[CONFORMED]
                  SECURITIES AND EXCHANGE COMMISSION

                            FORM 20-F

[ ]REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (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, 1997

                               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 1-14606
                                        

               China Energy Resources Corporation
        (Exact name of Registrant as specified in its charter)
                                        

                       British Virgin Islands
            (Jurisdiction of incorporation or organization)
            
Citco Building, Wickhams Cay              c/o Arimoto, Ogasawara & Mo
P.O. Box 662, Road Town                   276 Fifth Avenue, Suite 703 
Tortola, British Virgin Islands           New York, NY 10001
             (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  

Common Stock, par value $0.01 per share       American Stock Exchange
                                        

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

                              None

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

                              None

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.

As of December 31, 1997, 3,248,494 common shares, par value $0.01 per share 
(the "Common Stock"), were issued and outstanding.

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 _____  No __X__   
  
Indicate by check mark which financial statement item the registrant has 
elected to follow.
Item 17______  Item 18 __X__   

                                 1


              
                            TABLE OF CONTENTS                       Page
                                PART I

ITEM 1.  DESCRIPTION OF BUSINESS                                      3

ITEM 2.  DESCRIPTION OF PROPERTIES                                   12

ITEM 3.  LEGAL PROCEEDINGS                                           13

ITEM 4.  CONTROL OF REGISTRANT                                       14

ITEM 5.  NATURE OF TRADING MARKET                                    15

ITEM 6.  EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING 
         SECURITY HOLDERS                                            15

ITEM 7.  TAXATION                                                    17

ITEM 8.  SELECTED FINANCIAL DATA                                     20

ITEM 9.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
         CONDITION AND RESULTS OF OPERATIONS                         25

ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT                        31

ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS                      32

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR 
         SUBSIDIARIES                                                33

ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS              34

                                PART II

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED                  34

                                PART III

ITEM 15. DEFAULTS UPON SENIOR SECURITIES                             34

ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR 
         REGISTERED SECURITIES                                       34

                                PART IV

ITEM 17. FINANCIAL STATEMENTS                                        34

ITEM 18. FINANCIAL STATEMENTS                                        35

ITEM 19. FINANCIAL STATEMENTS AND EXHIBIT                            35   
                                 
                                 2




             Certain Definitions and Supplemental Information

     All references to "China" or "PRC" in this Annual Report are references 
to The People's Republic of China. Unless otherwise specified, all references 
in this Annual Report to "U.S. dollars," "dollars," or "$" are to United 
States Dollars; all references to "Renminbi" or "Rmb" are to Renminbi, which 
is the official currency of China.  Unless otherwise specified, translation of 
amounts from Renminbi to U.S. dollars for the convenience of the reader have 
been made in this Annual Report at the exchange rates indicated in Item 8. 
"Selected Financial Data -- Exchange Rate Information," as quoted by the 
People's Bank of China.  No representation is made that the Renminbi amounts 
could have been, or could be, converted into U.S. dollars at that rate or at 
any other rate.  See Item 6. "-- Exchange Controls and Other Limitations 
Affecting Security Holders -- PRC."

     The financial statements of China Energy Resources Corporation (the 
"Company") are presented in U.S. dollars.  All financial statements of the 
Company presented herein have been prepared in conformity with United States 
generally accepted accounting principles ("U.S. GAAP"). 

                       Forward-Looking Statements

     This Annual Report may contain "forward-looking statements" within the 
meaning of Section 27A of the Securities Act of 1933, as amended, and 
Section 21E of the Securities Exchange Act of 1934, as amended, including 
(without limitation) under Item 1. "Description of Business," Item 2. 
"Properties," Item 6. "Exchange Controls and Other Limitations Affecting 
Security Holders" and Item 9. "Management's Discussion and Analysis of 
Financial Condition and Results of Operations." Such statements are not 
guarantees of future performance and involve a number of risks and 
uncertainties that could affect the Operating Company's operations, markets, 
prices and other factors and hence the results of the Company.  Among the 
factors that could cause actual results to differ are changes in the planned 
economic development of the PRC, competitive pressures, delays or 
difficulties in increasing capacity utilization at existing production 
facilities, delays in development of mining operations, a significant 
increase in PRC coal production capacity or a significant decrease in demand 
for the Operating Company's products, changes in PRC regulation or taxation 
of foreign equity joint ventures, increased PRC regulations of the mining, 
production and sale of coal under the recently enacted National Coal Act, 
increased or more stringent PRC environmental regulations and the tightening 
of PRC exchange controls.  The Company has been experiencing difficulty in
generating sufficient cash flow to enable it to operate all its facilities
and develop its coal mine use right and/or to obtain additional financing 
or refinancing as may be required.  These difficulties have raised 
substantial doubt about the Company's ability to continue as going cocern. 
Management's plans concerning these matters are described in "Item 1. -
Implementation of Business Strategy" and in note 3 to the Financial 
Statements.
    

                                 PART I

ITEM 1.  DESCRIPTION OF BUSINESS


Historical Background

     China Energy Resources Corporation (the "Company") was incorporated on 
March 15, 1996 under the International Business Companies Act of the British 
Virgin Islands.  The Company is a holding company which is the sole 
shareholder of China Coal Mining (B.V.I.) Co. Ltd. ("CCM"), a corporation 
organized under the International Business Companies Act of the British 
Virgin Islands.  Pursuant to a joint venture agreement dated September 16, 
1995, CCM acquired an eighty percent (80%) interest in Mishan Hua Xing Coke 
Limited ("MHXC"), a newly formed Sino-foreign equity joint venture company 
organized in the People's Republic of China (the "PRC").  Pursuant to this 
agreement, CCM paid cash in the amount of $7,886,000 for its 80% interest in 
MHXC.  The MHXC joint venture period, which was initially established for a 
term of 20 years from the joint venture's date of formation, was subsequently 
extended by the parties for an additional 10 years and may be extended by 
unanimous resolution of the board of directors of MHXC subject to the 
approval of the relevant authorities.  CCM purchased its interest in MHXC 
from the government of the PRC, which remains the owner of a 20% interest in 
MHXC.  MHXC succeeded to the business of Mishan Coal Chemical Holding Company, 
a PRC government-owned enterprise ("MCCH"), which owned and operated two 
production factories: Mishan City Coke Factory ("MCCF") and Qitaihe City Coal 
Factory ("QCCF").  Prior to the acquisition by MCCH in 1994, MCCF was a PRC 
government-owned enterprise and QCCF was part of a different PRC government 
owned enterprise.  

                                3



     In December 1995, the principals of the Company entered into a 
definitive agreement (the "Merger Agreement") for the merger of Jackson 
Holding Corp. ("JHC"), with and into the Company.  JHC was incorporated in 
the State of New York on February 22, 1994 for the sole purpose of acquiring 
or merging with an unspecified operating business.  On January 9, 1995, JHC 
commenced a "blank check" offering pursuant to Rule 419 under the Securities 
Act of 1933, as amended (the "1933 Act").  JHC had approximately 170 
shareholders of its common stock.  The Merger Agreement was approved by 
unanimous written consent by the Board of Directors of the Company dated 
March 22, 1996.  In July 1996, the shareholders of JHC voted in favor of the 
Merger.  On September 10, 1996, the Company filed a Registration Statement 
on Form F-4 with the U.S. Securities and Exchange Commission to effect the 
merger.  The Company's Registration Statement on Form F-4 was declared 
effective on October 4, 1996 by the U.S. Securities and Exchange Commission.

     In connection with the merger, the Company issued 109,850 common shares 
to the shareholders of JHC in exchange for the entire issued share capital of 
JHC.  At the time of the merger, JHC had no operating assets.

     On April 21, 1997, the Company listed 5,898,436 of its common shares 
(the "Common Stock") on the American Stock Exchange, which included 3,248,494 
shares outstanding and 2,649,942 shares reserved for issuance.


General

     All of the Company's operations are conducted through its operating 
subsidiary, CCM, and in turn through the PRC-based MHXC joint venture to 
which CCM is a party (referred to hereinafter as the "Operating Company").  
The Operating Company has two wholly-owned coal refining operations, MCCF and 
QCCF.


MCCF

     MCCF engages primarily in the production and sale of metallurgical coke. 
MCCF completed its steam coal preparation facility in 1993.  In 1995, MCCF 
completed construction of an additional production facility to process steam 
coal into metallurgical coke and foundry coke.  This facility has been 
designed for annual production capacities of approximately 200,000 tons of 
steam coal, approximately 85,000 tons of metallurgical coke and approximately 
56,000 tons of foundry coke.  The total output of metallurgical coke only 
reached 21,783 tons in 1997, accounting for 26% of its production capacity 
for metallurgical coke.  Improvements to the facility, which cost 
approximately $3,000,000, were financed through an unsecured loan by a local 
PRC bank at a fixed term rate of 15.3%.  These improvements enabled MCCF to 
produce metallurgical coke and foundry coke which it was unable to do prior 
to such improvements. Presently, the main product of the MCCF plant is 
metallurgical coke and low-end metallurgical coke.

     On June 20, 1995, the Mishan City Municipal Government granted MCCF 
exclusive underground rights to mine coal from certain coal reserves located 
in Mishan City, within Heilongjiang Province, PRC.  MCCF's mining rights (the 
"coal mine use rights") were granted on June 20, 1995 and continue in force 
for 100 years.  See "--Government Regulation."  Upon the formation of the 
Operating Company, the PRC joint venture partner made an interest free loan 
in the amount of $7,906,000 to MCCF to partially finance the acquisition of 
the coal mine use rights. 

     The reserves are located within approximately 10 kilometers of the MCCF 
production facility.  Present access to these reserves is solely by way of an 
undeveloped road system.  The coal reserves are located in the districts of 
Dalizi, Jinshazi, Beiyinzi, Dazhushan and Zhushan.  These five districts 
collectively produce the following types of coal: coking; fat; gas; and 
meager.  The combination of these four types of coal is required to produce 
high quality foundry coke.  MCCF is not presently involved in the mining of 
these reserves due to the lack of funds available for this purpose.  MCCF has 
been engaged in conducting mine site surveys, clearing the surface of 
potential mine entrance sites, performing geological surveys and preparing 
mining plans.  The Company believes that these activities will enable MCCF to 
begin its mining operations as soon as practicable after sufficient funds are 
available.  The costs associated with mining preparation work have been 
capitalized as part of MCCF's coal mine use rights.

                                 4



     As a result of the macro-economic adjustments and related credit policy 
advocated by the central PRC government, MCCF was not able to obtain working 
capital from local banks after the completion of its production facilities in 
1995.  Due to this lack of working capital, in June 1996, operation of the 
MCCF plant was subcontracted to a company under the control of the PRC's 
Ministry of Coal.  According to the subcontract, the party which operated the 
plant (i) was obligated to meet all the operating expenses of the plant, (ii) 
was entitled to receive all the revenues from the plant's operation and (iii) 
paid to MCCF a subcontracting fee.  This subcontract was terminated on March 
31, 1997 and MCCF resumed the production and sales of metallurgical coke 
during the second quarter of 1997.   In order to expand sales and fully 
utilize the existing facilities, MCCF also produced some low-end 
metallurgical coke.  Total production and sales by MCCF during 1997 after the 
termination of the subcontracting agreement amounted to 61,009 tons of 
regular and low-end metallurgical coke generating gross revenue of 
$1,313,000.  However, in March of 1998, MCCF ceased operations due to its 
inability to collect trade receivables which adversely affected the working 
capital needed for production and sales activities.

     In addition, during 1997, the Company terminated the services of the 
MCCF plant manager, however, prior to his termination, this individual signed 
various documents that provided collateral to bank lenders of MCCF over MCCF 
assets.  

     Currently, the local government is assisting the Company to supervise 
the daily operations of MCCF.  The majority of work force has been dismissed 
with approximately 55 workers remaining on the premises.  


QCCF

     QCCF engages in the production and sale of steam coal.  The QCCF factory 
was constructed in 1993 and employs the "air-heavy medium fluid bed" dry 
process of coal preparation, which management of the Operating Company 
believes is a leading production technology worldwide and is appropriate for 
production in cold and dry regions such as the region where QCCF's factory is 
located.  QCCF's annual production capacity is approximately 750,000 tons of 
steam coal and the factory operated at 53% of its capacity in 1997.

     Historically, a substantial percentage of the sales of QCCF have been to 
one customer, Mudanjiang No. 2 Power Plant ("Mudanjiang") in Heilongjiang 
Province, PRC.  On an annual basis, the PRC government designates the quota 
of steam coal that will be purchased for each of its power plants and the 
districts from which such coal will be supplied.  Each power plant can then 
determine which suppliers within each district it will contract with for the 
year.  In 1995 and 1996, QCCF contracted to supply 312,000 tons and 390,890, 
respectively, tons of steam coal to Mudanjiang.   QCCF sold 312,000 tons, 
390,890 tons and 327,743 tons of steam coal to Mudanjiang in 1995, 1996 and 
1997 respectively.  Overall sales volume decreased in 1997 due to the 
shortage of  transportation capacity as a result of a good harvest in the 
Heilongjiang Province which occupied most of the transportation capacity 
during the second quarter of 1997.  QCCF produced according to purchased 
orders received.

     In order to assure that its customers will receive steam coal on a 
timely basis, QCCF needs to secure sufficient transportation capacity.  In 
1996, QCCF entered into a cooperative agreement with a unrelated party under 
the control of the Railroad Transportation Department whereby QCCF would be 
entitled to transportation capacity for 400,000 tons of steam coal annually in 
exchange for a negotiated fee.


Business Strategy

     Through offerings of convertible notes and warrants in November 1996 and 
January 1997 in exempt transactions pursuant to Regulation S under the 1933 
Act, the Company raised net proceeds of approximately $5,400,000.  These 
proceeds were primarily used as follows:  $2,014,000 for purchase of raw coal 
and working capital of MCCF, $648,000 for bank loan repayment by QCCF, 
$1,268,000 for a loan to the former owner of QCCF,  $337,000 for the 
administrative expenses of Heilongjiang representative office which was set 
up in 1997, unauthorized withdrawl of $286,000 by the former Chariman, 
$577,000 for the Company's administrative and reporting expenses with the 
remaining of $270,000 of cash on hand.

     MCCF working capital was entirely depleted due to a large amount of 
uncollected trade receivables and poor operating  management.  The situation 

                                   5



was exacerbated  by  the refusal of local banks and raw coal suppliers  to 
advance further credit.  As a result, MCCF ceased operations in March of  
1998.  MCCF will  not resume production until a strategic partner or 
qualified management team is found.  At the current stage, MCCF only retains 
a minimum workforce and incurs minimum expenses to maintain its facility.

     QCCFs business strategy is to increase sales in the PRC of steam coal 
by increasing production capacities and marketing additional coal products. 
It is expected that QCCF will utilize existing cash flow from operations 
to approach the maximum steam coal production capacities of its existing 
plant and equipment.  Management believes that steam coal production can be 
increased by a substantial percentage without any significant capital 
improvements, as QCCF has the plant and equipment necessary to support this 
business expansion.

     Additionally, the Operating Company intends to explore its ability to 
produce foundry coke in commercial quantities which meet international 
quality standards for sales in the PRC and for export subject to the 
availability of working capital.  With its existing technology, management 
believes that the MCCF facility is capable of producing high quality foundry 
coke within international standards.  Foundry coke is widely used in the 
production of specialty steel, the raw material used in high performance 
steel products such as automobile and airplane engines.  The high temperature 
requirements for foundry coke require a high quality raw coal, as measured by 
low sulfur, phosphorous and ash contents and a high caloric value. 

     Presently, the Operating Company's factories purchase a majority of 
their raw coal from coal mine operations of unrelated parties.  Management 
intends to apply some excess cash flow, if available, to begin mining the 
coal reserves to which MCCF has exclusive mining rights.  It is hoped that, 
once such mining activities are fully operational, the MCCF reserves will 
supply a major portion of the raw mined coal for production in the Operating 
Company's factories.  Management believes that such mining operations will 
result in lower costs to MCCF for raw materials and an increase in the  
Operating Company's gross profit and net income.  Construction of MCCF's coal 
mining facilities is expected to require a substantial investment in mining 
equipment or the acquisition of an existing coal mining operation.  The 
Operating Company expects that it will cost in excess of $3,000,000 to 
commence such mining operations, including but not limited to equipment for 
digging, mining, safety, ventilation and transportation.  The Company expects 
such construction would take approximately one year from commencement to 
completion.

Implementation of Business Strategy

     The implementation of the Company's business strategy and its 
continuation as a going concern is conditioned upon the Company's ability 
to obtain additional financing as needed and the Company's ability to 
generate sufficient cash flow to enable it to operate all of its facilities 
and develop its coal mine use right.  The difficulties recently 
encountered by the Company include the following:

     During 1997, the Company terminated the services of the MCCF plant 
manager, however, prior to his termination this individual signed various
documents that provided collateral to bank lenders of MCCF over MCCF assets. 

     In 1997,as a result of cash flow shortages, various problems with local 
management and other operational issues, the facility at MCCF did not operate
at full capacity resulting in the closure of that facility in March, 1998.  
The Company intends to reopen the facilities when the Company has raised 
additional finance as the Company anticipates that operating the plant will 
generate positive cash flows and therefore, no provision for impairment is 
required.  

     MHXC owns the right to mine coal at certain coal mines located in Mishan. 
The Company plans for these mines to supply coking coal for use in production 
by MCCF.  During 1997, the company continued its efforts in preparing the mine 
sites for mining operations and in October 1997 obtained a report prepared by 
international mining and geological consultants on the coking coal reserve 
base and associated coal quality. This report recommended that the Company 
implement various programs to expand the demonstrated coal reserve base and 
provide support for coal qualiity documentation, see "Item 1.-Coal Reserve". 
Due to inadequate working capital the Company has not been able to conduct 
further mine surveys and the Company has been in contact with potential 
strategic partners to assist in development.  The Company needs to complete 
additional work on the survey and mining plans before the mine is ready for 
use.

                                   6 



Sales and Marketing

     MCCF's primary product is high quality metallurgical coke, which is sold 
to steel mills. Due to a shortage of working capital, the MCCF factory 
operated substantially below capacity. During the first half of 1996, MCCF 
sold certain residual products which were below the factory's quality 
standards.  Subsequently, during the second half of 1996 and the first 
quarter of 1997, the operation of the MCCF plant was subcontracted to a 
company under the control of the PRC's Ministry of Coal.  Therefore, the 
sales volume of the MCCF factory attributable to the Operating Company showed a 
significant decrease for 1996, as well as a decrease in the average net sales 
price per ton from the 1995 level.  As a result of the working capital raised 
in 1996 and early 1997, the MCCF subcontracting agreement was terminated on 
March 31, 1997 and MCCF's management was focusing on the process of 
rebuilding its workforce, production and sales operations in the remaining 
quarters of 1997.   MCCF produced low-end as well as standard metallurgical 
coke in order to increase sales and fill back order.  Unfortunately, due to 
poor credit management and collection efforts, most of the MCCF's trade 
receivables were not collected.  By the beginning of 1998, MCCF did not have 
sufficient working capital to continue its operations.  Thus, the production 
at the facility was halted in March of 1998.

<TABLE>
     MCCF reported the following sales of metallurgical coke for the previous 
three fiscal years:
                   
<CAPTION>

                                              1995     1996    1997
<S>                                           <C>      <C>     <C>
Sales volume (in tons)
             -metallurgical coke              33,000   6,758   21,783
             -low-end metallurgical coke         -        -    39,226
Average net sales price (per ton)*
             -metallurgical coke              $57.39   $38.32  $41.73
             -low-end metallurgical coke         -        -    $10.30

<FN>
_______________
*Sales prices indicated are net of discounts and returns.
</FN>
</TABLE>

     QCCF's primary product is steam coal, which is used by thermal power 
plants.  Since 1995, the sales volume of QCCF has increased at an annual 
rate of over 20% but in 1997, the sales volume decreased by 17% as compared 
to 1996 due to the shortage of transportation capacity. The QCCF factory 
employs the "air-heavy medium fluid bed" dry process of coal preparation.  
QCCF believes that this process is well-suited to the cold climate where its 
products are used and that this processing technology provides it with a 
competitive advantage over other suppliers within the Qitaihe City region 
which use alternative technologies.
 
