the finance department of PetroChina. Mr. Xu has
extensive experience in refining and financial management. Mr. Xu has been our
director since February 2000.

SHI JIANXUN, male, aged 59, a senior engineer, is the general manager of the
Company. He graduated from East China Chemical Engineering Institute in 1966,
and joined the Predecessor in the same year. He has held several executive
positions with the Predecessor, including Director of the Predecessor Design
Institute and deputy general manager of Jilin Group. Mr. Shi has rich
experiences in administration and construction of large scale of petroleum and
petrochemical projects. Mr. Shi has been our director since December 1994.

ZHANG XINGFU, male, aged 51, is a senior engineer and a deputy manager of the
Company. Mr. Zhang joined the Predecessor in 1982 after graduating from Daqing
Oil Institute. He held positions including deputy director of the refining plant
of the Company and deputy manager of Jilin Group. Mr. Zhang has extensive
experience in administration of chemical production. Mr. Zhang has been our
director since December 1997.

LAN YUNSHENG, male, aged 46, a senior accountant, is a deputy general manager of
CP. Finance Mr. Lan graduated from Jilin University in 1999. He was appointed as
director of the finance department of Fushun Ethylene Plant, deputy chief
accountant and chief accountant of Fushun Petrochemical Company, and our deputy
general manager and chief financial officer. Mr. Lan has extensive experience in
refining and financial management. Mr. Lan has been our director since February
2000.

NI MUHUA, male, aged 53, a senior economic advisor, is a deputy manager of
PetroChina Jilin Petrochemical Company. Mr. Ni graduated from Jilin Chemical
Engineering Institute in 1984. Mr. Ni has held several executive positions with
the Predecessor and was appointed as deputy general manger of the Company. Mr.
Ni has extensive experience in the administration of marketing and sales. Mr. Ni
has been our director since December 1994.

JIANG JIXIANG, male, aged 51, is a senior economic advisor and a deputy manager
of PetroChina Jilin Petrochemical Company. Mr. Jiang graduated from Jilin
Industrial University and joined the Predecessor in 1970. Mr. Jiang was
appointed as chief dispatcher, director assistant and vice director of the
Refining Plant, chief of Basic Construction Headquarters and director of
Management Department of Basic Construction of Jilin Chemical Group Corporation.
Mr. Jiang has extensive experience in refining industry and construction of
chemical industry. Mr. Jiang has been our director since February 2000.



                                       45



<PAGE>

LU YANFENG, male, aged 44, Ph.D., is professor of law, vice dean of Jilin
University School of Law, member of the standing committee of the People's
Congress of Jilin province, director of Chinese Society of International Law,
vice chairman of the Chinese Society of Private International Law, director of
the Law Society of Jilin province, member of Advisory Committee for Economic,
Social Development and Environment for Jilin Provincial Government, arbitrator
of Guangzhou Arbitration Association, honorable inspector of the Inspection
Bureau of Jilin province, part-time lawyer and member of Political Consultative
Conference of Changchun City and member of its Society and Law Committee. He
graduated from the law department of Jilin University in 1982. Mr. Lu
successively held the positions of lecturer, associate professor, head of public
international law and private international law section at Jilin University
School of Law. Mr. Lu has been our director since June 2002.

WANG PEIRONG, male, aged 48, a registered accountant, is an independent
non-executive director of the Company. He is also the president of the
investment banking division at China Dragon Securities Co., Ltd. Mr. Wang
received his Master's degree in administration from Xian Jiaotong University. He
has served as a member of the State Restructuring and Reform Commission and
State Economic and Trade Commission, advising on the restructuring of
state-owned enterprises and on company formation. Mr. Wang has extensive
experience in restructuring, mergers and acquisitions and reform of state-owned
enterprises. Mr. Wang has been our director since June 2003.

FANNY LI, female, aged 44, is an independent non-executive director of the
Company. She is also a partner of BOD McCabe Lo in Hong Kong. She graduated from
the University of Hong Kong and obtained a Master's degree in international
accounting from the City University of Hong Kong. She has over 18 years of
experience in international auditing and accounting work. She has served as a
member of the Expert Panel on Auditing & Assurance Standard Committee and the
Corporate Governance Committee of the Hong Kong Society of Accountants. Ms Li
has significant experience in initial public offerings of companies. Ms. Li has
been our director since April 2004.

ZHOU HENGLONG, male, aged 42, a senior economist, is an independent
non-executive director of the Company. He is also the chairman of Da Xiang
Investment Company Limited and a director of Inner Mongolia Jin Yu Co., Ltd. He
graduated from Hunan College of Finance and Economics. He has held positions
including chief of Policy and Regulations Division of the original Ministry of
Chemical Industry in the PRC and deputy general manager at the headquarters of
the investment bank division of Guo Xin Securities Company Limited. He has
extensive experience in restructuring, mergers and acquisitions, share options
and reform of stated-owned enterprises. Mr. Zhou has been our director since
April 2004.

         OTHER EXECUTIVE OFFICERS

LI CHONGJIE, male, aged 41, a senior engineer, is a deputy manager of the
Company. Mr. Li graduated from Jilin Engineering Institute and Tianjin
University. He has held several positions in the Company including director of
SBR plant of Organic Synthesis Factory and chief of production and technology
department of the Company. Mr. Li has extensive experience in petrochemical
production and management.



                                       46



<PAGE>

ZHANG LIYAN, female, aged 53, a senior accountant, is secretary of the Board and
deputy chief financial officer of the Company. Ms. Zhang graduated from Jilin
Finance and Trade Institute and joined the Predecessor in 1968. She has held
several positions including deputy chief of the finance department at the
Predecessor, director of the capital and securities department of the Company
and chief of the finance department of the Company.

         BOARD OF SUPERVISORS

We have a Board of Supervisors whose primary duty is the supervision of our
senior management, including the Board of Directors, managers and senior
officers. The function of the Board of Supervisors is to ensure that senior
management acts in the interest of us, our shareholders and employees and does
not perform acts which violate PRC law. The Board of Supervisors reports to the
shareholders in general meetings. The Articles of Association provide the Board
of Supervisors with the right to investigate our business and financial affairs
and to convene shareholders' meetings from time to time. The Board of
Supervisors currently comprises five members.

ZOU HAIFENG, male, aged 58, a senior engineer, is chairman of the Board of
Supervisors of the Company and a Director of PetroChina. Mr. Zou graduated from
Northeast China Engineering Institute in 1968. He joined the Predecessor in 1977
and has held various executive positions, including Deputy Chief Engineer,
executive director and deputy manager of the Company. Mr. Zou has been a member
of our Board of Supervisors since February 2001.

YANG JIGANG, male, aged 41, a senior engineer with a master degree, is deputy
chief manager and chief engineer of Chemical Production and Marketing Company of
PetroChina. Mr. Yang graduated from Lanzhou University in 1987. He was appointed
as vice director of Lanzhou Chemical Company, chief engineer of Refining and
Chemical Production Department of CNPC. Mr. Yang has been a member of our Board
of Supervisors since February 2001.

YAN WEIDONG, male, aged 57, is a senior accountant. Mr. Yan graduated from
People's University of China in 1990 and joined the Predecessor in 1968 and was
appointed as our Chief of Financial Department and our chief of the Auditing
Department. Mr. Yan has been a member of our Board of Supervisors since December
1997.

LI SHUMIN, male, aged 54, is a senior economic advisor and the deputy director
of the supervisory department of the Company. Mr. Li graduated from Nanjing
Chemical Engineering Institute in 1983 and joined the Predecessor in 1970 and
was appointed as Deputy Party Secretary of the dyestuff plant of the Company in
1986. Mr. Li has been a member of our Board of Supervisors since December 1997.

WANG HUAIQING, male, aged 47, is an engineer and a model worker. He is deputy
director of Ethylene Plant of the Company. Mr. Wang graduated from Jilin
Chemical Engineering Institute in 1987. Mr. Wang has been a member of our Board
of Supervisors since February 2000.

COMPENSATION OF DIRECTORS, SUPERVISORS AND OFFICERS

The aggregate amount of cash remuneration paid by us to the directors,
supervisors and officers during the year ended December 31, 2003 was
approximately RMB 757,000. In addition, officers and directors who are also our
officers or employees receive certain other benefits in kind, such as subsidized
or free health care services, housing and transportation, customarily provided
by enterprises in the PRC to their employees. See "Employees".



                                       47




<PAGE>

BOARD PRACTICES

Each of our executive directors and supervisors has entered into a service
agreement with us for a term of three years. None of our executive directors or
supervisors shall receive benefits upon termination of employment under such
agreements. No other service contracts exist or have been proposed between us or
any of our subsidiaries and any of the directors or supervisors.

The Audit Committee of the Board of Directors consists of Wang Peirong, Fanny
Li, Lu Yanfeng and Zhou Henglong. The Audit Committee is primarily responsible
for selecting auditor, monitoring our internal auditing system, reviewing
interim and annual financial statements, coordinating internal and external
audit and review our material related party transactions.

The Remuneration and Examining Committee of the Board of Directors, or
Remuneration Committee, consists of Shi Jianxun, Zhou Henglong, Wang Peirong and
Lu Yanfeng. The Remuneration and Examining Committee is primarily responsible
for proposing to the Board of Directors the remuneration plan for our directors
and executive officers, conducting annual review on performance of directors and
executive officers and monitoring the implementation of our remuneration system.

The Strategy Committee of the Board of Directors consists of Yu Li, Shi Jianxun,
Lu Yanfeng and Fanny Li. The Strategy Committee is primarily responsible for
studying and advising on our long-term development strategy and major investment
plans.

The Nominating Committee of the Board of Directors consists of Yu Li, Shi
Jianxun, Wang Peirong and Lu Yanfeng. The Nominating Committee is primarily
responsible for nominating directors and managers.

EMPLOYEES

As of December 31,2001, 2002 and 2003 , we employed approximately 22,300, 22,725
and 21,771 persons respectively. As of December 31, 2003, of our total
employees, approximately 1,738 were management and administrative personnel,
approximately 1,322 were engineers and technicians, approximately 11,861 were
factory personnel directly involved in production and the remainder are
ancillary service workers and other personnel. Approximately 13.7% of our work
force graduated from universities or technical colleges.

Currently, all members of our work force are employed under employment contracts
which specify the employee's position, responsibilities, remuneration and
grounds for termination. We believe that such a contract system imposes
discipline, provides work incentives and gives us a greater degree of management
control. We believe that, by protecting the respective rights of the enterprise
and our employees and by linking remuneration to productivity, the contract
system has also improved employee morale. Our employees generally sign contracts
specifying terms of one, three or eight years.

As part of the trade union structure of our Parent, we have a trade union which
protects employees' rights, aims to assist in the fulfillment of our economic
objectives, encourages employee participation in management decisions and
assists in mediating disputes between us and union members. Each of our nine
operating units has a separate branch of the trade union. We have not been
subjected to any strikes or other labor disturbances which have interfered with
our operations, and we believe that our relations with our employees are good.




                                       48



<PAGE>

We participate with our employees in a pension plan managed by the Jilin
Provincial Government, pursuant to which we and our employees pay an annual
contribution to the plan. We annually contribute an amount equal to 24.0% of the
annual salary (including base salary, over-time payments, allowances and
bonuses) of each employee to a pension fund. In 2003, our total contribution to
our employees' pension plan was RMB 89.2 million. Each employee is also required
to contribute a certain percentage of his or her salary to a pension fund. The
employees' contribution percentage can be adjusted by the Jilin Provincial
Government and in 2003 the percentage was 7%. Upon retirement, all of our
employees are entitled to pension payments from the plan. Jilin Group Pension
Funds Management Centre (also known as Jilin Provincial Social Insurance Company
Jilin Group Agency Office) has been entrusted by the Jilin City Government with
collecting contributions and making payments to retired employees. We do,
however, pay the cost of retiree medical benefits.

We do not currently carry workers' compensation or other similar insurance.
However, all employees who are unable to work due to illness or disability are
entitled to receive certain benefits during the period of their absence from the
workplace. Generally, if the illness or disability is job-related, the employee
is entitled to receive 100.0% of his or her base salary without any time
limitation. If the illness or disability is not job-related, pursuant to the PRC
government regulations, based on the length of the employee's employment, he or
she will receive not less than 60.0% of his or her base salary for a period of
six months, and 40.0% to 60.0% of his or her base salary thereafter.

With respect to healthcare, in accordance with PRC state policy, companies are
required to maintain a health insurance fund in order to provide healthcare
benefits to employees. Under this system, contributions to the health insurance
fund are made by both us and our employees. We make annual contributions equal
to 10.0% of the total annual salaries paid in the previous year to existing
employees, and employees make monthly contributions equal to 1.0% of their
average monthly salary received in the previous year.

In 1996, we began implementing an employee housing reform program, as required
by the PRC government policy, pursuant to which we are encouraged to provide
opportunities to our employees to purchase ownership interests in their housing.
In general, housing is constructed by our Parent and assigned to our employees.
Employees are provided with an option to purchase their assigned housing at
preferential prices which are generally lower than our Parent's cost of
construction. We have agreed to reimburse our Parent for the differential
between our Parent's cost of construction and the preferential sales price of
housing which is constructed and distributed after January 1, 1997, and with
respect to which an employee has exercised such a purchase option. The expenses
incurred by us in connection with this program did not materially impact our
results in 2003 and such expenses are not expected to materially impact the
results in the future.

SHARE OWNERSHIP

The following chart sets forth the shareholding information for our directors,
supervisors and other executive officers who held their offices in 2003 as of
December 31, 2003.


                                       49




<PAGE>


                                                                  PERCENT OF
                                                                  OUTSTANDING
NAME                      TITLE OF CLASS      AMOUNT OWNED        SHARES(1)
----                      --------------      ------------        ---------

DIRECTORS

Yu Li                     N/A                           0              0
Xu Fengli                 N/A                           0              0
Shi Jianxun               Domestic Shares           3,550              *
Zhang Xingfu              N/A                           0              0
Lan Yunsheng              N/A                           0              0
Ni Muhua                  Domestic Shares           3,550              *
Jiang Jixiang             N/A                           0              0
Wang Baifeng              N/A                           0              0
Lu Yanfeng                N/A                           0              0
Fanny Li                  N/A                           0              0

OTHER EXECUTIVE OFFICERS
Li Chongjie               N/A                           0              0
Zhang Liyan               N/A                           0              0

SUPERVISORS
Zou Haifeng               Domestic Shares           3,550              *
Yang Jigang               N/A                           0              0
Yan Weidong               N/A                           0              0
Li Shumin                 Domestic Shares           7,000              0
Wang Huaiqing             N/A                           0              0


(1) "*" Represents less than one percent of the class of shares. None of the
    shares have different voting rights.

We have never established or maintained a share option plan for our directors,
executive officers, supervisors or other employees. We have not made any
arrangements for involving employees in our capital.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
-------  -------------------------------------------------

MAJOR SHAREHOLDERS

As of May 31, 2004, our Parent owned 67.29% of our share capital and is able to
exercise all the rights of a controlling shareholder, including the election of
directors and voting in respect of amendments to our Articles of Association.
Prior to July 1998, our Parent was a state-owned enterprise under the
administrative control of the Jilin Provincial Government. On July 1, 1998, our
Parent became a direct subsidiary of CNPC. CNPC is a state-owned enterprise
which oversees the exploration of oil and natural gas resources and engages in
businesses in the petrochemical industry. CNPC is subject to industrial
oversight by certain government entities, including the State Assets Regulatory
and Management Commission, the National Development and Reform Commission and
the Ministry of Commerce. On November 5, 1999, pursuant to the CNPC
Reorganization, PetroChina, a controlled subsidiary of CNPC, became our new
Parent. See ITEM 4. INFORMATION ON THE COMPANY - THE PRC CHEMICAL INDUSTRY AND
RELEVANT MARKETS. Our Articles of Association provide certain protection against
the abuse of a controlling shareholder by stipulating that, in addition to any
obligation imposed by law, a controlling shareholder shall not exercise its
voting rights in a manner prejudicial to the interests of the minority
shareholders with respect to certain enumerated matters of fundamental
importance to shareholders. There has not been, however, any published report of
judicial enforcement in the PRC of such provisions by minority shareholders.


                                       50



<PAGE>

The following table sets forth certain information regarding the ownership of
our capital stock as of May 31, 2004 held by shareholders who are known to us to
own 5% or more of each class of our voting securities. None of those
shareholders have different voting rights.

<TABLE>
<CAPTION>


                             IDENTITY OF                              PERCENT OF      PERCENT OF CAPITAL
TITLE OF CLASS             PERSON OR GROUP            AMOUNT OWNED   CAPITAL STOCK    STOCK IN ITS CLASS
--------------             ---------------            ------------   -------------    ------------------
<S>               <C>                              <C>                 <C>           <C>
Domestic Shares                   Parent              2,396,300,000      67.29%              92.31%
H Shares           HKSCC Nominees Limited               815,676,699      22.91%              84.55%
H Shares           Hong Kong & Shanghai Banking         135,487,300       3.80%              14.04%
                   Corporation (Nominee) Limited
</TABLE>

The following table sets forth change in percentage ownership of 0.01% or more
of our capital stock held by shareholders who are known to us to own 5.0% or
more of each class of our voting securities during the three-year period ended
December 31, 2003:


<TABLE>
<CAPTION>


 IDENTITY OF PERSON OR         CHANGE OF PERCENT OF         CHANGE OF PERCENT OF       CHANGE OF PERCENT OF
      GROUP                    CAPITAL STOCK IN 2001        CAPITAL STOCK IN 2002      CAPITAL STOCK IN 2003
      -----                    ---------------------        ---------------------      ---------------------
<S>                           <C>                             <C>                        <C>
Parent                                 -                          -                            -
HKSCC   Nominees Limited          +0.24(pound)(Y)                 +0.31%                     +1.18%
Hong Kong & Shanghai Banking           -                          +0.01%                     +0.14%
Corporation (Nominee) Limited
</TABLE>

As of May 31, 2004, a total of 964,778,000 H Shares were outstanding. As of May
28, 2004, a total of 731,248 ADSs, representing the equivalent of 73,124,800 H
Shares, were outstanding, and held by 47 holders of record. A total of
2,596,300,000 Domestic Shares were also outstanding on May 31, 2004.

RELATIONSHIP WITH OUR PARENT, CNPC AND THE PRC GOVERNMENT

Prior to the Restructuring, the Predecessor, which became our Parent after the
Restructuring, was the owner of the business, operations, assets and liabilities
that we assumed in the Restructuring. In the Restructuring, the Predecessor
assigned its major chemical industrial businesses, operations, assets and
liabilities and all related ancillary units and facilities to us. In return, our
Parent received 100.0% of our equity. Following the Restructuring, our Parent
continues to own the businesses, operations, assets and liabilities of the
Predecessor not assumed by us. Prior to July 1998, our Parent was a State-owned
enterprise under the administration of the Jilin Provincial Government and, on
July 1, 1998, our Parent became a wholly-owned subsidiary of CNPC. Accordingly,
since July 1, 1998 we have been controlled by CNPC through its control over our
Parent. Pursuant to the CNPC Reorganization, effective November 5, 1999,
PetroChina became our new Parent. PetroChina is a controlled subsidiary of CNPC.
Both CNPC and our Parent exercise their rights as the controlling shareholders
of our Parent and us, respectively, according to relevant PRC laws, rules and
regulations. See ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS -
RELATED PARTY TRANSACTIONS.

Prior to the Industry Restructuring, the Predecessor was subject to the
supervision and management of the Ministry of Chemical Industries with respect
to its operations, although this supervision and management authority was
administered by the Jilin Provincial Government. The Predecessor was also
required to make tax payments and profit distributions to the Jilin Provincial
Government. In March 1998, pursuant to the Industry Restructuring, SOCIB, as
successor to the Ministry of Chemical Industries, China National Petrochemical
Corporation and China National Oil and Gas Corporation, became the controlling
governmental authority of the chemical and petrochemical industries in China and
our Parent became subject to SOCIB's industrial oversight until SOCIB was
replaced by the State Economic and Trade Commission in February 2001. Prior to
July 1998, we were controlled by the Jilin Provincial Government through that
entity's administrative control over our Parent, our controlling shareholder.


                                       51




<PAGE>

In March 2003, the State Economic and Trade Commission was dissolved by the PRC
government, and its functions in directing the reform and management of
State-owned enterprises were assumed by the State Assets Regulatory and
Management Commission, its functions in industry planning and policy making were
assumed by the National Development and Reform Commission, and its functions in
administering domestic trade, coordinating and implementing import and export
plan of critical industrial products and raw materials were assumed by the
Ministry of Commerce. We are currently subject to the industrial oversight of
these three new government agencies at the national level.

RELATED PARTY TRANSACTIONS

         DIVISION AGREEMENT WITH PARENT

The Restructuring was carried out in preparation for the Combined Offering and
to focus our activities on our primary business as a large-scale diversified
chemical enterprise. Pursuant to the Restructuring, we were established as a
joint stock limited company under the PRC Company Law on December 13, 1994, as
part of the division of the Predecessor. The Predecessor changed its name to
Jilin Chemical Group Corporation following the division and we took over, as of
October 1, 1994, the effective date of the Restructuring, those assets and
liabilities of the Predecessor which related to our principal businesses, as
well as certain ancillary functions including power supply and additional
infrastructure, waste treatment, rail transportation, sales and marketing,
research and development and other business support functions. The Predecessor,
which became Jilin Group in the Restructuring, retained the assets, liabilities
and businesses that were not assumed by us. These assets included certain
production units that are not competitive with our businesses and certain social
services, government functions and other ancillary services.

Since the Restructuring, Jilin Group has continued to own and operate certain
production facilities, one construction business and a wide range of other
smaller-scale businesses (none of which poses any material competition to our
businesses), including its non-revenue generating operations (such as schools,
hospitals and residential housing). In the CNPC Reorganization, five of the
Additional Seven Facilities were transferred by Jilin Group to PetroChina. Jilin
Group and PetroChina each remain responsible for the Additional Seven Facilities
that are now under their respective control.

