<PAGE>

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 20-F/A

[ ] 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, 2003

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                                       OR

[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER: 001-12126

                            CHINA ENTERPRISES LIMITED

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                     BERMUDA

                 (JURISDICTION OF INCORPORATION OR ORGANIZATION)

   8TH FLOOR, PAUL Y. CENTRE, 51 HUNG TO ROAD, KWUN TONG, KOWLOON, HONG KONG.
                     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

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

                                                       NAME OF EACH EXCHANGE ON
   TITLE OF EACH CLASS                                     WHICH REGISTERED
   -------------------                                     ----------------
           N/A                                                    N/A

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

                     COMMON STOCK, PAR VALUE $0.01 PER SHARE
                     ---------------------------------------
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to section l5(d)
of the Act:

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

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.

                   Supervoting Common Stock: 3,000,000 shares
                         Common Stock: 6,017,310 shares


Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.

                                                                 [ ] Yes  [X] No

If this is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.

                                                                 [ ] Yes  [X] No

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or l5(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.

                                                                 [X] Yes  [ ] No

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

                                                        [ ] Item 17  [X] Item 18

If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).

                                                                 [ ] Yes  [X] No

<PAGE>

                                EXPLANATORY NOTE

This Amendment to the Annual Report on Form 20-F/A for China Enterprises Limited
("the Company") for the fiscal year ended December 31, 2003, is being filed to
amend and restate the items described below contained in the Company's Annual
Report on Form 20-F originally filed with the Securities and Exchange Commission
("SEC") on July 22, 2004, as amended on Form 20-F/A filed with the SEC on
December 12, 2005.

This Amendment makes changes to Item 3, Key Information, Item 5, Operating and
Financial Review and Prospects, Item 18, Financial Statements and Item 19,
Exhibits to reflect the restatement of the Company's investment in Wing On
Travel (Holdings) Limited ("Wing On") as of December 31, 2003 and its equity in
losses of Wing On for the year then ended. Wing On is a Hong Kong based travel
company which mainly provides package tours, travel, transportation and other
related services. Its shares are listed on the Hong Kong Stock Exchange. When
the Company acquired an equity interest in Wing On in 2002, the sum of the
amounts assigned to the Company's equity in the assets acquired and liabilities
assumed exceeded the Company's cost. The excess was then allocated as a pro rata
reduction of the amounts that otherwise would have been assigned to all of the
acquired assets except, financial assets, deferred tax assets and other current
assets pursuant to the requirements of Statement of Financial Accounting
Standards No. 141, Business Combinations. As a result of this purchase price
allocation, the Company has a different basis in the assets of Wing On than that
of Wing On. During 2003, Wing On disposed of a substantial part of its
non-current assets and when the Company accounted for its equity in the earnings
of Wing On, the Company should have computed its gain or loss on the disposal of
these non-current assets using its adjusted basis in these assets.

The Company has determined that the resulting error is material and has
therefore restated its consolidated financial statements for the year ended
December 31, 2003, which were originally filed with the Company Form 20-F filed
on July 22, 2004.. As a result of the restatement, the consolidated balance
sheet now reflects the Company's investment in affiliates of Rmb309,826,000 as
of December 31, 2003, which represents an increase of Rmb42,769,000 (previously
reported as Rmb267,057,000) and has restated its equity in losses of affiliates
to Rmb77,448,000 for the year then ended, which represents a reduction in the
its equity in losses of affiliates of Rmb42,769,000. The net loss as previously
stated was Rmb107,310,000, adjusting for the error of Rmb 42,769,000, the
restated net loss is Rmb 64,541,000. The basic loss per share previously
reported of Rmb 11.90, has been restated to Rmb 7.16. Shareholder's equity was
previously reported of Rmb430,056,000, which, after being adjusted for the error
of Rmb 42,769,000, has been restated to Rmb472,825,000.

The Company has included in this amendment the full text of Item 3 of the Form
20-F originally filed on July 22, 2004 in accordance with Rule 12b-15 of the
Exchange Act. Rule 12b-15 requires that the full text of any item amended be
included in any amendment to an annual report. As a result of the restatement,
the following material in Item 3 has been modified in this amendment to
accurately reflect the Company's financial results as of and for the year ended
2003: the Selected Financials and the first risk factor relating to the
Company's history of net losses and the possibility the Company may not be able
to return to profitability. The risk factor, while accurate as to the risk,
overstated the Company's net losses as a result of the accounting error. All
other risk factors have been reprinted as originally filed on July 22, 2004 and
have not been updated from such date.

<PAGE>

                             ITEM 3. KEY INFORMATION

      The Company together with all its subsidiaries are collectively referred
to as the "Group" for the purpose of this annual report. For the purpose of this
annual report, the latest practicable date with respect to share and certain
exchange rate information is July 2, 2004.