     In order to ensure a stable demand for its products along with a source 
of working capital, QCCF has entered into various long-term coal supply 
contracts with its major electric utility customers.  These contracts 
generally stipulate that the utility company will provide a certain amount of 
working capital to QCCF in return for QCCF's obligation to supply coal at the 
prevailing market price.  In addition, pursuant to these contracts, the 
utility companies are generally responsible for obtaining transportation 
capacity for which they earn a fee on a per ton basis.  

     QCCF implemented certain self-assessed "penalty" policies in its sales 
contracts as a method to emphasize quality control and customer satisfaction 
in the marketing of its products.  Its sales contracts specify quality 
standards for the coal to be delivered, generally in terms of the coal's BTU 
and burn characteristics.  To the extent that any QCCF product fails to meet 
the agreed upon standard, QCCF will rebate a set amount to its customer.  
Similarly, if QCCF delivers a tonnage that is higher than the quantity 
purchased, QCCF does not charge the customer for the freight cost of 
transporting the excess goods.

                                   7



<TABLE>
     QCCF reported the following sales of steam coal for the previous three 
fiscal years:

<CAPTION>
                                         1995     1996      1997
<S>                                      <C>      <C>       <C>
Sales volume (in tons)                   390,000   475,305  396,627
Average net sales price (per ton)*       $15.52    $15.86   $19.52

<FN>
_______________
*Sales prices indicated are net of discounts and returns.
</FN>
</TABLE>

Dependence on One Major Customer 

     Historically, a substantial percentage of the sales of QCCF (and its 
predecessor companies) have been to one customer, Mudanjiang No. 2 Power 
Plant ("Mudanjiang"), in Heilongjiang Province, PRC, which accounted for 
approximately 80%, 82% and 80% of QCCF's net sales and approximately 71%, 80% 
and 69% of the Operating Company's net sales for the years ended December 31, 
1995, 1996 and 1997, respectively.  On an annual basis, the PRC government 
designates the quota of steam coal that will be purchased for each of its 
power plants and the districts from which such coal will be supplied.  Each 
power plant can then determine which suppliers within each district it will 
contract with for the year.  In 1995 and 1996, QCCF sold 312,000 tons and 
390,890 tons, respectively, of steam coal to Mudanjiang. On December 31, 1996,
QCCF signed a long-term supply contract with Mudanjiang for a term of 
seven years from January 1, 1997 to January 1, 2004 (See Exhibit 2.1). 
According to the contract, QCCF has agreed to supply up to 900,000 tons to 
Mudanjiang each year, subject to QCCF's ability to obtain sufficient 
transportation capacity.  The actual sales volume to Mudanjiang totaled 
327,743 tons in 1997.  See "--General--QCCF."  The loss of Mudanjiang as a 
customer of QCCF would have a material adverse effect on both the Operating 
Company's and the Company's financial condition, results of operations, cash 
flows, business and prospects.  QCCF started to diversify its customer base by 
establishing business relation with other power plants.  In December of 1997, 
QCCF started to supply steam coal to Harbin Power Plant.  Sales to Harbin 
Power Plant amounted to 19,515 tons in the month of December 1997 and 
contributed 5% of sales for the year. 


Transportation

     Transportation is an important factor in coal marketing in the PRC 
because a significant portion of the cost of processed coal is attributable 
to transportation.  The availability and cost of such transportation has a 
significant effect upon the marketability of coal.  During 1997 the local 
government in Heilongjiang utilized more transportation capacity for 
agricultural products because of good harvest in the North-east part of China.  
As a result, QCCF suffered from a shortage of rail transportation and its 
revenue decreased in 1997.  Generally, the cost of transportation from the 
Operating Company's two factories to their customers are incurred by the 
factories.
 
     The development of the PRC railway system still lags behind the growth 
of the PRC economy as a whole, and discrepancies between the capacity and 
volume of transportation are severe in many areas of the PRC.  Currently, 
most of the customers of the Operating Company's factories are located within 
their respective regions, and the factories utilize the PRC's rail transport 
system to deliver substantially all of their products to their customers.  
With the Operating Company's ongoing efforts to develop new customers as well 
the intention for MCCF to export products to Southeast Asia, it is expected 
that the number of customers located in areas other than the PRC's northeast 
region will increase.  Accordingly, alternative means of transportation may 
be required to accommodate future product transportation needs.  Although the 
Company believes that the Operating Company's factories will be able to 
satisfy their transportation needs for the foreseeable future based on their 
current production capacities and that sufficient rail transportation will be 
made available to the factories to meet any increases in production 
capacities, there can be no assurance that either of the Operating Company's 
factories will continue to receive a sufficient amount of rail transport 
capacity.  Additionally, there can be no assurance that either of the 
factories will be able to develop alternative means of transportation that 
are reliable and cost-efficient.  

                                  8




Coal Reserve

     The raw coal that is mined in the Mishan City area contains high 
quality coal for use in coke production.  This type of raw coal generally has 
low sulfur and phosphorus contents and strong cohesiveness.  All of these 
qualities together produce a high quality coke coal, with the exception of 
the ash content in the raw coal which, according to an independent 
governmental test conducted in Beijing, is between 17% and 24%.  An ash 
content of between 8% and 9% is considered to be the international standard 
for high quality foundry coke.   The Company  engaged John T. Boyd Company, a 
leading U.S. geologist, to review and comment on the availability and 
reliability of the coking coal reserve base tonnage and quality to supply 
coal to MCCF.  Boyd's personnel spent 12 days in-country reviewing supporting 
documentation of the coal reserve base, discussing reserve and coal quality 
parameters for the reserve base and visiting selected underground mining 
sites.  All source data were provided by or at the direction of the Company 
and/or subsidiary companies and were utilized as provided with no independent 
verification by Boyd as to its accuracy.  According to the report issued by 
Boyd in October 1997, based on the existing MCCF coking production capacity 
of 56,000 tons per year, the remaining demonstrated coal reserve equates to 
approximately 60 years of production.  Using the current expansion plans for 
the coking facility at 156,000 tons per year, the remaining life of the 
demonstrated reserve base is about 21 years.  Subject to future confirmation 
via on-site exploration, there are additional 9.4 million recoverable tons of 
coking coal reserve base available for expansion and/or continuation of 
operations.  This report recommended that the Company implement various 
programs to expand the demonstrated coal reserve base and provide supporting  
coal quality documentation.  Due to inadequate working capital, the Company 
has not been able to conduct further mine surveys.  The Company needs to 
complete additional work on the survey and mining plans before the mine is 
ready for use. 

Technology

     MCCF employs the "heavy medium flow-rotator coal preparation technique,
"an advanced processing technology developed by the Tangshan Branch of China 
Coal Industry Research Institute.  Management believes that by employing this 
technique MCCF has the capability to meet the rigorous quality standards 
required for export.  With the use of this technology, the ash content of the 
cleaned coal can be kept between 7.0 - 8.0%, thus providing cleaned coal with a 
reduced ash content for the production of foundry coke.  The Operating 
Company believes that the flow-rotator process is more economical than the 
widely-used jigging method which has been the standard process for the past 
several decades.  While management believes that the advanced flow-rotator 
process produces a significantly higher yield of clean coal, a higher rate of 
reclaim and a lower ash content than the jigging method, there can be no 
assurance that MCCF's existing technology will enable it to produce foundry 
coke that meets international quality standards.

     The processing plant at QCCF employs the "air-heavy medium fluid bed" 
dry process of coal preparation, which the Company believes is a leading 
technology worldwide.  This process was the result of ten years' research by 
China Minerals University, which has patented the technology.  This process 
provides a new method for coal sorting in areas where water resources are in 
short supply and where it is severely cold.  Management of the Operating 
Company believes that this process is more environmentally friendly than the 
wet separation processes because it produces no waste water and slime.  Due 
to certain deficiencies in the implementation of this technology during the 
summer rainy season, the Operating Company intends to employ working capital, 
if available, to improve upon this technology.

                                  9




Government Regulation

     Companies operating in the PRC are subject to certain laws, rules and 
regulations promulgated by the government thereof.  PRC laws applicable to 
the mining, production and utilization of coal include the Mineral Resources 
Law of the PRC (1996, revising the 1986 law) and the Regulations for the 
Implementation of the Mineral Resources Law of the PRC (1994).  In 
particular, the Operating Company is subject to the Coal Law of the People's 
Republic of China, which became effective on December 1, 1996 (the "National 
Coal Law"), and which comprehensively regulates the mining of the PRC's coal 
resources, the production of coal and related business operations.  The 
planned mining operations of the Operating Company may, under the National 
Coal Law, require approval by the Heilongjiang Provincial Coke and Coal 
Bureau.  Rules to be promulgated by the State Council under the National Coal 
Law could impose substantial substantive regulation of the production and 
pricing of coal and coke.  There can be no assurance that the National Coal 
Law and the rules and regulations promulgated thereunder will not have an 
adverse effect on the business or operations of the Operating Company or the 
coal mine use rights of MCCF.  In addition, prior to the export of coke or 
coal, the Operating Company must obtain an export license from the Ministry 
of Foreign Trade and Economic Cooperation ("MOFTEC"), which, under the 
National Coal Law, may be authorized to grant such licenses only to large 
scale coal-production enterprises.  While management believes that it will be 
able to obtain such a license once it is in a position to begin exporting, 
there can be no assurance that such a license will be obtained by the 
Operating Company.  

     The Operating Company is subject to certain PRC laws and regulations 
applicable to Sino-foreign equity joint ventures.  The laws related to PRC 
Sino-Foreign Joint Equity Enterprise (the "Joint Venture Law") establishes a 
comprehensive regulatory and corporate governance framework with respect to 
Sino-foreign equity joint ventures.  Some pertinent provisions of the Joint 
Venture Law provide as follows: (i) Article 4 requires that the transfer of 
one party's share be effected only with the consent of the other party or 
parties; (ii) Article 5 provides that if site-use rights are not part of the 
Chinese partner's investment contribution, the joint venture shall pay fees 
to the government for such usage; (iii) Article 9 requires that the 
production and operational plans of a joint venture be filed with the 
relevant authorities and (iv) Article 12 requires approval by the government 
for any extension of a joint venture's term.  More detailed restrictions are 
provided in Regulations for the Implementation of the Law of the PRC on 
Sino-Foreign Joint Equity Enterprise.  In addition, the Regulations on Labor 
Management in Foreign Investment Enterprises set forth certain restrictions, 
including, but not limited, to restrictions on the hiring and discharge of 
employees, establishment of wages, maintenance of insurance and welfare and 
other benefits.  The Operating Company is also subject to certain PRC 
national and local environmental regulations with which it must comply in the 
production of its coal and coke products.  See "--Environmental Protection."


Environmental Protection

     The Company is 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 it to cease or cure certain activities causing environmental 
damage.  Due to the nature of the Operating Company's business, the 
Operating Company produces significant amounts of waste water, coal dust, 
solid waste materials, and noise during the course of its production of coke 
and coal.  The Operating Company has established environmental protection 
systems to treat certain of its waste materials, to safeguard against 
accidents and to reduce noise. The Operating Company believes that its 
environmental protection facilities and systems are adequate for it to 
comply with the existing national and local environmental protection 
regulations.  However, there can be no assurance that the PRC national or 

local authorities will not impose additional or more stringent regulations 
which would require additional expenditure on environmental matters, changes 
in the Operating Company's processes or systems and/or plant closures.

     The Operating Company regards environmental protection as a priority and 
maintains an environmental protection department which is responsible for 
coordinating its environmental protection systems.  The Operating Company 
believes that it is in substantial compliance with all applicable 
environmental statutes and regulations.

                                   10



Competition

MCCF - Metallurgical and Foundry Coke

     The coke produced in the PRC is mainly of the metallurgical quality.  
Generally, coke quality is measured by its low contents of sulfur, 
phosphorous and ash, and high caloric value.  Metallurgical coke is 
considered to be a lesser grade of coke than foundry coke due to its ash, 
sulfur and phosphorous contents.  The output of foundry coke in the PRC 
remains low due to highly technological production requirements.

     Within the Operating Company's region, the Operating Company believes 
that the Jixi City Coal Preparation Plant ("Jixi"), which produces mainly 
metallurgical coke, is its only major competitor.  The Operating Company 
believes that MCCF's preparation process can achieve a lower ash content for 
coke than is possible with the process employed by Jixi.  A low ash content 
is required to meet international standards for foundry coke.  The Operating 
Company believes that its coke products are priced competitively with those 
of Jixi.

     The Operating Company believes that its potential major competitors for 
the production of foundry coke in the PRC are Zhenjiang Coking Chemical Plant 
and Beijing Coking Chemical Plant.  Because both of these plants are located 
in the central regions of the PRC, the Operating Company believes that 
transportation costs have been, and will continue to be, a factor which 
increases the cost of coke delivered by these plants to customers in the PRC 
regions served by the Operating Company.  The Operating Company believes that 
such increased costs of delivery may provide an effective barrier to 
competition from these other producers until such time as the transportation 
system in the PRC is better developed.  In addition, the Operating Company 
believes that both of these other plants produce only limited quantities of 
foundry coke.  


QCCF - Steam Coal

     QCCF presently processes steam coal for use by thermal power generating 
plants in its region.  The Operating Company has not experienced significant 
competition in the sale of steam coal produced by QCCF due to the strong 
demand for steam coal in the PRC.  In QCCF's region, Heilongjiang Province, 
there are four major production districts, which include Jixi, Hegang, 
Qitaihe and Shuangyashan.  Within each of these districts are many 
government-owned steam coal production facilities, all of which represent 
competition to QCCF within the region in which QCCF operates.  The Operating 
Company is not aware of any available statistics regarding these government-
owned facilities, some of which may have significantly greater production 
capacities than the combined capacities of the Operating Company.


International

     The Operating Company has not engaged in any sales of its coal or coke 
products to customers located outside of the PRC.  The Operating Company 
plans to explore the possibility of exporting a portion of its coke and coal 
production, subject to its ability to increase production capacities in order 
to produce coke and coal products in commercial quantities which meet 
international quality standards, obtain sufficient transport capacity and any 
required regulatory approvals.  There are many coke and coal producers 
worldwide that have significantly greater resources and experience in 
international sales than the Operating Company, and which may have an 
established customer base for their coal and coke production.  The Operating 
Company expects that its major competition in the international markets would 
be from coal and coke producers located in the United States, Australia and 
Canada.

                                    11



Employees 

     As of December 31, 1997, the Company and CCM each had 1 full-time 
employee.  As of December 31, 1997, the Operating Company, including its two 
factories, had approximately 1,043 employees, of whom 471 worked for QCCF and 
572 worked for MCCF.  Of the Operating Company's total number of employees, 
approximately 91% were production workers, approximately 7% were managerial 
staff and approximately 2% were engineering and technical staff.  As MCCF 
ceased its operations in March 1998,  the majority of its work force were 
dismissed with approximately 55 workers remaining in the factory . Generally, 
the MCCF and QCCF factories have entered into employment contracts with their 
workers, which contracts typically are subject to annual renewal, contain 
annual wage determination provisions and provisions regarding pension and 
medical benefits in accordance with applicable PRC regulations governing the 
management of labor. In addition to cash compensation, each of the factories 
provides certain pension funds and costs of medical care to their employees.


ITEM 2.	DESCRIPTION OF PROPERTIES

Properties

     Substantially all of the operations of the Operating Company and CCM are 
conducted at the facilities of the Operating Company. 

     The Operating Company owns and operates two coal production factories, 
MCCF and QCCF, in the northeast region of the PRC.  These factories include 
certain buildings, fixtures and equipment necessary for the production 
of steam coal and metallurgical and foundry coke.  These factories are owned 
by the Operating Company.

     The MCCF factory and raw material stockpiles are located on a 127,000 
square meter site located in Mishan City, Heilongjiang Province, PRC.  MCCF 
has been granted certain land use rights by the Mishan City government in 
connection with the real property that MCCF occupies. Pursuant to these 
rights, MCCF has the exclusive right to use and occupy the real property for 
a period of 50 years, commencing September 16, 1995.  MCCF also owns and 
operates 1.13 kilometers of railroad track located on the real property, 
which it uses exclusively in connection with its business.  The real property 
on which the railroad track is located is also subject to the 50-year land 
use rights mentioned above.  The MCCF factory has the capacity to produce 
approximately 200,000 tons of steam coal, 85,000 tons of metallurgical coke 
and 56,000 tons of foundry coke per year.

     According to the Administrative Bureau for Coal Mining of Heilongjiang, 
the coal reserves which have been assigned to MCCF have the potential to mine 
raw recoverable coal of the following types: Dalizi - coke and fat coal; 
Jinshazi - fat and gas coal; Beiyinzi - coke coal; Dazhushan - gas; and 
Zhushan - meager coal.  The Operating Company has completed an initial 
feasibility study related to the coal reserves has  engaged an independent 
expert, John T. Boyd Company to verify the quantity of these reserves.  
According to the  Boyd report which was based upon source data provided by or 
at the direction of the Company, without independent verification as to its 
accuracy, MCCF controls coal reserves sufficient to produce high quality 
foundry coke for 20-60 years and there are an additional 9.4 million 
recoverable tons of coking reserve base.  

     While the Operating Company has the right to mine coal from these 
reserves, it has not yet done so.  The Operating Company estimates that it 
will require in excess of $3,000,000 to commence mining operations.  To date, 
the Operating Company has engaged in conducting mine site surveys, clearing 
the surface of potential mine entrance sites, performing geological surveys 
and preparing mining plans.  The Operating Company has commenced these 
activities to enable it to begin mining operations as soon as possible after 
sufficient funds become available, if such funds become available.  The costs 
associated with mining preparation work have been capitalized as part of 
MCCF's coal mine use rights.  

     The QCCF factory and raw material stockpiles are located on a 150,000 
square meter site located in Qitaihe City, Heilongjiang Province, PRC.  QCCF 
has been granted certain land use rights by the Qitaihe City government in 
connection with the real property that QCCF occupies. Pursuant to these 
rights QCCF has the exclusive right to use and occupy the real property for a
period of 30 years commencing September 16, 1995.  The QCCF factory has the 
capacity to produce approximately 750,000 tons of steam coal per year and was 
operated at approximately 53% of capacity in 1997.

                                   12

     The MCCF and QCCF factories of the Operating Company are located in 
Mishan City and Qitaihe City, respectively, in the PRC.  Firefighting and 
disaster relief or assistance in the PRC are primitive by Western standards.  
The Operating Company and its factories do not currently maintain personal 
injury, fire, casualty or other property insurance covering their raw 
materials, environmental damage, work in progress, furniture, equipment or 
factory buildings in the PRC.  Any damage or loss relating to the Operating 
Company or its facilities would have a material adverse effect on both the 
Operating Company's and the Company's business, results of operations and 
financial condition.  

     Neither the Company nor the Operating Company and its factories maintain 
any business interruption insurance.


ITEM 3.LEGAL PROCEEDINGS

Legal Proceedings

     Neither the Company nor CCM is a party to, nor is the property of the 
Company or CCM subject to any pending legal proceedings which are potentially 
material to the Company or CCM.

                                 13



ITEM 4.CONTROL OF REGISTRANT

<TABLE>
     The following table sets forth certain information regarding ownership 
of the Company's shares of Common Stock as of June 30, 1998 by (i) all 
persons who own more than ten percent (10%) of the outstanding shares of 
Common Stock and (ii) all officers and directors of the Company as a group.

<CAPTION>

Title of       Identity of                    Amount        Percent 
Class          Person or Group                Owned         of Class
<S>             <C>                            <C>           <C>    

Common Stock   Hualong Holding Co. Ltd.       1,250,000     38%
Common Stock   Rana Energy Investment Ltd.      734,444     23%
Common Stock   All officers and directors 
               as a group                        23,998     0.7%

</TABLE>

     The Company issued total of 52,000 options to a consulting firm, the 
Equity Group, on July 22, 1997 and January 15, 1998: 32,000 options are fully 
vested with an exercise price of $5.00 per share, and 20,000 options are 
fully vested with an exercise price of $3.50 or at a lower price at which the 
Company issues additional equity or warrants between January 22, 1998 and 
January 21, 1999.

     As of December 31, 1997 there were 3,248,494 shares of Common Stock 
issued and outstanding.  In the event that the remaining holders of the 
outstanding $3,237,500 principal amount of Convertible Notes exercise their 
conversion rights to convert the principal amount and accrued interest at 
the floor price of $3.50 per share and all the Warrants and Options holders 
exercise their purchase rights at the floor price of $3.50 and $5.00 
respectively,  the result would be a total of 6,202,887 shares of Common 
Stock issued and outstanding.  Dilution to the existing shareholders would be 
approximately 47.63%.  