In connection with the Restructuring, we entered into a division agreement with
Jilin Group for the purpose of defining the division of the Predecessor's
business between Jilin Group and us and of giving effect to such division. We
and Jilin Group gave mutual indemnities to each other for all claims against one
of us respectively arising from or in respect of the assets and liabilities
other than those which one of us have respectively assumed pursuant to the
Restructuring. However, any indemnity payments to be made by us to Jilin Group
would not extend to any item or related amount not included in our total
current, long-term and contingent liabilities as of September 30, 1994. The
purpose of the indemnities was to ensure that neither we nor Jilin Group would
bear liabilities which we had not agreed to assume, even in cases where third
parties have not consented to the division of liabilities between us and
continue to make claims on the entity which has not assumed the relevant
liability. In addition, Jilin Group gave an undertaking to us in that division
agreement that it would not compete, or engage in operations which are likely to
compete, with our businesses or operations, subject to the agreements between
the parties relating to the business and operations of the Ethylene Project.



                                       52


<PAGE>




         AGREEMENT WITH JILIN GROUP FOR CROSS-PROVISION OF GOODS AND SERVICES

As was the case prior to the Restructuring, certain transactions between us and
Jilin Group and its subsidiaries continued after the Restructuring in the form
of cross-provision of goods and services on a priority but non-exclusive basis.
The principal goods and services that are provided by Jilin Group and its
subsidiaries to us include the following: gas and steam, as utilities for our
employees; medical and health services; telephone and mass communication
services; feedstock for further processing by us (such feedstock principally
consisting of products produced by the Additional Seven Facilities, including
a-advanced alcohol and acrylonitrile); archives and information services;
computer network maintenance and software development; technical education of
employees; and sea transportation of goods. Additionally, the construction
subsidiary of Jilin Group provided construction services to us for constructing
parts of the Original Four Facilities and provides general repair and
maintenance services in relation to our buildings and properties. The aggregate
cost to us of these goods and services was approximately RMB 609.0 million in
2003. The principal goods and services to be provided by us to Jilin Group and
its subsidiaries include the following: rail transportation of goods; waste
water treatment; and feedstock for further processing by Jilin Group and its
subsidiaries. The aggregate value of these goods and services provided by us was
approximately RMB 908.0 million in 2003.

The prices at which the goods and services are supplied are:

      --   state prices, i.e. mandatory prices in accordance with PRC
           regulations;
      --   where there is no applicable state price, market price; or
      --   where there is no applicable state price or market price, at
           cost (provided that the increase in unit cost in any year may
           not exceed the higher of 5.0% and the increase in the consumer
           price index for Jilin City for the immediately preceding
           year).

We have entered into a 10-year composite services agreement with Jilin Group
which sets out in detail the goods and services to be provided, the basis of
charges and the length of the notice period required before the provision of any
particular goods or services may be terminated.

         PROVISION OF FEEDSTOCK TO THE ADDITIONAL SEVEN FACILITIES

We provide feedstock to Jilin Group and PetroChina for use in the Additional
Seven Facilities respectively owned by them. The prices at which the goods and
services are supplied are:

      --   state prices, i.e. mandatory prices in accordance with PRC
           regulations;
      --   where there is no applicable state price, market price; or
      --   where there is no applicable state price or market price, at
           cost (provided that the increase in unit cost in any year may
           not exceed the higher of 5.0% and the increase in the consumer
           price index for Jilin City for the immediately preceding
           year).



                                       53



<PAGE>

         OUR  IMPORT AND EXPORT AGENT

Jilin Group's subsidiary, Jilin Chemical Import and Export Company, currently
acts as our agent for the import of equipment and technology and raw materials.
In addition, it purchases all of our products for export.

         RELATED PARTY LOANS

The outstanding loans during 2003 from Jilin Group were used to finance the
construction of our production facilities. During 2003, the largest amount
outstanding for loans from Jilin Group was RMB 1,186 million, all of which were
foreign currency denominated loans related to the Ethylene Project. During 2002,
the largest amount outstanding for loans from Jilin Group was RMB 1,366.0
million, which included both Renminbi and foreign currency denominated loans.
Further to an agreement between us and Jilin Group effective September 30, 1998,
Jilin Group assumed the foreign currency loans borrowed by us and agreed to make
periodic loan repayments on our behalf and in turn, we agreed to pay Jilin Group
the Renminbi equivalent of such repayments at an exchange rate determined as at
September 30, 1998. we re-assumed some of these foreign currency loans effective
January 1, 2000. Accordingly, those loans were denominated in Renminbi in our
financial statements until January 1, 2000 when the loans were reconverted to
foreign currency loans. See ITEM 4. INFORMATION ON THE COMPANY - THE ETHYLENE
PROJECT - FINANCING FOR THE ETHYLENE PROJECT.

Jilin Group and CP Finance, a subsidiary of CNPC, have available to them from
PRC banks and financial institutions a number of Renminbi and foreign currency
loans and banking facilities which have been lent to us for the construction of
our production facilities and as our working capital. The principal commercial
terms of such on-lending are on the same terms as to interest rate and maturity
as the corresponding loans to Jilin Group and CP Finance, respectively. All
loans made by Jilin Group and CP Finance are unsecured. Jilin Group and CP
Finance have obtained all necessary consents from lenders and the relevant
regulatory authorities for such lending.

The outstanding loans during 2003 from CP Finance were used to finance the
construction of our production facilities and our working capital needs. During
2003, the largest amount outstanding for loans from CP Finance was RMB 2,933.0
million denominated in Renminbi. For all working capital loans and facilities,
the on-lending has been and will be made by CP Finance for non-specific purposes
at interest rates which represent the cost of funds to CP Finance, provided that
the rates charged by CP Finance are no higher than either the best lending rates
offered by CP Finance to its corporate customers from time to time or the
prevailing rates prescribed by the PRC government or, if none are so prescribed,
the prevailing market rates from time to time. As of December 31, 2003, we had
short-term outstanding loans from CP Finance in an amount of RMB 3.16 billion
which were part of a RMB 5.00 billion facility to finance our working capital
needs with an interest rate of 5.019% per annum. The facility has expired on
December 31, 2003, and a new one was issued on December 31, 2005 pursuant to
which CP Finance grants us a credit facility in an amount of RMB 8.00 billion to
finance our working capital needs. ITEM 18. FINANCIAL STATEMENTS -- CONSOLIDATED
FINANCIAL STATEMENTS -- NOTE 21.

         TRANSACTIONS WITH CNPC SUBSIDIARIES

We and certain subsidiaries of CNPC are engaged in various transactions. On a
recurring basis, we buy crude oil from Daqing and Fuyu (Jilin) oilfields, each a
company ultimately controlled by CNPC, and sell gasoline, diesel oil and
petrochemical products to companies controlled by CNPC. The aggregate amount
spent by us for the purchase of crude oil and other raw materials from companies


                                       54



<PAGE>


controlled by CNPC during the period from January 1, 2003 to December 31, 2003
was approximately RMB 9.40 billion. The aggregate revenues we generated from our
sale of diesel oil, gasoline and petrochemical products to companies controlled
by CNPC during the same period were RMB 5.60 billion, RMB 2.70 billion and RMB
4.10 billion, respectively. These transactions were conducted on normal
commercial terms on an arm's length basis in the ordinary and usual course of
our business. The prices of crude oil purchased by us and the prices for
gasoline and diesel oil sold by us in these transactions were based on the
prices set by CNPC in accordance with prevailing government pricing policies.
See ITEM 18. FINANCIAL STATEMENTS - CONSOLIDATED FINANCIAL STATEMENTS - NOTE 29.

         CNPC INSURANCE PROGRAMS

Beginning November 1, 1999, we began participating in the insurance programs
established by CNPC and approved by the PRC government. Other than automobile
insurance, we did not renew existing insurance policies with third party
insurers when they expired in year 2000 and we replaced them with comparable
policies offered by CNPC. The amount of insurance premiums payable by us to CNPC
under the new insurance programs as of December 31, 2003 was approximately RMB
35.3 million, and is expected to be approximately RMB 35.3 million in 2004. We
believe that our participation in the CNPC insurance programs are on normal
commercial terms on an arm's length basis in the ordinary and usual course of
our business.

         DIRECTORS AND SUPERVISORS APPOINTED BY PARENT

Several of our directors, supervisors and senior officers hold or have held
positions of responsibility in our Parent. In particular, Yu Li, the chairman of
our Board of Directors, is general manager of PetroChina Jilin Petrochemical
Branch Company; Zou Haifeng, the chairman of our Board of Supervisors, is a
director of our Parent; Lan Yunsheng, one of our directors, is a deputy general
manager of CP Finance, Ni Muhua and Jiang Jixiang, two of our Directors, are
deputy managers of PetroChina Jilin Petrochemical Branch Company; Xu Fengli, one
of our Directors, is chief of the general office of our Parent's board of
supervisors; and Yang Jigang, one of our Supervisors, is deputy chief manager
and chief engineer of our Parent's Chemical Production and Sales Branch Company.

INTERESTS OF EXPERTS

Not applicable.


ITEM 8.  FINANCIAL INFORMATION
------------------------------

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See Pages 1 to 46 following Item 19.

         LEGAL PROCEEDINGS

Neither we nor any of our subsidiaries are a party to nor is any of our property
the subject of any material pending legal or arbitration proceedings.



                                       55



<PAGE>

         DIVIDEND PAYMENTS

Our Articles of Association require that cash dividends in respect of H Shares
be declared in Renminbi and paid by us in HK dollars. Our Articles of
Association further stipulate that such dividends must be converted into HK
dollars at the average of the closing HK dollar exchange rates as announced by
the People's Bank of China for the calendar week preceding the date on which
such dividends are declared.

With respect to the payment of dividends, we may, after taxes have been paid in
accordance with applicable law, make distributions to our foreign shareholders
with funds in our foreign exchange account. Should we not have sufficient
foreign exchange reserves in our foreign exchange account, we may purchase
payments in foreign currency. Although we believe that we can meet our foreign
currency requirements for such dividend payments, no assurance can be given that
foreign currency for such payments will always be available or that the rates
for conversion of Renminbi to foreign currencies will not decline.

The holders of the ADSs receive HK dollar dividend payments in US dollars at
conversion rates related to market rates and subject to fees as set forth in the
corresponding Deposit Agreement. Since October 17, 1983, the HK dollar has been
linked to the US dollar at the rate of HK$7.80 = US$1.00, and the Hong Kong
government has stated its intention to maintain the link at that rate.

Dividend payments may be subject to PRC withholding tax. See ITEM 10. ADDITIONAL
INFORMATION PRC TAXATION - TAX ON DIVIDENDS.

See also, ITEM 3.  KEY INFORMATION - SELECTED FINANCIAL DATA - DIVIDENDS.

SIGNIFICANT CHANGES

Not applicable.


ITEM 9.  THE OFFER AND LISTING
-------  ---------------------

OFFER AND LISTING DETAILS

Not applicable except for Item 9.A.4. and 9.C.


                                       56



<PAGE>

         PRICE HISTORY OF OUR SHARES

Set forth below is certain market information relating to the H Shares and ADSs
in respect of the period from January 1, 1999 to May 31, 2004.

                             Price per H Share                Price per ADS
                                   (HK$)                          (US$)
                             -----------------                -------------

                            High            Low          High            Low
1999                        1.074          0.302         12.492          3.233
2000                        0.740          0.350          9.437          4.375
2001                        1.210          0.345         15.250          4.750
2002                        0.810          0.480          9.800          5.750
2003                        1.720          0.570         22.300          7.350

2002
     First Quarter          0.710          0.500          8.900          6.450
     Second Quarter         0.680          0.570          8.420          7.400
     Third Quarter          0.810          0.480          9.800          5.750
     Fourth Quarter         0.700          0.485          8.600          5.870

2003
     First Quarter          0.780          0.570          9.150          7.350
     Second Quarter         1.020          0.560         12.200          7.900
     Third Quarter          1.410          0.890         17.470         11.800
     Fourth Quarter         1.720          1.270         22.300         16.200


2004
     First Quarter          1.850          1.400         24.290         18.200

     December, 2003         1.720          1.460         22.300         19.150
     January, 2004          1.820          1.480         24.290         18.740
     February, 2004         1.790          1.400         22.400         18.200
     March, 2004            1.850          1.550         23.100         20.050
     April, 2004            1.830          1.150         23.200         15.190
     May, 2004              1.280          0.880        16.300          11.700

-------------------------------------------------------------------------------

MARKETS

The principal trading market for our H Shares is the Hong Kong Stock Exchange.
The ADSs, each representing 100 H Shares, have been issued by The Bank of New
York as depositary and are listed on the New York Stock Exchange under the
symbol "JCC." Prior to the Combined Offering and subsequent listings on the Hong
Kong and New York Stock Exchanges on May 23 and 22, 1995, respectively, there
was no market for the H Shares or ADSs.

Pursuant to PRC law, our domestic-listed shares were suspended from trading on
the Shenzhen Stock Exchange on April 30, 2003 as a result of our reporting of
three consecutive years of net losses from January 1, 2000 to December 31, 2002.
Following our report of net profits for the period ended June 30, 2003, our
domestic-listed shares resumed trading on September 25, 2003 on the Shenzhen
Stock Exchange under the "special treatment" category provided under PRC law.
The resumption of trading of our domestic-listed shares was subject to the risk
of delistment if we were unable to generate net profits for the year ended
December 31, 2003. Following the release of our financial results for the year
ended December 31, 2003, which recorded net profits for the year, our
domestic-listed share no longer face the risk of delistment unless we record
another three years of consecutive losses. Our domestic-listed shares continue
to trade under the "special treatment" category due to net asset value per share
lower than share par value and face increased risk of trading suspension for the
trading day if there is trading price volatility of 5% or more in that trading
day. In general, PRC law provides that companies listed on the Shenzhen Stock
Exchange will face trading suspension if there is trading price volatility of
10% or more in that trading day.



                                       57




<PAGE>


ITEM 10.  ADDITIONAL INFORMATION
--------  ----------------------


SHARE CAPITAL

Not applicable.

MEMORANDUM AND ARTICLES OF ASSOCIATION

Set forth below is certain information relating to the H Shares, including a
brief summary of certain provisions of our articles of association and selected
laws and regulations applicable to us. Such summary does not purport to be
complete and reference is made to our articles of association and the texts of
the applicable laws and regulations.

         SOURCES OF SHAREHOLDERS' RIGHTS

Currently, the primary sources of shareholder rights are our articles of
association, the PRC Company Law and the Listing Rules, which, among other
things, impose certain standards of conduct, fairness and disclosure on us, our
directors and our controlling shareholder. To facilitate the offer and listing
of shares of PRC companies overseas, and to regulate the behavior of companies
whose shares are listed overseas, the then PRC State Council Securities
Commission and the State Commission for Restructuring the Economic System issued
on August 27, 1994 the Mandatory Provisions. These Mandatory Provisions become
entrenched in that, once they are incorporated into the articles of association
of a PRC company, they can only be amended with the approval of China Securities
Regulatory Commission and the relevant examination and approval authorities of
the PRC State Council. The Listing Rules require that a number of provisions, in
addition to the Mandatory Provisions, be included in the articles of association
of PRC companies listing H Shares on the Hong Kong Stock Exchange. The Mandatory
Provisions and these additional provisions have been incorporated into our
articles of association.

In addition, for so long as the H Shares are listed on the Hong Kong Stock
Exchange, we will be subject to the Listing Rules, the Securities and Futures
Ordinance of Hong Kong and the Hong Kong Codes on Takeovers and Mergers and
Share Repurchases.

Unless otherwise specified, all rights, obligations and protections discussed
below derive from our articles of association and/or the PRC Company Law.

         OUR OBJECTIVES AND PURPOSES

The Company was registered with the PRC State Administration for Industry and
Commerce in Jilin Province on December 13, 1994. The business registration
number of the Company is: 2200001000906.

Pursuant to Article 10 of our articles of association, our business objective is
to establish a high technology chemical company which will be able to conduct
its own operations and development as well as to have sole responsibility for
its profits and losses. As stated in our articles of association, on the basis
of our infrastructure, we aim to improve our technology and product development,
to utilize our capital resources productively and to fully exploit domestic and
overseas markets for our products so as to enable us to become an international
conglomerate. We also seek to protect our legitimate rights and benefits as well
as those of our shareholders and to conduct a profitable operation.


                                       58



<PAGE>

         BOARD OF DIRECTORS

Where a director is materially interested in an actual or proposed contract,
transaction or arrangement with the Company, other than his service contract as
a director, he shall disclose such interest to the board of directors for its
approval. The contract, transaction or arrangement in which a director is
materially interested shall be voidable unless approved by the board of
directors at a meeting in which the interested director is not counted in the
quorum and has refrained from voting.

Under our articles of association, we shall not directly or indirectly make a
loan to any of our directors, provide any guarantee in connection with a loan
made by any person to any of our directors or make a loan or provide any
guarantee in connection with any loan made by any person connected to any of our
directors.

Our articles of association provide that each of our directors shall enter into
a written contract with us regarding his emoluments, which shall be approved by
the shareholders in a general meeting prior to the contract being entered into.

Our articles of association do not set any age limit requirement for the
retirement of our directors. Our directors are not required to hold our shares
to be qualified.

         RIGHTS, PREFERENCES AND RESTRICTIONS ATTACHED TO OUR SHARES

                  SIGNIFICANT DIFFERENCES IN THE H SHARES AND DOMESTIC SHARES

Holders of our H Shares and Domestic Shares, with minor exceptions, are entitled
to the same economic and voting rights. However, our articles of association
provide that holders of H Shares will receive dividends in Hong Kong Dollars
while holders of Domestic Shares will receive dividends in Renminbi. In
addition, our H Shares can be traded only by investors from foreign countries
and investors from Taiwan, Hong Kong and Macau, all of whom are considered
foreign investors for such purposes, while our Domestic Shares may be traded
only by investors in the PRC. Other differences between our H Shares and
Domestic Shares relate primarily to restrictions placed on Domestic Shares and
holders of Domestic Shares that are not applicable to H Shares or holders of H
Shares.

                  DIVIDENDS AND LIQUIDATION RIGHTS

Dividend distributions may be proposed at any time by our Board of Directors and
approved by an ordinary resolution of the shareholders at a general meeting. We
may distribute dividends or bonuses no more than once a year unless approved by
an ordinary resolution of our shareholders. Our articles of association allow
for distributions of cash dividends or shares. A distribution of shares,
however, must be approved by special resolution of our shareholders.

We may distribute dividends only after allowance has been made for:

         --       making up losses, if any;
         --       allocations to the statutory common reserve; and
         --       allocations to the statutory public welfare fund.




                                       59





<PAGE>

Our articles of association require us to appoint a receiving agent registered
as a trust company under the Trustee Ordinance of Hong Kong to receive dividends
declared by us in respect of the H Shares. If a shareholder does not, within six
years after the date of declaration, claim the dividends distributed, that
shareholder shall be deemed to have forfeited his claim to such dividend.

In the event of our liquidation, our H Shares will rank pari passu with our
Domestic Shares, and payment of debts out of our remaining assets shall be made
in the order of priority prescribed by applicable laws and regulations or, if no
such laws exists, as the liquidation committee appointed either by us or the
courts of China consider fair and proper.

                  VOTING

Each of our shares is entitled to one vote on all matters submitted to a vote of
our shareholders at all shareholder meetings, except for meetings of a special
class of shareholders where only holders of shares of the affected class are
entitled to vote on the basis of one vote per share of the affected class.
Because our shares do not have cumulative voting rights, a holder of a majority
of our shares is able to elect all of the directors.

Our articles of association provide that all differences or claims between the
following persons and arising from any provision of our articles of association
or any right or obligation conferred or imposed by the Company Law or any
subsequently promulgated laws or regulations replacing the Company Law,
concerning our affairs must, with certain exceptions, be referred to arbitration
at either the China International Economic and Trade Arbitration Commission in
China or the Hong Kong International Arbitration Centre:

         --    a holder of H Shares and us,
         --    a holder of H Shares and any of our directors, supervisors,
               general managers or other senior officers, or
         --    a holder of H Shares and a holder of Domestic Shares.

                  RESTRICTIONS ON LARGE OR CONTROLLING SHAREHOLDERS

Our articles of association provide that, in addition to any obligation imposed
by law or required by any stock exchange on which our shares are listed, a
controlling shareholder must not exercise his voting rights in a manner
prejudicial to the interests of our shareholders generally or of some of our
shareholders which has the effect of:

         --    relieving our directors or supervisors from their duty to act
               honestly in our best interest,
         --    approving the expropriation by a director or supervisor of any of
               our assets, including any of our corporate opportunities, or
         --    approving the expropriation by a director or supervisor of the
               individual rights of other shareholders, including rights to
               distributions and voting rights (except in the case of a
               restructuring approved by our shareholders).

A controlling shareholder is defined by our articles of association as any
person who, on his own or acting in concert with others, has the power to elect
more than half of our directors, exercises or controls the exercise of 30% or
more voting rights, holds 30% or more of issued and outstanding shares or in any
other manner controls us in fact.


                                       60



<PAGE>


         MODIFICATIONS OF SHAREHOLDER RIGHTS

No rights of any class of our shareholders (holders of Domestic Shares and H
Shares being separate classes for this purpose) may be modified or abrogated,
unless approved by a special resolution of all our shareholders at a general
meeting and by a special resolution of our shareholders holding that class of
shares at a separate meeting. Our articles of association enumerate, without
limitation, certain amendments which would be deemed to be a modification or
abrogation of the rights of a class of shareholders, including increasing or
decreasing the number of shares of a class disproportionate to increases or
decreases of other classes of shares, removing or reducing rights to receive
dividends in a particular currency or creating shares with voting or equity
rights superior to shares of such class.

In addition, the Listing Agreement between us and the Hong Kong Stock Exchange
provides that we may not permit amendments to certain sections of our articles
of association which have been mandated by the Hong Kong Stock Exchange. These
sections include provisions relating to varying the rights of existing classes
of shares, voting rights, the power to purchase our own shares, the rights of
minority shareholders and liquidation procedures. In addition, certain
amendments to our articles of association require the approval and consent of
relevant PRC authorities.