SELECTED FINANCIAL DATA

      The following table represents the selected consolidated financial
information of the Company as of and for the years ended December 31, 1999,
2000, 2001, 2002 and 2003.

      The Consolidated Statements of Operating Data for each of the three years
in the period ended December 31, 2003 and the Consolidated Balance Sheet Data as
of December 31, 2002 and 2003 has been derived from the audited consolidated
financial statements (the "Consolidated Financial Statements") included in Item
18 "Financial Statements" of this annual report. The Consolidated Statements of
Operations Data for the years ended December 31, 1999 and 2000 and the
Consolidated Balance Sheet Data as of December 31, 1999, 2000 and 2001, as set
forth below, have been derived from audited consolidated financial statements
not included in this annual report. The selected financial information should be
read in conjunction with, and is qualified in its entirety by reference to, the
respective consolidated financial statements and their accompanying notes
thereto.

SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY

(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, THEIR PAR VALUES AND PER SHARE
DATA)

<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                                1999       2000        2001       2002            2003
                                                 Rmb        Rmb         Rmb        Rmb        Rmb        US$
                                                                                              (as        (as
                                                                                           restated)* restated)*
<S>                                           <C>        <C>         <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues                                      1,360,298  1,605,842   2,087,885  2,610,076  2,808,369    339,175
Income from operations                            7,267      8,269      89,461    172,096    100,746     12,167
(Loss) profit from continuing operations        (53,651)   (33,803)     36,425    (62,943)   (56,781)    (6,858)
Loss from discontinued operations (a)           (99,545)   (45,581)   (171,784)  (199,838)    (7,760)      (937)
Net loss                                       (153,196)   (79,384)   (135,359)  (262,781)   (64,541)    (7,795)
Net income from operations per share               0.80       0.91        9.92      19.09      11.17       1.35
Basic and diluted (loss) earnings from
   continuing operations per common share (b)     (5.89)     (3.73)       4.04      (6.98)     (6.30)     (0.76)
Basic and diluted loss from discontinued
   operations per common share (a) & (b)         (10.94)     (5.02)     (19.05)    (22.16)     (0.86)     (0.10)
Basic and diluted loss per common share (b)      (16.83)     (8.75)     (15.01)    (29.14)     (7.16)     (0.86)
Weighted-average number of common share
   outstanding (b)                            9,100,000  9,069,956   9,017,310  9,017,310  9,017,310  9,017,310
Dividend declared per common share
 - in Rmb                                          0.66       0.66        0.17          -          -          -
 - in US$                                          0.08       0.08        0.02          -          -          -

CONSOLIDATED BALANCE SHEETS DATA :

Investments in and advances to affiliates*       95,549    105,437     102,022    232,982    309,826     37,418
Total assets                                  3,316,944  3,326,983   2,978,965  2,880,680    509,666     61,554
Shareholders' equity                          1,041,662    952,627     804,197    535,206    472,825     57,105
Supervoting common stock - par value US$0.01
   per share                                        244        244         244        244        244         29
Common stock - par value US$0.01 per share          532        526         526        526        526         64
</TABLE>

-------------
* Subsequent to issuance of the 2003 financial statements, the Company
determined its previously issued consolidated financial statements for the years
ended December 31, 2003 required restatement to correct the Company's investment
in affiliates as of December 31, 2003 and its equity in losses of affiliates for
the year then ended. When the Company acquired an equity interest in Wing On in
2002, the excess of the equity in the fair value of net assets of Wing On over
the Group' aggregate investment cost was allocated on a pro rata basis to Wing
On's non-current assets pursuant to SFAS No. 141. As a result, the Company has a
different basis in the assets of Wing On than those recorded by Wing On. During
2003, Wing On disposed of a substantial part of its non-current assets and the
Company should have computed the gain or loss on the disposal of these
non-current assets using the adjusted basis instead of the carrying value in
Wing On's books and records. As a result, the Company's investment in affiliates
as of December 31, 2003 has been increased by Rmb42,769 and its equity in losses
of affiliates for the year then ended has been reduced by Rmb42,769.

<PAGE>

EXCHANGE RATE INFORMATION

      The Consolidated Financial Statements are published and denominated in
Renminbi. Translation of amounts from Renminbi to U.S. Dollars for the
convenience of the reader has been made in this document at US$1.00 to Rmb8.28,
the exchange rate quoted by the People's Bank of China on December 31, 2003. As
of July 2, 2004, the exchange rate quoted by the People's Bank of China remained
at US$1.00 to Rmb8.28. No representation is made that the Renminbi amounts could
have been, or could be, converted into U.S. Dollars at that or at any other
rate.