     Assuming full conversion (in the case of $3,237,500 Convertible Notes) 
or exercise (in the case of 1,946,143 Warrants and Options) of the remaining 
outstanding Convertible Notes, Warrants and Options,  the following table 
sets forth information regarding ownership of the Company's shares of Common 
Stock on a fully diluted basis by (i) all persons who own more than ten 
percent (10%) of the outstanding shares of Common Stock and (ii) all officers 
and directors of the Company as a group.

<TABLE>
<CAPTION>


Title of        Identity of                   Amount        Percent           
Class           Person or Group               Owned         of class 
<S>             <C>                           <C>           <C>

Common Stock    Hualong Holding Co. Ltd.      1,250,000     20%
Common Stock    Rana Energy Investment Ltd.     734,444     12%
Common Stock    All officers and directors 
                as a group                       23,998     0.4%

</TABLE>

The Company is not aware of any other arrangement which may at a subsequent 
date result in a change of control of the Company.

                                  14      



ITEM 5.	NATURE OF TRADING MARKET

     The Common Stock of the Company is listed on the American Stock 
Exchange (the "AMEX").  The AMEX is the principal trading market for the 
Common Stock, which is not listed on any other exchanges within or without 
the United States. The Common Stock commenced trading on the AMEX on April 
21, 1997 under the symbol "CHG."

<TABLE>
     The high and low sales prices for shares of the Common Stock on the 
AMEX for the period indicated were as follows:

<CAPTION>

                               High              Low
<S>                            <C>               <C>

1997 Second Quarter            $    6            $ 4 9/16
1997 Third Quarter               5  1/8       	    3 1/8
1997 Fourth Quarter              3  7/8            1 5/8
1998 First Quarter               2 15/16           1 1/2 
1998 Second Quarter              2  1/8            1 1/2

</TABLE>

     As of June 30, 1998, there were 3,248,494 shares of Common Stock issued 
and outstanding, 1,467,694 of which were held of record by approximately 296 
holders with addresses in the United States.


ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

PRC

     The Operating Company receives almost all of its revenues in Renminbi, 
which is not freely convertible into foreign exchange.  However, the 
Operating Company may require foreign currency to convert profits, if any, 
into U.S. dollars in the amounts needed for the Company to pay dividends, if 
any, and to discharge obligations denominated in foreign currency.  The 
Company has not paid any dividends and has no current plans to pay any 
dividends.

     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.  Prior to January 1, 
1994, the PRC had a dual exchange rate system, which consisted of the rate 
fixed from time-to-time by the PRC State Administration of Exchange Control 
(the "SAEC") and the rates prevailing in the various swap centers around the 
country (the "Swap Rates").  In most cases, foreign enterprises satisfied 
their need for foreign exchange through such means as exporting products for 
foreign currency, selling "import substitute" products in the PRC for 
payment in foreign currency, or accessing a swap center.  Among the more 
widely used Swap Rates was the rate at the swap center in Shanghai.  
Effective January 1, 1994, a new unitary, managed floating-rate system was 
introduced in the PRC to replace the previous dual-track foreign exchange 
system, which was abolished pursuant to the Notice of the People's Bank of 
China Concerning Further Reform of the Foreign Currency Control System (the 
"PBOC Notice").  The conversion of Renminbi into U.S. dollars must now be 
based on the rate set by the People's Bank of China, which is set based on 
the previous day's PRC interbank foreign exchange market rate and with 
reference to current exchange rates on the world financial markets.  In 
furtherance of these currency reforms, the China Foreign Exchange Trading 
Center (the "CFETC") was formally established in Shanghai and began operating 
in April 1994.  The establishment of the CFETC was originally intended to 
coincide with the phasing out of the swap centers.  However, the swap centers 
have been retained as an interim measure and it is envisaged that the local 
swap centers will be phased out gradually.

     Currently, foreign investment enterprises ("FIEs") in the PRC (including 
Sino-foreign equity and co-operative joint ventures) are required to apply to 
the local bureau of the SAEC for "foreign exchange registration certificates 
for foreign investment enterprises."  Upon the presentation of appropriate 
documentation, FIEs may enter into foreign exchange transactions at swap 
centers, or in the future, in the event the unitary exchange rate system is 
implemented as anticipated, through the unified market when all swap centers 
are consolidated under the CFETC.  On January 29, 1996, the State Council 
promulgated the Regulations of the People's Republic of China Regarding 
Foreign Exchange Control (the "Regulations") which came into effect on April 
1, 1996.  Pursuant to the Regulations, conversion of Renminbi into foreign 

                                  15



exchange for current account items is permissible.  Conversion of Renminbi 
into foreign exchange for capital items, such as direct investment, loans 
or security is still under the sole jurisdiction and requires approval of the 
SAEC.

     As a result of the adoption of the unitary exchange rate system on 
January 1, 1994, the official bank exchange rate for Renminbi to U.S. dollars 
experienced an immediate devaluation of approximately 50% to US$1.00 = Rmb 
8.7000.  Any future volatility or devaluation of the Renminbi could have a 
material adverse effect on the Company's business, results of operations and 
financial condition.

     Management believes that the Operating Company will be able to obtain all 
required approvals for the conversion and remittance abroad of foreign 
currency necessary for the operations of both the Operating Company's and the 
Company's businesses.  However, such approvals do not guarantee the 
availability of foreign currency and no assurance can be given that the 
Operating Company will be able to convert sufficient amounts of foreign 
currency in the PRC's foreign exchange markets in the future at acceptable 
rates, or at all, for the repayment of debt, payments of interest, purchases 
of equipment or payment of dividends, if any, and payments for services and 
other contracts.  To the extent that the Operating Company is restricted from 
distributing dividends and profits to CCM, such restrictions could have a 
material adverse effect on the Company's business, results of operations and 
financial condition.


Certain Foreign Issuer Considerations

     The Company is an International Business Company ("IBC") incorporated 
under the provisions of the International Business Companies Act (the "Act") 
of the British Virgin Islands (the "BVI").  The transfer of shares between 
persons regarded as resident outside of the BVI is not subject to any 
exchange controls.  Likewise, issues and transfers of shares involving any 
person regarded as resident in the BVI are not subject to exchange control 
approval.  There are no limitations on the rights of non-BVI owners of the 
Company's Common Stock to hold or vote their shares.  Because the Company is 
an IBC, there are no restrictions on its ability to transfer funds into and 
out of the BVI or to pay dividends to U.S. residents who are holders of the 
Company's Common Stock.

In accordance with the Company's Memorandum and Articles of Association, 
share certificates are only issued as shares registered on the books of the 
Company.  In the case of a representative acting in a special capacity (for 
example, as an executor or trustee), share certificates should record the 
capacity in which the representative is acting.  Notwithstanding the 
recording of any such special capacity, the Company is not bound to 
investigate or incur any responsibility in respect of the proper 
administration of any such estate or trust.  The Company takes no notice of 
any trust applicable to any of its shares whether or not it had notice of 
such trust.

     As an IBC, the Company may not engage in the following activities: (i) 
carry on business with persons resident in the BVI except as set out in 
Section 5(2) of the Act; (ii) own an interest in real property situate in the 
BVI, other than a lease of property for use as an office from which to 
communicate with shareholders or where books and records of the Company are 
prepared and maintained; (iii) carry on a banking or trust business, unless 
it is licensed under the BVI Banks and Trusts Companies Act 1990; (iv) carry 
on business as an insurance or a reinsurance company, insurance agency or 
insurance broker, unless it is licensed under an enactment authorizing it to 
carry on that business; (v) carry on the business of company management 
unless it is licensed under the BVI Company Management Act, 1990; or (vi) 
carry on the business of providing a registered office or act as the 
registered agent for companies incorporated in the BVI.

     There are no restrictions on the degree of foreign ownership of the 
Company.  The Company is subject neither to taxes on its income or dividends 
nor to any foreign exchange controls in the BVI.  In addition, the Company is 
not subject to capital gains tax in the BVI, and profits can be accumulated 
by the Company, as deemed by management to be required, without limitation.

                                 16


ITEM 7.TAXATION   

     The following discussion summarizes certain tax consequences to a 
holder of Common Stock of the Company under present British Virgin Islands 
tax laws, People's Republic of China tax laws and United States federal 
income tax laws.  The discussion does not deal with all possible tax 
consequences relating to the Company's operations or ownership of the Common 
Stock and does not purport to deal with the tax consequences applicable to 
particular investors, some of which (including banks, securities dealers, 
insurance companies and tax-exempt entities) may be subject to special rules.  
In particular, the discussion does not address the tax consequences under 
state, local and other national (i.e., non-BVI, non-PRC and non-United States 
federal) tax laws.  The following discussion is based upon laws and relevant 
interpretations thereof in effect as of the date of this Annual Report, all 
of which are subject to change.  

British Virgin Islands Taxation

     Under the International Business Companies Act of the British Virgin 
Islands (the "International Business Companies Act") as currently in effect, 
a holder of Common Stock of the Company who is not a resident of the BVI is 
exempt from BVI income tax on dividends paid with respect to the Common Stock 
of the Company.  A holder of Common Stock of the Company is not liable for 
BVI income tax on gains realized on the sale or disposal of such shares.  The 
BVI does not impose a withholding tax on dividends paid by the Company to its 
shareholders due to its incorporation under the International Business 
Companies Act.

     There are no capital gains or income taxes levied by the BVI on 
companies incorporated under the International Business Companies Act.  In 
addition, the Common Stock of the Company is not subject to transfer taxes, 
stamp duties or similar charges.

     There is no income tax treaty or convention currently in effect between 
the United States and the BVI.

     As an exempted company, the Company is required to pay the BVI 
government an annual license fee based on the Company's stated authorized 
capital.  

PRC Taxation

     The income tax rate in the PRC for Sino-foreign equity joint ventures is 
governed by the Income Tax Law for Enterprises with Foreign Investment and 
Foreign Enterprises and its Implementation Rules of 1991 (the "PRC Income Tax 
Law").  Under the PRC Income Tax Law, the standard tax rate for Sino-foreign 
equity joint ventures is 33%, comprised of a national income tax of 30% and a 
local tax of 3%.  The national tax rate of 30% is reduced to 15% for joint 
ventures engaged in certain priority projects, including, but not limited to, 
energy and transportation.  The 15% tax rate also applies to joint ventures 
established in one of five special economic zones and to joint ventures of a 
productive nature located in one of certain economic and technological 
development zones in the coastal open cities.  Joint ventures which are 
established in designated coastal economic development zones or in the old 
urban areas of special economic zones or economic and technological 
development zones and engage in productive activities are entitled to a 
reduced national tax rate of 24%.  The 3% local tax may also be reduced or 
waived by the local government of the province or locality in which a joint 
venture is located.  The Operating Company does not currently benefit from 
any of the aforementioned tax rate reductions.

     Sino-foreign equity joint ventures engaged in productive activities and 
which have a term of at least 10 years, such as the Operating Company, are 
exempt from income tax for their first two profitable years and are entitled 
to a 50% reduction of the otherwise applicable income tax rate during the 
subsequent three-year period.

United States Federal Income Taxation

Taxation of Shareholders

     The following discussion addresses certain of the U.S. federal income 
tax consequences to a United States person (i.e., a citizen or resident of 

                                  17



the United States, a corporation, partnership or other entity created or 
organized under the laws of the United States or any political subdivision 
thereof, an estate the income of which is subject to United States income 
taxation regardless of its source or a trust if a court within the United 
States is able to exercise primary supervision over the administration of the 
trust and one or more U.S. fiduciaries have the authority to control all 
substantial decisions of the trust (a "U.S. Investor") who is a holder of 
Common Stock.  The following discussion does not address the U.S. federal 
income tax treatment applicable to certain types of investors (e.g., dealers 
in securities or currencies, financial institutions, life insurance 
companies, tax-exempt organizations and holders of 10% or more of the Common 
Stock of the Company) or to persons other than U.S. Investors, all of whom 
may be subject to tax rules that differ significantly from those summarized 
below.  The summary of U.S. federal income taxation deals only with Common 
Stock held as a capital asset by U.S. Investors whose "functional currency" 
is the United States dollar.  If a U.S. Investor holds its Common Stock 
through a foreign branch or other foreign business unit, the following 
discussion may not be accurate in all respects as to such investor.  In 
addition, future changes to U.S. federal income tax laws could have an effect 
on the U.S. federal income tax consequences of the purchase, ownership and 
disposition of Common Stock.

     A U.S. Investor receiving a distribution in respect of the Common Stock 
will be required to include such distribution in gross income as a taxable 
dividend to the extent such distribution is paid from earnings and profits of 
the Company as determined under U.S. federal income tax law.  A distribution 
in excess of the earnings and profits of the Company first will be treated, 
for U.S. federal income tax purposes, as a nontaxable return of capital to 
the extent of the U.S. Investor's basis in the Common Stock, and to the 
extent in excess of such basis, as capital gain.  Any amount treated as a 
dividend for U.S. federal income tax purposes generally will constitute 
foreign source "passive income" (or, in the case of certain holders, 
"financial services income") and will not be eligible for the dividends 
received deduction generally allowed to corporate shareholders.  Except for 
corporations that own 10% or more of the Common Stock of the Company, no 
shareholder will be entitled to claim a foreign tax credit against U.S. 
federal income tax for any tax paid by the Company or any entity in which 
the Company invests, directly or indirectly.  For reporting purposes, any 
dividends that are paid in any currency other than U.S. dollars must be 
translated into U.S. dollars at the spot rate on the date the dividends are 
distributed by the Company, regardless of whether the dividend received is in 
fact converted into U.S. dollars.

     With certain exceptions, gain or loss on the sale or exchange of the 
Common Stock will be treated as capital gain or loss.  Such capital gain or 
loss will be long-term capital gain or loss if the U.S. Investor has held the 
Common Stock for more than one year at the time of the sale or exchange.  In 
general, gains realized upon the disposition of Common Stock will be U.S. 
source gain for U.S. federal income tax purposes.   Under existing 
authorities, it is unclear whether a loss on the sale of Common Stock would 
be treated as U.S. source or foreign source income for U.S. federal income 
tax purposes.

     Various provisions contained in the Internal Revenue Code of 1986, as 
amended (the "Code") impose special taxes in certain circumstances on 
non-U.S. corporations and their shareholders.  The following is a summary of 
certain provisions that could have an adverse impact on the Company and its 
U.S. Investors.

Personal Holding Companies

     Sections 541 through 547 of the Code relate to the classification of 
certain corporations (including foreign corporations) as personal holding 
companies ("PHCs") and the consequent taxation of such corporations on 
certain of their U.S. source income (and certain types of foreign source 
income which are effectively connected with the conduct of a U.S. trade or 
business) to the extent amounts at least equal to such income are not 
distributed to their shareholders.  A PHC is a corporation (i) more than 50% 
of the value of the stock of which is owned, directly or indirectly, by five 
or fewer individuals (without regard to their citizenship or residence), and 
(ii) which, if a foreign corporation, receives 60% or more of such U.S.-
related gross income, as specifically adjusted, from certain passive sources 
(such as dividends, interest, royalties or rents).  If the Company is 
classified as a PHC, a tax will be levied at the rate of 39.6% on the Company's 
undistributed U.S. taxable income.

                                   18



Foreign Personal Holding Companies

     Sections 551 and 558 of the Code relate to foreign personal holding 
companies ("FPHCs") and impute undistributed income of certain foreign 
corporations to U.S. persons who are shareholders of such corporations.  A 
foreign corporation will be classified as a FPHC if (i) five or fewer 
individuals, who are U.S. citizens or residents, directly, indirectly or 
constructively own more than 50% of the corporation's stock (measured either 
by voting power or value) (the "shareholder test") and (ii) the corporation 
receives 60% (50% for subsequent years) or more of its gross income 
(regardless of source), as specially adjusted, from certain passive sources 
(the "income test").

     If the Company is classified as a FPHC after applications of the 
shareholder test and the income test, a U.S. Investor may be required to 
include in income a constructive dividend equal to its pro rata share of the 
Company's "undistributed foreign personal holding company income" for that 
year whether or not such amounts were actually distributed by the Company.  
Various other adverse consequences will also result if the Company is 
treated as a FPHC including, for example, denial of basis step-up on the 
death of a holder of Common Stock.

Controlled Foreign Corporations

     Sections 951 through 964 and section 1248 of the Code relate to 
controlled foreign corporations ("CFCs") and impute undistributed income to 
certain shareholders and convert into dividend income gains on dispositions 
of shares which would otherwise qualify for capital gains treatment.  A 
corporation will be classified as a controlled foreign corporation if U.S. 
persons who own, directly or indirectly, 10% or more of the Common Stock of 
the Company ("10% Shareholders"), own, in the aggregate, more than 50% 
(measured by voting power or value) of the shares of a foreign corporation.  

     In the event the Company is classified as a CFC, all U.S. Investors that 
own 10% or more of the Common Stock of the Company will be subject to 
taxation under Subpart F of the Code, including possible taxation of such U.S. 
Investors based on certain income of the Company even in the absence of 
distributions of such income by the Company.

Passive Foreign Investment Companies

     A foreign corporation is classified as a "passive foreign investment 
company" (a "PFIC") for United States federal income tax purposes if either 
(i) 75% or more of its gross income in a taxable year is passive income or 
(ii) the average percentage of its assets by value during a taxable year 
which produce or are held for the production of passive income is at least 
50% of the average fair market value of all of the Company's assets for such 
year.  For the purpose of the PFIC tests, if a foreign corporation owns 
directly or indirectly at least 25% by value of the stock of another 
corporation, the foreign corporation is treated as owning its proportionate 
share of the assets of the other corporation, and as if it had received 
directly its proportionate share of the income of such other corporation.  
The effect of this special provision with respect to the Company and its 
direct and indirect ownership of its subsidiaries is that the Company, for 
purposes of the income and assets test described above, will be treated as 
owning directly its proportionate share of each of those companies' income, 
if any, so long as the Company owns, directly or indirectly, at least 25% by 
value of the particular company's stock.  Active business income of the 
Company's subsidiaries will be treated as active business income of the 
Company, rather than as passive income.

     If the Company were to be classified as a PFIC, a U.S. Investor would be 
subject to various adverse U.S. tax consequences.  Such adverse consequences 
include an interest charge on taxes deemed deferred by them on receipt of 
certain "excess" dividend distributions by the Company to the U.S. Investor 
and on realization of gain on disposition of any of the Common Stock owned 
by the U.S. Investor (all of which distributions and gains would be taxable 
as ordinary income), or if a U.S. Investor were to so elect to, and the 
Company were to agree to comply with certain reporting requirements, such U.S. 
Investor currently would be taxable on such U.S. Investor's pro rata share of 
the Company's ordinary earnings and profits and long-term capital gains for 
each year (at ordinary income or capital gains rates, respectively), even if 
no dividend distributions were received.

United States Backup Withholding

                                  19

     A holder of Common Stock of the Company may be subject to "backup 
withholding" at the rate of 31% with respect to dividends paid on such 
Common Stock if such dividends are paid by a paying agent, broker or other 
intermediary in the United States or by a U.S. broker or certain United 
States-related brokers to such holder outside the United States.  Actual 
backup withholding may be avoided by the holder of Common Stock of the Company 
if such holder (i) certifies its status as a non-U.S. holder under penalties 
of perjury or otherwise establishes an exemption or (ii) provides a correct 
taxpayer identification number, certifies that such holder is not subject to 
backup withholding and otherwise complies with the backup withholding rules.  

     Any amounts withheld under the backup withholding rules from a payment 
to a holder will be refunded (or credited against the holder's U.S. federal 
income tax liability, if any) provided that the required information is 
furnished to the United States Internal Revenue Service.


ITEM 8.	SELECTED FINANCIAL DATA 

Summary Financial and Operating Data

     The selected information set forth below should be read in conjunction 
with, and is qualified in its entirety by reference to, the consolidated 
financial statements of the Company and the financial statements of CCM and 
MCCH included in this Annual Report.  The Company prepares its financial 
statements in accordance with U.S. GAAP.

     The Company was incorporated for the sole purpose of holding 100% of 
the capital stock of CCM and being the surviving entity of the merger with 
JHC.  The selected consolidated pro forma financial information of CCM for 
1995 set forth below is based on the assumption that CCM had been formed on 
and owned its 80% interest in the Operating Company on and as of January 1, 
1995.  The Operating Company is a Sino-foreign equity joint venture company 
which succeeded to the business of MCCH.  MCCH owned and operated two 
production factories: MCCF and QCCF.  The figures below reflect primarily the 
financial operating results of MCCF and QCCF.
           