         SHAREHOLDERS' MEETINGS

Our board of directors must convene an annual general shareholders' meeting
within six months after the end of each financial year. Our board of directors
must convene an extraordinary general shareholders' meeting within two months of
the following events:

         --    the number of our directors falls below the minimum required by
               the Company Law or more than one-third of the seats on our board
               become vacant;
         --    our accrued losses reach one-third of our total share capital;
         --    our board of directors considers it necessary or our board of
               supervisors requests such a meeting; or -- shareholders holding
               shares representing not less than one-tenth of the total number
               of shares entitled to vote at such a meeting make a written
               demand to convene such a meeting.

Meetings of a special class of shareholders must be called in certain enumerated
situations when the rights of the holders of such class of shares may be
modified or adversely affected, as discussed below. Motions proposed by
shareholders (including proxies) who hold five (5%) percent or more of the total
number of our shares must be included on the notice of meeting given and
submitted to the meeting if the motions falls within the scope of a
shareholder's meeting.

Our shareholder meetings must be convened by our board of directors by written
notice given to shareholders not less than 45 days before the meeting (or, in
the case of holders of Domestic Shares, by way of public notice issued 45-50
days prior to the meeting). Based on the written replies received by us 20 days
before a shareholders' meeting, we shall calculate the number of shares
represented by shareholders who have indicated their intention to attend the
meeting. Where the number of voting shares represented by those shareholders


                                       61



<PAGE>


reaches half of the total number of such shares, we may convene the
shareholders' general meeting. Otherwise, we will, within 5 days, inform our
shareholders again of the motions to be considered and the date and venue of the
meeting by way of public announcement. After the announcement is made, the
shareholders' meeting may be convened. The accidental omission by us to give
notice of a meeting to, or the non-receipt of notice of a meeting by, a
shareholder will not invalidate the meeting and the resolutions adopted at that
shareholders' meeting.

         RESTRICTIONS ON SHARE OWNERSHIP

Our H Shares may be traded only among foreign investors, and may not be sold to
PRC investors. Our articles of association provide that PRC investors are not
entitled to be registered as holders of our H Shares. Other consequences under
PRC law of a purported transfer of H Shares to PRC investors are unclear.

         RESTRICTIONS RELATING TO CHANGE OF CONTROL

Our articles of association state that a proposal for the merger or division of
our company shall be proposed by the board of directors, and after it has been
approved in accordance with the provisions of the Articles, it shall be
submitted for review and approval according to law. Shareholders who oppose the
proposal shall have the right to require us or shareholders who are in favor of
such proposal to purchase their shares at a fair price.

If we are involved in a merger or division, the parties to the merger shall
enter into a merger agreement, and prepare balance sheets and lists of property.
We are required to notify our creditors within a period of 10 days from the date
of the resolution approving the merger and make at least three newspaper
announcements of the merger within 30 days of that date. Where there is a
company division, the parties to the division shall enter into a division
agreement, and prepare balance sheets and lists of property.

         DISCLOSURE RELATING TO OWNERSHIP THRESHOLD

Although our articles of association do not set out any threshold above which
shareholder ownership must be disclosed, the PRC Securities Law requires that
any investor who acquires, whether cumulatively or at a single time, 5% or more
of our shares through any stock exchange in the PRC shall report such fact to
the China Securities Regulatory Commission and such stock exchange in the PRC
within 3 days after such acquisition.

         EFFECT OF THE DIFFERENCES BETWEEN PRC COMPANY AND LAWS
         IN OTHER COUNTRIES

The PRC Company Law promulgated by the PRC National People's Congress and made
effective on July 1, 1994 and the Special Regulations, in general, and the
provisions for the protection of shareholders' rights and access to information,
in particular, are less developed than those applicable to companies
incorporated in Hong Kong, the United Kingdom, the United States and other
developed countries or regions.

The PRC Company Law is different in certain important aspects from company laws
in Hong Kong, the United States and other common law countries or regions,
particularly with regard to investor protection, including in such areas as
derivative actions by minority shareholders and other minority protections,
restrictions on directors, financial disclosure, variations of class rights,
procedures at general meetings and payments of dividends.



                                       62




<PAGE>

The limited nature of investor protection under the PRC Company Law is
compensated for, to a certain extent, by the introduction of the Mandatory
Provisions and certain additional requirements that are imposed by the Listing
Rules of The Stock Exchange of Hong Kong Limited, or the Listing Rules, with a
view to reducing the scope of differences between Hong Kong company law and the
PRC Company Law. The Mandatory Provisions and those additional requirements must
be included in the articles of association of all PRC companies applying to be
listed in Hong Kong. Our articles of association have incorporated the
provisions required by the Mandatory Provisions and the Listing Rules. Despite
the incorporation of those provisions, our shareholders may not enjoy the full
extent of protections that they may be entitled to in other jurisdictions.

         CHANGES IN CAPITAL

                  INCREASES IN SHARE CAPITAL AND PRE-EMPTIVE RIGHTS

Our articles of association require that approval by a special resolution of our
shareholders and by special resolutions of holders of Domestic Shares and H
Shares at separate shareholder class meetings be obtained prior to authorizing,
allotting, issuing or granting shares, options, warrants or similar rights to
subscribe for any shares or such convertible securities. No such approval is
required if, but only to the extent that, we issue Domestic Shares and H Shares,
either separately or concurrently, in numbers not exceeding 20% of the number of
Domestic Shares and H Shares then in issue, respectively in any 12-month period,
as approved by a special resolution of the shareholders.

New issues of shares must also be approved by the relevant PRC authorities.

                  REDUCTION OF SHARE CAPITAL AND PURCHASE OF SHARES

We may reduce our registered share capital only upon obtaining the approval of
our shareholders and, in certain circumstances, of relevant PRC authorities. Our
registered share capital following the reduction of capital shall not fall below
the minimum statutory requirement. The number of H Shares which may be purchased
is subject to the Hong Kong Takeovers and Repurchase Codes. Our ability to
repurchase any of our own shares is subject to approval by the relevant PRC
authorities.



MATERIAL CONTRACTS

We have not entered into any material contracts other than in the ordinary
course of business and other than those described in ITEM 4. INFORMATION ON THE
COMPANY, ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS -- RELATED
PARTY TRANSACTIONS or elsewhere in this Form 20-F.

EXCHANGE CONTROLS

The Renminbi currently is not a freely convertible currency. The PRC government
imposes control over its foreign currency reserves in part through direct
regulation of the conversion of Renminbi into foreign exchange and through
restrictions on foreign imports. The State Administration of Foreign Exchange,
or SAFE, under supervision of the People's Bank of China, is responsible for
matters relating to foreign exchange administration.




                                       63




<PAGE>

Foreign exchange transactions involving Renminbi must take place either through
financial institutions authorized to undertake foreign exchange conversion
transactions, such as the PRC domestic banks and branches of foreign banks in
China. Official foreign exchange adjustment centres, which previously handled
foreign exchange conversion transactions on a transitional basis, were phased
out in December 1998. Access to foreign exchange and the ability to remit
foreign exchange abroad are regulated by the PRC government policies
administered by the SAFE.

Effective January 1, 1994, a new unitary, managed floating-rate system was
introduced in China to replace the dual-track foreign exchange system consisting
of two exchange rates. Under this system, the People's Bank of China sets and
publishes daily the PBOC Rate, with reference to the prior day's Renminbi-US
dollar trading price on the national inter-bank foreign exchange market, called
the China Foreign Exchange Trading System, or CFETS, established in April 1994.
At present, certain State-designated banks, foreign banks and Chinese funded
non-banking financial institutions, connected through a computer network, are
the principal parties participating in the CFETS. The main function of the CFETS
is to provide foreign exchange trading and settlement services among the
participating members. Based on the PBOC Rate, each participating member sets
its own exchange rate for the purpose of buying and selling foreign exchange
from its customers. The CFETS is supervised and managed by the SAFE in
accordance with policy set by the People's Bank of China.

As a result of the adoption of the new system, on January 1, 1994, the official
exchange rate for Renminbi against the US dollar was revalued from approximately
RMB 5.80 to US$1.00 to RMB 8.70 to US$1.00. As part of the system, the People's
Bank of China also publishes the Renminbi rate of exchange against other major
currencies by reference to the price of the US dollar in international foreign
exchange markets.

The PRC government announced a policy in late December 1993 that, under the new
managed floating rate system, the People's Bank of China would try to balance
the demand for and supply of foreign currencies in China and stabilize the
Renminbi exchange rate mainly through macroeconomic measures, such as monetary
policy and interest rates. Nonetheless, if necessary, government intervention is
expected to be used to stabilize the PBOC Rate.

Domestic enterprises, which prior to 1994 had been permitted to retain a portion
of their foreign currency earnings, are now required to sell all of their
foreign currency earnings to State-designated banks at the rate used by the
relevant CFETS member, which is based on the PBOC Rate, except for the proceeds
of foreign currency loans or the issuance of foreign currency-denominated bonds
or shares. Domestic enterprises and institutions are permitted under the new
system to buy foreign exchange from State-designated banks at designated times
upon presentation of appropriate documentation establishing the existence of
import contracts or payment notes of overseas financial institutions. Such
enterprises and institutions also are permitted under the new system to purchase
foreign exchange for the import of certain products subject to quotas, import
permits and registration controls. Domestic enterprises are permitted to apply
to purchase foreign exchange for the payment of dividends that have been
authorized as payable in foreign currency. Conversion and payment must be
effected through certain documentation, including a written resolution on profit
distribution passed by the enterprise's board of directors and evidence that the
enterprise has paid all required PRC taxes.

                                       64



<PAGE>


TAXATION

The following is a summary of those taxes, including withholding provisions, to
which United States security holders are subject under existing laws and
regulations of the PRC. The summary is subject to changes in PRC law, including
changes that could have retroactive effect. The summary does not take into
account or discuss the tax laws of any country other than the PRC, nor does it
take into account the individual circumstances of a security holder. This
summary does not purport to be a complete technical analysis or an examination
of all potential tax effects under such laws and regulations.

         U.S. TAXATION

                  UNITED STATES
                  -------------

                  FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of United States federal income tax considerations
that are anticipated to be material for U.S. Holders, as defined below. This
summary is based upon existing United States federal income tax law, which is
subject to change, possibly with retroactive effect. This summary does not
discuss all aspects of United States federal income taxation which may be
important to particular investors in light of their individual investment
circumstances, such as investors subject to special tax rules including:
partnerships, financial institutions, insurance companies, broker-dealers,
tax-exempt organizations, and, except as described below, non-U.S. Holders, or
to persons that will hold our shares or ADSs as part of a straddle, hedge,
conversion, or constructive sale transaction for United States federal income
tax purposes or that have a functional currency other than the United States
dollar, all of whom may be subject to tax rules that differ significantly from
those summarized below. In addition, this summary does not discuss any foreign,
state, or local tax considerations. This summary assumes that investors will
hold our shares or ADSs as "capital assets" generally, property held for
investment) under the United States Internal Revenue Code. Each prospective
investor is urged to consult its tax advisor regarding the United States
federal, state, local, and foreign income and other tax considerations of the
purchase, ownership, and disposition of our shares or ADSs.

For purposes of this summary, an U.S. Holder is a beneficial owner of shares or
ADSs that is for United States federal income tax purposes:

         o    an individual who is a citizen or resident of the United States;

         o    a corporation, or other entity that is taxable as a corporation
              created in or organized under the laws of the United States or
              any State or political subdivision thereof;

         o    an estate the income of which is includible in gross income for
              United States federal income tax purposes regardless of its
              source;

         o    a trust the administration of which is subject to the primary
              supervision of a United States court and which has one or more
              United States persons who have the authority to control all
              substantial decisions of the trust; or

         o    a trust that was in existence on August 20, 1996, was treated as
              a United States person, for United States federal income tax
              purposes, on the previous day, and elected to continue to be so
              treated.



                                       65



<PAGE>

A beneficial owner of our shares or ADSs that is not a U.S. Holder is referred
to herein as a "Non-U.S. Holder."

A foreign corporation will be treated as a "passive foreign investment company"
(a "PFIC"), for United States federal income tax purposes, if 75% or more of its
gross income consists of certain types of "passive" income or 50% or more of its
assets are passive. Based on our current and projected income, assets, and
activities, we presently believe that we are not a PFIC and do not anticipate
becoming a PFIC. This is, however, a factual determination made on an annual
basis. Because the classification of certain of our interests for United States
federal income tax purposes is uncertain and the PFIC rules are subject to
administrative interpretation, however, no assurance can be given that we are
not or will not be treated as a PFIC. The discussion below under "U.S. Holders
Dividends" and "U.S. Holders Sale or Other Disposition of Shares or ADSs",
assumes that we will not be subject to treatment as a PFIC for United States
federal income tax purposes.

                  U.S. HOLDERS

For United States federal income tax purposes, a U.S. Holder of an ADS will be
treated as the owner of the proportionate interest of the shares held by the
depositary that is represented by an ADS and evidenced by such ADS. Accordingly,
no gain or loss will be recognized upon the exchange of an ADS for the holders'
proportionate interest in the shares. A U.S. Holder's tax basis in the withdrawn
shares will be the same as the tax basis in the ADS surrendered therefore, and
the holding period in the withdrawn shares will include the period during which
the holder held the surrendered ADS.

Dividends. Any cash distributions paid by us out of our earnings and profits, as
determined under United States federal income tax principles, will be subject to
tax as ordinary dividend income and will be includible in the gross income of a
U.S. Holder upon receipt. Cash distributions paid by us in excess of our
earnings and profits will be treated as a tax-free return of capital to the
extent of the U.S. Holder's adjusted tax basis in our shares or ADSs, and after
that as gain from the sale or exchange of a capital asset. Dividends paid in
Hong Kong dollars will be includible in income in a United States dollar amount
based on the United States dollar to Hong Kong dollar exchange rate prevailing
at the time of receipt of such dividends by the depositary, in the case of ADSs,
or by the U.S. Holder, in the case of shares held directly by such U.S. Holder.
U.S. Holders should consult their tax advisors regarding the United States
federal income tax treatment of any foreign currency gain or loss recognized on
the subsequent conversion of Hong Kong dollars received as dividends to United
States dollars. Dividends received on shares or ADSs will not be eligible for
the dividends received deduction allowed to corporations.

Dividends received on shares or ADSs will be treated, for United States federal
income tax purposes, as foreign source income. A U.S. Holder may be eligible,
subject to a number of complex limitations, to claim a foreign tax credit in
respect of any foreign withholding taxes imposed on dividends received on shares
or ADSs. U.S. Holders who do not elect to claim a foreign tax credit for federal
income tax withheld may instead claim a deduction, for United States federal
income tax purposes, in respect of such withholdings, but only for a year in
which the U.S. Holder elects to do so for all creditable foreign income taxes.

In addition, the United States Treasury has expressed concerns that parties to
whom depositary shares are pre-released may be taking actions that are
inconsistent with the claiming of foreign tax credits by the holders of ADSs.
Accordingly, the analysis of the creditability of foreign withholding taxes
could be affected by future actions that may be taken by the United States
Treasury.



                                       66




<PAGE>

Sale or Other Disposition of Shares or ADSs. A U.S. Holder will recognize
capital gain or loss upon the sale or other disposition of shares or ADSs in an
amount equal to the difference between the amount realized upon the disposition
and the U.S. Holder's adjusted tax basis in such shares or ADSs, as each is
determined in U.S. dollars. Any such capital gain or loss will be long-term if
the shares or ADSs have been held for more than one year and will generally be
United States source gain or loss. The claim of a deduction in respect of a
capital loss, for United States federal income tax purposes, may be subject to
limitations. If a U.S. Holder receives Hong Kong dollars for any such
disposition, such U.S. Holder should consult its tax advisor regarding the
United States federal income tax treatment of any foreign currency gain or loss
recognized on the subsequent conversion of the Hong Kong dollars to United
States dollars.

                  PFIC CONSIDERATIONS

If we were to be classified as a PFIC in any taxable year, a U.S. Holder would
be subject to special rules generally intended to reduce or eliminate any
benefits from the deferral of United States federal income tax that a U.S.
Holder could derive from investing in a foreign company that does not distribute
all of its earnings on a current basis. In such event, a U.S. Holder of the
shares or ADSs may be subject to tax at ordinary income tax rates on (i) any
gain recognized on the sales of the shares or ADSs and (ii) any "excess
distribution" paid on the shares or ADSs (generally, a distribution in excess of
125% of the average annual distributions paid by us in the three preceding
taxable years). In addition, a U.S. Holder may be subject to an interest charge
on such gain or excess distribution. Prospective investors are urged to consult
their tax advisors regarding the potential tax consequences to them if we are or
do become a PFIC, as well as certain elections that may be available to them to
mitigate such consequences.

                  NON-U.S. HOLDERS

An investment in shares or ADSs by a Non-U.S. Holder will not give rise to any
United States federal income tax consequences unless:

         o     the dividends received or gain recognized on the sale of the
               shares or ADSs by such person is treated as effectively connected
               with the conduct of a trade or business by such person in the
               United States as determined under United States federal income
               tax law, or

         o     in the case of gains recognized on a sale of shares or ADSs by an
               individual, such individual is present in the United States for
               183 days or more and certain other conditions are met.

In order to avoid back-up withholding on dividend payments made in the United
States, a Non-U.S. Holder of the shares or ADSs may be required to complete, and
provide the payer with, an Internal Revenue Service Form W-8BEN, or other
documentary evidence, certifying that such holder is an exempt foreign person.




                                       67




<PAGE>

         PRC TAXATION


                  TAX ON DIVIDENDS

                  FOR AN INDIVIDUAL
                  -----------------

The provisions of the PRC Individual Income Tax Law, as amended pursuant to a
decision passed by the fourth plenary session of the Standing Committee of the
Eighth National People's Congress on October 31, 1993, provide that income tax
of 20.0% shall be withheld in accordance with the PRC Individual Income Tax Law
on dividend payments from PRC companies received by an individual. Accordingly,
for a foreign individual not a resident of the PRC, the receipt of dividends
from a PRC company would normally be subject to a PRC withholding tax of 20.0%
unless reduced by an applicable double-taxation treaty or PRC domestic tax
regulations. However, on July 21, 1993, the PRC State Tax Bureau (now the State
Administration of Taxation) issued a Notice Concerning the Taxation of Gains on
Transfer and Dividends from Shares (Equities) Received by Foreign Investment
Enterprises, Foreign Enterprises and Foreign Individuals, referred to as the Tax
Notice, which provides that dividends received from a PRC company on shares
listed on an overseas stock exchange, such as H Shares (including H Shares
represented by ADSs), or on domestically-listed foreign invested shares, would
not for the time being be subject to PRC withholding tax. The relevant tax
authority has thus far not collected withholding tax on dividend payments on
either shares listed on an overseas stock exchange or domestically-listed
foreign invested shares.

On May 13, 1994, the Ministry of Finance and the State Administration of
Taxation jointly issued a Notice on the Relevant Policies Concerning the
Individual Income Tax, which notice stipulated that a foreign individual
receiving dividends from a PRC company with foreign investment interest would
temporarily not be subject to the individual income tax. The State
Administration of Taxation also stated, in a circular addressed to the State
Commission for Economic System Reform, the then State Council Securities
Commission and the China Securities Regulation Commission issued in July 1994,
referred to as the Tax Circular, that the Tax Notice would continue to be valid
and effective. As of December 31, 2003, the Tax Circular and the Tax Notice
remained in effect. In the event that they are withdrawn, a 20.0% tax may be
withheld on dividends in accordance with the PRC Individual Income Tax Law, the
amount of which withholding tax may be reduced pursuant to any applicable income
tax treaty.

                  FOR AN ENTERPRISE
                  -----------------

According to the Tax Notice, a foreign enterprise without an establishment in
the PRC receiving a dividend payment on overseas shares, such as H Shares or
ADSs, would not for the time being be subject to withholding tax of 20.0% on
such dividend payment.

                  CAPITAL GAINS TAX

Although the Regulations for the Implementation of the PRC Individual Income Tax
Law issued on January 29, 1994 stipulated that gains realized on the sale of
equity shares by an individual would be subject to income tax at a rate of 20.0%
and empowered the Ministry of Finance to draft detailed tax rules on the
mechanism of collecting such tax, the Tax Notice which was confirmed by the Tax
Circular provided that gains realized by holders (whether an individual or an
enterprise) of H Shares, including H shares represented by ADSs, would not for
the time being be subject to PRC income tax. Moreover, between June 1994 and
December 1996, the Ministry of Finance and the State Administration of Taxation
issued several notices providing that individual income tax would not be imposed
on gains from the sale of shares for 1994, 1995 and 1996. This tax exemption was
subsequently extended indefinitely by the Ministry of Finance and the State
Administration of Taxation pursuant to their joint Notice Concerning the
Temporary Exemption from Income Tax on Gains Realized by Individuals from
Disposition of Shares issued on March 30, 1998 and effective retroactively from
January 1, 1997. Therefore, gains realized on the sale of H Shares by an
individual would not be subject to PRC capital gains tax unless both the Tax
Notice and the indefinite tax exemption granted by the Ministry of Finance and
the State Administration of Taxation are withdrawn.



                                       68




<PAGE>

                  TAX TREATIES

Foreign enterprises with no permanent establishment in the PRC and individuals
not resident in the PRC who are resident in countries which have entered into
double-taxation treaties with the PRC may be entitled to a reduction of any
withholding tax imposed on the payment of dividends received from us (although
dividend payments made by us to such foreign investors are for the time being
exempt from PRC withholding tax). The PRC currently has a double-taxation treaty
with the United States.

The US-PRC Tax Treaty, also known as the Agreement between the Government of the
United States of America and the Government of the People's Republic of China
for the Avoidance of Double Taxation and the Prevention of Tax Evasion with
Respect to Taxes on Income, together with the related Protocols, currently would
limit the rate of PRC withholding tax upon dividends paid by us to a holder of
our H Shares or ADSs who is a United States resident for purposes of the US-PRC
Tax Treaty to 10.0%, were the PRC to impose such withholding tax. However, it is
uncertain if the US-PRC Tax Treaty would exempt from PRC tax the capital gains
of a US resident holding our H Shares or ADSs arising from the sale or
disposition of H Shares or ADSs, were the PRC to impose capital gains tax. US
Holders are advised to consult their tax advisors with respect to these matters.

                  STAMP TAX

The PRC stamp tax imposed on the transfer of shares of PRC publicly-traded
companies under the Share System Tax Regulations should not apply to the
acquisition or disposition outside the PRC by holders of H Shares or ADSs who
are foreign enterprises with no permanent establishment in the PRC or
individuals not resident in the PRC, by virtue of the Provisional Regulations of
the People's Republic of China Concerning Stamp Tax effective on July 1, 1989,
which provide that PRC stamp tax is imposed only on documents executed or
received within the PRC or which will be used within the PRC.

                  ESTATE OR GIFT TAX

The PRC does not currently impose any estate or gift tax.

DIVIDENDS AND PAYING AGENTS

Not Applicable.

STATEMENTS BY EXPERTS

Not applicable.

DOCUMENTS ON DISPLAY



                                       69




<PAGE>

You may inspect and copy our registration statements, including their exhibits
and schedules, and the reports and other information we file with the Securities
and Exchange Commission in accordance with the Securities Exchange Act of 1934
at the public reference facilities maintained by the Securities and Exchange
Commission at Judiciary Plaza, 450 Fifth Street, Room 1024, N.W., Washington,
D.C. 20549 and at the regional office of the Securities and Exchange Commission
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You may also inspect the registration statements, including
their exhibits and schedules, at the office of the New York Stock Exchange, Wall
Street, New York, New York 10005. Copies of such material may also be obtained
from the Public Reference Section of the Securities and Exchange Commission at
450 First Street, N.W., Washington, D.C. 20549, at prescribed rates. You may
obtain information regarding the Washington D.C. Public Reference Room by
calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities
and Exchange Commission also maintains a website at http://wwww.sec.gov that
contains registration statements, reports and other information regarding
registrants that make electronic filings with the Securities and Futures
Commission using its EDGAR system.

SUBSIDIARY INFORMATION

Not Applicable.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------

The financial instruments we hold are exposed to fluctuations in relevant market
rates. We generally do not use derivative financial instruments to mitigate such
exposure and do not enter into any derivative financial instruments for trading
purposes.

         INTEREST RATE RISK

We are exposed to interest rate risk primarily associated with our debt
obligations. We did not engage in any interest rate hedging activities in 2003.

The following table provides information about our interest rate-sensitive
financial instruments, consisting of our debt obligations denominated in local
and foreign currencies, by their expected maturity dates and applicable average
interest rates, as of December 31, 2003:

<TABLE>
<CAPTION>

(AMOUNTS IN             2004          2005       2006        2007        2008  THEREAFTER    TOTAL     FAIR VALUE
THOUSANDS OF
RMB)
-----------             ----          ----       ----        ----        ----  ----------    -----     ----------

SHORT-TERM LOANS

BANK AND OTHER LOANS - DENOMINATED IN RMB
<S>                 <C>        <C>         <C>         <C>         <C>         <C>      <C>          <C>
Fixed rate             49,600          -           -           -           -           -     49,600       49,600
Average                 5.55%          -           -           -           -           -          -            -
interest rate

LOANS FROM A FELLOW SUBSIDIARY - DENOMINATED IN RMB
Fixed rate          3,155,000          -           -           -           -           -  3,155,000    3,155,000
Average                5.019%          -           -           -           -           -          -            -
interest rate

TOTAL               3,204,600          -           -           -           -           -  3,204,600    3,204,600

</TABLE>



                                       70



<PAGE>

<TABLE>
<CAPTION>


(AMOUNTS IN             2004          2005       2006        2007        2008  THEREAFTER    TOTAL     FAIR VALUE
THOUSANDS OF
RMB)
-----------             ----          ----       ----        ----        ----  ----------    -----     ----------


LONG-TERM LOANS

BANK AND OTHER LOANS -DENOMINATED IN RMB
<S>                <C>        <C>         <C>         <C>         <C>         <C>      <C>          <C>
Fixed rate              9,500          -           -           -           -           -      9,500        9,500
Average                6.030%          -           -           -           -           -          -            -
interest rate

LOANS FROM A FELLOW SUBSIDIARY - DENOMINATED IN RMB
Variable rate         636,900          -           -   1,000,000           -           -  1,636,900    1,636,900
Average                5.243%          -           -      5.181%           -           -          -            -
interest rate

LOANS FROM JILIN GROUP -  DENOMINATED IN UNITED STATES DOLLARS
Fixed rate             46,284     46,284      46,284      30,353      14,422           -    183,627      191,763
Average                7.217%     7.217%      7.217%      7.059%      6.550%           -          -            -
interest rate

LOANS FROM JILIN GROUP - DENOMINATED IN JAPANESE YEN
Fixed rate             52,686     52,687      52,687      33,411      14,136           -    205,607      225,920
Average                4.978%     4.978%      4.978%      4.792%      4.100%           -          -            -
interest rate

LOANS FROM JILIN GROUP-DENOMINATED IN EURO DOLLAR
Fixed rate             12,497     22,497      17,497           -           -           -     52,491       66,525
Average                8.300%     8.300%      8.300%                       -           -          -            -
interest rate

BANK AND OTHER LOANS - DENOMINATED IN UNITED STATES DOLLARS
Fixed rate            139,532    181,532     160,530     127,015     127,015     481,548  1,217,172    1,182,336
Average                6.179%     6.289%      6.241%      6.437%      6.437%      5.184%          -            -
interest rate

TOTAL                 897,399    303,000     276,998   1,190,779     155,573     481,548  3,305,297    3,312,944

</TABLE>

         FOREIGN EXCHANGE RISK

We operate largely in one geographical area, the PRC. We acquire the major raw
materials such as crude oil and coal locally and sell most of our products in
the PRC market. Therefore, most of the trading transactions are denominated in
our functional currency, Renminbi, and are generally not exposed to risks
associated with changes in the foreign currency exchange rates. Our foreign
exchange rate risk exposure is primarily associated with our debt obligations
denominated in foreign currencies. Further to an agreement between us and Jilin
Group effective as of September 30, 1998, Jilin Group assumed the foreign
currency loans borrowed by us and agreed to make periodic loan repayments on our
behalf and in turn, we agreed to pay Jilin Group the Renminbi equivalent of such
repayments at an exchange rate determined as at September 30, 1998. We
re-assumed some of these foreign currency loans effective as of January 1, 2000.
All the exchange risks were borne by Jilin Group during the period from October
1, 1998 through December 31, 1999. The relevant exchange risks subsequent to
December 31, 1999 were borne by us. For a discussion of the foreign exchange
risk associated with the above agreement, see ITEM 5. OPERATING AND FINANCIAL
REVIEW AND PROSPECTS - LIQUIDITY AND CAPITAL RESOURCES.



                                       71



<PAGE>

The following table provides information about our foreign currency sensitive
financial instruments, consisting of debt obligations denominated in foreign
currencies, by their expected maturity dates and applicable average interest
rates, as of December 31, 2003:


<TABLE>
<CAPTION>

(AMOUNTS IN THOUSANDS        2004        2005       2006        2007        2008     THEREAFTER    TOTAL     FAIR VALUE
OF RMB)
---------------------        ----        ----       ----        ----        ----     ----------    -----     ----------

<S>                    <C>           <C>         <C>         <C>         <C>         <C>       <C>          <C>
LOANS FROM JILIN GROUP -  DENOMINATED IN UNITED STATES DOLLARS
Fixed rate                   46,284     46,284      46,284      30,353      14,422           -    183,627      191,763
Average interest rate        7.217%     7.217%      7.217%      7.059%      6.550%           -          -            -

LOANS FROM JILIN GROUP - DENOMINATED IN JAPANESE YEN
Fixed rate                   52,686     52,687      52,687      33,411      14,136           -    205,607      225,920
Average interest rate        4.978%     4.978%      4.978%      4.792%      4.100%           -          -            -

LOANS FROM JILIN GROUP-DENOMINATED IN EURO DOLLAR
Fixed rate                   12,497     22,497      17,497           -           -           -     52,491       66,525
Average interest rate        8.300%     8.300%      8.300%           -           -           -          -            -

BANK AND OTHER LOANS - DENOMINATED IN UNITED STATES DOLLARS
Fixed rate                  139,532    181,532     160,530     127,015     127,015     481,548  1,217,172    1,182,336
Average interest rate        6.179%     6.289%      6.241%      6.437%      6.437%      5.184%          -            -

</TABLE>

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
--------  ------------------------------------------------------

Not applicable.

                                     PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
--------  ------------------------------------------------

Not applicable.


ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
--------  -------------------------------------------------------------
          USE OF PROCEEDS.
          ----------------

Not applicable.

ITEM 15.  CONTROLS AND PROCEDURES.
--------  ------------------------

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with participation of our management, including our
general manager and our chief financial officer, we conducted an evaluation of
the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended, within 90 days of the filling date of this
report, or the Evaluation Date. Based on this evaluation, our general manager
and chief financial officer concluded as of the Evaluation Date that our
disclosure controls and procedures were effective such that the material
information required to be included in our Securities and Exchange Commission
reports is recorded, processed, summarized and reported during the period when
this report was being prepared.


                                       72



<PAGE>


CHANGES IN INTERNAL CONTROLS

There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the Evaluation
Date.

ITEM 16A  AUDIT COMMITTEE FINANCIAL EXPERT
------------------------------------------

We currently have an audit committee financial expert, Fanny Li, serving on our
audit committee and she is an independent director as defined in 17 CFR
240.10A-3.

ITEM 16B  CODE OF ETHICS
------------------------

We have not adopted a code of ethics as defined by the applicable U.S.
securities regulations that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions since it is not a customary practice for a
PRC company to adopt such code of ethics.

ITEM 16C   PRINCIPAL ACCOUNTANT FEES AND SERVICES
-------------------------------------------------

         The following table summarizes the fees charged by
PricewaterhouseCoopers, our principal accountant, for certain services rendered
to us during 2002 and 2003.

                                                   FOR THE YEAR ENDED
                                                      DECEMBER 31,
                                                      ------------
                                                  (IN MILLIONS OF RMB)
                                                2002            2003
                                                ----            ----
Audit fees (1)........................          3.00            4.25
Audit-related fees (2)................             -               -
-
Tax fees (3)..........................             -               -
All other fees (4)....................             -               -
Total.................................          3.00            4.25



------------
(1)  "Audit fees" means the aggregate fees billed in each of the fiscal
     years listed for professional services rendered by our principal auditors
     for the audit of our interim and annual financial statements.



                                       73



<PAGE>

(2)  "Audit-related fees" means the aggregate fees billed in each of the fiscal
     years listed for assurance and related services rendered by our principal
     auditors for the audit of our financial information.
(3)  "Tax fees" means the aggregate fees billed in each of the fiscal years
     listed for professional services rendered by our principal auditors for tax
     compliance, tax advice and tax planning.
(4)  "All other fees" means the aggregate fees billed in each of the fiscal
     years listed for products and services provided by the our principal
     auditor, other than the services reported under audit fees, audit-related
     fees and tax fees.


AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

         Our audit committee has adopted procedures which set forth the manner
in which the committee will review and approve the engagement of external
auditor for audit services before such services are rendered. The pre-approval
procedures are as follows:

  o     Our audit committee shall review the engagement of external auditor
        and its audit fees .

  o     Our audit committee in its sole discretion then approves or
        disapproves the proposed engagement and fees and documents
        such approval, if given, through written resolutions or in the
        minutes of meetings, as the case may be.









                                       74



<PAGE>




                                    PART III

ITEM 17.   FINANCIAL STATEMENTS
-------------------------------

We have elected to provide the financial statements and related information
specified in Item 18 in lien of the information called for by this Item 17.

ITEM 18.   FINANCIAL STATEMENTS
-------------------------------






                          INDEX OF FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                  PAGE

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
   CONSOLIDATED FINANCIAL STATEMENTS
   <S>                                                                           <C>
   Report of Independent Auditors                                                  1
   Consolidated Income Statements for each of the three years in the period
     ended December 31, 2003                                                       2
   Consolidated Balance Sheets as of December 31, 2002 and 2003                    3
   Consolidated Cash Flow Statements for each of the three years in the period
     ended December 31, 2003                                                       4
   Consolidated Statements of Changes in Shareholders' Equity for each of the
     three years in the period ended December 31, 2003                             6
   Notes to the Consolidated Financial Statements                                  7




</TABLE>











<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
Jilin Chemical Industrial Company Limited:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the consolidated financial
position of Jilin Chemical Industrial Company Limited (the "Company") and its
subsidiaries (the "Group") at December 31, 2002 and 2003, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2003 in conformity with International Financial Reporting
Standards. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

International Financial Reporting Standards vary in certain significant respects
from accounting principles generally accepted in the United States of America.
The application of the latter would have affected the determination of
consolidated net (loss) / profit for each of the three years in the period ended
December 31, 2003 and the determination of consolidated shareholders' equity at
December 31, 2002 and 2003 to the extent summarized in Note 31 to the
consolidated financial statements.







PricewaterhouseCoopers
Certified Public Accountants

Hong Kong, April 20, 2004






                                       1
<PAGE>



                    JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

                         CONSOLIDATED INCOME STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
                (AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                       ----------------------------------------------------------------

                                            NOTES              2001             2002             2003             2003
                                           --------    -------------   ---------------   -------------    -------------
                                                                RMB              RMB              RMB              US$

<S>                                                     <C>              <C>              <C>               <C>
SALES                                                    12,518,532       13,138,387       20,652,809        2,495,295
Cost of sales                                           (12,541,889)     (12,518,955)     (19,125,842)      (2,310,805)
                                                       -------------   ---------------   -------------    -------------
GROSS (LOSS) / PROFIT                                       (23,357)         619,432        1,526,967          184,490
Distribution costs                                          (62,198)         (34,933)         (29,338)          (3,545)
Administrative expenses                                  (1,216,263)        (797,434)        (574,051)         (69,358)
Shut down of manufacturing assets             5                   -         (283,418)               -                -
Other operating expenses                                     (6,662)          (9,683)         (28,260)          (3,414)
                                                       -------------   ---------------   -------------    -------------
(LOSS) / PROFIT FROM OPERATIONS                          (1,308,480)        (506,036)         895,318          108,173
Interest expense                              6            (598,882)        (474,370)        (429,782)         (51,926)
Interest income                                               3,431            1,364            1,531              185
Exchange loss                                               (17,582)         (48,725)         (37,153)          (4,489)
Exchange gain                                                67,043            7,675              546               66
Share of profit / (loss) of jointly
  controlled entities                                        40,595           (7,671)           9,664            1,168
Share of (loss) / profit of an
   associated company                                        (1,259)             125          (14,001)          (1,692)
                                                       -------------   ---------------   -------------    -------------
(LOSS) / PROFIT BEFORE INCOME TAXES           3          (1,815,134)      (1,027,638)         426,123           51,485
Income taxes                                  8                (821)          (1,116)            (270)             (33)
                                                       -------------   ---------------   -------------    -------------
(LOSS) / PROFIT BEFORE MINORITY                          (1,815,955)      (1,028,754)         425,853           51,452
  INTERESTS
Minority interests                                           (1,414)           5,655            1,756              212
                                                       -------------   ---------------   -------------    -------------
NET (LOSS) / PROFIT                                      (1,817,369)      (1,023,099)         427,609           51,664
                                                       =============   ===============   =============    =============

BASIC AND DILUTED (LOSS) / PROFIT PER
  SHARE                                       9            RMB (0.51)        RMB (0.29)       RMB 0.12            US$ 0
                                                       =============   ===============   =============    =============

NUMBER OF SHARES                              9           3,561,078        3,561,078         3,561,078       3,561,078
                                                       =============   ===============   =============    =============
</TABLE>



   The accompanying notes are an integral part of these financial statements.


                                       2
<PAGE>



                    JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2002 AND 2003
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                     AT DECEMBER 31,
                                                                     ----------------------------------------------
                                                          NOTES             2002              2003           2003
                                                         --------    ------------    --------------   -------------
                                                                             RMB               RMB            US$
<S>                                                        <C>            <C>               <C>             <C>
ASSETS
Current assets
  Cash and cash equivalents                                11             32,805            35,499          4,289
  Accounts receivable                                      12            684,925           184,756         22,322
  Value added tax recoverable                              13            101,830                 -              -
  Inventories                                              14          1,394,228         1,568,093        189,459
  Prepaid expenses and other current assets                15            252,450           267,542         32,325
                                                                     ------------    --------------   -------------
Total current assets                                                   2,466,238         2,055,890        248,395
Property, plant and equipment                              16         10,687,084         9,929,535      1,199,697
Interests in a jointly controlled entity                   17             44,058            53,722          6,491
Investment in an associated company                        18             18,909             4,908            593
Intangible assets                                          19            448,852           621,534         75,094
                                                                     ------------    --------------   -------------
TOTAL ASSETS                                                          13,665,141        12,665,589      1,530,270
                                                                     ============    ==============   =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Accounts payable and accrued liabilities                 20          2,186,248         3,614,336        436,688
  Short-term debt                                          21          5,536,685         4,101,999        495,608
                                                                     ------------    --------------   -------------
Total current liabilities                                              7,722,933         7,716,335        932,296
Long-term debt                                             21          3,826,805         2,407,898        290,925
                                                                     ------------    --------------   -------------
TOTAL LIABILITIES                                                     11,549,738        10,124,233      1,223,221
                                                                     ------------    --------------   -------------
MINORITY INTERESTS                                                        32,456            30,800          3,721
                                                                     ------------    --------------   -------------
SHAREHOLDERS' EQUITY                                                          ii                ii             ii
State-owned shares                                         23          2,396,300         2,396,300        289,523
A shares                                                   23            200,000           200,000         24,164
H shares and ADSs (each representing 100 H shares)         23            964,778           964,778        116,566
                                                                     ------------    --------------   -------------
Share capital, issued and outstanding, RMB 1.00 par                    3,561,078         3,561,078        430,253
  value
Capital reserve                                            24          1,391,114         1,391,114        168,076
Revaluation reserve                                        24              9,247             8,274          1,000
Statutory common reserve fund                              24            160,155           160,155         19,350
Statutory common welfare fund                              24            140,997           140,997         17,035
Discretionary common reserve fund                          24            400,291           400,291         48,364
Accumulated losses                                                    (3,579,935)       (3,151,353)      (380,750)
                                                                     ------------    --------------   -------------
Shareholders' equity                                                   2,082,947         2,510,556        303,328
                                                                     ------------    --------------   -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                            13,665,141        12,665,589      1,530,270
                                                                     ============    ==============   =============
</TABLE>

   The accompanying notes are an integral part of these financial statements.



                                       3
<PAGE>


                    JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

                        CONSOLIDATED CASH FLOW STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                           ---------------------------------------------------------
                                                                  2001            2002           2003          2003
                                                           ------------   ------------    -----------    -----------
                                                                   RMB             RMB            RMB           US$
<S>                                                         <C>            <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net (loss) / profit                                       (1,817,369)     (1,023,099)       427,609        51,664
  Adjustments for:                                                                                                -
    Minority interests                                           1,414          (5,655)        (1,756)         (212)
     Depreciation and amortization                             966,795       1,108,522      1,032,007       124,688
     Provision for impairment of receivables                   599,609               -        100,713        12,168
     Provision for impairment of prepaid expenses and
      other current assets                                           -          51,484              -             -
   Writedown of carrying value of property, plant and
      equipment                                                      -         323,844              -             -
   Provision for diminution in value of inventories and
      inventory writedowns                                     171,174         139,985         12,856         1,553
   Shut down of manufacturing assets                                 -         283,418              -             -
   Net loss/(profit) on disposal of property, plant and                               )
      equipment                                                    168          (3,876         26,379         3,187
     Share of (profit) / loss of jointly controlled                                                  )
entities                                                       (40,595)          7,671         (9,664        (1,168)
     Share of loss / (profit) of an associated company           1,259            (125)        14,001         1,692
     Interest income                                            (3,431)         (1,364)        (1,531)         (185)
     Interest expense                                          598,882         474,370        429,782        51,927
  Changes in working capital:
     Accounts and other receivables                          1,698,633         379,056        330,044        39,876
      Inventories                                              469,724        (197,137)      (186,721)      (22,560)
     Payables and accrued liabilities                         (268,208)        321,488      1,830,961       221,220
                                                           ------------   ------------    -----------    -----------
CASH GENERATED FROM OPERATIONS                               2,378,055       1,858,582      4,004,680       483,850
  Interest received                                              3,431           1,364          1,531           185
  Interest paid                                               (609,028)       (530,943)      (427,887)      (51,698)
                                                           ------------   ------------    -----------    -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES                    1,772,458       1,329,003      3,578,324       432,337
                                                           ------------   ------------    -----------    -----------
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       4
<PAGE>


                    JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

                        CONSOLIDATED CASH FLOW STATEMENTS
        FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003 (CONTINUED)
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                       --------------------------------------------------------------
                                                               2001             2002            2003            2003
                                                       -------------    -------------   -------------    ------------
                                                                RMB              RMB             RMB             US$
<S>                                                        <C>              <C>             <C>              <C>
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                                     (866,858)        (791,725)       (675,078)        (81,563)
  Investment in an associated company                          (300)               -               -               -
  Acquisition of Jilian (Jilin) Petrochemical Limited             -          (73,086)        (54,000)         (6,524)
  Purchase of intangible assets                                   -           (7,542)         (6,394)           (773)
  Proceeds from disposal of property, plant and
    equipment                                                     -            7,141          13,335           1,611
  Dividends received                                              -            1,860               -               -
                                                       -------------    -------------   -------------    ------------
NET CASH USED IN INVESTING ACTIVITIES                      (867,158)        (863,352)       (722,137)        (87,249)
                                                       -------------    -------------   -------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Capital investment by minority interests                    1,000                -             100              12
  Proceeds from new debt                                  5,719,860        4,867,375       5,440,491         657,326
  Repayments of debt                                     (6,816,744)      (5,335,405)     (8,294,084)     (1,002,100)
  Dividends paid to minority interests                       (1,463)          (1,733)              -               -
                                                       -------------    -------------   -------------    ------------
NET CASH USED IN FINANCING ACTIVITIES                    (1,097,347)        (469,763)     (2,853,493)       (344,762)
                                                       -------------    -------------   -------------    ------------
  (Decrease) / increase in cash and cash equivalents       (192,047)          (4,112)          2,694             326
  Cash and cash equivalents at beginning of year            228,964           36,917          32,805           3,963
                                                       -------------    -------------   -------------    ------------
  Cash and cash equivalents at end of year                   36,917           32,805          35,499           4,289
                                                       =============    =============   =============    ============
NON-CASH TRANSACTIONS
  Purchase of property, plant and equipment (Note
    29(j))                                                        -                -         159,500          19,271
                                                       =============    =============   =============    ============

</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       5
<PAGE>


                    JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
                             (AMOUNTS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                         SHARE
                                                       CAPITAL      ACCUMULATED     RESERVES
                                                      (NOTE 23)       LOSSES        (NOTE 24)          TOTAL
                                                 -------------    --------------   -------------   --------------
                                                           RMB              RMB            RMB               RMB
<S>                                              <C>              <C>              <C>             <C>
Balance at January 1, 2001                           3,561,078         (737,339)     3,050,156         5,873,895
Adjustment of land use rights at January 1,
  2001 (Note 2 (a))                                          -                -       (950,480)         (950,480)
Net loss for the year                                        -       (1,817,369)             -        (1,817,369)
Transfer to retained earnings on realization
  of revaluation reserve                                     -              973           (973)                -
Transfer from retained earnings to reserves                  -           (4,823)         4,823                 -
                                                 -------------    --------------   -------------   --------------
Balance at December 31, 2001                         3,561,078       (2,558,558)     2,103,526         3,106,046
Net loss for the year                                        -       (1,023,099)             -        (1,023,099)
Transfer to retained earnings on realization
  of revaluation reserve                                     -            2,100         (2,100)                -
Transfer from retained earnings to reserves                  -             (378)           378                 -
                                                 -------------    --------------   -------------   --------------
Balance at December 31, 2002                         3,561,078       (3,579,935)     2,101,804         2,082,947
Net profit for the year                                      -          427,609              -           427,609
Transfer to retained earnings on realization
  of revaluation reserve                                     -              973           (973)                -
                                                 -------------    --------------   -------------   --------------
Balance at December 31, 2003                         3,561,078       (3,151,353)     2,100,831         2,510,556
                                                 =============    ==============   =============   ==============
Balance at December 31, 2003 in US$                    430,253         (380,750)       253,825           303,328
                                                 =============    ==============   =============   ==============

</TABLE>


The accompanying notes are an integral part of these financial statements.