                                 20

<TABLE>
The Company:
<CAPTION> 

                          Actual         Actual        Pro-Forma      Actual        Actual
                          Pre-Joint      Post-Joint    Year           Year          Year 
                          Venture        Venture       Ended          Ended         Ended 
                          Period 1995    Period 1995   12/31/95       12/31/96      12/31/97 
                          (unaudited)(1) (audited)(2)  (unaudited)(3) (audited)(5)  (audited)(5)
                                     (amounts in thousands, except per share data)
<S>                        <C>            <C>           <C>            <C>           <C> 
Consolidated Statement of 
    Operations Data: 
Net sales                  $ 5,896        $ 2,050       $ 7,946        $ 7,801        $9,053
Subcontracting income            0              0             0            723           362
Cost of sales               (4,121)        (1,115)       (5,272)        (5,584)       (5,516)
                            -------        ------        ------          ------        ------
Gross profit                 1,775            935         2,674          2,940         3,899
Selling, general and 
  administrative expenses   (  796)        (  314)       (  736)        (  961)       (4,921)
Write off of advances to 
  related parties                0              0             0              0        (1,768)
                            -------        ------        ------          ------       ------- 
Operating income/(loss)        979            621         1,938          1,979        (2,790)
Interest expenses             (154)          (198)         (526)          (422)       (1,056)
Other income/(expenses)         16             10            30             46          (190) 
                            --------        ------        ------          ------       -------  
Income before income taxes
    and minority interest      841            433         1,442          1,603        (4,036)
Income tax                       0              0             0              0             0
                            -------        ------        ------          ------       -------  
Income before minority 
    interest                   841            433         1,442          1,603        (4,036)
Minority interest                0            (87)        ( 288)         ( 345)          494
                            -------        ------        -------        -------      -------       
Net income                   $ 841          $ 346       $ 1,154        $ 1,258       $(3,542) 

Earnings per share (4)           -         $0.346       $ 1,154         $ 0.66        $(1.18) 
Dividends per share              -              -             -              -            -  
Weighted average number of
    shares outstanding (4)       -              1             1           1,918        2,994

Consolidated Balance Sheet
    Data (at period end):

Working capital              6,289         14,706           N/A           1,804       (4,447)
Total assets                16,058         24,814           N/A          28,833       27,393
Total long-term debts        1,564          4,364           N/A           5,369        4,761
Minority interest                0          2,109           N/A           2,377        1,739
Shareholders' equity         4,725          8,233           N/A          12,156        7,582

Consolidated Cash Flow
    Statement Data:

Net cash provided by/(used in) 
   operating activities         91            611            N/A           1,953       (3,704)
Net cash used in
    investment activities      899          7,968            N/A           1,028        1,250
Net cash provided by 
    financing activities       760          7,578            N/A           3,802          773
Additions to property, plant
    and equipment              899            123            N/A           1,028          997
Depreciation                   357            130            N/A             863          643

Statistical Data:

Gross margin                  30.1%         45.6%          33.7%            28.4%        39.1%
Operating margin              16.6%         30.3%          24.4%            16.1%       (30.8)%

</TABLE>
                                  21




(1) See Statement of Operations of MCCH for the nine months ended September 30, 
1995.

(2) See Consolidated Statement of Operations of the Company for the period 
from August 18, 1995 to December 31, 1995.


(3) See Unaudited Pro Forma Consolidated Statement of Operations of CCM for 
the year ended December 31, 1995.  Pursuant to a joint venture agreement 
dated September 16, 1995, CCM acquired an 80% interest in MHXC.  The 
selected unaudited pro forma financial information has been prepared based 
upon the historical financial statements of MCCH as if the acquisition of 
CCM's interest had occurred on January 1, 1995.
                
(4) The calculation of actual earnings per share of Common Stock for 1997 and 
1996 are based on the weighted average number of shares outstanding during 
the year ended December 31, 1997 and 1996, whereas the calculation of  pro 
forma earnings per share for 1995 is based on the pro forma number of common 
shares outstanding for CCM.

    The pro forma assumptions and adjustments made for the pro forma 1995 
    Statement of Operations include the following: 

    (a)The acquisition of CCM by the Company and the acquisition of the 80% 
    interest in MHXC by CCM were assumed to have occurred on January 1, 1995.

    (b)The Company did not have any revenues except for those attributed to 
    its 80% consolidated interest in MHXC.

    (c)MXHC will be entitled to the tax exemptions granted under the current 
    tax regulations of Sino-foreign equity joint venture enterprises.

    (d)Provision for amortization of the land use rights acquired on the 
    formation of the MXHC joint venture.

    (e)Minority interest of 20% in the earnings of MHXC was recorded.

(5)  See Consolidated Statement of Operations of the Company for the year 
ended December 31, 1997 and 1996.



                                  22



Following are certain operating results, set forth separately, of the Company, 
MCCF and QCCF.  These operating results form the basis for the Consolidated 
Statement of Operations Data for the Company.


<TABLE>
The Company:
<CAPTION>

                                       Pro Forma        Actual      Actual
                                       Year Ended     Year Ended   Year Ended
                                       12/31/95       12/31/96     12/31/97
                                        (expressed in thousands)
<S>                                     <C>            <C>          <C> 
Statement of Operations Data 
  (Unconsolidated)
Net Sales                               $ -            $ 0           $ 0
Cost of sales                             -              0             0
                                       ------        -------        ------
Gross profit                              -              0             0
Selling, general and administrative 
  expenses                                -            (96)         (953)
                                       ------        -------        ------   
Operating income                          -            (96)         (953)
Interest expenses                         -            (47)         (483)
Other expenses                            -              0          (199)
                                       ------        -------        ------ 
Income before income taxes and 
  minority interest                       -           (143)        (1,635)
Income tax                                -              0              0
                                       ------        -------        ------ 
Income before minority interest           -           (143)        (1,635)
Minority interest                         -              0              0
                                       ------        -------        ------
Net income                              $ -         $ (143)      $ (1,635)

</TABLE>


<TABLE>
MCCF:
<CAPTION>

                                     Pro Forma       Actual         Actual
                                    Year Ended    Year Ended      Year Ended
                                     12/31/95      12/31/96        12/31/97
                                            (expressed in thousands)
<S>                                  <C>           <C>             <C>
Statement of Operations Data 
  (Unconsolidated)
Net Sales                            $ 1,894       $ 259           $ 1,313
Subcontracting income                      0         723               362
Cost of sales                         (1,267)       (684)           (1,559)
                                     --------      -------         --------
Gross profit                             627         298               116
Selling, general and administrative 
  expenses                              (313)       (309)           (2,116)
                                     --------      -------         --------
Operating income                         314         (11)           (2,000)
Interest expenses                       (292)       (127)             (433)
Other income                              17           0                24
                                     -------       -------         --------
Income before income taxes and 
  minority interest                       39        (138)           (2,409)
Income tax                                 0           0                 0
                                     -------       -------         --------
Income before minority interest           39        (138)           (2,409)
Minority interest                        (8)          28               495
                                     -------       -------         --------
Net income                              $ 31      $ (110)         $ (1,914)

</TABLE>
                                  23          


<TABLE>
QCCF:
<CAPTION>
                                   Pro Forma        Actual          Actual 
                                  Year Ended     Year Ended      Year Ended 
                                   12/31/95       12/31/96         12/31/97
                                          (expressed in thousands)
<S>                                <C>            <C>              <C>       
Statement of Operations Data 
  (Unconsolidated)
Net Sales                          $ 6,052        $ 7,542          $ 7,740
Cost of sales                       (4,005)        (4,900)          (3,957)
                                   -------         -------         -------
Gross profit                         2,047          2,642            3,783
Selling, general and administrative 
  expenses                            (423)          (556)          (1,852)
Write off of advances to related 
  parties                                0              0           (1,768)
                                    ------         -------          -------
Operating income                     1,624          2,086              163
Interest expenses                     (230)          (248)            (140)
Other income/(expenses)                  9             46              (15)
                                    ------         -------          -------  
Income before income taxes and 
  minority interest                  1,403          1,884                8
Income tax                               0              0                0
                                    ------         -------          -------
Income before minority interest      1,403          1,884                8
Minority interest                     (280)          (373)              (1)
                                    ------         -------          -------
Net income                         $ 1,123        $ 1,511           $    7

</TABLE>


<TABLE>
Operating Company:
<CAPTION>

                                        Production Mix and sales Volume 
                                           1995      1996      1997
                                           (expressed in thousands)
<S>                                        <C>       <C>       <C>
Metallurgical coke:
   Sales volume                            33,000    6,758     21,783
   Average sales price per ton            $ 57.39  $ 38.32    $ 41.73
   Average production cost per ton        $ 38.39  $101.21    $ 55.86

Low-end metallurgical coke:
    Sales volume                              -        -       39,226
    Average sales price per ton               -        -      $ 10.30
    Average production cost per ton           -        -      $  8.72

Steam coal:
   Sales volume                           390,000   475,305   396,627
   Average sales price per ton            $ 15.52   $ 15.86   $ 19.52
   Average production cost per ton        $ 10.27   $ 10.31   $  9.98

</TABLE>


Exchange Rate Information

<TABLE>
The following table sets forth the applicable exchange rate used for the 
presentation of financial information in this Annual Report and in the 
financial statements presented herein:
<CAPTION>

      Period Ended           Exchange Rate
      <S>                    <C>  
September 30, 1995           US$1.00 = Rmb8.3175
December 31, 1995            US$1.00 = Rmb8.3179
December 31, 1996            US$1.00 = Rmb8.2982
December 31, 1997            US$1.00 = Rmb8.2798

</TABLE>

                                 24




ITEM 9.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

     CCM, which was incorporated on August 18, 1995, entered into the joint 
venture which created the Operating Company on September 16, 1995.  The 
Company was subsequently incorporated on March 15, 1996 to be the sole 
shareholder of CCM.  All of the Company's operations are conducted through 
its operating subsidiary, CCM, and in turn through CCM's interest in the 
Operating Company.  As a result, the Company's operations and financial 
condition depend entirely upon the Operating Company's results of operations 
and financial condition.

     References to the Company for the year ended 1997 and 1996 are to the 
consolidated results of CCM and the Company.  References to the Operating 
Company for the year ended 1995 are to the consolidated results of the 
Operating Company.  
 
     The Operating Company has two wholly-owned coal refining operations, 
MCCF and QCCF.  The Operating Company derives its revenues principally from 
two lines of business within the PRC's coal industry: (1) the production and 
sale of metallurgical coke to steel mills and machinery manufacturers; and 
(2) the production and sale of steam coal to power plants, with all of such 
sales to customers located in the PRC. 

MCCF

     MCCF engages primarily in the production and sale of metallurgical coke.  
MCCF completed its steam coal preparation facility in 1993.  Subsequently, in 
1995, MCCF completed construction of an additional production facility to 
process steam coal into metallurgical coke and foundry coke.  This facility 
has been designed for annual production capacities of approximately 200,000 
tons of steam coal, approximately 85,000 tons of metallurgical coke and 
approximately 56,000 tons of foundry coke.  Improvements to the facility, 
which cost approximately $3,000,000, were financed through an unsecured loan 
by a local PRC bank at a fixed term rate of 15.3%.  These improvements 
enabled MCCF to produce metallurgical coke and foundry coke which it was 
unable to do prior to such improvements.  Presently, the main product of the 
MCCF plant is metallurgical coke.

     On June 20, 1995, the Mishan City Municipal Government granted MCCF 
exclusive underground rights to mine coal from certain coal reserves located 
in Mishan City, within Heilongjiang Province, PRC.  MCCF's mining rights 
were granted on June 20, 1995 and continue in force for 100 years.  MCCF is 
not presently involved in the mining of these reserves due to the lack of 
funds available for this purpose.  MCCF has been engaged in conducting mine 
site surveys, clearing the surface of potential mine entrance sites, 
performing geological surveys and preparing mining plans.  The Company 
believes that these activities will enable MCCF to begin its mining  
operations as soon as practicable after sufficient funds are available.  The 
costs associated with mining preparation work have been capitalized as part 
of MCCF's coal mine use rights.

QCCF

    QCCF engages in the production and sale of steam coal.  The QCCF factory 
was constructed in 1993 and employs the "air-heavy medium fluid bed" dry 
process of coal preparation, which management believes is a leading 
production technology worldwide and is appropriate for production in cold and
dry regions such as the region where QCCF's factory is located. QCCF's annual 
production capacity is approximately 750,000 tons of steam coal and the 
factory operated at 53% of capacity in 1997.

                                  25




Results of Operations

1997 Compared to 1996

     Net Sales.  Net Sales is recorded as gross sales less returns and 
discounts.  Net sales increased from $7,801,000 in 1996 to $9,053,000 in 1997.

     MCCF's sales increased 407% from $259,000 in 1996 to $1,313,000 in 1997. 
Net sales of metallurgical coke increased 251% from $259,000 in 1996 to 
$909,000 in 1997 while volume increased 222% from 6,758 tons in 1996 to 
21,783 tons in 1997.  The average unit sales price of metallurgical coke 
increased from $38.32 per ton in 1996 to $41.73 per ton in 1997 because the 
increase in production improved the quality of product.  Upon the receipts of 
working capital in March of 1997,  MCCF terminated the subcontracting 
agreement with a unrelated party.  MCCF resumed the operations and production 
of metallurgical coke.  MCCF produced low-end metallurgical coke as an 
additional coke product in order to increase revenue and fill backlog orders. 
In order to alleviate the immediate transportation capacity problems in 1997, 
MCCF sold 10,466 tons of metallurgical coke at the production point to the 
subcontracting party which in turn sold to its customers using its own 
transportation capacity.   

     The subcontracting agreement between MCCF and an unrelated party 
entered in June of 1996 was continued until March of 1997.  According to this 
agreement, the subcontracting party (i) operated the coal production plant 
(ii) was obligated to meet all of the operating expenses of the plant, (iii) 
was entitled to receive all of the revenues from the plant's operation and 
(iv) paid to MCCF a subcontracting fee of $723,000 in 96 and $362,000 in 
1997, which MCCF was not able to collect $362,000 in 1997 due to the death of 
Chairman of the Company.  

     QCCF's sales of steam coal increased 2.6% from $7,542,000 in 1996 to
$7,740,000 in 1997.  Coal sales volume decreased 17% from 475,305 tons in 
1996 to 396,627 tons in 1997.  The average net sales price increased from 
$15.86 per ton in 1996 to $19.52 per ton in 1997.  The decrease in sales 
volume was mainly due to the shortage of transportation capacity in May 1997. 
The local government utilized the majority of transportation capacity to 
transport agricultural products because the harvest was better than expected.  
The transportation capacity was still in short supply during the remaining 
year.  Although QCCF sold approximately 78,678 tons less steam coal in 1997 
when compared to 1996, its sales price increased due to stricter quality 
control and testing which resulted in higher customer satisfaction and fewer 
discounts and rebates.  Sales to its major customer, Mudanjiang No. 2 Power 
Plant amounted to 327,743  tons in 1997 as compared to 390,890 tons in 1996. 
Such decrease was due to a shortage of transportation capacity.  

     Cost of sales.  The cost of coal sales includes the cost of raw 
materials, direct labor and benefits, depreciation, transportation and 
manufacturing overhead.

     MCCF's average unit cost of producing metallurgical coke decreased 45% 
from $101.21 in 1996 to $55.86 in 1997 due to economy of scale arising from 
increased production volume of metallurgical coke.   The average unit cost 
of producing low-end metallurgical coke was $8.72 in 1997.

     QCCF's average unit cost of producing steam coal decreased slightly from 
$10.31 in 1996 to $9.98 in 1997 due to reclassification of selling expenses 
from cost of sales in 1996 to selling, general and administrative expenses 
in 1997.  Selling expenses amounted to $392,000 in 1997.      

     Gross Profit.  Gross profit increased 33% from $2,940,000 in 1996 to 
$3,899,000 in 1997.  The increase was primarily attributable to (1) MCCF's 
gross profit on sales of coke products increased by 42% as the production and 
sales increased by 407% and (2) QCCF `s gross profit increased by 43% due to 
increase in average sales price. The increase was partially offset by the 
decrease in subcontracting income from $723,000 in 1996 to $362,000 in 1997.

     Selling, general and administrative expenses.  Selling, general and 
administrative expenses increased 412% to $4,921,000 in 1997 from $961,000 in 
1996.  The increase of $3,960,000 is mainly attributable to the following 
factors:

                                  26




     (1) In 1997, MCCF increased its write-off of trade receivables and 
subcontracting income in the amount of $1,556,000 due to poor credit 
management and collection efforts.  Salaries and selling expenses increased 
by $416,000 due to increase in selling effort in 1997.  (2) QCCF increased 
its $311,000 write off of trade and other receivables; increased its loss of 
$152,000 on retirement of certain transportation vehicles. Salaries and 
benefits increased by $193,000.  Selling expenses increased by $392,000 which 
was included in cost of sales in 1996.  The Company has opened a 
representative office in Heilongjiang in 1997 which increased the office 
expenses by $337,000  in 1997 when compared to 1996.  (4) The Company 
incurred additional approximately $432,000 in professional and administrative 
expenses associated with increased reporting obligations of the Company as 
the Company is a public entity.  There was $88,000 additional amortization of 
issuance cost when compared to 1996 due to additional financing closed in 
early 1997.
    
     Write off of advances to related parties.  In 1997 advances totalling 
$1,768,000 were made under the authority of the former chairman of the 
Company to the former owner of QCCF which were intended to establish 
relationships for potential future business opportunities.  As the terms of 
the repayment of the advances were unclear, with the death of the Company's 
former Chairman, management believes that its ability to realize the advances 
has been severely impaired and, accordingly, the amounts have been written 
off in 1997.  Management is in the process of negotiating with the former 
owner of QCCF (an instrumentality of the PRC government) for transfer of 
title to certain assets to the Company in the satisfaction of the advances.
The outcome of these negotiations is uncertain at the present time.
 

     Interest expenses.  Interest expenses was reported net of interest 
income. 

     Interest income increased by $44,000 from $11,000 in 1996 to $55,000 in 
1997.  

     Interest expenses increased 157% from $433,000 in 1996 to $1,111,000 in 
1997.  The increase of $678,000 was attributable to the following factors: 
(1) The Company incurred additional $480,000 interest expenses on the 
$6,122,500 convertible notes; (2) increase in MCCF's interest expenses of 
$306,000 as the local bank and one lender did not waive the interest for 
1997 whereas they did in 1996.  The increase was offset by a decrease in 
QCCF interest expenses of $108,000 as average borrowing rate decreased from 
18% in 1996 to 9.5% in 1997 and QCCF repaid loan of $648,000 on March 31, 
1997 which also reduced QCCF interest expenses.   The Operating Company's 
average short-term borrowing rate was 17% in 1996 and 13%  in 1997, whereas 
the long-term borrowing rate was fixed at 14% for both 1996 and 1997.

     Commencing October 1, 1995, the Mishan City government agreed to share 
one-half of the interest owed by MCCF on certain long-term interest bearing 
loans.  The government's share of interest expenses was $150,000 in 1997 and  
$197,000 in 1996.  This agreement was expired on December 31, 1997.  Interest 
expense in the amount of $341,000 was imputed for the year ended December 31, 
1997 on the interest free loan from CCM's joint venture partner at the rate 
of 16% per annum.  Such interest was capitalized as part of MCCF's coal mine 
use rights.

     Other expenses.  In 1997 the former Chairman of the Company withdrew 
fund in an amount totalling $285,562 from MHXC without the authority of the 
Company.  The Chairman died in October 1997 and the Company has been seeking 
to recover these amounts from his estate and family.  The Company has 
recorded an expense of $184,000 in "other expense" representing the amounts 
not yet recovered.   

     Income taxes.  Substantially all of the Company's current profits 
accrue in the PRC where the applicable tax rate is currently 33%.  However, 
pursuant to the PRC Income Tax Law, the Operating Company is exempt from 
income tax for its first two profitable years.  This two-year "tax holiday" 
was to begin with the first profitable year of the Operating Company, 
measured from its formation on September 16, 1995.  For the following three 
years, the Operating Company will pay income tax at a rate of one-half of the 
then current tax rate.  There is no tax payable in the British Virgin Islands
on dividends paid to CCM and the Company by any of their subsidiaries or 
factories.  Therefore, there was no provision for income tax for the year 
ended December 31, 1997 and 1996. 