                                       6
<PAGE>



                    JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


                    JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)

1 CORPORATE INFORMATION

Jilin Chemical Industrial Company Limited (the "Company") was established in the
People's Republic of China (the "PRC") on December 13, 1994 as a joint stock
limited company to hold the assets and liabilities of the principal production
units, certain ancillary functions and a subsidiary ("Contributed Net Assets")
of Jilin Chemical Industrial Corporation (the "Predecessor"), which was then a
state-owned enterprise controlled by and under the administration of the Jilin
Provincial Government.

In connection with the aforesaid restructuring ("Restructuring"), the
Contributed Net Assets of the Predecessor as at September 30, 1994 were taken
over by the Company from the Predecessor at a valuation which reflected their
then current fair values on October 1, 1994 in consideration for which
2,396,300,000 shares in the form of state-owned shares, with a par value of RMB
1.00 each, were issued by the Company to the Predecessor. The Predecessor was
then renamed Jilin Chemical Group Corporation ("JCGC") and became the Company's
then ultimate holding company.

Effective from July 1, 1998, pursuant to a directive issued by the PRC State
Council on May 12, 1998, the oil and petrochemical industry in the PRC was
restructured and JCGC became a wholly-owned subsidiary of China National
Petroleum Corporation ("CNPC"), a state-owned enterprise established in the PRC.
Following the aforesaid restructuring, CNPC became the ultimate holding company
of the Company through its control of JCGC.

According to an announcement relating to the corporate restructuring of the CNPC
Group in November 1999, JCGC transferred all of the state-owned shares held in
the Company together with certain assets and businesses of JCGC to PetroChina
Company Limited ("PetroChina"), a wholly-owned subsidiary of CNPC which was
established on November 5, 1999. Accordingly, PetroChina replaced JCGC to become
the immediate holding company of the Company.

2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

(A) BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). This basis of accounting
differs from the accounting principles generally accepted in the United States
of America ("US GAAP") in certain significant respects (see Note 31).




                                       7
<PAGE>


2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(A) BASIS OF PREPARATION (CONTINUED)

The consolidated financial statements are prepared on the historical cost
convention except as disclosed in the accounting policies below.

The consolidated financial statements are expressed in Renminbi ("RMB"), the
national currency of the PRC. Solely for the convenience of the reader, the
December 31, 2003 primary financial statements and the US GAAP reconciliation
shown in Note 31 have been translated into United States dollars at the noon
buying rate in New York City on December 31, 2003 for cable transfers in
Renminbi as certified for customs purposes by the Federal Reserve Bank of New
York of US$1.00 = RMB 8.2767. No representation is made that the Renminbi
amounts could have been, or could be, converted into United States dollars at
that rate or at any other rate on December 31, 2003, or at any other date.

With effect from January 1, 2001, the Company has applied IAS 17 "Leases", as
clarified by IAS 40 "Investment Property", to accounting for the land use rights
taken over by the Company as part of the Restructuring. The Company has
reclassified these land use rights as operating leases and is reflecting the
carrying value of these land use rights at RMB nil. Reserves at January 1, 2001
have been adjusted by RMB 950 million in this regard.

The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Although these
estimates are based on management's best knowledge of current events and
actions, actual results ultimately may differ from those estimates.

(B) BASIS OF CONSOLIDATION

The consolidated financial statements include the financial statements of the
Company and the subsidiaries in which the Group has an interest of more than 50
percent voting interest or otherwise has the power to govern the financial and
operating policies. Subsidiaries are consolidated from the date on which control
is transferred to the Group and are no longer consolidated from the date that
control ceases. The results of operations of subsidiaries are included in the
consolidated income statement, and the share attributable to minority interests
is excluded from net income. Intercompany balances, transactions and unrealized
gains on transactions have been eliminated; unrealized losses are also
eliminated unless cost cannot be recovered. Where necessary, accounting policies
of subsidiaries have been changed to ensure consistency with the policies
adopted by the Group.

A listing of the Group's principal subsidiaries is set out in Note 32.




                                       8
<PAGE>


2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(C) INVESTMENTS IN ASSOCIATED COMPANIES

Associated companies are entities in which the Group holds between 20% and 50%
of the voting rights, or over which the Group has significant influence, but
which it does not control. Investments in associated companies are accounted for
using the equity method. Such equity interests are carried in the consolidated
balance sheet at amounts that reflect the Group's share of the net assets of the
associated companies and include goodwill on acquisition, if any. Equity
accounting involves recognizing in the consolidated income statement the Group's
share of the income or loss for the year of the associated companies. Unrealized
gains on transactions between the Group and its associated companies are
eliminated to the extent of the Group's interest in the associated companies;
unrealized losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred. When the Group's share of loss in an
associated company equals or exceeds its interest in the associated company, the
Group does not recognize further losses, unless the Group has incurred
obligations or made payments on behalf of the associated company.

Details of the Group's associated company are shown in Note 18.

(D) INTERESTS IN JOINTLY CONTROLLED ENTITIES

A jointly controlled entity is a joint venture between two or more venturers
whose rights and obligations with respect to the venture are specified in a
contractual joint venture agreement which gives the venturers joint control over
the venture and in which no single venturer is in a position to control,
unilaterally, the activities of the venture.

The Group's interests in jointly controlled entities are accounted for using the
equity method. Such equity interests are carried in the consolidated balance
sheet at amounts that reflect the Group's share of the net assets of the jointly
controlled entities and include goodwill on acquisition, if any. Equity
accounting involves recognizing in the consolidated income statement the Group's
share of the income or loss for the year of the jointly controlled entities.
Unrealized gains on transactions between the Group and its jointly controlled
entities are eliminated to the extent of the Group's interest in the jointly
controlled entities; unrealized losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. When
the Group's share of loss in a jointly controlled entity equals or exceeds its
interest in the jointly controlled entity, the Group does not recognize further
losses, unless the Group has incurred obligations or made payments on behalf of
the jointly controlled entity.

Details of the Group's jointly controlled entities are shown in Note 17.

(E) FOREIGN CURRENCY TRANSLATIONS

Items included in the financial statements of each entity in the Group are
measured using the currency that best reflects the economic substance of the
underlying events and circumstances relevant to that entity ("the measurement
currency"). The consolidated financial statements are presented in Renminbi,
which is the measurement currency of all companies in the Group.

Foreign currency transactions of the Group are accounted for at the exchange
rates prevailing at the date of the transactions; gains and losses resulting
from the settlement of such transactions and from the translation of monetary
assets and liabilities denominated in foreign currencies are recognized in the
consolidated income statement. Monetary assets and liabilities are translated at
balance sheet date exchange rates.



                                       9
<PAGE>


2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(F) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are initially recorded at cost less accumulated
depreciation. Cost represents the purchase price of the asset and other costs
directly incurred to bring the asset to working condition for its intended use.
Subsequent to their initial recognition, property, plant and equipment are
carried at revalued amounts less accumulated depreciation and accumulated
impairment losses, if any. Revaluations are performed by independent qualified
valuers on a regular basis. Revaluations are made with sufficient regularity to
ensure that the carrying amount does not differ materially from that which would
be determined using fair value at the balance sheet date. Increases in the
carrying amount arising on revaluation of property, plant and equipment are
credited to revaluation reserve in shareholders' equity. Decreases that offset
previous increases of the same asset are charged against that reserve; all other
decreases are charged to the consolidated profit and loss account. The
difference between depreciation based on the revalued carrying amount of the
asset (the depreciation charged to the consolidated income statements) and
depreciation based on the asset's original cost is transferred from revaluation
reserve to retained earnings.

Depreciation to write off the cost or valuation of each asset to their residual
values over their estimated useful lives is calculated using the straight-line
method.

The Group uses the following useful lives for depreciation purposes:

Buildings                                               10-45 years
Plant and machinery                                      8-28 years

Assets under construction represent capital assets under construction or
installation and are stated at cost. No depreciation is provided for
construction in progress until they are completed and available for use.

Property, plant and equipment are reviewed for impairment whenever there is an
indication that they may be impaired. If such an indication exists, the carrying
amount of an individual asset is compared with its recoverable amount which is
the higher of its net selling price and its value in use, which is the estimated
net present value of future cash flows to be derived from the continuing use of
the asset and from its ultimate disposal. When the carrying amount of an asset
is greater than its estimated recoverable amount, it is written down immediately
to its recoverable amount.

Gains and losses on disposal of property, plant and equipment are determined by
reference to their carrying amount and procedures, and are taken into account in
determining net income. On disposal of revalued assets, amounts in revaluation
reserve relating to these assets are transferred to retained earnings.

Interest costs on debt to finance the construction of property, plant and
equipment, together with exchange differences arising from foreign currency debt
to the extent that they are adjustments to interest costs, are capitalized
during the period of time that is required to complete and prepare the property
for its intended use. All other borrowing costs are expensed.

Costs for planned major maintenance activities are expensed as incurred except
for costs of components that result in improvements and betterments which are
capitalized as part of property, plant and equipment and depreciated over their
useful lives, which is generally the period until the next scheduled major
maintenance.

As set out in Note 2 (a), land use rights taken over by the Company as part of
the Restructuring have been reclassified as operating leases at January 1, 2001.
In prior years, these land use rights were carried at valuation and amortized
over 50 years. No further operating lease payments are required to be made under
the terms of these leases.




                                       10
<PAGE>


2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(G) INTANGIBLE ASSETS

(i) Technical know-how

      The purchase costs of technical know-how relate to certain production
      facilities and are included as part of the total contract price of the
      construction contract and are distinguishable. They are capitalized as
      intangible assets at cost, unless they are acquired in a business
      combination that is an acquisition in which case they are recorded at fair
      value. They are amortized using the straight-line method over the
      estimated useful life of 10 years, starting from the date when the
      underlying facilities are completed and ready for their intended use.

      Technical know-how is not revalued and its carrying amount is reviewed
      annually and adjusted for impairment where it is considered necessary. An
      impairment loss is recognized in the consolidated income statement
      whenever the carrying amount of an asset exceeds its recoverable amount.

 (ii) Land use rights

      Land use rights acquired as part of a business combination that is an
      acquisition are recorded at fair value less subsequent accumulated
      amortization. Fair value is determined based on valuation performed by
      independent valuers.

      Land use rights are amortized using the straight-line method over their
lease terms of 50 years.

      Land use rights are not revalued and their carrying amount is reviewed for
      impairment whenever there is an indication that they may be impaired. If
      such an indication exists, the carrying amount of a land use right is
      compared with its recoverable amount which is the higher of its net
      selling price and its value in use, which is the estimated net present
      value of future cash flows to be derived from the continuing use of the
      land use right and from its ultimate disposal. When the carrying amount of
      a land use right is greater than its estimated recoverable amount, it is
      written down immediately to its recoverable amount.

(H) INVENTORIES

Inventories are stated at the lower of cost and net realizable value. Cost is
determined by the weighted average cost method. The cost of finished goods and
work in progress comprises raw materials, direct labor, other direct costs and
related production overheads, but excludes borrowing costs. Net realizable value
is the estimated selling price in the ordinary course of business, less the
costs of completion and selling expenses.

(I) TRADE RECEIVABLES

Trade receivables are carried at original invoice amount less provision made for
impairment of these receivables. A provision for impairment of trade receivables
is established where there is objective evidence that the Group will not be able
to collect all amounts due according to the original terms of receivables. The
amount of the provision is the difference between the carrying amount and the
recoverable amount, being the present value of expected cash flows, discounted
at the market rate of interest for similar borrowers.



                                       11
<PAGE>


2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(J) CASH AND CASH EQUIVALENTS

Cash and cash equivalents are carried in the balance sheet at cost and comprise
cash on hand and bank deposits with maturities of three months or less from the
time of purchase.

(K) DEFERRED INCOME TAX

Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying values in the financial statements. Currently enacted tax
rates are used in determination of deferred income tax.

Deferred tax assets are recognized to the extent that it is probable that future
taxable income will be available against which the temporary differences can be
utilized.

Deferred income tax is provided on temporary differences arising on investments
in subsidiaries, associated companies and jointly controlled entities, except
where the timing of the reversal of the temporary difference can be controlled
and it is probable that the temporary difference will not reverse in the
foreseeable future.

(L) DEBT

Debt is recognized initially at the proceeds received, net of transaction costs
incurred. Debt is subsequently stated at amortized cost using the effective
yield method; any difference between proceeds (net of transaction costs) and the
redemption value is recognized in the consolidated income statement over the
period of the debt.

(M) REVENUE RECOGNITION

Sales are recognized upon delivery of products and customer acceptance, if any,
or performance of services, net of sales taxes and discounts. Revenues are
recognized only when the Group has transferred to the buyer the significant
risks and rewards of ownership of the goods, and when the amount of revenue and
the costs incurred or to be incurred in respect of the transaction can be
measured reliably.

(N) RESEARCH AND DEVELOPMENT EXPENSES

Research expenditure is recognized as an expense as incurred. Costs incurred on
development projects (relating to the design and testing of new or improved
products) are recognized as intangible assets when it is probable that the
project will be a success considering its commercial and technological
feasibility, and only if the cost can be measured reliably. Other development
expenditures are recognized as an expense as incurred. Development costs
previously recognized as an expense are not recognized as an asset in a
subsequent period.

(O) GOVERNMENT REVENUE GRANTS AND SUBSIDIES

Government revenue grants and subsidies are recognized as income upon approval
by the relevant government authorities, at which stage the eventual
collectibility is assured.

(P)      RETIREMENT BENEFIT PLANS

The Group contributes to the employee retirement benefit plan organized by the
provincial government under which it is required to make monthly contributions
to the plan. The provincial government undertakes to assume the retirement
benefit obligations of all existing and future retired employees of the Group.
Contributions to the plan are charged to the consolidated income statements as
incurred.



                                       12
<PAGE>



2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(Q) PROVISIONS

Provisions are recognized when the Group has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation, and a reliable estimate of
the amount can be made. Where the Group expects a provision to be reimbursed,
the reimbursement is recognized as a separate asset but only when the
reimbursement is virtually certain.

(R) RELATED PARTIES

Related parties are corporations in which CNPC is a major beneficial shareholder
and is able to exercise control or significant influence.

(S) FINANCIAL INSTRUMENTS

Financial instruments carried at the balance sheet date include cash and bank
balances, receivables, payables, and debt. The particular recognition methods
adopted are disclosed in the individual policy statements associated with each
item.

The Group had no derivative financial instruments in any of the years presented.

(T) OPERATING LEASES

Leases where a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged to
the consolidated income statements on a straight-line basis over the period of
the lease.







                                       13
<PAGE>


3 OPERATING PROFIT/(LOSS)

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                          -----------------------------------------------
                                                                 2001            2002              2003
                                                          -------------   --------------    -------------
                                                                  RMB             RMB               RMB
<S>                                                       <C>                               <C>
  Operating profit/(loss) is arrived at after
    crediting and charging the following items:
  Crediting
   Government grants and subsidies                             (2,175)              -               502
  Charging
  Amortization of intangible assets (included in
      "administrative expenses")                               79,307          79,980           101,642
   Auditors' remuneration                                       2,700           3,000             4,250
   Cost of inventories (approximates cost of sales)
      recognized as expense                                12,541,889      12,518,955        19,125,842
   Depreciation on property, plant and equipment              887,488       1,028,542           930,365
   Writedown of carrying value of property, plant and
      equipment (included in "administrative expenses")
      (Note 16)                                                     -         323,844                 -
   Employee compensation costs (including directors'
      and supervisors' emoluments) (Note 4)                   449,560         517,360           625,700
   Shut down of manufacturing assets (Note 5)                       -         283,418                 -
   Net loss / (profit) on disposal of property, plant
      and equipment                                               168          (3,876)           26,379
   Operating lease rentals on land and buildings                    -           9,453            10,501
   Operating lease rentals on plant and machinery                 459               -             2,463
   Provision for impairment of receivables (included in
      "administrative expenses")                              599,609               -           100,713
   Provision for impairment of prepaid expenses and
      other current assets (included in "administrative
      expenses")                                                    -          51,484                 -
   Provision for diminution in value of inventories and
      inventory writedowns                                    171,174         139,985            12,856
   Repair and maintenance                                     251,382         560,010           264,613
   Research and development expenditure                        11,590           3,927             1,764


</TABLE>







                                       14
<PAGE>


4 EMPLOYEE COMPENSATION COSTS

                                         YEAR ENDED DECEMBER 31,
                              ----------------------------------------------
                                     2001             2002            2003
                              ------------   --------------    -------------
                                      RMB              RMB             RMB

 Wages and salaries               279,380          344,130         434,880
 Retirement benefit cost          107,740           84,150          89,230
 Staff welfare                     62,440           89,080         101,590
                              ------------   --------------    -------------
                                  449,560          517,360         625,700
                              ============   ==============    =============

The Group participates in the retirement benefit plan organized by the
provincial government under which it is required to make monthly contributions
to the plan at 25% of the base salary as set by the government for the relevant
periods. The Group currently has no additional costs for the payment of
retirement and other post-retirement benefits of employees other than the
monthly contributions described above.

5 SHUT DOWN OF MANUFACTURING ASSETS

During the year ended December 31, 2002 the Group recorded direct charges
totaling RMB 283,418 representing property, plant and equipment permanently
withdrawn from use (Note 16) as a result of management decisions to shut down
certain less efficient manufacturing facilities. The cost to dismantle or to
remove related shutdown facilities were minimal and have been included in the
consolidated income statement.

6 INTEREST EXPENSE

                                          YEAR ENDED DECEMBER 31,
                               ----------------------------------------------

                                      2001              2002           2003
                               -------------    -------------   -------------
                                       RMB               RMB            RMB
Interest on
     Bank loans                    126,332            65,028         96,480
     Other loans                   507,290           459,364        356,737
Less: Amounts capitalized          (34,740)          (50,022)       (23,435)
                               -------------    -------------   -------------
                                   598,882           474,370        429,782
                               =============    =============   =============


Amounts capitalized are borrowing costs related to funds borrowed specifically
for the purpose of obtaining qualifying assets. Interest rates on such
capitalized debt ranged from 5.50% to 6.03%, 5.50% to 5.86% and 5.50% per annum
for the years ended December 31, 2001, 2002 and 2003, respectively.



                                       15
<PAGE>

7 EMOLUMENTS OF DIRECTORS AND SUPERVISORS

Details of the directors' and supervisors' emoluments are as follows:

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                              ----------------------------------------------
                                                     2001              2002            2003
                                              -------------   --------------    ------------
                                                      RMB               RMB             RMB

 <S>                                          <C>             <C>               <C>
 Fees                                                 220                60              80
 Salaries, allowances and other benefits              343               374             472
 Contribution to retirement benefit scheme             12                10               7
                                              -------------   --------------    ------------
                                                      575               444             559
                                              =============   ==============    ============
</TABLE>

The emoluments of the directors and supervisors fall within the following bands:

                                     YEAR ENDED DECEMBER 31,
                          ----------------------------------------------
                                 2001               2002           2003
                          -------------    -------------    ------------
                               NUMBER             NUMBER         NUMBER

 Nil - RMB 1,066                   16                 16             16
                          =============    =============    ============

Fees for directors and supervisors disclosed above included RMB 45, RMB 45 and
RMB 80 paid to independent non-executive directors for the years ended December
31, 2001, 2002 and 2003, respectively.