                                   27



     Net Income.  The Company incurred a net loss of ($3,542,000) in 1997 as 
compared to a net income of $1,258,000 in 1996.  The decrease in earnings of 
$4,800,000 was mainly attributable to: (1) the increase in the write off of 
uncollectible receivable and other assets of $2,019,000; (2) increase in net 
interest expenses of $634,000; (3) increase in selling, general and 
administration of $857,000 attributable to additional Heilongjiang 
representative office, additional professional expenses relates to public 
filing and additional financing activities; (4) increase in selling expenses, 
salary and benefits in the Operating Company of $1,001,000;  (5) additional 
expenses due to unauthorized payment withdrawn by deceased Chairman in the 
amount of $184,000; (6) additional writes off of $1,768,000 made to the former 
owner of QCCF; and (7) decrease in subcontracting income of $361,000.  The 
decrease in net income was partially offset by the increase in gross profit 
attributable from the increase in sale of metallurgical and steam coal in the 
amount of 1,320,000 and decrease in minority interest of $839,000.  

1996 Compared to Pro Forma 1995

     Net Sales.  Net Sales is recorded as gross sales less returns and 
discounts.  Net sales remained essentially unchanged at $7,801,000 in 1996 as 
compared to net sales of $7,946,000 in 1995.

     MCCF's sales of metallurgical coke decreased 86% from $1,894,000 in 1995 
to $259,000 in 1996.  Coal sales volume decreased 80% from 33,000 tons in 
1995 to 6,758 tons in 1996.  The average net sales price decreased from 
$57.39 per ton in 1995 to $38.32 per ton in 1996.  The reductions in both 
sales volume and sales price were due to MCCF's lack of working capital for 
the production of metallurgical coke in 1996.  MCCF's small sales volume in 
1996 was generated from sales of inventory produced in 1995 and from the 
sale of below standard metallurgical coke which was generated from efforts to 
maintain the MCCF production facility in operational condition.  As a result, 
the unit sales price and the quality of MCCF's coke decreased when compared 
to 1995.  In June 1996, operation of the MCCF plant was subcontracted to 
a third party.  According to the subcontract, the party which operated the 
plant (i) was obligated to meet all of the operating expenses of the plant, 
(ii) was entitled to receive all of the revenues from the plant's operation 
and (iii) paid to MCCF a subcontracting fee of $723,000.  This subcontract 
was terminated on March 31, 1997.

     QCCF's sales of steam coal increased 25% from $6,052,000 in 1995 to 
$7,542,000 in 1996.  Coal sales volume increased 22% from 390,000 tons in 
1995 to 475,305 tons in 1996.  The average net sales price increased 
moderately from $15.52 per ton in 1995 to $15.86 per ton in 1996.  The 
increases in both sales volume and sales price were mainly attributable 
to the following factors:  (1) the improved technological application of the 
"air-heavy medium fluid bed" dry process of coal preparation which enhanced 
the efficiency of QCCF's production process and improved the quality of the 
coal produced; (2) stricter quality control of coal inspection and testing 
processes which resulted in fewer returns and higher prices and (3) 
increased demand from QCCF's major customer, Mudanjiang No. 2 Power Plant.  
Sales to Mudanjiang amounted to 390,890 tons in 1996, representing an 
increase of 78,861 tons, or 25%, as compared to 1995.  Approximately 80% of 
the Operating Company's MCCF's sales were made to Mudanjiang in 1996 as 
compared to 70% in 1995.

     Cost of sales.  The cost of coal sales includes the cost of raw 
materials, direct labor and benefits, depreciation, transportation and 
manufacturing overhead.

     MCCF's cost of sales decreased 46% from $1,267,000 in 1995 to $684,000 
in 1996.  The decrease was mainly attributable to: (1) MCCF's decreased sales 
volume; (2) additional depreciation expenses of $384,000 incurred in 1996 for 
the production facility and (3) fixed manufacturing overhead costs which 
could not be completely eliminated in 1996.  These fixed costs included water 
and electricity, indirect labor and the cost of materials which were needed 
to maintain the coal production facility in operational condition.  

     QCCF's cost of sales increased 22% from $4,005,000 in 1995 to $4,900,000 
in 1996.  The increase was primarily attributable to: (1) QCCF's increase in 
sales volume of 85,305 tons and (2) increases in raw material prices and 
transportation costs per unit of production.  The increase was partially 
offset by decreases in labor and manufacturing overhead costs per unit of 
production which resulted from production economies of scale.

     Gross Profit.  Gross profit increased 10% from $2,674,000 in 1995 to 
$2,940,000 in 1996 due to an increase of 29% in gross profit generated by 

                                  28




QCCF, offset by a decrease of 52% in gross profit for MCCF.  MCCF's gross 
profit decreased from 1995 to 1996 due to its lack of working capital for the 
production of metallurgical coke.  QCCF's gross profit increased from 1995 to 
1996 primarily as a result of an increase in sales of steam coal.

    Selling, general and administrative expenses.  Selling, general and 
administrative expenses increased 31% to $961,000 in 1996 from $736,000 in 
1995.  The increase of $225,000 is attributable to (1) QCCF's proportionate 
increase of such expenses as its sales increased; (2) $96,000 of additional 
travel and professional expenses incurred at the Company level in connection 
with the issuance of the Notes and Warrants and expenses associated with 
increased reporting obligations of the Company.  These increases were offset 
only slightly by a marginal reduction in MCCF's selling, general and 
administrative expenses as the MCCF plant conducted minimal production and 
selling activities in 1996.

     Interest expenses.  Interest expenses decreased 18% from $526,000 in 1995 
to $433,000 in 1996.  The decrease of $93,000 was attributable to the 
following factors: (1) a local bank granted a one-time waiver of 
approximately $166,000 in interest expenses owed by MCCF in 1996; (2) QCCF 
incurred an additional $15,000 in interest expenses as its average short-term 
borrowing increased during 1996 and (3) the Company incurred $58,000 in 
additional interest expenses in 1996 as interest on the Notes.  The Operating 
Company's average short-term borrowing rate was 17% in 1995 and 1996, whereas 
the long-term borrowing rate was fixed at 14% for both 1995 and 1996.

     Commencing October 1, 1995, the Mishan City government agreed to share 
one-half of the interest owed by MCCF on certain long-term interest bearing 
loans.  The government's share of interest expenses increased from $50,000 in 
1995 to $197,000 in 1996.  This agreement expires on December 31, 1997.  
interest expense in the amount of $458,000 was imputed for the year ended 
December 31, 1996 on the interest free loan from CCM's joint venture partner 
at the rate of 16% per annum.  Such interest was capitalized as part of 
MCCF's coal mine use rights.

     Income taxes.  Substantially all of the Company's current profits 
accrue in the PRC where the applicable tax rate is currently 33%.  However, 
pursuant to the PRC Income Tax Law, the Operating Company is exempt from 
income tax for its first two profitable years.  This two-year "tax holiday" 
was to begin with the first profitable year of the Operating Company, 
measured from its formation on September 16, 1995.  For the following three 
years, the Operating Company will pay income tax at a rate of one-half of the 
then current tax rate.  There is no tax payable in the British Virgin Islands 
on dividends paid to CCM and the Company by any of their subsidiaries or 
factories.  Therefore, there was no provision for income tax for the year 
ended December 31, 1996 and for the period from September 16, 1995 to 
December 31, 1995.  For the period from January 1, 1995 to September 15, 1995,
no provision for income tax was made because QCCF was exempted from income 
tax under an agreement with its previous owner and MCCF was operating at a 
loss during its construction and product testing period.

     Net Income.  Net income before minority interest increased 9% from 
$1,154,000 in 1995 to $1,258,000 in 1996.  The $104,000 increase in earnings 
was attributable to: (1) the increase of $1,490,000 in sales of steam coal by 
QCCF; (2) the subcontracting fee of $723,000 earned by MCCF and (3) certain 
interest expenses forfeited or shared by local banks and the Mishan City 
government.  The increase attributed to these factors was substantially 
offset by MCCF's decrease in sales of metallurgical coke of $1,635,000 and 
PRC expenses incurred by the Company in connection with the issuance of the 
Notes and Warrants.


Liquidity and Capital Resources

     As a holding company, the Company's only sources of cash flow are 
dividends, if any, paid by the Operating Company and retained net proceeds 
from its Regulation S offerings of securities.  The Company believes that such 
sources of cash flow are sufficient to fund its operating expenses currently. 
See "Financing Activities."

     Since the completion of the Regulation S offerings in early 1997.  The 
Company has applied $2,014,000 out of the net proceeds of $5,400,000 to MCCF 
primarily for its working capital needs.  MCCF purchased raw coal and applied 
in other working capital needs to ramp sales and production during the month 
of April and November of 1997.  Unfortunately, due to poor credit management, 
MCCF was not able to collect $1,556,000 of its trade receivables and 
subcontracting income.  This created a severe cash flow problem for MCCF at 
the end of 1997.  MCCF's average receivable turnover deteriorated from 135 

                                    29



days in 1996 to 313 days in 1997.  As a result of the  unwillingness of the 
local banks and raw coal suppliers to provide credit,  MCCF ceased its 
operations in March of 1998 and its coking facilities are no longer in 
operational mode due to lack of working capital to maintain the minimum 
operational condition.

     QCCF has generally satisfied its working capital requirements, capital 
expenditures and scheduled debt repayments from its operating cash flows.   
QCCF average receivable turnover deteriorated from 37 days in 1996 to 73 days 
in 1997 because its major customer Mudanjiang No. 2 Power Plant's management 
performed the reform in the end period of 1997 and QCCF gave the customer 
some credit convenience and did not request the customer to effect the due 
payment at the year end. Therefore, QCCF increased its bank loans of $2.6 
million in November-December 1997.   As of December 31, 1997, QCCF had $3.5 
million in short-term loans and no long-term debt.  Management believes that 
cash generated from operations will continue to be sufficient to meet QCCF's 
working capital requirements, planned or anticipated capital expenditures, 
scheduled debt repayments and other financial commitments.


Capital Expenditures

     Capital expenditures of the Company amounted to $997,000 in 1997, which 
mainly represented continued expenditures to modernize its older coal 
production facility, improve productivity, purchase equipment, and replace 
the transportation equipment and build up the transportation system of QCCF. 
The Operating Company does not expect significant capital expenditure in 1998.  


Financing Activities

     In November 1996, the Company raised net proceeds of approximately 
$4,500,000 through an offering of convertible notes and warrants in an exempt 
transaction pursuant to Regulation S under the 1933 Act. Subsequently, in 
January 1997, the Company raised net proceeds of approximately $900,000 in a 
follow-on offering of convertible notes and warrants (on the same terms as 
the November 1996 offering) in another exempt transaction pursuant to 
Regulation S under the 1933 Act.  The convertible notes and the warrants are 
referred to hereinafter as the "Notes" and the "Warrants."  The aggregate 
principal amount of Notes issued in the November 1996 and January 1997 
offerings was $6,122,500.  Based on a conversion price of $3.50 per share of 
Common Stock, the Notes were convertible at the time of issuance into an 
aggregate of 1,749,293 shares of Common Stock.  In connection with the 
purchase of a Note, each purchaser was issued Warrants exercisable for the 
same number of shares of Common Stock into which such purchaser's Note was 
convertible.  Including Warrants issued in payment of offering-related fees, 
the Company issued Warrants exercisable for an aggregate of 1,894,150 shares 
of Common Stock based on an exercise price of $3.50 per share of Common Stock 
at the time of issuance.  As of June 30, 1998, Notes in the aggregate 
principal amount of $3,237,500 remained outstanding and Warrants to purchase 
an aggregate of 1,894,150 shares of Common Stock remained outstanding (based 
on the initial conversion price of $3.50 per share). 

     The Notes bear interest at 8% per annum and the outstanding principal 
amount of the Notes and any accrued and unpaid interest thereon are payable 
on the maturity date of November 14, 2001.  The Warrants became exercisable 
to purchase shares of Common Stock on May 14, 1997 and expire on November 14, 
1999.  The exercise price per share for the Warrants is the same as the 
conversion price in effect at such time for the Notes.  See "Item 12. Options 
to Purchase Securities from Registrant or Subsidiaries."

     The proceeds from the offerings are being used primarily as follows:  
$2,014,000 for purchase of raw coal and working capital of MCCF, $648,000 for 
bank loan repayment in QCCF, $1,268,000 for loan to the former owner of QCCF 
government, and $337,000 for the  representative office in Heilongjiang, 
unauthorized withdrawl of $286,000 by the former Chairman and $577,000 for 
the Company's administrative and reporting expenses with the remaining of 
$270,000 of cash on hand. 

     The Company needs to raise additional financing in order to continue its 
operation beyond 1998 and there is no assurance that sufficient funds can be 
raised.  

                                   30    



Inflationary Impact

     General inflation of costs had no material impact on the Company's 
revenues and expenses during the year 1997 and no adverse effects from 
inflation are anticipated in 1998.  The Company has generally been able to 
adjust the price of its products offered to its customers to minimize any 
risks associated with inflationary pressures.  However, due to the capital-
intensive nature of the Company's activities, inflation may have a significant 
impact on the future development or improvement of  the coal operations in 
the PRC.


Exchange Rate Risk

     The exchange rate between the Renminbi and the U.S. dollar as quoted by 
the People's Bank of China was US$1.00 = Rmb 8.2798 on December 31, 1997.

     During the last few years, the value of the Renminbi generally has 
experienced a gradual devaluation against most major currencies, declining 
from 5.5309 Renminbi per U.S. dollar on December 31, 1992 to 8.2674 Renminbi 
per U.S. dollar on December 31, 1997.  As a result of the adoption of the 
unitary exchange rate system on January 1, 1994, the official bank exchange 
rate for Renminbi to U.S. dollars experienced an immediate devaluation of 
approximately 50% to US$1.00 = Rmb 8.7000 on January 1, 1994.  Since the 
unification of the two-tier exchange rate system effective January 1, 1994, 
the Renminbi has strengthened somewhat against the U.S. dollar.  Since there 
can be no assurance that the Renminbi exchange rate will not again become 
volatile or that the Renminbi will not devalue significantly against the U.S. 
dollar, the Company believes that exchange rate fluctuations may adversely 
affect the Company's financial performance because of its foreign currency 
denominated liabilities and may have a material adverse effect on the value, 
translated or converted into U.S. dollars, of the Company's assets, earnings 
and dividends, if any.  The Company does not currently engage in hedging 
transactions and does not intend to do so in the future.


ITEM 10.DIRECTORS AND OFFICERS OF REGISTRANT

Directors and Executive Officers of the Company

<TABLE>
     Set forth below is certain information regarding the directors and 
executive officers of the Company.
<CAPTION>

                                                   Date First Elected
Name                 Position                      or Appointed  
<S>                  <C>                           <C>

Wang Gongquan (1)    Chairman of the Board         November 1997
                     and President
Luan Jixiang         Director                      April 1997
Wu Chunlai (1)       Director                      April 1997
Zhang Geng Xin (1)   Director                      April 1998

<FN>
(1)  Member of Audit Committee.
</FN>
</TABLE>


Directors and Executive Officers of CCM

<TABLE>
     Set forth below is certain information regarding the directors and 
executive officers of CCM, a wholly-owned subsidiary of the Company.
<CAPTION>

                                31


                                                   Date First Elected
Name               Position                        or Appointed  
<S>                <C>                             <C>

Wang Gongquan      Chairman of the Board           November  1997
                   and President

</TABLE>


Directors and Executive Officers of the Operating Company

<TABLE>
     Set forth below is certain information regarding the directors and 
executive officers of the Operating Company, which owns and operates the MCCF 
and QCCF factories.  An 80% interest in the Operating Company is owned by 
CCM.
<CAPTION>

                                                   Date First Elected
Name                Position                       or Appointed  
<S>                 <C>                            <C>
Wang Gongquan 	     Chairman of the Board          November 1997
Luan Jixiang        Vice President                 September 1995
Xu Changhai         Director                       September 1995
Yuan Si Xian        Director                       September 1995
Wu Chunlai          Director                       September 1995


Executive Officers and Key Employees of MCCF 


</TABLE>
<TABLE>
     Set forth below is certain information regarding the executive officers 
and key employees of MCCF.
<CAPTION>

                                                   Date First Elected
Name               Position                        or Appointed  
<S>                <C>                             <C>

Xu Changhai        Chief Engineer                  September 1995
</TABLE>


Executive Officers and Key Employees of QCCF  

<TABLE>
     Set forth below is certain information regarding the executive officers 
and key employees of QCCF:

                                                  Date First Elected
Name               Position                       or Appointed   
<S>                <C>                            <C> 

Luan Jixiang       General Manager                September 1995
Yuan Si Xian       Chief Engineer                 September 1995
</TABLE>

     There is no known family relationship between any director, executive 
officer or key employee listed above and any other director, executive 
officer or key employee listed above.


ITEM 11.COMPENSATION OF DIRECTORS AND OFFICERS

     For the year ended December 31, 1997, the aggregate amount of 
compensation and bonuses paid by the company to executive officers of the 
Company listed in Item 10 above, for service in all capacities, was 
approximately $92,000.  The grant of bonuses is determined in the sole 
discretion of the Board of Directors of the Company.   No compensation was 
granted to the Directors listed in Item 10 above. 

                                   32




ITEM 12.OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

     In November 1996, the Company raised net proceeds of approximately 
$4,500,000 through an offering of Notes and Warrants in an exempt transaction 
pursuant to Regulation S under the 1933 Act.  Subsequently, in January 1997, 
the Company raised net proceeds of approximately $900,000 in a follow-on 
offering of Notes and Warrants (on the same terms as the November 1996 
offering) in another exempt transaction pursuant to Regulation S under the 
1933 Act.  The aggregate principal amount of Notes issued in the November 
1996 and January 1997 offerings was $6,122,500.  Based on a conversion price 
of $3.50 per share of Common Stock, the Notes were convertible at the time of 
issuance into an aggregate of 1,749,293 shares of Common Stock.  In 
connection with the purchase of a Note, each purchaser was issued Warrants 
exercisable for the same number of shares of Common Stock into which such 
purchaser's Note was convertible.  Including Warrants issued in payment of 
offering-related fees, the Company issued Warrants exercisable for an 
aggregate of 1,894,150 shares of Common Stock based on an exercise price of 
$3.50 per share of Common Stock at the time of issuance. 

     The Notes carry interest at 8% per annum and the outstanding principal 
amount of the Notes and any accrued and unpaid interest thereon are payable 
on the maturity date of November 14, 2001.  The Warrants became exercisable 
to purchase shares of Common Stock on May 14, 1997 and expire on November 14, 
1999. The exercise price per share for the Warrants is the same as the 
conversion price in effect at such time for the Notes. The complete terms of 
the Notes and the Warrants, along with the applicable conversion and exercise 
prices thereof, are set forth in the Notes, Warrants and the subscription 
agreements of the purchasers thereof.

     The holders of the Notes have the right, prior to the payment in full of 
all principal and interest on the Notes, to convert any outstanding and 
unpaid principal portion of the Note and accrued and unpaid interest thereon 
into fully-paid and nonassessable shares of Common Stock at the conversion 
price specified in the Notes.  In the event that a holder does not convert 
the entire principal amount of its Note and all accrued and unpaid interest 
thereon before the maturity date for such Note, then on the maturity date, 
the Company has the option of compelling the conversion of such Note or 
paying to such holder the remaining unpaid principal and accrued interest 
amount on such holder's Note.

     The conversion price for the Notes, which is subject to a floor price 
of $3.50 and a ceiling price of $8.50, is computed by calculating 60% of the 
average closing bid and ask price for a share of the Common Stock on any 
securities exchange or other securities market on which the Common Stock is 
then being traded for the 10 trading days immediately preceding the 
conversion date; provided, that in the event of a public offering or private 
placement of securities of the Company resulting in gross proceeds of at 
least $10 million, consummated within 18 months of the issuance date of the 
Notes (a "Qualifying Offering"), the floor price shall be adjusted to equal 
60% of the offering price per share in such Qualifying Offering.  Pursuant 
to the terms of the Notes, at any time prior to the date on which the Common 
Stock has begun trading on a U.S. securities exchange or market (including 
the American Stock Exchange), the conversion price would equal $3.50 per 
share.