None of the directors and supervisors has waived their remuneration during the
three years ended December 31, 2003.

The five highest paid individuals in the Group for each of the three years in
the period ended December 31, 2003 were also directors or supervisors and their
emoluments are reflected in the analysis presented above.



                                       16
<PAGE>


8 INCOME TAXES

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                               ----------------------------------------------

                                                       2001             2002            2003
                                               -------------    -------------   -------------
                                                        RMB              RMB             RMB
<S>                                                     <C>              <C>             <C>
PRC income tax                                          812              352             270
Share of tax of jointly controlled entities               9              764               -
                                               -------------    -------------   -------------
                                                        821            1,116             270
                                               =============    =============   =============
</TABLE>

In accordance with the relevant PRC income tax rules and regulations, the
enacted PRC income tax rate applicable to the Group during the three years ended
December 31, 2003 is 33%. Certain subsidiaries and jointly controlled entities
are Sino-foreign joint ventures and are entitled to certain tax concessions
available to foreign investment production enterprises operating in the PRC.
These tax concessions include a five-year tax holiday under which these
enterprises are exempt from income tax for the first two years commencing from
the first profitable year of operation followed by a 50% reduction in the income
tax rate for three years thereafter.

The tax on the Group's income before income taxes differs from the theoretical
amount that would arise using the basic tax rate in the PRC applicable to the
Group as follows:

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                             ----------------------------------------------

                                                                     2001             2002            2003
                                                             -------------    -------------   -------------
                                                                      RMB              RMB             RMB
<S>                                                            <C>              <C>                <C>
Profit/(Loss) before income taxes                              (1,815,134)      (1,027,638)        426,123
                                                             -------------    -------------   -------------
Tax calculated at a rate of 33%                                  (598,994)        (339,121)        140,621
(Utilization of previously unrecognized deferred tax
assets)/unrecognized deferred tax assets (Note 22)                597,881          345,141        (133,827)
Other                                                               1,934           (4,904)         (6,524)
                                                             -------------    -------------   -------------
Tax expense                                                           821            1,116             270
                                                             =============    =============   =============
</TABLE>

9 BASIC AND DILUTED (LOSS)/ PROFIT PER SHARE

Basic and diluted (loss)/profit per share have been computed by dividing net
(loss)/profit for the year by the weighted average number of shares issued and
outstanding for the year (2001: 3,561,078,000 shares, 2002: 3,561,078,000
shares, 2003: 3,561,078,000 shares).

There are no dilutive potential ordinary shares.




                                       17
<PAGE>


10 DIVIDEND

No dividend was declared in respect of 2001, 2002 and 2003.

11 CASH AND CASH EQUIVALENTS

                                               AT DECEMBER 31,
                                       -----------------------------
                                            2002            2003
                                       -------------   -------------
                                                RMB             RMB

Cash at bank and on hand                     32,805          35,499
                                       =============   =============

The weighted average effective interest rate on bank deposits was 0.72% (2002:
0.99%) for the year ended December 31, 2003.

12 ACCOUNTS RECEIVABLE

                                                       AT DECEMBER 31,
                                             ------------------------------
                                                  2002             2003
                                             --------------   -------------
                                                      RMB              RMB

Due from third parties                            935,890          815,487
Due from related parties
- PetroChina Group Companies                      242,924           41,663
- CNPC Group Companies                                691              191
- JCGC Group Companies                            346,503          171,927
- An associated company                            24,132           23,759
                                             --------------   -------------
                                                1,550,140        1,053,027
Less: Provision for impairment loss              (865,215)        (868,271)
                                             --------------   -------------
                                                  684,925          184,756
                                             ==============   =============


Amounts due from related parties are interest free and unsecured. Related
parties are offered credit terms of no more than 30 days.



                                       18
<PAGE>

12 ACCOUNTS RECEIVABLE (CONTINUED)

Movements in provision for impairment loss are as follows:

                                           YEAR ENDED DECEMBER 31,
                                ----------------------------------------------

                                        2001            2002             2003
                                -------------   -------------    -------------
                                         RMB             RMB              RMB

Balance at beginning of year         240,777         840,378          865,215
Provision                            599,601               -          100,713
Amount written off
  against provision                        -               -          (97,657)
Acquisition of Jilian                      -          24,837                -
                                -------------   -------------    -------------
Balance at end of year               840,378         865,215          868,271
                                =============   =============    =============

In 2001, the Group generally offered its customers credit terms of no more than
120 days. In 2002, the Group altered its credit management policy and
implemented a cash sales policy for the majority of its customers. Certain
selected customers are offered credit terms of no more than 30 days.

13 VALUE ADDED TAX RECOVERABLE

This represents the amount of value added tax ("VAT") paid by the Group in
respect of purchases in excess of the amount of VAT payable on sales. This
amount had been offset against VAT payable on the sales of the Group and the
Company in 2003.

14 INVENTORIES

                                                        AT DECEMBER 31,
                                            -----------------------------------
                                                   2002              2003
                                            ----------------   ----------------
                                                       RMB                RMB
Raw materials
 - at cost                                         334,513            538,646
 - at net realizable value                         164,613            151,975
Work in progress
 - at cost                                         146,789            252,213
 - at net realizable value                         101,071              9,559
Finished goods
 - at cost                                          80,542            101,036
 - at net realizable value                         217,992            186,843
Spare parts
 - at cost                                          12,578              1,735
 - at net realizable value                         327,793            320,257
Low value consumables and packing materials
 - at cost                                           8,337              2,738
 - at net realizable value                               -              3,091
                                            ----------------   ----------------
                                                 1,394,228          1,568,093
                                            ================   ================



                                       19
<PAGE>


14 INVENTORIES (CONTINUED)

Movements in allowance for diminution in value of inventories are as follows:


<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                         -------------------------------------------------

                                                  2001             2002             2003
                                         --------------    -------------    --------------
                                                   RMB              RMB              RMB
<S>                                      <C>               <C>              <C>
Balance at beginning of year                    65,457          236,631          178,764
Provision                                      171,612            8,701           12,856
Amount written off against provision              (438)         (74,529)         (12,867)
Acquisition of Jilian                                -            7,961                -
                                         --------------    -------------    --------------
Balance at end of year                         236,631          178,764          178,753
                                         ==============    =============    ==============
</TABLE>


15 PREPAID EXPENSES AND OTHER CURRENT ASSETS

                                                      AT DECEMBER 31,
                                              --------------------------------
                                                    2002             2003
                                              --------------    --------------
                                                        RMB              RMB

 Other receivables                                  121,338           99,108
 Amounts due from related parties
 - JCGC Group Companies                              11,094           33,250
 - A jointly controlled entity                            -              455
 Down payments to suppliers                         178,864          194,477
 Prepaid expenses                                    17,392           12,395
                                              --------------    --------------
                                                    328,688          339,685
 Less: Provision for impairment loss                (76,238)         (72,143)
                                              --------------    --------------
                                                    252,450          267,542
                                              ==============    ==============

Amounts due from related parties are interest free, unsecured and repayable in
accordance with normal commercial terms.

Movements in provision for impairment loss are as follows:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                   ----------------------------------------------

                                                           2001            2002             2003
                                                   -------------   -------------    -------------
                                                            RMB             RMB              RMB
<S>                                                      <C>             <C>              <C>
 Balance at beginning of year                            23,457          23,465           76,238
 Provision                                                    8          51,484                -
 Amount written off against provision                         -               -           (4,095)
 Acquisition of Jilian                                        -           1,289                -
                                                   -------------   -------------    -------------
 Balance at end of year                                  23,465          76,238           72,143
                                                   =============   =============    =============
</TABLE>



                                       20
<PAGE>


16 PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                             PLANT AND          CONSTRUCTION
                                       BUILDINGS             MACHINERY           IN PROGRESS              TOTAL
                                     -------------          -----------          -----------          -----------
                                     RMB                            RMB                  RMB                  RMB
<S>                                  <C>                    <C>                  <C>                  <C>
 COST OR VALUATION
 At December 31, 2002                    1,664,959           13,440,091            1,595,198           16,700,248
 Additions                                  46,894              141,139              292,427              480,460
 Transfer to fixed assets                   52,236            1,531,967           (1,584,203)                --
 Transfer to intangible assets
   (Note i)                                   --                   --               (267,930)            (267,930)
 Disposals                                 (11,006)            (554,799)                --               (565,805)
                                       -----------          -----------          -----------          -----------
 At December 31, 2003                    1,753,083           14,558,398               35,492           16,346,973
                                       -----------          -----------          -----------          -----------
 ACCUMULATED DEPRECIATION                  629,733            5,383,431                 --              6,013,164
 At December 31, 2002
 Charge for the year                        84,506              845,859                 --                930,365
 Disposals                                  (2,490)            (523,601)                --               (526,091)
                                       -----------          -----------          -----------          -----------
 At December 31, 2003                      711,749            5,705,689                 --              6,417,438
                                       -----------          -----------          -----------          -----------

 NET BOOK VALUE
 At December 31, 2003                    1,041,334            8,852,709               35,492            9,929,535
                                       ===========          ===========          ===========          ===========
 At December 31, 2002                    1,035,226            8,056,660            1,595,198           10,687,084
                                       ===========          ===========          ===========          ===========
                                           734,248            1,861,228                 --              2,595,476
 ANALYSIS OF COST OR VALUATION
 At valuation
 At cost                                 1,018,835           12,697,170               35,492           13,751,497
                                       -----------          -----------          -----------          -----------
                                         1,753,083           14,558,398               35,492           16,346,973
                                       ===========          ===========          ===========          ===========
 Carrying value of fixed assets
  had they been stated at cost
  less accumulated depreciation          1,082,864            9,052,328               35,492           10,170,684
                                       ===========          ===========          ===========          ===========
</TABLE>

(i) The intangible asset is the technical know-how relating to the synthetic
ammonia facilities. The synthetic ammonia facilities were acquired from a German
supplier and the construction costs include an identifiable know-how of USD
32,370. When the Group paid the construction cost to the supplier in prior
years, the total amount was recorded in construction in progress (included in
property, plant and equipment). When the facilities were completed and reached
their usable condition in June 2003, the Group transferred the amount from
construction in progress to equipment and intangible assets, respectively, based
on the construction contract.





                                       21
<PAGE>


16 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

(a) As part of the Restructuring described in Note 1 and as required by the
relevant PRC regulations, a valuation of all of the contributed fixed assets and
land use rights was carried out as of September 30, 1994 by China Assets
Appraisal Co., Ltd., a firm of independent valuers registered in the PRC. The
valuation was performed in order to determine the fair value of such contributed
fixed assets and land use rights and establish amounts for share capital and
capital reserve. The valuation of fixed assets was based on market value where
available or depreciated replacement cost where market value was not available.
The valuation of land use rights was based on standard land prices determined by
the Jilin Province Land Administration Bureau. The value at which the above
contributed fixed assets and land use rights were assumed by the Company was
determined at Rmb 2,834,034 and Rmb 1,088,843, respectively. These contributed
fixed assets and land use rights were initially accounted for by the Company at
their predecessor values and are subsequently carried at revalued amounts less
accumulated depreciation.

In connection with the application for listing of the Company's shares on The
Stock Exchange of Hong Kong Limited, the Company engaged American Appraisal Hong
Kong Limited, independent valuers in Hong Kong, to perform a valuation of all of
the Group's fixed assets as of February 28, 1995. The valuation, which was based
on the market value where available or depreciated replacement costs where
market value was not available, resulted in an additional surplus of Rmb 29,033.
The surplus arising from the valuation was credited to the revaluation reserve.

Revaluations of property, plant and equipment are to be performed periodically,
normally by professionally qualified valuers. As at December 31, 2003, a
revaluation of the Company's property, plant and equipment was undertaken by
China United Assets Appraiser Co., Ltd, a firm of independent valuers registered
in the PRC. Because of the specialized nature of the assets under valuation,
they were valued on a depreciated replacement cost basis. Following adjustments
for the impairment provisions made in prior periods as noted below, the results
of revaluation were substantially in line with the carrying amounts of property,
plant and equipment.

At December 31, 2002, the directors of the Company compared the carrying amount
of the Group's property, plant and equipment to their estimate of the fair
value, and on the basis of their review, made an adjustment to reduce the
carrying amount of certain assets by Rmb 323,844.

(b) With effect from January 1, 2001, the Company has applied IAS 17 "Leases",
as clarified by IAS 40 "Investment Property", to accounting for the land use
rights taken over by the Company as part of the Restructuring. The Company has
reclassified these land use rights as operating leases and is reflecting the
carrying value of these land use rights at Rmb nil. Reserves at January 1, 2001
were adjusted by Rmb 950 million in this regard.

17 INTERESTS IN A JOINTLY CONTROLLED ENTITY


                                          AT DECEMBER 31,
                            ------------------------------------------
                                   2002                   2003
                            ------------------    --------------------
                                          RMB                    RMB

Share of net assets                    44,058                 53,722
                            ==================    ====================




                                       22
<PAGE>


17 INTERESTS IN A JOINTLY CONTROLLED ENTITY (CONTINUED)

Movements of the share of net assets is set out as follows:

<TABLE>
<CAPTION>
                                                        AT DECEMBER       SHARE OF      AT DECEMBER
                                                           31, 2002         PROFIT         31, 2003
                                                      -------------    -----------    -------------
                                                                RMB            RMB              RMB

<S>                                                    <C>             <C>             <C>
Jilin Province BASF JCIC NPG Co., Ltd. ("BASF")              44,058          9,664           53,722
                                                      =============    ===========    =============
</TABLE>

The jointly controlled entity is an unlisted company with limited liability
established and operating in the PRC.

Particulars of jointly controlled entities at December 31, 2003 are set out as
follows:

<TABLE>
<CAPTION>
                                   ATTRIBUTABLE
                          PAID-UP  EQUITY INTEREST (%)
                          CAPITAL
 COMPANY NAME              RMB     2003        2002     PRINCIPAL ACTIVITIES
---------------------  ----------  ---------------------  ------------------------------------------
<S>                      <C>                      <C>
  BASF                   150,000                  40      Manufacture of petrochemical products
</TABLE>

There was no change in the interests held in BASF during 2002 and 2003.

A summary of the financial position and operating results of the jointly
controlled entities is as follows:

<TABLE>
<CAPTION>
                                    CERTAIN FINANCIAL INFORMATION OF
                                       JOINTLY CONTROLLED ENTITIES              GROUP'S SHARE
                             -------------------------------------   ------------------------------------
                                 2001          2002        2003          2001        2002          2003
                             ----------    ----------   ----------   ----------   ---------    ----------
                                    RMB           RMB          RMB          RMB         RMB           RMB

<S>                         <C>           <C>           <C>         <C>          <C>           <C>
Non-current assets              964,174       103,446       89,506      593,997      41,378        35,802
Current assets                  363,054        51,458       63,021      225,626      20,583        25,209
Current liabilities             720,999        29,028       18,222      460,282      11,611         7,289
Non-current liabilities         128,036        15,731            -       76,842       6,292             -
Turnover                        913,717       613,439      148,694      565,449     370,319        59,478
Gross profit                    131,974        81,130       44,918       80,529      46,335        17,967
Other expense                   (66,839)      (94,388)     (20,758)     (39,934)    (54,006)       (8,303)
Income / (loss) before
   income taxes                  65,135       (13,258)      24,160       40,595      (7,671)        9,664
Income taxes                        (14)       (1,175)          -            (9)       (764)            -
Net income / (loss)              65,121       (14,433)      24,160       40,586      (8,435)        9,664
                             ==========    ==========   ==========   ==========   =========    ==========

</TABLE>

Certain 2002 financial information presented above included the financial
information of Jilian (Jilin) Petrochemicals Limited ("Jilian"), which became a
part of the Company in December 2002 (Note 25). Its financial information is
therefore not shown as a jointly controlled entity of the Group in the 2003
financial information presented above.



                                       23
<PAGE>


18 INVESTMENT IN AN ASSOCIATED COMPANY


<TABLE>
<CAPTION>
                                            AT DECEMBER 31,
                              ---------------------------------------

                                           2002                 2003
                              ------------------     ----------------
                                            RMB                  RMB
<S>                           <C>                    <C>
Share of net assets                      18,909                4,908
                              ==================     ================
</TABLE>

The associated company is an unlisted company with limited liability established
and operating in the PRC.

Particulars of the associated company are set out as follows:
<TABLE>
<CAPTION>
                                     PAID-UP CAPITAL       ATTRIBUTABLE
 COMPANY NAME                             RMB            EQUITY INTEREST (%)   PRINCIPAL ACTIVITIES
----------------------------------   ---------------  ----------------------- ----------------------

<S>                                            <C>                        <C>
 Jilin Lianli Industrial Co., Ltd.            42,214                   47         Wholesaling and
                                                                                  retailing of
                                                                                  petrochemical
                                                                                  products
</TABLE>

There was no change in the interest held in the associated company during 2002
and 2003.

19 INTANGIBLE ASSETS

<TABLE>
<CAPTION>
                              TECHNICAL            LAND USE
                              KNOW-HOW              RIGHTS           OTHERS              TOTAL
                            ------------          ----------         ---------         ---------
                                     RMB                 RMB               RMB               RMB
<S>                         <C>                   <C>                <C>               <C>

COST
At December 31, 2002             639,884              61,843            84,089           785,816
Additions                        274,324                --                --             274,324
                               ---------           ---------         ---------         ---------
At December 31, 2003             914,208              61,843            84,089         1,060,140
                               ---------           ---------         ---------         ---------
ACCUMULATED AMORTIZATION         295,900               9,814            31,250           336,964
At December 31, 2002
Charge for the year               90,858               1,465             9,319           101,642
                               ---------           ---------         ---------         ---------
At December 31, 2003             386,758              11,279            40,569           438,606
                               ---------           ---------         ---------         ---------
NET BOOK VALUE
At December 31, 2003             527,450              50,564            43,520           621,534
                               =========           =========         =========         =========
At December 31, 2002             343,984              52,029            52,839           448,852
                               =========           =========         =========         =========

</TABLE>





                                       24
<PAGE>


20 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

                                                    AT DECEMBER 31,
                                             ------------------------------
                                                     2002             2003
                                             -------------    -------------
                                                      RMB              RMB

Trade payables                                  1,226,079        1,766,473
Advances from customers                           251,377          457,114
Salaries and welfare payable                       95,411          158,468
Other payables and accrued liabilities            243,511          122,018
Amounts due to related parties
- PetroChina Group Companies                       58,086          957,305
- CNPC Group Companies                              1,527            3,764
- JCGC Group Companies                            310,257          140,565
- An associated company                                 -            8,629
                                             -------------    -------------
                                                2,186,248        3,614,336
                                             =============    =============

Amounts due to related parties are interest free, unsecured and with no fixed
term of repayment.

21 DEBT

(A)      SHORT-TERM DEBT

                                                          AT DECEMBER 31,
                                                 ------------------------------
                                                      2002             2003
                                                 -------------    -------------
                                                           RMB              RMB

  Bank loans - unsecured (Note (i))                    178,600           49,600
             - secured                                 120,000              --
                                                 -------------    -------------
                                                       298,600           49,600
  Loans from a fellow subsidiary (Note (ii))         3,577,860        3,155,000
                                                 -------------    -------------
                                                     3,876,460        3,204,600
  Current portion of long-term debt                  1,660,225          897,399
                                                 -------------    -------------
                                                     5,536,685        4,101,999
                                                 =============    =============

(i)  At December 31, 2003, bank loans bear interest at the rate of 5.55% (2002:
     5.31% to 5.55%) per annum and are guaranteed by Jilin Merchandise Group, a
     third-party of the Group.

(ii) The outstanding loans are the drawn down part of the borrowing facilities
     provided by China Petroleum Finance Company Limited ("CP Finance"), a
     subsidiary of CNPC and a non-bank financial institution approved by the
     People's Bank of China, totaling Rmb 8 billion. The loans are unsecured and
     bear interest at the rate of 5.019% (2002: 4.776% to 5.019%) per annum. On
     February 6, 2004, CP Finance agreed to extend the borrowing facilities
     period to December 31, 2005.

(iii) The carrying amounts of short-term debt approximate their fair value.



                                       25
<PAGE>


21 DEBT (CONTINUED)

(B) LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                                              AT DECEMBER 31,
                                                                                       ------------------------------
                                    INTEREST RATE AND FINAL MATURITY                            2002            2003
                            --------------------------------------------------         -------------   --------------
                                                                                                 RMB             RMB
<S>                         <C>                                                        <C>             <C>
Renminbi-
denominated loans
---------------------------

Industrial and Commercial     Fixed interest rate of 6.03% per annum as of
  Bank of China               December 31, 2003, with maturities through 2004                27,150            9,500

CP Finance                    Majority variable interest rates ranging from
                              5.18% to 5.42% per annum as of December 31,
                              2003, with maturities through 2007                          2,932,700        1,636,900
US dollar -
denominated loans
---------------------------

Construction                  Bank of China Fixed interest rates ranging from
                              8.42% to 8.66% per annum as of December 31, 2003,
                              with
                              maturities through 2010                                       327,772          283,415

China                         Development Bank Fixed interest rate of 5.50% as
                              of December 31, 2003, and floating interest rate
                              set by government in the following years, with
                              maturities through 2012                                       924,045          856,705

JCGC                          Group Companies Fixed interest rates ranging from
                              6.55% to 7.86% per annum as of December 31, 2003,
                              with maturities through 2008                                  835,672          183,627

Bank of China                 Interest free as of December 31, 2003, with
                              maturities through 2029                                        89,471           77,052
Japanese Yen -
denominated loans
---------------------------

JCGC                          Group Companies Fixed interest rates ranging from
                              4.10% to 5.30% per annum as of December 31, 2003,
                              with maturities through 2008                                  248,010          205,607

</TABLE>


                                       26
<PAGE>


21 DEBT (CONTINUED)

(B) LONG-TERM DEBT (CONTINUED)

<TABLE>
<CAPTION>
                                                                                        AT DECEMBER 31,
                                                                                 ------------------------------
                                    INTEREST RATE AND FINAL MATURITY                  2002             2003
                            --------------------------------------------------   -------------   --------------
                                                                                           RMB              RMB
Euro -
denominated loans
---------------------------
<S>                         <C>                                                  <C>             <C>
JCGC Group Companies        Fixed interest rate of  8.30% per annum as of
                              December 31, 2003, with maturities through 2006          102,210           52,491
                                                                                 -------------   --------------
Total long-term debt                                                                 5,487,030        3,305,297
Less: Current portion of
       long-term debt                                                               (1,660,225)        (897,399)
                                                                                 -------------   --------------

                                                                                     3,826,805        2,407,898
                                                                                 =============   ==============
</TABLE>

  At December 31, 2003, all long-term debt are unsecured (2002: Same).