     The principal amount outstanding on the Notes, and all interest accrued 
and payable thereon, may be prepaid by the Company, in whole but not in part, 
on or after November 15, 1997; provided, that the average closing bid price 
of the Common Stock has remained at or above $17.00 per share for 30 
consecutive business days; and provided, that written notice of prepayment 
is delivered to the holder of a Note not more than 60 days nor less than 30 
days prior to the applicable prepayment date.  A holder has the right to 
exercise any conversion rights it may have with respect to its Note until 
such time as any prepayment by the Company is made.  

     The principal amount outstanding on any Note, and all interest accrued 
and payable thereon, may be prepaid at the request of the holder thereof, in 
whole or in part; provided, that such holder has received a notice from the 
Company that a Qualifying Offering has been consummated.

     The Company issued  total of 52,000 options to a consulting firm, the 
Equity Group, on July 22, 1997 and January 15, 1998:  32,000 options is fully 
vested with an exercise price of $5.00 per share, and 20,000 options is fully 
vested with an exercise price of $3.50 or at a lower price at which the 
Company issues new equity or warrants between January 22, 1998 and January 
21, 1999. 

     During 1997, holders of Notes converted principal and accrued interest 
in the amount of $2,900,000 into 828,644 shares of Common Stock.   As of  
June 30, 1998, Notes in the aggregate principal amount of $3,237,500 
remained outstanding and Warrants to purchase an aggregate of 1,894,150 
shares of Common Stock remained outstanding.

                                  33




     No officers or directors of the Company hold any of the Notes or 
Warrants.


ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

         None.


                                  PART II

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED

         Not required.


                                  PART III


ITEM 15. DEFAULTS UPON SENIOR SECURITIES

         None.


ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED 
         SECURITIES

         None.


                                  PART IV

                                  34



ITEM 17.  FINANCIAL STATEMENTS

          The Company has elected to provide the financial statements and 
          related information specified in Item 18 in lieu of Item 17.


ITEM 18.  FINANCIAL STATEMENTS

                        Index to Financial Statements

China Energy Resources Corporation (the "Company")

Independent Auditors' Report                                            F-1

Consolidated Statements of Operations for the years ended December 
   31, 1997 and 1996 and the period from August 18, 1995 
   (commencement of operations) to December 31, 1995                    F-2   

Consolidated Balance Sheets at December 31, 1997 and 1996               F-3

Consolidated Statements of Stockholders' Equity for the years ended 
   December 31, 1997 and 1996 and for the period from August 18, 1995
   (commencement of operations) to December 31, 1995                    F-4

Consolidated Statement of Cash Flows for the years ended December 31, 
   1997 and 1996 and for the period from August 18, 1995(commencement 
   of operations) to December 31, 1995                                  F-5

Notes to Consolidated Financial Statements                              F-6


MISHAN COAL CHEMICAL HOLDING COMPANY ("MCCH")

Independent Auditors' Report                                            F-17

Statement of operation for the nine months ended September 30, 1995     F-18

Statement of cash flows for the nine months ended September 30, 1995    F-19

Notes to financial statements                                           F-20  

                                                                               
ITEM.19  FINANCIAL STATEMENTS AND EXHIBITS

(a)Financial Statements.

   See Item 18 for a list of the financial statements filed as part of this 
   Annual Report.

                                 35




(b)Exhibits.

   Exhibit Number    Description of Document

      2.1            Long-Term Supply Agreement, dated December 31, 1996, by 
                     and among, QCCF Qitaihe City Coal Mine and Mudanjiang 
                     No. 2 Power Plant.

                                 36






               INDEPENDENT AUDITORS' REPORT


To the shareholders and board of directors of 

CHINA ENERGY RESOURCES CORPORATION


     We have audited the accompanying consolidated balance sheets of China 
Energy Resources Corporation (a British Virgin Islands Company) and its 
subsidiary as of December 31, 1997 and 1996 and the related consolidated 
statements of operations and cash flows for the years ended December 31, 1997 
and 1996 and for the period from August 18, 1995 (commencement of operations) 
to December 31, 1995.  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 in accordance with auditing standards generally 
accepted in the United States of America.  Those standards 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.  An audit also includes assessing the accounting 
principles used and significant estimates made by management, as well as 
evaluating the overall financial statement presentation.  We believe that our 
audit provides a reasonable basis for our opinion.

     In our opinion, such financial statements referred to above present 
fairly, in all material respects, the financial position of China Energy 
Resources Corporation and its subsidiary as of December 31, 1997 and 1996 
and the results of their operations and their cash flows for the year ended 
December 31, 1997 and 1996 and for the period from August 18, 1995 
(commencement of operations) to December 31, 1995 in conformity with 
accounting principles generally accepted in the United States of America.

     The accompanying financial statements for the year ended December 31, 
1997 have been prepared assuming that the Company will continue as a going 
concern.  As discussed in note 3 the Company is experiencing difficulty in 
generating sufficient cash flow to enable it to operate all its facilities 
and develop its coal mine use right, which raises substantial doubt about 
its ability to continue as a going concern.  Management's plans concerning 
these matters are also described in note 3.  The financial statements do not 
include any adjustments that might result from the outcome of the 
uncertainty.


Deloitte Touche Tohmatsu
Hong Kong
March 31, 1998

                                  F-1


<TABLE>
                  CHINA ENERGY RESORUCES CORPORATION
                 CONSOLIDATED STATEMENTS OF OPERATIONS
             (Amounts in thousands except per share amounts)
<CAPTION>

                                                                   Period from 
                                                                     August
                                           Year ended  Year ended    18,1995
                                            December   December      to December
                                            31,1997    31, 1996      31, 1995
<S>                                         <C>        <C>           <C>

Net sales                                  $   9,053   $   7,801     $   2,050
Subcontracting income (note 1)                   362         723            -  
Cost of sales                                 (5,516)     (5,584)       (1,115)
                                              _______     _______        ______ 
Gross profit                                   3,899       2,940           935

Selling, general and administrative expenses  (4,921)       (961)         (314)

Write-off of advances to related parties 
   (note 12)                                  (1,768)         -             -   
                                               ______      _______      _______
Operating (loss) income                       (2,790)      1,979           621

Interest expense                              (1,056)       (422)         (198)

Other (expense) income (note 12)                (190)         46            10
                                               ______      _______       _______
(Loss) income before minority interests       (4,036)      1,603           433

Minority interest                                494        (345)          (87)
                                               ______      _______       _______
Net (loss) income                             $(3,542)   $ 1,258         $ 346
                                               ______      _______       _______
(Loss) earnings per share - Basic             $ (1.18)   $  0.66         $ 0.40
                                               ______      ______        _______
                          - Fully-diluted     $ (1.18)   $  0.57         $ 0.40
                                               ______      _______       _______
Weighted average number of shares outstanding 
                          - Basic               2,994      1,918           847
                                               ______      _______       _______
                          - Fully-diluted       2,994      2,314           847
                                               ______      _______       _______

</TABLE>
See accompanying notes to consolidated financial statements.

                                  F-2


<TABLE>
                   CHINA ENERGY RESOURCES CORPORATION
                      CONSOLIDATED BALANCE SHEETS
            (Amounts in thousands except share and per share amounts)
<CAPTION>

                                                              December 31,
                                                            1997      1996
<S>                                                         <C>       <C>
ASSETS
Current assets:
Cash and cash equivalents                                 $   767   $  4,948
Accounts receivable, net of allowance for doubtful 
   accounts of $1,576 (1996:$211)                           2,346      1,244
Prepayments, prepaid expenses, and other assets             1,615      1,471
Inventories (note 6)                                        4,136      3,072
                                                           _______    _______
  Total current assets                                      8,864     10,735
Property, plant and equipment, net (note 7)                18,002     17,926
Value added taxes receivable (note 8)                         140        167
Other assets                                                  387          5
                                                           _______    _______
  Total assets                                           $ 27,393   $ 28,833
                                                           _______    _______
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings (note 9)                           $  5,057   $  3,108
Current portion of long-term debt (note 10)                 1,812        844
Accounts payable                                            1,629      1,052
Customer deposits                                              87        168
Other payables                                              2,392      1,829
Plant construction payables                                    77        434
Amount due to PRC joint venture partner                         -        278
Accrued payroll and employee benefits                         474        309
Accrued interest                                            1,596        901
Other accrued liabilities                                     187          8
                                                           _______    _______
  Total current liabilities                                13,311      8,931
Long-term debt (note 10)
  Related parties                                           2,414      2,058
  Other                                                         -        964
Convertible notes (note 11)                                 2,347      2,347
Minority interests                                          1,739      2,377

Commitments and contingencies (note 13)

Stockholders' equity:
Preferred shares, $0.01 par value, 2,000,000 shares 
   authorized, no shares issued and outstanding                  -         -
Common stock, $0.01 par value, 50,000,000 shares authorized,
  3,248,494 (1996: 2,399,850) shares issued and outstanding     32        24
Additional paid-in capital                                  11,762    10,530
(Deficit) retained earnings                                 (1,940)    1,602
Advances receivable from related parties(note 12)           (2,272)       -
                                                            _______   _______
               Total stockholders' equity                    7,582    12,156
                                                            _______   _______
  Total liabilities and stockholders' equity              $ 27,393  $ 28,833
                                                            _______   _______

</TABLE>
See accompanying notes to consolidated financial statements.

                                   F-3


<TABLE>
                    CHINA ENERGY RESORUCES CORPORATION
             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                        (Amounts in thousands)
<CAPTION>
                                                                       Advances    Total
                                                Additional   Retained  receivable  stock-
                               Common stock     paid-in      earnings from related holders'
                               Shares   Amount  capital      (deficit)  parties    equity
<S>                            <C>      <C>     <C>          <C>        <C>        <C>  

Issue of shares on establishment 
   of China Coal  (note 1)      2,290   $   23   $  7,864     $     -   $    -     $ 7,887
Net income                         -         -          -         346        -         346
                              _______   _______   _______      _______   _______    _______
Balance at December 31, 1995    2,290       23      7,864         346        -       8,233

Merger with Jackson (note 1)      110        1         47          (2)       -          46
Amount created on issuance of 
   convertible notes                -        -      2,619           -        -       2,619
Net income                          -        -          -       1,258        -       1,258
                              _______   _______   _______      _______   _______     ______
Balance at December 31, 1996    2,400       24     10,530       1,602        -      12,156
Issues of shares                  848        8      1,232           -        -       1,240
Net loss                            -        -          -      (3,542)       -      (3,542)
Advances to related parties         -        -          -           -     (2,272)   (2,272)       

                              ______    _______   _______      _______   _______    _______   
Balance at December 31, 1997    3,248   $   32   $ 11,762     $(1,940)  $ (2,272)   $7,582
                              ______    _______   _______      ______    _______    _______

</TABLE>
See accompanying notes to consolidated financial statements.

                                   F-4


<TABLE>
                   CHINA ENERGY RESOURCES CORPORATION
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (Amounts in thousands) 
<CAPTION>
                                                                  Period from
                                                                    August
                                        Year ended   Year ended    18, 1995 to
                                        December      December      December
                                        31, 1997      31, 1996      31, 1995
<S>                                     <C>           <C>           <C>

Cash flow from operating activities:
Net (loss) income                       $  (3,542)    $  1,258       $    346
Adjustments to reconcile net (loss) 
  income to net cash (used in)provided 
  by operating activities:
    Minority interest                        (494)         345             87
    Loss on disposal of property, plant 
      and equipment                           152            -              -
  Depreciation                                643          863            130
  Bad debt provisions                       1,365           15              1
  Write-off of prepaid expenses               289            -              -
  Value added tax on opening debit balance 
    utilized                                   27           53             10
Changes in assets and liabilities:
  Accounts receivable                      (2,467)       1,456           (200)
  Inventories                              (1,064)        (105)          (178)
  Prepayments, prepaid expenses, and other 
    assets                                   (433)        (427)          (173)
  Accounts payable                            577         (581)          (577)
  Customer deposits                           (81)         (82)             7
  Other payables                              563          288            667
  Amount due to PRC joint venture partner    (278)        (525)           221
  Accrued payroll and employee benefits       165            7             34
  Accrued interest                            695         (580)           245
  Other accrued liabilities                   179          (32)             4
                                           ______       _______        _______
Net cash (used in) provided by operating 
  activities                               (3,704)       1,953            624
                                           ______       _______        _______

Cash flow from investing activities:
  Sales proceeds of property, plant and 
    equipment                                 129             -             -
  Purchase of property, plant and equipment  (997)       (1,028)         (136)
  Purchase of a subsidiary (net of cash 
    acquired)                                   -             -        (7,848)
  (Addition) realization of other assets     (382)            -             3
                                           ______       _______        _______
Net cash used in investing activities      (1,250)       (1,028)       (7,981)
                                           ______       _______        _______

Cash flow from financing activities:
  Advances to related parties              (2,272)            -             -
  Repayment of long-term debt from related 
    parties                                     -        (1,266)            -
  Repayment to minority interests            (144)          (83)            -
  Increase in short-term borrowings - net   1,949           140          (309)
  Issuance of convertible notes                 -         2,347             -
  Issuance of common stock                  1,240         2,619         7,887
  Cash and cash equivalents acquired on merger 
    with Jackson                                -            45             -
                                            _______      _______       _______
Net cash provided by financing activities     773         3,802         7,578
                                             ______      _______       _______
(Decrease) increase in cash and cash 
  equivalents                              (4,181)        4,727           221
Cash and cash equivalents at beginning 
  of period                                 4,948           221             -
                                            _______       _______      _______
Cash and cash equivalents at end of period $  767       $ 4,948        $  221
                                             ______       _______      _______

Supplementary disclosures of cash flow information

Cash paid during the period for:

Interest                                    $   405     $ 1,202         $  64

</TABLE>
See accompanying notes to consolidated financial statements

                                   F-5



                   CHINA ENERGY RESOURCES CORPORATION  
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (Amounts in thousands except per share amounts)


1. ORGANIZATION AND BASIS OF PRESENTATION

China Energy Resources Corporation (the "Company"), a private company 
incorporated in the British Virgin Islands, was incorporated on March 15, 
1996 for the purpose of holding a 100% interest in China Coal Mining 
(B.V.I.) Co. Ltd. ("China Coal") and to enter into an agreement with Jackson 
Holding Corp. ("Jackson"), a New York Corporation.

On March 15, 1996 the shareholders in China Coal exchanged their shares in 
China Coal for shares in the Company.  The exchange of shares has been 
accounted for as a reorganization of entities under common control similar 
to a pooling of interests.  The accompanying financial statements include 
the combined results and operations and financial position of the Company, 
China Coal and its 80% held subsidiary for all periods presented.

On March 22, 1996, pursuant to an agreement and plan of merger between 
the Company and Jackson, Jackson was merged into the Company and the Company 
issued 109,850 shares of its common stock to the shareholders of Jackson for 
the entire issued share capital of Jackson.  Jackson had been established in 
1994 for the sole purpose of acquiring or merging with an unspecified 
business, and at the time of merger Jackson had no operating assets and had 
not engaged in any business activities.  The transaction has been accounted 
for as a reverse acquisition and the financial statements presented 
represent the financial statements of the Company and its subsidiary from 
August 18, 1995, the date the subsidiary commenced operations.

China Coal, a private company incorporated in the British Virgin Islands, 
was incorporated on August 18, 1995.  Pursuant to a joint venture agreement 
dated September 16, 1995 between China Coal and Mishan Coal Chemical Holding 
Company ("the Factory"), China Coal acquired for cash of Renminbi 65,600 
(approximately $7,886) an 80% interest in a new joint venture company, 
Mishan Hua Xing Coke Limited ("MHXC"), incorporated in the People's Republic 
of China ("PRC"), which has succeeded to the business of the Factory.  In 
conjunction with the agreement the former owner contributed land use rights 
with a fair value of Renminbi 14,806 (approximately $1,780) and coal mine 
use right with a contractual value of Renminbi 95,760 (approximately 
$11,312) to MHXC.  The former owner provided an interest free loan of 
Renminbi 65,760 (approximately $7,906) to MHXC to finance the acquisition of 
the coal mine use right by MHXC.  The coal mine use right and interest free 
loan are recorded at estimated fair value determined based on the estimated 
net present value of the interest free loan.  The joint venture period is 30 
years from the date of formation and may be extended by the unanimous 
resolution of the board of directors, subject to the approval of the 
relevant government authorities.  The remaining 20% interest in MHXC is 
owned by the former owner of the Factory.  The acquisition has been 
accounted for as a purchase and the results of the MHXC have been included 
in the consolidated financial statements since October 1, 1995.  The 
purchase price approximated the estimated fair values of MHXC at the date of 
acquisition.

MHXC operates two production facilities in Heilongjiang Province, PRC; the 
Mishan City Coke Factory ("MCCF") and the Qitaihe City Coal Factory.  During 
1996 the operation of the MCCF plant was subcontracted to a company under 
the control of the central government under an agreement where the Company 
received a subcontracting fee of Renminbi 6,000 (approximately $723) and the 
other party was entitled to all the revenues from the operations of the 
plant and was obligated to meet all the operating expenses of the plant. 
MCCF terminated the subcontracting agreement on March 31, 1997 and resumed 
the production and sales of metallurgical coke during the second quarter of 
1997.  In March 1998 MCCF temporarily ceased production (see note 3).

                                  F-6



                     CHINA ENERGY RESOURCES CORPORATION
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                          (Amounts in thousands)


2. BASIS OF PREPARATION

     The financial statements were prepared in accordance with accounting 
principles generally accepted in the United States of America ("U.S. GAAP").  
This basis of accounting differs from that used in the statutory accounts of 
MHXC, the Company's principal operating subsidiary, which were prepared in 
accordance with the accounting principles and the relevant financial 
regulations applicable to Sino-foreign equity joint venture enterprises as 
established by the Ministry of Finance of China.

The principal adjustments made to conform the statutory accounts of MHXC to 
U.S. GAAP included the following:

    - Adjustment to record the coal mine use right and interest free loan at 
      estimated fair value.

    - Adjustment to depreciation expense for property, plant and equipment 
      to reflect more accurately the economic useful life of the assets;

    - Adjustment to recognize interest expense on the accruals basis.

    - Adjustment to recognize sales and cost of sales upon shipment to 
      customers.

The preparation of financial statements in conformity with US GAAP requires 
management to make 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.  Actual 
results could differ from those estimates.


3. GOING CONCERN AND OTHER MATTERS

During 1997 the Company terminated the services of the MCCF plant manager, 
however, prior to his termination this individual signed various documents 
that provided collateral to bank lenders of MCCF over MCCF assets.

In 1997, as a result of  cash flow shortages, various problems with local 
management and other operational issues, the facility at MCCF did not 
operate at full capacity resulting in the closure of that facility in 
March, 1998.  At December 31, 1997 the gross assets of MCCF were $8,643.  
The Company intends to reopen the facilities when the Company has raised 
additional finance as the Company anticipates that operating the plant will 
generate positive cash flows and, therefore, no provision for impairment is 
required.

                                  F-7



                   CHINA ENERGY RESOURCES CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                            (Amounts in thousands) 


3.  GOING CONCERN AND OTHER MATTERS - (Continued)

MHXC also owns the rights to use the coal mine, which at December 31, 1997 
are stated at $7,176, and which are located in Mishan and are planned to 
supply coking coal for use in MCCF.  During 1997 the Company continued its 
efforts in preparing the mine sites for mining operations and in October 
1997 obtained a report prepared by international mining and geological 
consultants on the coking coal reserve base and associated coal quality.  
This report recommended that the Company implement various programs to 
expand the demonstrated coal reserve base and provide support for coal 
quality documentation.  Due to inadequate working capital the Company has 
not been able to conduct further mine surveys and the Company has been in 
contact with potential strategic partners to assist in development.  The 
Company needs to complete additional work on the survey and mining plans 
before the mine is ready for use.  In 1997 the Company capitalized interest 
amounting to $341 in the coal mine use right.  No provision for impairment 
has been made as it is the Company's intention to develop the rights when 
additional finance is available.

The Company incurred a loss of $3,542 in 1997 and is continuing to operate 
at a loss subsequent to the balance sheet date and at December 31, 1997 the 
Company had net current liabilities of $4,447, which excludes any long-term 
debt that may become current in the event the Company is unable to continue 
as a going concern.  These factors among others may indicate that the Company 
will be unable to continue as a going concern for a reasonable period of 
time.

The financial statements do not include any adjustments relating to the 
recoverability of assets and classification of liabilities that might be 
necessary should the Company be unable to continue as a going concern.  The 
Company's continuation as a going concern is dependent upon its ability to 
generate sufficient cash flow to meet its obligations on a timely basis, to 
obtain additional financing or refinancing as may be required, and 
ultimately to attain profitability.

The Company is in discussion with potential investors to obtain additional 
equity financing and with governmental agencies to assist in resolving the 
management and operational issues relating to MCCF.

                                    F-8



                     CHINA ENERGY RESOURCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                          (Amounts in thousands)


4.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation - The consolidated financial statements include 
the assets, liabilities, revenues and expenses of the Company and its 
subsidiaries.  All material intra-group transactions have been eliminated.

Cash and cash equivalents - Cash and cash equivalents include cash on hand, 
demand deposits and highly liquid instruments with a maturity of three 
months or less at the time of purchase.

Inventories - Inventories are stated at the lower of cost, determined by the 
average cost method, or market.  Finished goods inventories consist of raw 
materials, direct labor and overhead associated with the manufacturing 
process.

Property, plant and equipment - Property, plant and equipment is stated at 
cost.  Depreciation is provided to write off the cost of property, plant and 
equipment over their estimated useful lives in equal instalments as follows:

<TABLE>
<CAPTION>
    
     <S>                               <C>  
     
     Land use rights                   30-50 years
     Buildings                          8-45 years
     Plant and machinery                5-20 years
     Transportation vehicles            5-10 years
     Railway                              50 years
</TABLE>

Coal mine use right - Coal mine use right is stated at estimated fair value 
at date of acquisition determined based on the estimated market value of the 
interest free loan used to finance the acquisition of the asset plus the 
costs of preparing the mine site for its intended mining operations.  
Interest is capitalized on the coal mine use right during the period in 
which activities are in progress necessary to get the mine ready for its 
intended mining operations.  In 1997, 1996 and 1995 interest capitalized 
amounted to $341, $458 and $110, respectively.  Amortization will be 
provided to write off the value of coal mine use right based on the units 
extracted compared with estimated total units to be extracted.  The coal 
mine use right and the Company's other long-lived assets are reviewed for 
impairment whenever  events or changes in circumstances indicate that the 
carrying amount of an asset may not be recoverable.

Construction-in-progress represents plant and buildings under construction 
and includes cost of construction, purchase of plant and machinery and 
interest arising from borrowings used to finance these assets during the 
period of construction or installation.  No interest was capitalized during 
the period.  Construction-in-progress is not depreciated until amounts are 
reclassified to property when available for use.

Net sales - Net sales represent the invoiced value of products, net of sales 
taxes.  Sales are recognized when products are shipped to customers.

Foreign currency translation - The consolidated financial statements of the 
Company are presented in United States dollars.  The Company's principal 
operating subsidiary, MHXC, conducts substantially all its business in 
Renminbi.

Foreign currency transactions of MHXC are translated into Renminbi at the 
applicable rates of exchange quoted by the People's Bank of China (the 
"PBOC"), prevailing at the date of the transactions.  Monetary assets and 
liabilities denominated in foreign currencies are translated into Renminbi 
using the applicable PBOC rate prevailing at the relevant balance sheet 
date.  Substantially all the transactions of MHXC are denominated in 
Renminbi and MHXC did not have any material monetary assets or liabilities 
denominated in foreign currencies.  On consolidation, the assets and 
liabilities of MHXC are translated into United States dollars at the year 
end rates of exchange and revenues and expenses are translated at average 
exchange rates prevailing during the period.  Translation adjustments are 
included as a separate components of stockholders' equity.

                                   F-9



                       CHINA ENERGY RESOURCES CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                           (Amounts in thousands)


4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Provisions for doubtful accounts - Provisions for doubtful accounts are 
established based on management's assessment of the recoverability of 
accounts receivable.  The expense amounted to $1,365 in 1997, $15 in 1996 
and $1 in 1995.

Repairs and maintenance - Repairs and maintenance costs are charged against 
income in the period in which they are incurred.  The expense is allocated 
to cost of sales and selling, general and administrative expenses.  The 
aggregate expenses were $47 in 1997, $42 in 1996 and $30 in 1995.

Income taxes - Deferred income taxes are provided using the liability 
method.  Under the liability method, deferred income taxes are recognized 
for all significant temporary differences between the tax and financial 
statement bases of assets and liabilities.  The tax consequences of those 
differences are classified as current or non current based upon the 
classification of the related asset or liability in the financial 
statements.  During the period there were no significant temporary 
differences.

(Loss) earnings per share - Fully diluted (loss) earnings per share is based 
on net (loss) income for the period and the weighted average number of 
common stock outstanding during each period, plus, the dilutive effect, if 
any, of certain shares subject to issue in connection with the conversion of 
the outstanding convertible notes and warrants.  Such convertible notes and 
warrants had no dilutive effect on the loss per share in 1997 but may dilute 
future earnings per share.

A reconciliation of the earnings and weighted average number of shares used 
to compute basic and fully-diluted earnings per share for the year ended 
December 31, 1996 is as follows:

<TABLE>
<CAPTION>
                               
                                                      Weighted average
                                     Earnings          number of shares
   <S>                               <C>                     <C>   
          
   Basic                             $  1,258                1,918
   Effect of convertible debt              53                  396
                                      _______               _______
                                     $  1,311                2,314
                                      _______               _______

</TABLE>

New accounting standards not yet adopted - In June 1997, the Financial 
Accounting Standards Board (FASB) issued two new disclosure standards.  
Results of operations and financial position will be unaffected by 
implementation of these new standards.

Statement of Financial Accounting Standards (SFAS) No. 130, Reporting 
Comprehensive Income, establishes standards for reporting and display of 
comprehensive income, its components and accumulated balances.  
Comprehensive income is defined to include all changes in equity except 
those resulting from investments by owners and distributions to owners.  
Among other disclosures, SFAS No. 130 requires that all items that are 
required to be recognized under current accounting standards as components 
of comprehensive income be reported in a financial statement that is 
displayed with the same prominence as other financial statements.

SFAS No. 131, Disclosures about Segments of an Enterprise and Related 
Information which supersedes SFAS No. 14, Financial Reporting for Segments 
of a Business Enterprise, establishes standards for the way that public 
enterprises report information about operating segments in financial 
statements issued to the public.  It also establishes standards for 
disclosures regarding products and services, geographic areas and major 
customers.  SFAS131 defines operating segments as components of an 
enterprise about which separate financial information is available that is 
evaluated regularly by the chief operating decision maker in deciding how to 
allocate resources and in assessing performance.

Both of these new standards are effective for financial statements for 
periods beginning after December 15, 1997 and require comparative 
information for earlier years to be restated.

In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about 
Pensions and Other Postretirement Benefits, which amends the disclosure 
requirements for pension and other postretirement benefits.  Adoption of the 
standard will not significantly change the Company's financial statement 
disclosures.

                                 F-10



                      CHINA ENERGY RESOURCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                          (Amounts in thousands)


5. INCOME TAXES

Income is subject to taxation in the various countries in which the Company 
and its subsidiary operate.  The Company is not taxed in the British Virgin 
Islands where it is incorporated.  The Company's operations are all in 
China.

The Company's subsidiary, MHXC, which is incorporated in China, is subject 
to Chinese income taxes at the applicable tax rate (currently 33%) on 
taxable income based on income tax laws applicable to foreign enterprises.  
Pursuant to the same income tax laws, the subsidiary is fully exempt from 
Chinese income tax on its manufacturing operations for two years starting 
from the first profit making year and, accordingly, no income taxes were 
payable in respect of 1996 or 1995.  The subsidiary also has a 50% exemption 
from Chinese income tax for the subsequent three years.  The exemptions 
applicable to these subsidiaries will expire in 1999.  At December 31, 1997 
the Company and its subsidiaries have no available tax losses.


6. INVENTORIES

<TABLE>
<CAPTION>
                                             December 31,
                                           1997       1996
    <S>                                <C>           <C> 
        
    Raw materials                     $   3,203    $   3,029
    Finished goods                          724           34
    Consumables                             209            9
                                         _______     _______
Total                                 $   4,136     $  3,072
                                          _______    _______

</TABLE>

The amount of work-in-progress is insignificant due to the short production 
cycle of the manufacturing process.


7. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                            December 31,
                                           1997           1996

     <S>                              <C>             <C>    
     Coal mine use right              $   7,176       $   6,725
     Land use rights                      1,789           1,780
     Buildings                            6,427           6,378 
     Plant and machinery                  2,213           1,966
     Transportation vehicles                727             989
     Railway                              1,442           1,247
                                         ______           _______
     Total                               19,774           19,085
     Less: Accumulated depreciation      (1,778)          (1,766) 
     Construction in progress                 6              607
                                        _______           _______
Total                                 $  18,002         $ 17,926
                                       _______            _______

</TABLE>

The coal mine use right is stated at estimated fair value at date of 
acquisition determined based on the estimated market value of the interest 
free loan used to finance the acquisition of the asset plus the costs of 
preparing the mine site for its intended use.  The contractual price of the 
coal mine use right was $11,312.

Certain property is collateralized for bank borrowings (note 9).

                                  F-11



                      CHINA ENERGY RESOURCES CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                             (Amounts in thousands)


8. VALUE ADDED TAXES RECEIVABLE

Value added tax ("VAT") is applicable to MHXC at a rate of 17% on the gross 
sales amounts and credit given at the same rate for VAT paid on purchases.  
The net VAT payable is accounted for to the tax authorities.

In accordance with notices issued by the government authorities, the Factory 
can deem VAT, at the rate of 14%, to have been paid on the opening inventory 
amount at January 1, 1995 (the date VAT was introduced) and applied against 
future VAT payable based on criteria to be agreed with the local 
authorities.  This amount has been established as a receivable.  The Company 
believes that the amount will be recoverable against future VAT payable 
subject to approval as to timing by the tax authorities.  Amounts of $ 27, 
$53 and $10 were utilized in 1997, 1996 and 1995, respectively


9. SHORT-TERM BORROWINGS

Short-term borrowings represent short-term loans provided by banks and other 
lenders to the Company's PRC subsidiary.

<TABLE>
<CAPTION>
                                                               December 31,
                                                              1997      1996
<S>                                                          <C>      <C>                                                        
Short-term borrowings at the end of period                   $ 5,057  $ 3,108
Weighted average interest rate on borrowings at end of period    13%      17%

</TABLE>

Interest rates are determined periodically by the banks and other lenders in 
consultation with the Company's subsidiary and are normally subject to 
annual review.  There are no formal short-term credit facilities with the 
banks and short-term borrowings are negotiated on a loan-by-loan basis.  

At December 31, 1997, short-term borrowings of $2,896 and long-term bank 
loans of $1,812 were secured over property, plant and equipment with a net 
book value of $9,161.

                                  F-12



                       CHINA ENERGY RESOURCES CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                              (Amounts in thousands)


10. LONG-TERM DEBT

<TABLE>
                                                           December 31,
                                                         1997      1996
Long-term debt, which is unsecured, consists of:
<CAPTION>

<S>                                                     <C>        <C>
Bank loans at fixed interest rates 
  (14.04% at December 31, 1997)
Due in 1997                                             $    -     $  844
Due in 1998                                              1,086        241
Due in 1999                                                242        241
Due in 2000                                                242        241
Due in 2001                                                242        241
                                                        _______    _______
                                                         1,812      1,808
                                                        _______    _______
Interest free loan from PRC joint venture partner
<S>                                                      <C>        <C>
Due in 2002                                              1,334      1,331
Due in 2003                                              1,334      1,331
Due in 2004                                              1,335      1,332
Due in 2005                                              1,335      1,332
Due in 2006                                              1,335      1,332
                                                         _______   _______
                                                         6,673      6,658
Less: notional interest                                  4,259      4,600
                                                         _______   _______
                                                         2,414      2,058
                                                         _______   _______
Total                                                    4,226      3,866
Current portion of long-term debt                        1,812        844
                                                        _______    ______
Long-term debt, less current portion                   $ 2,414    $ 3,022
                                                        _______    _______

</TABLE>

All long-term bank loans are authorized by the provincial or local 
governments and are administered by the banks.

The interest free loan from the PRC joint venture partner was raised to 
partially finance the acquisition of the coal mine use right.  At the date 
the loan was obtained it was to be repaid by five equal instalments with 
each instalment limited to 40% of the income after tax of the relevant year.  
In 1996 the Company made repayments ahead of the original planned payment 
schedule and the scheduled repayments of the remaining balance of the loan 
were rateably amended.  In addition, the scheduled repayments were postponed 
by an agreement dated May 11, 1997 for an additional two years.  The loan is 
stated in the financial statements at the estimated present value calculated 
based on the annual discount rate of 16%, being the estimated annual 
interest rate for fixed asset lending in the PRC.  This estimate of the 
market value of the loan is subject to a high degree of uncertainty because 
there is no market for the loan, the loan is not transferrable and the 
repayment terms are contingent on future operations of the Company.

With effect from October 1, 1995 the government of Mishan City agreed to 
share 50 percent of the interest paid by MCCF on the long-term interest - 
bearing loans. The government's share of interest expense amounted to $150 
in 1997, $197 in 1996 and $50 in 1995.  This agreement expired in December 
31, 1997. The interest shared by the local government party of $150 in 1997 
and $197 in 1996 has been netted against interest expense in the statement of 
operations, as well as $166 in 1996 of interest forfeited by the bank lender 
of the loan.

During 1997, interest was not paid and became overdue and as a result all 
long-term bank loans are currently in default and have been classified as 
current liabilities.

                                   F-13



                      CHINA ENERGY RESOURCES CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                            (Amounts in thousands)


11. CONVERTIBLE NOTES

At December 31, 1997 the Company had outstanding convertible notes with 
detachable warrants amounting to $2,347 which were issued in 1996.  These 
notes carry interest at 8 percent per annum and the principal amount and 
the accrued interest thereon are payable in 2001.

The holders have the right prior  to the payment in full of all principal 
of and interest on the notes, to convert any outstanding and unpaid 
principal portion of the notes and accrued interest into fully paid and 
nonassessable shares of common stock, $0.01 par value per share, of the 
Company, as such shares exist on the date of issuance of the notes, or any 
shares of capital stock of the Company into which such shares have been 
changed or reclassified (the "common stock") at the conversion price as 
defined in the note.  In the event the holders do not convert the entire 
principal amount of the notes and all accrued and unpaid interest earned 
thereon before the maturity date, then on that date the Company has the 
option of compelling the conversion of the notes or paying to the holders 
the remaining unpaid principal amount of the notes and interest thereon.

The conversion price is subject to a floor price and a ceiling price (as 
defined in the note agreement) and is equal to 60% of the average closing 
bid and ask price for the common stock on any securities exchange or other 
securities market on which the common stock is then being traded, for the 
ten trading days immediately preceding the conversion date; provided, 
however, that in the event of a public offering or private placement of 
securities of the Company, resulting in gross proceeds of at least $10,000, 
consummated within 18 months of the date of the notes, the floor price 
shall be adjusted to equal 60 percent of the offering price per share in 
such an offering; and provided, further, that the floor price, as adjusted, 
(i) shall never be lower than $3.50 per share (the "floor price") and (ii) 
shall never exceed $8.50 per share (the "ceiling price").  At any time 
prior to the date on which the common stock is traded on the American Stock 
Exchange or other U.S. securities exchange or market, the conversion price 
for the common stock shall equal $3.50 per share.

The conversion price and number and kind of shares or other securities to 
be issued upon conversion is subject to adjustment from time to time upon 
the happening of certain events specified in the note agreement while this 
conversion right remains outstanding.

The principal amount outstanding on the notes, and all interest accrued and 
payable thereon, may be prepaid by the Company, in whole but not in part, 
on or after November 15, 1997; provided that the average closing bid price 
of the common stock has remained at or above $17.00 per share for thirty  
consecutive business days; and provided, further, that written notice of 
prepayment is delivered to the holder not more than sixty days nor less 
than thirty days prior to the applicable prepayment date.  The holder has 
the right to exercise any conversion rights it may have hereunder until 
such time as any prepayment is made.

Within ten business days after a holder receives notice from the Company 
that a qualifying offering has been consummated, the holder may demand in 
writing that the principal amount  outstanding on the note, and all 
interest accrued thereon, be prepaid by the Company, in whole or in part, 
but any partial demand shall be in increments of $25.  The borrower shall 
repay the principal amount outstanding on the note, and all interest 
accrued on payable thereon, within 15 days after receipt of such a notice 
from the holder.

In 1997 the Company issued convertible notes with a face value of $1,000 
and holders converted principal and accrued interest of $2,900 into the 
Company's common stock resulting in the issue of 848 shares.

The holders of the warrants detached from the convertible notes are 
entitled to purchase from the Company at any time on or after May 14, 1997 
or from time to time before 5:00 p.m. on November 14, 1999 fully paid and 
nonassessable shares of common stock, $0.1 par value per share, of the 
Company, as adjusted in the event that the following computation results in 
a greater number of shares: the quotient obtained by dividing the principal 
amount of the loan from the holder to the Company pursuant to a note from 
the Company to the holder by the purchase price.  The purchase price shall 
be subject to a floor price and a ceiling price and shall equal 60% of the 
average closing bid and ask price for the common stock on any securities 
exchange or other securities market on which the common stock is then being 
traded, for the ten trading days immediately preceding the date of 
exercise; provided, however, that in the event of a qualifying offering, 
the floor price shall be adjusted to equal 60% of the offering price per 
share in such qualifying offering; and provided, further, that the floor 
price, as adjusted, (i) shall never be lower than $3.50 per share and (ii) 
shall never exceed $8.50 per share.

                                  F-14



                      CHINA ENERGY RESOURCES CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                             (Amounts in thousands)


12. RELATED PARTY TRANSACTIONS

In 1997 advances totalling $1,768 were made under the authority of the 
former Chairman of the Company to the former owner of QCCF which were 
intended to establish relationships for potential future business 
opportunities.  As the terms of the repayment of the advances were unclear, 
with the death of the former Chairman current management believes that its 
ability to realize the advances has been severely impaired and, accordingly, 
the amounts have been written off in 1997.

In 1997, the Company advanced $2,272 to the bank of the former owner of QCCF 
to settle loans and interest owed by the former owner of QCCF to the bank.
The receivable at December 31, 1997 of $2,272 is repayable on demand and is 
interest free.
  
In 1997 the former Chairman of the Company withdrew amounts totalling $286 
from MHXC without authority of the Company.  The Chairman died in October 
1997 and the Company has been seeking to recover these amounts from his 
estate and family.  The Company has recorded an expense of $184 in other 
income (expense) representing the amounts not yet recovered.

Substantially all of the sales, purchases, raw materials and purchases of 
ancillary items the Company's PRC subsidiary are with state-owned 
enterprises.  Even though such state-owned enterprises may be regarded as 
having the same beneficial owner of the PRC joint venture partner of the 
Company's subsidiary, the PRC central government, such state-owned 
enterprises are frequently under separate control and do not possess any 
management, ownership or other interest in each other.  As a result, the 
Company does not view transactions with such state-owned enterprises as 
constituting related party transactions.


13. COMMITMENTS AND CONTINGENCIES

At December 31, 1997, the Company and its subsidiaries had no contracted 
capital expenditure.

The Company and its PRC subsidiary do not currently maintain any insurance 
coverage on the property, plant and equipment owned by the subsidiary.  In 
addition, the Company and the subsidiary do not currently carry any business 
interruption insurance or any third party liability insurance to cover 
claims in respect of bodily injury, property or environmental damages 
arising from accidents on the subsidiary's property or relating to its 
operations.


14. FOREIGN CURRENCY EXCHANGE 

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. The conversion of 
Renminbi into US dollars and other foreign currencies is based on the rate 
set by the People's Bank of China, which is set based on the previous day's 
PRC interbank foreign exchange market rate and with reference to current 
exchange rates on the world financial markets.  The exchange rate at 
December 31, 1997 was US$1 = Rmb8.2798.

Foreign investment enterprises may generally remit out of the PRC profits or 
dividends derived from a source within the PRC, subject to the availability 
of foreign currency.  Except for such profits or dividends, remittance out 
of the PRC by foreign investors of any other amount (including proceeds from 
a disposition of an investment in the PRC) is subject to the approval of 
State Administration of Foreign Exchange and to the availability of foreign 
currency (at the central government or provincial level).  In addition, if 
there is a deterioration in the PRC's balance of payments or for other 
reasons, the PRC may impose restrictions on foreign currency remittances 
abroad.  No assurance can be given that the Company's PRC subsidiary will be 
able or permitted to remit out of the PRC amounts due to the Company.