  At December 31, 2003, long-term debt of Rmb 441,725 (2002: Rmb 1,185,892) from
  JCGC Group Companies were borrowed from certain banks through JCGC Group
  Companies.

  The periods in which the short-term and long-term debt reprices and the
  exposure of the debt of the Group to interest rate changes are as follows:

                                                   AT DECEMBER 31,
                                         ------------------------------
                                              2002             2003
                                         -------------   --------------
                                                   RMB             RMB

6 months or less                            1,395,802          112,500
6 - 12 months                               5,978,254        4,989,499
1 - 5 years                                 1,393,548          926,350
Over 5 years                                  595,886          481,548
                                         -------------   --------------
                                            9,363,490        6,509,897
                                         =============   ==============




                                       27
<PAGE>


21 DEBT (CONTINUED)

(B) LONG-TERM DEBT (CONTINUED)



                                                    AT DECEMBER 31,
                                             ------------------------------

                                                      2002             2003
                                             -------------   --------------
                                                       RMB              RMB

Total debt:
- at fixed rates                                 6,258,703       4,872,997
- at variable rates                              3,104,787       1,636,900
                                             -------------   --------------
                                                 9,363,490       6,509,897
                                             =============   ==============

The weighted average effective interest rates at the balance sheet date are as
follows:

Weighted average effective interest rates:
- bank loans                                        6.26%           5.85%
- loans from related parties                        5.43%           5.18%

The carrying amounts and fair values of long-term debt are as follows:

<TABLE>
<CAPTION>
                                        CARRYING VALUES                  FAIR VALUES
                                   ---------------------------   ----------------------------
                                        AT DECEMBER 31,                AT DECEMBER 31,
                                   ---------------------------   ----------------------------
                                         2002            2003            2002            2003
                                   -----------    ------------   ------------    ------------
                                          RMB             RMB             RMB             RMB

<S>                                 <C>             <C>            <C>             <C>
Bank loans                          1,368,438       1,226,672      1,325,750       1,191,836
Loans from related parties          4,118,592       2,078,625      4,171,319       2,121,108
                                   -----------    ------------   ------------    ------------
                                    5,487,030       3,305,297      5,497,069       3,312,944
                                   ===========    ============   ============    ============
</TABLE>

The fair values are based on discounted cash flows using applicable discount
rates based upon the prevailing market rates of interest available to the Group
for financial instruments with substantially the same terms and characteristics
at the balance sheet date. Such discount rates ranged from 1.11% to 6.99% as of
December 31, 2003 depending on the type of the debt. The carrying amounts of
short-term debt approximate their fair value.



                                       28
<PAGE>


21 DEBT (CONTINUED)

(B) LONG-TERM DEBT (CONTINUED)

Maturities of long-term debt at the balance sheet date are as follows:

                                                  AT DECEMBER 31,
                                         ----------------------------------
                                                  2002               2003
                                         ---------------   ----------------
                                                   RMB                RMB
Bank loans
- within one year                              196,430            149,032
- between one to two years                     156,866            181,532
- between two to three years                   159,949            160,530
- between three to four years                  159,949            127,015
- between four to five years                   126,411            127,015
- after five years                             568,833            481,548
                                         ---------------   ----------------
                                             1,368,438          1,226,672
                                         ===============   ================

                                                  AT DECEMBER 31,
                                         ----------------------------------
                                                  2002               2003
                                         ---------------   ----------------
                                                   RMB                RMB
Loans from related parties
- within one year                            1,463,795            748,367
- between one to two years                   1,058,895            121,468
- between two to three years                   225,532            116,468
- between three to four years                  223,528          1,063,764
- between four to five years                 1,119,788             28,558
- after five years                              27,054                  -
                                         ---------------   ----------------
                                             4,118,592          2,078,625
                                         ===============   ================




                                       29
<PAGE>


22 DEFERRED INCOME TAX

Deferred income tax is calculated in full on temporary differences under the
liability method using a principal tax rate of 33% for the three years ended
December 31, 2003.

Deferred tax balances are attributable to the following items:

<TABLE>
<CAPTION>
                                                        AT DECEMBER         INCOME           AT DECEMBER
                                                         31, 2002         STATEMENT            31, 2003
                                                    ----------------   --------------    -----------------
                                                                 RMB              RMB                  RMB
<S>                                                 <C>                 <C>              <C>
 Deferred tax liabilities:
 Non-current:
    Revaluation of fixed assets                                3,745             (479)               3,266
    Exchange gain in respect of loans borrowed for
    fixed assets                                              23,130           (2,413)              20,717
    Deferred tax effect on housing subsidy cost               17,438           (3,075)              14,363
                                                     ----------------   --------------    -----------------
 Total deferred tax liabilities                               44,313           (5,967)              38,346
                                                     ----------------   --------------    -----------------
 Deferred tax assets:
 Non-current:
    Unrecognized tax losses                                   44,313           (5,967)              38,346
                                                     ----------------   --------------    -----------------
 Total deferred tax assets                                    44,313           (5,967)              38,346
                                                     ----------------   --------------    -----------------
 Net deferred tax balance                                          -                -                    -
                                                     ================   ==============    =================
</TABLE>

The deferred tax assets were arising from tax losses available to be offset
against future taxable income.

Deferred income tax assets for tax losses carried forward and deductible
temporary differences (mainly impairment provisions for receivables, inventories
and write-down of carrying value of property, plant and equipment) are
recognized to the extent that realization of the related tax benefit through
future taxable income is probable. The Group has estimated unrecognized tax
losses and deductible temporary differences of Rmb 1,789,091 (2002: Rmb
2,109,199) and Rmb 1,428,560 (2002: Rmb 1,513,987), respectively, to carry
forward against future taxable income. In accordance with PRC tax law, tax loss
can be carried forward against future taxable income for a period of five years,
accordingly the Group's tax losses will expire between 2005 and 2007.

The deferred tax balances shown above include the following:

<TABLE>
<CAPTION>
                                                                          2002               2003
                                                                  ----------------     --------------
                                                                              RMB                RMB
<S>                                                               <C>                <C>
Deferred tax assets to be recovered after more than 12 months              38,347             32,379
Deferred tax liabilities to be settled after more than 12 months           38,347             32,379

</TABLE>



                                       30
<PAGE>

23 SHARE CAPITAL

<TABLE>
<CAPTION>
                                                                        AT DECEMBER 31,
                                                              --------------------------------
                                                                    2002            2003
                                                              ---------------   --------------
                                                                         RMB               RMB
<S>                                                           <C>               <C>
Registered, issued and fully paid:

2,396,300,000 state-owned shares of RMB 1.00 each                  2,396,300         2,396,300
200,000,000 A shares of RMB 1.00 each                                200,000           200,000
964,778,000 H shares and ADSs of RMB 1.00 each                       964,778           964,778
                                                              ---------------   --------------
                                                                   3,561,078         3,561,078
                                                              ===============   ==============
</TABLE>

The state-owned shares, H shares, A shares and ADS rank para passu in all
respects.

Following the announcement of the Company's audited results for 2002, the
Company's A shares (which are available only to the PRC nationals) were
suspended from trading on the Shenzhen Stock Exchange (the "Exchange") of the
PRC on April 30, 2003 pursuant to the relevant provisions of the China
Securities Regulatory Commission and the Exchange, following the recording of
losses, computed in accordance with the PRC accounting standards and
regulations, for three consecutive years from 2000 to 2002. Following the
announcement of the Company's audited profitable interim results, computed in
accordance with the PRC accounting standards and regulations, for the six months
ended June 30, 2003, the Company's A shares resumed trading on the Exchange on
September 25, 2003.






                                       31
<PAGE>


24 RESERVES

<TABLE>
<CAPTION>
                                                                                 STATUTORY    STATUTORY    DISCRETIONARY
                                                      CAPITAL     REVALUATION      COMMON       COMMON        COMMON
                                                      RESERVE       RESERVE     RESERVE FUND WELFARE FUND  RESERVE FUND    TOTAL
                                                     ----------    ----------    ----------   ----------   ----------    ---------
                                                          RMB            RMB          RMB         RMB          RMB          RMB
                                                                   (Note (a))      (Note (b)) (Note (c))
<S>                                                  <C>           <C>           <C>          <C>          <C>           <C>
Balance at January 1, 2001                            2,341,594        12,320       154,954      140,997      400,291    3,050,156
Adjustment of land use rights at
January 1, 2001 (Note 2 (a))                           (950,480)         --            --           --           --       (950,480)
Transfer to retained earnings on realization of
  revaluation reserve                                      --            (973)         --           --           --           (973)
Transfer from retained earnings to
 reserves (Note (d))                                       --            --           4,823         --           --          4,823
                                                     ----------    ----------    ----------   ----------   ----------   ----------
Balance at December 31, 2001                          1,391,114        11,347       159,777      140,997      400,291    2,103,526
Transfer to retained earnings on realization of
  revaluation reserve                                      --          (2,100)         --           --           --         (2,100)
Transfer from retained earnings to
  reserves (Note (d))                                      --            --             378         --           --            378
                                                     ----------    ----------    ----------   ----------   ----------   ----------
Balance at December 31, 2002                          1,391,114         9,247       160,155      140,997      400,291    2,101,804
Transfer to accumulated losses on realization of
  revaluation reserve                                      --            (973)         --           --           --           (973)
                                                     ----------    ----------    ----------   ----------   ----------   ----------
Balance at December 31, 2003                          1,391,114         8,274       160,155      140,997      400,291    2,100,831
                                                     ==========    ==========    ==========   ==========   ==========   ==========
</TABLE>









                                       32
<PAGE>

24 RESERVES (CONTINUED)

(a) Pursuant to PRC regulations and the Company's Articles of Association, the
Company is required to transfer 10% of its net income, as determined under the
PRC accounting regulations, to the statutory common reserve fund until the fund
aggregates to 50% of the Company's registered capital. The transfer to this
reserve must be made before distribution of dividend to shareholders.

The statutory common reserve fund shall only be used to make good previous
years' losses, to expand the Company's production operations, or to increase the
capital of the Company. Upon approval by a resolution of shareholders' general
meeting, the Company may convert its statutory common reserve fund into share
capital and issue bonus shares to existing shareholders in proportion to their
original shareholdings or to increase the nominal value of each share currently
held by them, provided that the balance of the reserve fund after such issue is
not less than 25% of the registered capital.

Since the Company had an accumulated loss for the years ended December 31, 2001,
2002 and 2003, no appropriation to the statutory common reserve fund was made in
these three years.

(b) Pursuant to the PRC regulations and the Company's Articles of Association,
the Company is required to transfer 5% to 10% of its net income, as determined
under the PRC accounting regulations, to the statutory common welfare fund. This
fund can only be used to provide staff welfare facilities and other collective
benefits to the Company's employees. This fund is non-distributable other than
in liquidation.

Since the Company had an accumulated loss for the years ended December 31, 2001,
2002 and 2003, no appropriation to the statutory common welfare fund was made in
these three years.

(c) Transfer to the discretionary common reserve fund is subject to approval by
the shareholders at general meeting. Its usage is similar to that of the
statutory common reserve fund.

No transfer to the discretionary common reserve fund has been proposed by the
Board of Directors for the years ended December 31, 2001, 2002 and 2003.

(d) In 2002, the Company's subsidiaries, Jilin City Songmei Acetic Co., Ltd., a
Sino-foreign co-operative joint venture, made an appropriation to the statutory
common reserve fund of which RMB 378 (2001: RMB 4,607) was attributable to the
Group. No such appropriation by the subsidiary was made in 2003.

In 2001, the Company's subsidiary, Jilin Winsway Chemical Industrial Store and
Transportation Ltd., a Sino-foreign joint venture, made an appropriation to the
statutory common reserve fund of which RMB 216 was attributable to the Group. No
such appropriation by the subsidiary was made in 2002 and 2003.

(e) The Company's distributable reserve at December 31, 2003 under the PRC
accounting regulations is nil (2002 and 2001: nil).


                                       33
<PAGE>


25 ACQUISITION

In December 2002, the Company acquired the remaining 35% equity interest in
Jilian, a jointly controlled entity, for a cash consideration of RMB 135,000 and
integrated its business into the Company's. Jilian was subsequently dissolved in
2002(Note 17). The acquisition of Jilian is accounted for using the purchase
method. The identifiable assets and liabilities acquired were restated to fair
values at the time of the successive share purchases. The acquired business did
not contribute significant revenues and operating income to the Company for the
year ended December 31, 2002.

Details of net assets acquired and goodwill are as follows:
                                                                          RMB

Cash and cash equivalents                                               7,914
Property, plant and equipment (Note 16)                               816,638
Intangible assets (Note 19)                                            52,599
Inventories                                                           157,260
Receivables                                                            53,351
Payables                                                             (397,576)
Debt                                                                 (304,471)
                                                               ---------------
Fair value of net assets                                              385,715
                                                               ===============

Equity interest acquired                                                 35%
                                                               ===============

Total purchase consideration (which is equal to 35% of the
      fair value of net assets)                                      135,000

Less: Cash and cash equivalents of Jilian acquired                    (7,914)
      Cash outflow on acquisition during 2002                        (73,086)
                                                               ---------------
Cash outflow on acquisition during 2003                               54,000
                                                               ===============

26 FINANCIAL INSTRUMENTS

(A) FINANCIAL RISK FACTORS

The Group's operations expose it to various financial risks, including credit
risk, foreign exchange risk and interest rate risk and liquidity risk. While the
Group has not used derivative financial instruments for hedging or trading
purposes, it focuses on the unpredictability of financial markets and seeks to
minimize potential adverse effects on its financial performance of the Group.
The Group's senior management has written policies covering specific financial
risks indicated above.

(i) Credit risk

     The carrying amounts of accounts receivable included in the consolidated
     balance sheet represent the Group's maximum exposure to credit risk in
     relation to its financial assets. No other financial assets carry a
     significant exposure to credit risk. Cash is placed with state-owned banks
     and financial institutions.

(ii) Foreign exchange risk

     The Group operates in the PRC and transactions are primarily denominated in
     Renminbi, the national currency. The Group is exposed to foreign exchange
     risk arising from various currency exposures with respect to debt
     denominated in foreign currencies (Note 21).



                                       34
<PAGE>


26 FINANCIAL INSTRUMENTS (CONTINUED)

(iii) Interest rate risk

     The Group has no significant interest-bearing assets, as such its income
     and operating cash flows are substantially independent of changes in market
     interest rates. The Group sometimes borrows at variable rates and these
     represent the Group's maximum exposure to interest rate risk in relation to
     its financial liabilities.

(iv)     Liquidity risk

     The Group depends upon cash flows from operations, loans from banks and
     related parties, and equity financing to satisfy its liquidity and capital
     needs. Management reviews the Group's working capital and liquidity
     position on a regular basis to ensure it has sufficient resources to meet
     its working capital needs and to continue its operations for the
     foreseeable future. In addition, management also aims at maintaining
     flexibility in funding by keeping committed credit lines available. The
     Company expects to receive continuing support from CNPC for its working
     capital requirements in the foreseeable future. In this regard, CP Finance,
     a subsidiary of CNPC, has agreed to extend the period of borrowing
     facilities, totaling Rmb 8 billion, available to the Company to December
     31, 2005 (Note 21 (a)).

(B)  FAIR VALUES

The carrying amounts of the following financial assets and financial
liabilities, net of impairment provisions, approximate their fair values: cash,
trade receivables and payables, other receivables and payables and short-term
debt. The value of long-term debt is disclosed in Note 21.

27 CAPITAL COMMITMENTS

                                                  AT DECEMBER 31,
                                           ------------------------------
                                               2002              2003
                                           -------------    -------------
                                                   RMB               RMB
Contracted but not provided for
  in respect of plant and equipment              94,256             8,680
                                           ============     =============

28 MAJOR CUSTOMERS

The Group's major customers are as follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                 ---------------------------------------------------------------------------
                                          2001                      2002                      2003
                                 -----------------------   -----------------------   -----------------------
                                                   % TO                      % TO                      % TO
                                                  TOTAL                     TOTAL                     TOTAL
                                   REVENUE      REVENUE      REVENUE      REVENUE      REVENUE      REVENUE
                                 ----------    ---------   ----------    ---------   ----------    ---------
                                       RMB            %          RMB            %          RMB            %
<S>                              <C>           <C>         <C>           <C>         <C>           <C>
PetroChina Group Companies       6,358,786           51    6,931,492           53    12,354,945          60
JCGC Group Companies               657,211            5      658,700            5      908,009            4
                                 ----------    ---------   ----------    ---------   ----------    ---------
                                 7,015,997           56    7,590,192           58    13,262,954          64
                                 ==========    =========   ==========    =========   ==========    =========
</TABLE>


                                       35
<PAGE>


29  RELATED PARTY TRANSACTIONS

The Company is a subsidiary of PetroChina which is part of a larger group of
companies under CNPC. The Group has extensive transactions with members of the
CNPC group. In addition to the related party information shown elsewhere in the
financial statements, the following is a summary of the significant transactions
entered into in the normal course of business between the Group and entities
controlled by CNPC during the year:

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------------------
                                                NOTES              2001              2002            2003
                                                        ----------------    --------------   --------------
                                                                    RMB               RMB             RMB

<S>                                                           <C>               <C>             <C>
PETROCHINA GROUP COMPANIES

Purchase of crude oil                            (a)          6,738,177         5,883,507       8,067,989
Purchase of materials                            (a)            751,840           694,206       1,266,922
Sale of gasoline                                 (b)          1,820,000         1,759,816       2,656,296
Sale of diesel oil                               (b)          2,543,500         2,981,184       5,615,331
Sale of petrochemical goods                      (b)          1,995,286         2,190,492       4,083,318
Operating lease rentals on property, plant
and equipment                                    (c)                  -                 -           2,463
Property safe and insurance fund                 (d)                  -            35,985          35,278

JCGC GROUP COMPANIES

Sale of goods                                    (e)            657,215           658,700         908,009
Sub-contracting fees                             (f)             24,353            23,880          16,694
Construction of property, plant and
   equipment                                     (g)            113,214           165,560          65,653
Purchase of materials and spare parts            (h)            148,957           269,780         290,002
Fees for welfare and support services            (i)            127,444           114,750         228,828
Purchase of property, plant and equipment        (j)                  -                 -         159,500
Operating lease rentals on land and buildings    (k)                  -             9,453          10,501

CNPC GROUP COMPANIES

Interest expense                                 (l)            388,251           373,665         305,319
Loans drawn                                      (m)          7,472,250         4,579,050       5,308,460
Purchase of materials and spare parts            (n)                  -            30,641          66,789

</TABLE>


(a) Represents purchase of crude oil, naphtha, benzene, etc. on normal
commercial terms at market prices.

(b) Represents sale of diesel oil, gasoline, ethylene, etc. on normal commercial
terms at market prices.

(c) Represents rentals for operating lease on property, plant and equipment at
market prices.

(d) The Group participates in the property safe and insurance fund plan
established and organized by PetroChina under which it is required to make
annual contribution to the plan at 0.4% of the average cost of fixed assets and
inventory. The fund is mainly used to compensate for the accidental property
loss.



                                       36
<PAGE>


29 RELATED PARTY TRANSACTIONS (CONTINUED)

(e) Represents sale of refinery products, chemical products, etc. on normal
commercial terms at market prices.

(f) Represents processing fee for semi-finished products on normal commercial
terms at market prices.

(g) Represents construction fee of property, plant and equipment of the Group at
regulated prices, market prices or cost as provided in the service agreement
between the Group and JCGC Group Companies.

(h) Represents purchase of spare parts, low value consumables etc. on normal
commercial terms at market prices.

(i) Fees for welfare and support services are based on state regulated prices,
market prices or cost as provided in the service agreement between the Group and
JCGC Group Companies.

(j) In December 2003, the Company purchased certain property, plant and
equipment from JCGC for a consideration of Rmb 159,500 based on a revaluation
conducted by a professional valuer. The consideration was settled by offsetting
against the Company's accounts receivable due from JCGC of Rmb 159,500.

(k) Represents rentals for operating lease on land and building at market
prices.

(l) Represents interest expense for borrowings from CP Finance.

(m) Represents borrowings from CP Finance.

(n) Represents purchase of materials and spare parts on normal commercial terms
at market prices.

30 SEGMENT INFORMATION

(a) Primary reporting format - business segments

The Group is principally engaged in the following four business segments in the
PRC, petroleum products, petrochemical and organic chemical products, chemical
fertilizers and inorganic chemicals, and synthetic rubber products.

 (i)  The petroleum products segment is engaged in the production of gasoline,
      diesel oil, solvent oil and other by-products such as lubricants. While
      certain of the products produced by the Group are used as raw materials in
      the production of petrochemicals, a major portion is sold to outside
      customers.

 (ii) The petrochemical and organic chemical products segment primarily produces
      ethanol, acetic acid and acetic anhydride.

 (iii)The chemical fertilizers and inorganic chemicals segment principally
      produces ammonium nitrate, urea, ammonium chloride, sulphuric acid and
      slag.

 (iv) The synthetic rubber products segment primarily produces
      styrene-butadiene-rubber.

In addition to these four major business segments, the other products and
services segment includes utilities, maintenance and other related services.

The accounting policies of the operating segments are the same as those
described in Note 2 - "Summary of principal accounting policies".

Operating segment information for the years ended December 31, 2001, 2002 and
2003 is presented below.