                                   F-15



                        CHINA ENERGY RESOURCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                             (Amounts in thousands)


15. CONCENTRATION OF CREDIT RISK

The subsidiary's trade receivables in respect of sales on credit terms are 
subject to a concentration of credit risk with customers in the industrial 
sectors of steel making, metallurgy, electricity and other heavy industries.  
In addition, the PRC subsidiary has no formal credit terms and its sales are 
predominantly to PRC companies.  Therefore, the subsidiary's ability to 
collect its trade receivables is related to the economic conditions in these 
industrial sectors and in the PRC as a whole.


16. FINANCIAL INSTRUMENTS

The carrying values of financial instruments, including cash and cash 
equivalents and short-term borrowings, were equal to their approximate fair 
value as of December 31, 1997 because of the relatively short maturities of 
these investments.  At December 31, 1997 the fair value of the bank loans 
and the interest free loan from the PRC joint venture partner were 
approximately $1,812 and $2,414, respectively, estimated based on the 
discount rate the seller would pay to a credit-worthy third party to assume 
its obligation.


17. EMPLOYEE RETIREMENT BENEFITS

All the subsidiary's full-time employees are entitled to a retirement 
pension calculated with reference to their basic salaries on retirement and 
their length of service in accordance with a government managed pension 
plan.  The PRC government is responsible for the pension obligations of 
retired staff.  The PRC subsidiary is required to make contributions to the 
state retirement plan at 17-25% of the monthly salaries of the current full-
time employees subject to local authorities' discretion.  Employees are 
required to make contributions at 2-3% of their basic salary.  Contract and 
part-time employees are not entitled to such benefits.  The expense of such 
arrangements to the subsidiary was immaterial for the period.  The Company 
and its subsidiaries are not obligated under any other post-retirement plans 
and post-employment benefits are not material.


18. SEGMENT INFORMATION AND CONCENTRATION OF CREDIT RISK AND MAJOR 
CUSTOMERS

The Company through its PRC subsidiary is engaged in one industry segment, 
the manufacture and sale of coal products in the PRC where the PRC 
subsidiary's operations are located. One customer, Mudanjiang No. 2 Power 
Plant of Heilongjiang Province, PRC, accounted for 71% of net sales in 1997, 
80% in 1996, and 83% in 1995.

                                 F-16



               INDEPENDENT AUDITORS' REPORT



To the shareholders and board of directors of 

MISHAN COAL CHEMICAL HOLDING COMPANY


We have audited the accompanying statements of operations and cash flows of 
Mishan Coal Chemical Holding Company (the "Factory") for the nine months 
ended September 30, 1995, all expressed in Renminbi.  These financial 
statements are the responsibility of the management of China Coal Mining 
(B.V.I.) Co. Ltd. and the Factory.  Our responsibility is to express an 
opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally 
accepted in the United States of America.  Those standards 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.  An audit also includes assessing the 
accounting principles used and significant estimates made by management, as 
well as evaluating the overall financial statement presentation.  We believe 
that our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material 
respects, the results of operations and cash flows of the Factory for  
the nine months ended September 30, 1995 in conformity with accounting 
principles generally accepted in the United States of America.



Deloitte Touche Tohmatsu
Hong Kong
November 13, 1995

                                    F-17



                  MISHAN COAL CHEMICAL HOLDING COMPANY
                      STATEMENT OF OPERATIONS
                       (Amounts in thousands)

<TABLE>
<CAPTION>
                                                 Nine months      Nine months
                                                   ended             ended
                                                  September        September
                                                  30, 1995          30, 1995
                                                     Rmb               US$
<S>                                               <C>              <C>

Net sales                                          49,019           5,896
Cost of sales                                      34,263           4,121
                                                  _______           _____
Gross profit                                       14,756           1,775
Selling, general and administrative expenses        6,616             796
                                                   ______           _____
Operating income                                    8,140             979
Interest expense                                   (1,276)           (154)
Other income, net                                     131              16
                                                   ______           _____
Income before income taxes                          6,995             841
Provision for income taxes (note 4)                    -               -   
                                                   _______          ______
Net income                                          6,995             841
                                                   _______           _____

</TABLE>

See accompanying notes to financial statements.

                                  F-18



                   MISHAN COAL CHEMICAL HOLDING COMPANY
                        STATEMENT OF CASH FLOWS
                         (Amounts in thousands)
          
<TABLE>
<CAPTION>
                                                  Nine months    Nine months
                                                     ended         ended
                                                   September      September
                                                   30, 1995       30, 1995
                                                      Rmb            US$

<S>                                                   <C>            <C> 
Cash flow from operating activities: 
Net income                                            6,995          841
Adjustments to reconcile net income to net cash 
   provided by operating activities:
    Depreciation                                      2,971           357
  Changes in assets and liabilities:
    Accounts receivable                             (10,321)       (1,242)
    Inventories                                      (6,850)         (824)
    Prepayments and other assets                     (1,994)         (240)
    Accounts payable                                  5,292           637
    Customer deposits                                   769            92
    Other payables	                                     899           108    
    Plant construction payables                       2,198           264
    Amount due to a former owner                     (3,581)         (430)
    Accrued payroll and employee benefits               879           106
    Accrued interest                                  3,679           443
    Other accrued liabilities                          (175)          (21)
                                                      ______         ______
Net cash provided by operating activities               761            91
                                                      _______        ______
Cash used in investing activities:
  Purchase of property, plant and equipment          (7,477)         (899)
                                                      _______         ______
Cash flow from financing activities:
  Increase in short-term borrowings                   13,403         1,612
  Repayment of short-term borrowings                  (6,480)         (779)
  Withdrawal of capital                                 (605)          (73)
                                                      _______         ______
Net cash provided by financing activities              6,318           760
                                                       _______        ______
Decrease in cash and cash equivalents                   (398)          (48)
Cash and cash equivalents at beginning of period         796            96
                                                       _______        ______
Cash and cash equivalents at end of period               398            48
                                                       _______        ______

Supplemental disclosure of cash flow information

Cash paid during the period for:

Interest                                               1,648            198

</TABLE>

See accompanying notes to financial statements.

                                   F-19



                 MISHAN COAL CHEMICAL HOLDING COMPANY
                    NOTES TO FINANCIAL STATEMENTS
    (Amounts in thousands, expressed in Renminbi unless otherwise stated)


1.  ORGANIZATION AND BASIS OF PRESENTATION

Effective January 1, 1994, Mishan Coal Chemical Holding Company (the 
"Factory"), a state-owned enterprise established in the People's Republic of 
China ("PRC"), was formed and pursuant to an agreement dated December 18, 
1993 took over the business of Mishan City Coke Factory ("MCCF"), a state-
owned enterprise in the PRC under the same administration as the Factory, 
and acquired at their historic costs the property, plant and equipment of 
Qitaihe City Coal Factory ("QCCF"), which was part of another PRC state-
owned enterprise.  Pursuant to a joint venture agreement dated September 16, 
1995 between China Coal Mining (B.V.I.) Co. Ltd. (the "Company"), a private 
company incorporated in the British Virgin Islands, and the Factory, the 
Company acquired an 80% interest in a new joint venture company, Mishan Hua 
Xing Coke Limited ("MHXC") which was established on October 6, 1995 and 
which has succeeded to the business of the Factory.  The joint venture 
period is 30 years from the date of formation and may be extended by the 
unanimous resolution of the board of directors, subject to the approval of 
the relevant authorities.  The remaining 20% interest in MHXC is owned by 
the former owner of the Factory.

The accompanying financial statements present the results of operations and 
cash flows of the factory from January 1, 1995 to September 30, 1995.  
Subsequent to that date MHXC succeeded to the business of the Factory.


2.  BASIS OF PREPARATION

The financial statements were prepared in accordance with accounting 
principles generally accepted in the United States of America ("U.S. GAAP").  
This basis of accounting differs from that used in the statutory accounts of 
the Factory, which were prepared in accordance with the accounting 
principles and the relevant financial regulations applicable to state-owned 
industrial enterprises as established by the Ministry of Finance of China.

The principal adjustments made to conform the statutory accounts of the 
Factory to U.S. GAAP included the following:

    -Additional allowance for doubtful accounts receivable;

    -Adjustment to depreciation expense for property, plant and equipment 
     to reflect more accurately the economic useful life of the assets;

    -Adjustment to recognize interest expense on the accruals basis.

    -Adjustment to recognize sales and cost of sales upon shipment to 
     customers.

    -Adjustment to write back excess provisions made by the Factory.

    -Adjustment to include the attributable share of transportation cost in 
     closing inventories.


The preparation of financial statements in conformity with US GAAP requires 
management to make 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.  Actual 
results could differ from those estimates.

                                   F-20



                     MISHAN COAL CHEMICAL HOLDING COMPANY
                        NOTES TO FINANCIAL STATEMENTS
    (Amounts in thousands, expressed in Renminbi unless otherwise stated)


3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and cash equivalents - Cash and cash equivalents include cash on hand, 
demand deposits and highly liquid instruments with a maturity of three 
months or less at the time of purchase.

Property, plant and equipment - Property, plant and equipment is stated at 
cost.  Depreciation is provided to write off the cost of property, plant and 
equipment over their estimated useful lives in equal instalments as follows:

<TABLE>
<CAPTION>
 
    <S>                        <C>          
    Buildings                  8-45 years
    Plant and machinery        5-20 years
    Transportation vehicles    5-10 years
    Railway use right            50 years

</TABLE>

Net sales - Net sales represent the invoiced value of products, net of sales 
taxes.  Sales are recognized when products are shipped to customers.

Foreign currency translation - Foreign currency transactions are translated 
into Renminbi at the applicable rates of exchange, quoted by the Shanghai 
foreign exchange adjustment centre ("Swap Centre") before January, 1, 1994 
and People's Bank of China (the "PBOC") on or after January 1, 1994, 
prevailing at the date of the transactions.  Monetary assets and liabilities 
denominated in foreign currencies are translated into Renminbi using the 
applicable Swap Centre or PBOC rate prevailing at the relevant balance sheet 
date.  Substantially all the transactions of the Factory are denominated in 
Renminbi and the Factory did not have any material monetary assets or 
liabilities denominated in foreign currencies.

Repairs and maintenance - Repair and maintenance costs are charged against 
income in the period in which they are incurred.  The expense is allocated 
to cost of sales and selling, general and administrative expenses.  The 
aggregate expenses amounted to Rmb119 for the nine months ended September 
30, 1995.

Taxation - The Factory, being a state-owned enterprise, was subject to PRC 
income taxes at the applicable tax rate of 33% on the taxable income as 
reported in the statutory accounts adjusted for taxation in accordance with 
the relevant income tax laws applicable to state-owned enterprises.

Deferred income taxes are provided using the liability method.  Under the 
liability method, deferred income taxes are recognized for all significant 
temporary differences between the tax and financial statement bases of 
assets and liabilities.  The tax consequences of those differences are 
classified as current or non current based upon the classification of the 
related asset or liability in the financial statements.  During the periods 
presented there were no significant temporary differences.

Translation into United States Dollars - The financial records of the 
Factory are maintained, and its financial statements are expressed, in 
Renminbi.  The translations of Renminbi amounts into US dollars are for 
convenience only and have been made at the rates of Rmb8.319 to US$1, the 
exchange rate quoted by the PBOC on September 30, 1995.  Such translations 
should not be construed as representations that the Renminbi amounts could 
be converted into US$ dollars, at that rate or any other rate.

                                    F-21



                       MISHAN COAL CHEMICAL HOLDING COMPANY
                         NOTES TO FINANCIAL STATEMENTS
      (Amounts in thousands, expressed in Renminbi unless otherwise stated)


4.  TAXES

Income taxes - Income is subject to taxation in the PRC and the statutory 
income tax rate in the PRC was 33% for the nine months ended September 30, 
1995.  A reconciliation of the statutory income tax rate and the effective 
tax rate is as follows:

<TABLE>
<CAPTION>
                                                          Nine months
                                                            ended
                                                           September
                                                            30, 1995 
                                                              %
     <S>                                                     <C> 

     Statutory tax rate in PRC                                33
     Change in valuation allowance due to tax loss of MCCF     3
     Tax attributable to income tax liabilities
          borne by former owner (see note 6)                 (29)
     Other                                                    (7)
                                                            ______
                Effective tax rate                             -   
                                                            _______

</TABLE>

During the nine months ended September 30, 1995, no provision for income tax 
for MCCF has been made as there is no assessable profit for the relevant 
period.


5.  VALUE ADDED TAXES RECEIVABLE

Effective January 1, 1994 value added tax ("VAT") was introduced at a rate 
applicable to the Factory of 17% on the gross sales amounts and credit given 
at the same rate on the VAT paid on purchases.  The net VAT payable is 
accounted for to the tax authorities.

In accordance with notices issued by the government authorities, the Factory 
can deem VAT, at the rate of 14%, to have been paid on the opening inventory 
amount and applied against future VAT payable based on criteria to be agreed 
with the local authorities.  This amount has been established as a 
receivable.  Management believes that the amount will be recoverable against 
future VAT payable subject to approval as to timing by the tax authorities.  
No utilization was made for nine months ended September 30, 1995.  

                                   F-22



                     MISHAN COAL CHEMICAL HOLDING COMPANY
                        NOTES TO FINANCIAL STATEMENTS
      (Amounts in thousands, expressed in Renminbi unless otherwise stated)


6.  RELATED PARTY TRANSACTIONS

Under an agreement dated and effective January 1, 1994, QCCF has paid an 
amount of Rmb4,241 for nine months ended September 30, 1995 to Qitaihe City 
Fuel Company ("QCFC").  In return QCFC would be responsible for the income 
tax liabilities, certain operating expenses and interest expenses of QCCF.  
Without this arrangement, income tax would have been levied on the income of 
QCCF at the applicable income tax rate for the nine months ended September 
30, 1995 and income tax expense would have been approximately Rmb1,622.  The 
interest expense borne by QCFC on behalf of QCCF was Rmb1,414 for the nine 
months ended September 30, 1995.  The above agreement was terminated with 
effect from October 1, 1995.

The local government has granted the Factory the rights to use the land on 
which the Factory is located without time limit and without charging annual 
fees.

Substantially all of the Factory's sales, purchases, raw materials and 
purchases of ancillary items are with state-owned enterprises.  Even though 
such state-owned enterprises may be regarded as having the same beneficial 
owner, the PRC central government, such state-owned enterprises are 
frequently under separate control and do not possess any management, 
ownership or other interest in each other.  As a result, the Factory does 
not view transactions with such state-owned enterprises as constituting 
related party transactions.


7.  CONCENTRATION OF CREDIT RISK

The Factory's trade receivables in respect of sales on credit terms are 
subject to a concentration of credit risk with customers in the industrial 
sectors of steel making, metallurgy, electricity and other heavy industries.  
In addition, the Factory has no formal credit terms and its sales are 
predominantly to PRC companies.  Therefore, the Factory's ability to collect 
its trade receivables is related to the economic conditions in these 
industrial sectors and in the PRC as a whole.

                                  F-23



                   MISHAN COAL CHEMICAL HOLDING COMPANY
                     NOTES TO FINANCIAL STATEMENTS
     (Amounts in thousands, expressed in Renminbi unless otherwise stated)


8.EMPLOYEE RETIREMENT BENEFITS

All the Factory's full-time employees are entitled to a retirement pension 
calculated with reference to their basic salaries on retirement and their 
length of service in accordance with a government managed pension plan.  The 
PRC government is responsible for the pension obligations of retired staff.  
The Factory is required to make contributions to the state retirement plan 
at 15-25% of the monthly salaries of the current full-time employees subject 
to local authorities' discretion.  Employees are required to make 
contributions at 2% of their basic salary.  Contract and part-time employees 
are not entitled to such benefits.  The expense of such arrangements to the 
Factory was immaterial for all periods.  The Factory is not obligated under 
any other post-retirement plans and post-employment benefits are not 
material.


9.  SEGMENT INFORMATION

The Factory is engaged in one industry segment, the manufacture and sale of 
coal products in the PRC where its operations are located.  One customer, 
Mudanjiang No. 2 Power Plant of Heilongjiang Province, PRC, accounted for 
75% of net sales for the nine months ended September 30, 1995.

                                 F-24




                                SIGNATURE


          Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant certifies that it meets all of the requirements for filing 
on Form 20-F and has duly caused this annual report to be signed on its 
behalf by undersigned, thereunto duly authorized.




                                   CHINA ENERGY RESOURCES CORPORATION



                                   By: /s/Wang Gongquan
                                          Wang Gongquan
                                   Chairman of the Board and President





Date: July 15, 1998


                               EXHIBIT INDEX


Exhibit 
Number                       Description of Document

2.1   Long-Term Supply Agreement, dated December 31, 1996, by and among, 
      QCCF, Quitaihe City Coal Mine and Mudanjiang No. 2 Power Plant.



                                                             EXHIBIT 2.1

Long-Term Supply Agreement, dated December 31, 1996, by and among, QCCF,
Qutaihe City Coal Mine and Mudanjiang No. 2 Power Plant.


English Translation

Long-Term Supply Agreement Between QCCF and Mudanjiang No. 2 Power Plant

Parties to the Agreement:
Party A: QCCF and Qitaihe City Coal Mine (Collectively "Party A")
Party B: Mudanjiang Bardar Electric Industrial Co. (a company belonging to 
the Mudanjiang No. 2 Power Plant)

In order to meet the demand created by the improvement made by the PRC
government in the existing coal-electrical system which emphasizes on the 
direct sales beteween coal suppliers to power plants, this agreement is made
between QCCF and Mudanjiang No. 2 Power Plant ("Mudanjiang"). The purpose of
this agreement is to stabilize the supply and demand relationship between the 
parties. This agreement is made because both parties were satisfied with the 
previously established co-operative ventures in 1994 and 1995.

1. Term (7 years)

The parties agree that the period of the agreement is from January 1, 1997 to
January 1, 2004.

2. Method of Cooperation

(i) Party A uses its existing factory and coal production facility as
investment.
(ii) Mudanjiang has contributed RMB 2 million on January 1, 1994 and January
1, 1995.
(iii) It is supposed that Mudanjiang will purchase 15 rail transportation 
cars.

3. Duties of Party A

(i) Responsible for daily operation and administrative work.
(ii) Supply 900,000 tons of coal to Mudanjiang every year.
(iii) Responsible for arranging rail transportation plan.
(iv) Responsible for repayment of amount owed to Mudanjiang after the
agreement becomes effective on January 1, 1997.

4. Duties o Mudanjiag

(i) Assist Party A to perform administrative work.
(ii) Purchase 900,000 tons of coal (including steam coal) from Party A every
year.
(iii) Obtain adequate funds for the purchase of coal supplied by Party A.

5. Quantity and Quality Requirements

(i) Party A must supply 900,000 tons of coal to Mudanjiang every year.
(ii) The ash content of the coal supplied by Party A cannot exceed 35%
and the caloric value must be above 5,000MJ per kg.
(iii) The quantity and quality of coal shall be determined by the testing 
and inspection done by Mudanjiang No. 2 Power Plant.
(iv) The price shall be determined based on the caloric value of the coal.

6. Profit sharing

(i) Mudanjiang is given a rebate of RMB10 per ton which applies up to
560,000 tons every year.
(ii) Any remaining profit is retained by Party A.
(iii) For any increase in the price of coal which is approved by the 
Government after 1997, Mudanjiang is responsible for 25% of the price
increase but only with respect to 500,000 tons per year.
(iv) The expenses incurred with respect to Mudanjiang's existing 10 rail
transportation cars with annual capacity of 100,000 tons is borne by 
Mudanjiang.

7. Breach of the Agreement

(i) Except for uncontrollable reasons, any party, who does not fulfill the
obligations under the agreement or terminate the agreement without the 
consent of the other party, is liable for payment of damages to the other
party. The damages shall equal 30% o the coal value not fulfilled under the
agreement. 
(ii) If economic loss is suffered as a result of a breach of agreement, the 
breaching party shall pay for the economic loss suffered by the other party
and compensatory damages.

8. Dispute Settlement

(i) In the event of any dispute, the parties should try to resolve them based
on friendly, mutuall concession, otherwise, any dispute will be settled in a 
local court of PRC.

9. Any deficiency in this agreement will be discussed and resolved by the 
parties.

The agreement will be effective from January 1, 1997.

Party A: QCCF:
Legal representative:
Signature of Mr. Luan Jixiang





Mudanjiang Bardar Electric Industrial Co.
Signature of the Legal representative



December 31, 1996