                                       37
<PAGE>


30     SEGMENT INFORMATION (CONTINUED)

(a) Primary reporting format - business segments (continued)



<TABLE>
<CAPTION>
                                                                    CHEMICAL
                                                 PETROCHEMICAL  FERTILIZERS AND                   OTHER
                                    PETROLEUM     AND ORGANIC      INORGANIC   SYNTHETIC RUBBER  PRODUCTS
YEAR ENDED DECEMBER 31, 2001         PRODUCTS   CHEMICAL PRODUCTS  CHEMICALS      PRODUCTS     AND SERVICES      TOTAL
----------------------------       -----------    -----------    -----------    -----------    -----------    -----------
                                           RMB            RMB            RMB            RMB            RMB            RMB
<S>                                <C>            <C>              <C>            <C>          <C>           <C>
PROFIT AND LOSS
Sales (including intersegment)       6,141,415      6,894,381        107,090        781,690      2,184,195     16,108,771
Less: Intersegment sales              (933,462)    (1,507,901)          --             --       (1,148,876)    (3,590,239)
                                   -----------    -----------    -----------    -----------    -----------    -----------
Total sales to external
  customers                          5,207,953      5,386,480        107,090        781,690      1,035,319     12,518,532
                                   ===========    ===========    ===========    ===========    ===========    ===========
Segment results                       (361,866)      (719,848)      (124,881)       (21,722)       (80,163)    (1,308,480)
Finance costs - net                   (545,990)
Share of income of jointly
  controlled entities                     --           40,595           --             --             --           40,595
Share of loss of an
  associated company                      --             --             --             --           (1,259)        (1,259)
                                                                                                              -----------
Loss before income taxes                                                                                       (1,815,134)
Income taxes                                                                                                         (821)
Minority interests                                                                                                 (1,414)
                                                                                                              -----------
Net loss                                                                                                       (1,817,369)
                                                                                                              ===========

Depreciation and amortization          297,174        423,829          3,907        164,451         77,434        966,795

ASSETS AND LIABILITIES
Segment assets                       4,718,135      7,868,959      1,042,317      1,085,824      3,014,834     17,730,069
Interests in jointly
  controlled entities                     --          282,499           --             --             --          282,499
Investment in an
  associated company                      --             --             --             --           18,784         18,784
                                                                                                              -----------
Total assets                         2,969,199      7,936,381      1,290,935        283,364      1,349,959     13,829,838
                                                                                                              ===========

Segment liabilities                    156,502        744,500        141,557         29,680         81,738      1,153,977
Debt                                                                                                            9,527,048
                                                                                                              -----------
Total liabilities                                                                                              10,681,025
                                                                                                              ===========

Segment capital expenditure on
  property, plant and equipment
  and on intangible assets              27,931        185,989        582,576          8,878         61,484        866,858

</TABLE>


                                       38
<PAGE>


30 SEGMENT INFORMATION (CONTINUED)

(a) Primary reporting format - business segments (continued)


<PAGE>


<TABLE>
<CAPTION>
                                                                    CHEMICAL
                                                 PETROCHEMICAL  FERTILIZERS AND                   OTHER
                                    PETROLEUM     AND ORGANIC      INORGANIC   SYNTHETIC RUBBER  PRODUCTS
YEAR ENDED DECEMBER 31, 2002         PRODUCTS   CHEMICAL PRODUCTS  CHEMICALS      PRODUCTS     AND SERVICES      TOTAL
----------------------------       -----------    -----------    -----------    -----------    -----------    -----------
                                           RMB            RMB            RMB            RMB            RMB            RMB
<S>                                  <C>            <C>              <C>            <C>          <C>           <C>

PROFIT AND LOSS
Sales (including intersegment)        7,971,951      6,180,161        123,325        782,559     1,559,678     16,617,674
Less: Intersegment sales             (2,805,763)      (430,086)          --             --        (243,438)    (3,479,287)
                                    -----------    -----------    -----------    -----------   -----------    -----------
Total sales to external
  customers                           5,166,188      5,750,075        123,325        782,559     1,316,240     13,138,387
                                    ===========    ===========    ===========    ===========   ===========    ===========

Segment results                        (210,741)      (156,705)      (153,268)       119,724      (105,046)      (506,036)
Finance costs - net                    (514,056)
Share of loss of jointly
  controlled entities                      --           (7,671)          --             --            --           (7,671)
Share of income of an
  associated company                       --             --             --             --             125            125
                                                                                                              -----------
Loss before income taxes                                                                                       (1,027,638)
Income taxes                                                                                                       (1,116)
Minority interests                                                                                                  5,655
                                                                                                              -----------
Net loss                                                                                                       (1,023,099)
                                                                                                              ===========

Shut down of manufacturing assets       160,617         43,241         51,972           --          27,588        283,418
Writedown of carrying value of
  property, plant and equipment          60,749        203,651         26,412          5,797        27,235        323,844
Depreciation and amortization           438,367        481,247         16,853         55,867       116,188      1,108,522
Impairment charge of current
  assets (receivables and
  inventories)                          191,469
ASSETS AND LIABILITIES
Segment assets                        2,652,543      8,160,438      1,057,622        616,960     1,114,611     13,602,174
Interests in jointly controlled
  entities                                 --           44,058           --             --            --           44,058
Investment in an associated
  company                                  --             --             --             --          18,909         18,909
                                                                                                              -----------
Total assets                          2,652,543      8,204,496      1,057,622        616,960     1,133,520     13,665,141
                                                                                                              ===========

Segment liabilities                     303,790      1,445,169        274,780         57,613       104,896      2,186,248
Debt                                                                                                            9,363,490
                                                                                                              -----------
Total liabilities                                                                                              11,549,738
                                                                                                              ===========
Segment capital expenditure on
  property, plant and equipment
  and on intangible assets               35,146        234,033        733,064         11,171        77,366      1,090,780
</TABLE>


<PAGE>


30 SEGMENT INFORMATION (CONTINUED)

(a) Primary reporting format - business segments (continued)



                                       39
<PAGE>


<TABLE>
<CAPTION>
                                                                    CHEMICAL
                                                 PETROCHEMICAL  FERTILIZERS AND                   OTHER
                                    PETROLEUM     AND ORGANIC      INORGANIC   SYNTHETIC RUBBER  PRODUCTS
YEAR ENDED DECEMBER 31, 2003         PRODUCTS   CHEMICAL PRODUCTS  CHEMICALS      PRODUCTS     AND SERVICES      TOTAL
----------------------------       -----------    -----------    -----------    -----------    -----------    -----------
                                        RMB            RMB            RMB            RMB            RMB            RMB
<S>                                <C>            <C>              <C>            <C>          <C>           <C>

PROFIT AND LOSS
Sales (including intersegment)      12,906,594      8,595,891        164,861      1,133,031     2,560,499     25,360,876
Less: Intersegment sales            (3,586,528)      (812,800)          --             --        (308,739)    (4,708,067)
                                   -----------    -----------    -----------    -----------   -----------    -----------
Total sales to external
  customers                          9,320,066      7,783,091        164,861      1,133,031     2,251,760     20,652,809
                                   ===========    ===========    ===========    ===========   ===========    ===========

Segment results                         37,344        721,791       (121,754)       356,048       (98,111)       895,318
Finance costs - net                   (464,858)
Share of profit of a jointly
  controlled entity                       --            9,664           --             --            --            9,664
Share of loss of an associated
  company                                 --             --             --             --         (14,001)       (14,001)
                                                                                                             -----------
Profit before taxation                                                                                           426,123
Taxation                                                                                                            (270)
Minority interests                                                                                                 1,756
                                                                                                             -----------
Net profit                                                                                                       427,609
                                                                                                             ===========

Depreciation and amortization          494,535        362,532          9,671         40,855       124,414      1,032,007
Impairment charge of current assets
  (receivables and inventories)                                                                                  113,569
ASSETS AND LIABILITIES
Segment assets                       2,503,467      7,700,372        848,240        755,820       799,060     12,606,959
Interests in jointly controlled
  entities                                --           53,722           --             --            --           53,722
Investment in an associated
  company                                 --             --             --             --           4,908          4,908
                                                                                                             -----------
Total assets                         2,503,467      7,754,094        848,240        755,820       803,968     12,665,589
                                                                                                             ===========

Segment liabilities                    501,931      2,387,753        454,000         95,190       175,462      3,614,336
Debt                                                                                                           6,509,897
                                                                                                             -----------
Total liabilities                                                                                             10,124,233
                                                                                                             ===========

Segment capital expenditure on
  property, plant and equipment
  and on intangible assets              35,042        179,145        179,071         75,241        18,355        486,854

</TABLE>


                                       40
<PAGE>


30 SEGMENT INFORMATION (CONTINUED)

(b) Secondary reporting format - geographical segments

All assets and operations of the Group are located in the PRC, which is
considered as one geographic location in an economic environment with similar
risks and returns.

31 SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP

The consolidated financial statements have been prepared in accordance with IFRS
which may differ in certain material respects from US GAAP. Such differences
involve methods for measuring the amounts shown in the consolidated financial
statements, as well as additional disclosures required by US GAAP.

Effect on net profit/(loss) of significant differences between IFRS and US GAAP
is as follows:



<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                   ----------------------------------------------------
                                                       2001          2002          2003         2003
                                                   ----------    ----------    ----------    ----------
                                                        RMB             RMB          RMB            US$
                                                   ----------    ----------    ----------    ----------
<S>                                                <C>           <C>           <C>           <C>
 Net (loss)/profit under IFRS                      (1,817,369)   (1,023,099)      427,609        51,664

 US GAAP adjustments:
 - Depreciation charge on fixed asset
     revaluation surplus on Restructuring and at
     February 28, 1995                          (a)    17,401         3,593        11,223         1,356
 - Reduction in loss on write-off of fixed
     assets                                     (a)        --         2,526          --            --
 - (Impairment of fixed assets) / reversal of
     writedown in carrying amount (net of
     minority interests) of fixed assets        (a)        --       322,240       (42,700)       (5,159)
 - Depreciation charge on writedown in carrying
     amount (net of minority interests) of fixed
     assets, net of impairment                  (a)        --            --       (27,954)       (3,377)
 - Depreciation charge on foreign currency
     translation difference on interest
     components capitalized in fixed assets     (b)     1,531         1,531         1,531           185
 - Depreciation charge on fixed asset
     revaluation surplus of a jointly controlled
     entity                                     (c)     7,630         7,630          --            --
 - Tax adjustment                               (d)  (362,236)         --            --            --
                                                   ----------    ----------    ----------    ----------
 Net (loss)/profit under US GAAP                   (2,160,673)     (685,579)      369,709        44,669
                                                   ==========    ==========    ==========    ==========
 Basic and diluted net (loss)/profit per share
     under US GAAP                                 Rmb  (0.61)    Rmb (0.19)     Rmb 0.10      US$ 0.01
                                                   ==========    ==========    ==========    ==========
</TABLE>




                                       41
<PAGE>


31 SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP (CONTINUED)

Effect on shareholders' equity of significant differences between IFRS and US
GAAP is as follows:

<TABLE>
<CAPTION>
                                                                                  AT DECEMBER 31,
                                                                    ---------------------------------------------
                                                                            2002            2003            2003
                                                                    -------------    ------------    ------------
                                                                             RMB            RMB              US$
<S>                                                                 <C>              <C>             <C>
Shareholders' equity under IFRS                                       2,082,947        2,510,556         303,328

US GAAP adjustments:
- Fixed asset revaluation on Restructuring and at February
     28, 1995                                                    (a)   (744,007)        (744,007)        (89,892)
- Deferred tax asset on fixed asset revaluation surplus on
     Restructuring                                               (a)    235,941          235,941          28,507
- Depreciation charge on fixed assets due to revaluation on
     Restructuring and at February 28, 1995                      (a)    591,426          665,461          80,402
- Reversal of deferred tax liability on fixed asset
     revaluation surplus at February 28, 1995                    (a)      9,580            9,580           1,157
- Reduction in loss on write-off of fixed assets                 (a)     11,532           11,532           1,393
- Reversal of writedown in carrying amount (net of minority
     interests) of fixed assets, net of impairment of fixed (a)
     assets                                                             322,240          279,540          33,774

- Depreciation charge on writedown in carrying amount (net of
     minority interests) of fixed assets, net of impairment      (a)          -          (27,954)         (3,377)
- Foreign currency translation difference on interest
     components capitalized in fixed assets                      (b)    (30,616)         (30,616)         (3,699)
- Depreciation charge on foreign currency translation
     difference on interest components capitalized in fixed
     assets                                                      (b)      9,186           10,717           1,295
- Gain on transfer of fixed assets to Jilian                     (c)    (65,320)         (65,320)         (7,892)
- Depreciation charge on fixed asset revaluation surplus of
     Jilian                                                      (c)     62,812                -               -
- Tax adjustment                                                 (d)   (245,521)        (245,521)        (29,664)
                                                                    -------------    ------------    ------------
Shareholders' equity under US GAAP                                    2,240,200        2,609,909         315,332
                                                                    =============    ============    ============
</TABLE>

In preparing the summary of differences between IFRS and US GAAP, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the estimates of revenues and expenses. Accounting estimates have been employed
in these financial statements to determine reported amounts, including
realizability, useful lives of tangible and intangible assets, income taxes and
other areas. Actual results could differ from those estimates.



                                       42
<PAGE>


31 SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP (CONTINUED)

Changes in shareholders' equity under US GAAP for each of the year ended
December 31, 2002 and 2003 are as follows:

SHAREHOLDERS' EQUITY

                                            YEAR ENDED DECEMBER 31,
                                       --------------------------------
                                             2002             2003
                                       --------------   --------------
                                                  RMB              RMB

Balances at beginning of year               2,925,779       2,240,200
Net (loss)/ profit for the year              (685,579)        369,709
                                       --------------   -------------
Balance at end of year                      2,240,200       2,609,909
                                       ==============   =============

A summary of the principal differences and additional disclosures applicable to
the Group is set out below:

(a) Revaluation of fixed assets

On September 30, 1994, the fixed assets transferred to the Company by Jilin
Chemical Industrial Corporation as part of the Restructuring were appraised, as
required by the relevant PRC regulations, by a firm of independent valuers
registered in the PRC. The revaluation of the fixed assets transferred resulted
in Rmb 714,974 in excess of the prior carrying value and was recorded in share
capital and capital reserve and not as a revaluation reserve. The depreciation
charge on the revaluation surplus for year ended December 31, 2003 was Rmb 9,771
(2002: Rmb 2,141; 2001: Rmb 8,319), including the depreciation charge of Rmb
7,630 on the revaluation surplus of Jilian (previously a jointly controlled
entity of the Company) reclassified since 2003 as a result of the Company's
acquisition of the remaining 35% equity interest in Jilian in December 2002. For
purposes of reconciling to the US GAAP financial data, the effect of the
revaluation and the related depreciation charge is reversed. A deferred tax
asset of Rmb 235,941 (2002: Rmb 235,941; 2001: Rmb 235,941) relating to the
reversal of the revaluation effect was established, together with a
corresponding increase in shareholders' equity.

On February 28, 1995, the Group's fixed assets were further revalued by a firm
of independent valuers registered in Hong Kong to satisfy the Hong Kong Stock
Exchange listing requirements. This revaluation, which resulted in an additional
revaluation surplus of Rmb 29,033, was not recognized by the PRC authorities and
was therefore not recorded in the statutory accounting books. A deferred tax
liability of Rmb 9,580 was created under IFRS with a corresponding decrease in
revaluation surplus. The depreciation charge on the revaluation surplus for year
ended December 31, 2003 was Rmb 1,452 (2002: Rmb 1,452; 2001: Rmb 1,452). For
purposes of reconciling to the US GAAP financial data, the revaluation surplus,
the related depreciation charge and the tax effect are reversed.

In prior years, certain fixed assets with a net book value of Rmb 283,418 (Rmb
2,526 related to revaluation surplus recorded in share capital and capital
reserve) were written off as a charge to the consolidated income statement in
connection with the shut down of manufacturing assets. For purposes of
reconciling to the US GAAP financial data, the effect of the revaluation
relating to the write-off of fixed assets is reversed.


                                       43
<PAGE>


31 SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP (CONTINUED)

(a) Revaluation of fixed assets(continued)

As at December 31, 2002, the directors of the Company compared the carrying
amount of the Group's property, plant and equipment to their estimate of its
fair value, and on the basis of this review, made an adjustment to reduce the
carrying amount by Rmb 323,844. Under IFRS, the adjustment arising from the
comparison, net of minority interests of Rmb 1,604, amounting to Rmb 322,240 was
charged to the income statement. For purposes of reconciling to the US GAAP
financial data, the write-down adjustment is reversed since the related
undiscounted cash flows adequately recover the carrying value of these assets
despite a decrease in fair value. The related depreciation of these write-down
fixed assets for the year ended December 31, 2003 was Rmb 27,954 (2002: Nil). As
at December 31, 2003, the discounted cash flows of certain fixed assets among
the above write-down fixed assets were lower than their carrying value by Rmb
42,700 and was charged to the income statement for the reconciliation to US
GAAP.

(b) Foreign exchange losses

Under US GAAP, foreign exchange losses are expensed in the period in which they
occur.

Under IFRS, the Group capitalized foreign currency translation difference
relating to debt to the extent that these are adjustments to the interest costs
of funds used to finance the construction of fixed assets during the period of
construction. For purposes of reconciling to the US GAAP financial data, the
effect of the capitalized foreign currency translation difference and the
related depreciation charge is reversed.

(c) Fixed assets transferred to Jilian

During the period ended December 31, 1994, certain fixed assets of the Company
were appraised and transferred to Jilian, which was 65% owned and jointly
controlled by the Company prior to December 2002 when the Company acquired the
35% minority interest. At the time of the 1994 transfer, the Company retained
65% of revaluation surplus arising from the appraisal of these assets which
amounted to Rmb 121,309 within the revaluation reserve and recognized a gain of
Rmb 65,320, representing 35% of revaluation surplus, from the transfer to the
other joint venture partner of a 35% interest in the fixed assets. The
depreciation charge on the revaluation surplus related to these assets for the
year ended December 31, 2003 was Rmb 7,630 (2002: Rmb 7,630; 2001: Rmb 7,630).
For purposes of reconciling to the US GAAP financial data, the effect of the
revaluation, the related depreciation charge and the gain on the transfer is
reversed. In addition, as the Company acquired the remaining 35% equity interest
in Jilian in December 2002, Jilian has become a branch of the Company.
Therefore, since 2003, the reversed depreciation charge on the revaluation
surplus for Jilian's fixed assets has been included in the Company's
depreciation charge on fixed assets due to revaluation on Restructuring and at
February 28, 1995 for the reconciliation to US GAAP.

(d) Tax adjustment

As there is uncertainty as to whether the deferred tax asset established in (a)
above can be fully realized, a valuation allowance for the deferred tax asset is
made.




                                       44
<PAGE>


31 SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP (CONTINUED)

(e) Additional US GAAP information - recent accounting pronouncements

 Issued in January 2003 and revised in December 2003, FIN 46-R, "Consolidation
of Variable Interest Entities", provides guidance on the identification of and
financial reporting for entities over which control is achieved through means
other than voting rights. This Interpretation requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if
the entities do not effectively disperse risks among parties involved. The
Interpretation applies immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. It is effective no later than the end of
the first reporting period ending after March 15, 2004 for variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. The Group does not believe the adoption of the
provisions of FIN 46-R will have a material effect on its consolidated financial
statements.


32 PRINCIPAL SUBSIDIARIES

<TABLE>
<CAPTION>
                              Paid-up                           Attributable
                              capital      Type of legal        equity interest
  Company name                RMB          entity                     %           Principal activities
 --------------------------   ----------  ------------------   --------------   -------------------------
<S>                            <C>        <C>                  <C>              <C>
  Jilin Jihua Jianxiu          45,200     Limited liability          99          Machinery repair and
   Company Limited                         company                                  installation

  Jilin Xinhua                 25,668     Limited liability          75          Manufacture and sale of
   Nitrochloro-benezene                    company                                  nitrochloro-benzene
   Company Limited

  Jilin Winsway Chemical      51,454      Sino-foreign               70          Provision of
   Industrial Store and                    equity joint                             transportation
   Transport Limited                       venture                                  services for
                                                                                    chemical materials
                                                                                    and products

  Jilin City Songmei          72,000      Sino-foreign               66          Manufacture of acetic
   Acetic Co., Ltd.                        co-operative                             acid
                                           joint venture

  Jilin Jihua Jinxiang         2,000      Limited liability          94          Inspection, research
   Pressure Vessel                         company                                  and consultation of
   Inspection Co., Ltd.                                                             pressure vessels

</TABLE>

Except for Jinxiang, which was established by Jianxiu and Jilin Lianli
Industrial Co., Ltd. ("Lianli"), an associated company of the Company, on March
6, 2003, there were no changes in the interests held in other subsidiaries in
2002 and 2003.




                                       45
<PAGE>


33 ULTIMATE HOLDING COMPANY

   The directors regard CNPC, a state-owned enterprise established in the PRC,
as being the ultimate holding company.

34 APPROVAL OF FINANCIAL STATEMENTS

   The financial statements were approved by the board of directors on April 20,
   2004 and will be submitted to the shareholders for approval at the annual
   general meeting to be held June 16, 2004.




























                                       46
<PAGE>











ITEM 19.   EXHIBITS
-------------------


12.1     Certification of General Manager Required by Rule 13a-14(a)

12.2     Certification of Deputy Chief Financial Officer Required by
         Rule 13a-14(a)

13.1     Certification of General Manager Required by Rule 13a-14(b) and
         Section 1350 of Chapter 63 of Title 18 of the
         United States Code

13.2     Certification of Deputy Chief Financial Officer Required by Rule
         13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the
         United States Code







                                       75

<PAGE>



                                   SIGNATURES
                                   ----------


         The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.

                               JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED


                               By:    \S\ SHI JIANXUN
                                      --------------------------------
                               Name:  Shi Jianxun
                               Title: General Manager



Dated:  June 16, 2004

















                                       76


<PAGE>