      The following table sets forth the average unified exchange rates as of
and during the years ended December 31, 1999, 2000, 2001, 2002 and 2003.

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                        ----------------------------
                                                        1999  2000  2001  2002  2003
(Rmb equivalent of US$1.00)                              Rmb   Rmb   Rmb   Rmb   Rmb
<S>                                                     <C>   <C>   <C>   <C>   <C>
At unified exchange rate
      -  average rate calculated by using the average
         of the exchange rates on the last day of each
         month during each period                       8.28  8.28  8.28  8.28  8.28
</TABLE>

      The following table sets forth the high and low exchange rates as of and
during the previous six months as follows:

<TABLE>
<CAPTION>
                             AT UNIFIED EXCHANGE RATE
                             ------------------------
(Rmb equivalent of US$1.00)  HIGH                LOW
                             ----                ----
<S>                          <C>                 <C>
June 30, 2004                8.28                8.28
May 31, 2004                 8.28                8.28
April 30, 2004               8.28                8.28
March 31, 2004               8.28                8.28
February 29, 2004            8.28                8.28
January 31, 2004             8.28                8.28
</TABLE>

<PAGE>

RISK FACTORS

The Company Has Incurred Net Losses in Recent Periods and May Not Be Able to
Return to Profitability

      During financial years 2001, 2002 and 2003, the Company incurred
substantial net losses. For the year ended December 31, 2003, the Company
incurred net losses of approximately US$7.8 million. The Company has also
accumulated a deficit of approximately US$68.0 million as at December 31, 2003.
Under the current economic environment, there is no guarantee that the Company
will be able to turn around its business and return to profitability.

The Company May Not Be Able to Implement Successfully Its Business Strategy in
which Case Its Business, Operating Results and Financial Condition Would Suffer

      During the past few years, the Company has diversified its operations into
businesses outside of tire manufacturing. In addition, the Company has disposed
of operations it deemed underperforming. Further, during 2003, the Company
reduced its interest in Hangzhou Zhongce from a majority to a minority position.
The Company is actively seeking new investment opportunities. In June 2004, the
Company entered into a conditional agreement to acquire certain properties under
construction in Shanghai, China, for investment and rental purposes. However,
there can be no assurance that the Company will be able to identify and
consummate new investments and implement successfully its business plan.

      A key part of the Company's business strategy is to expand its operations
through acquiring new businesses and business lines. The acquisition of new
businesses and business lines carries substantial risk and uncertainties.
Depending on the specific acquisition, there may be risks relating to the
acquired business itself, risks relating to the industry in which the business
operates, and risks relating to the Company itself, such as diversion of and
strains on management and infrastructure resources, inability to successfully
integrate the acquired business and incompatibility of business culture.

The Company May Not Be Able to Finance Acquisitions, Strategic Investments or
Other Expansions of Operations or May Incur Financial Obligations or Liabilities
in Connection with Any Acquisition or Expansion

      Due to the limitation of the Company's existing financial resources, the
Company may experience difficulty in funding acquisitions, investments or
expansion of existing operations. The Company anticipates that it would fund any
such activities through advance of bank loans. The Company could incur an
increase in debt or other liabilities in connection with any acquisition or
other similar matter. In addition, any such acquisition or activity could result
in an increase in expenses and working capital requirements, among other
potential financial demands on the Company.

The Voting Power of the Company's Major Shareholder May Make it Difficult for
the Other Holders to Exercise Influence on Corporate Matters or for the Company
to Engage in Business Combinations that the Public Shareholders May Deem
Desirable

      China Strategic Holdings Limited ("CSH") directly and beneficially holds
all 3,000,000 shares of supervoting common stock and 1,629,200 shares of common
stock and also has an indirect interest equivalent to 349,630 shares of common
stock in the Company. As a result, CSH controls 88.8% of the voting rights of
the outstanding capital stock of the Company and CSH is able to elect a majority
of the Company's board of directors and will have sufficient voting control to
affect corporate transactions without the concurrence of the Company's minority
shareholders. In addition, CSH's voting rights tend to preclude any corporate
action by shareholders or a change in control of the Company unless it is
initiated or supported by CSH.

<PAGE>

The Company's Business Focus on the Greater China Region Subjects the Company
and Its Business to the Political, Economic and Other Developments in the Region

      As a result of the Company's traditional business focus on the Greater
China Region, the Company's business and its financial and operating results may
be affected by significant political, economic, social and cultural developments
in the region.

      A substantial portion of the Company's results is derived from its
affiliates, major businesses of which are located in China. These businesses are
dependent in large part on the performance of the Chinese economy, as well as
Chinese government policy. As a result, the future financial condition and
results of operations of the Company could be adversely affected by slowdowns in
the Chinese economy, Chinese macroeconomic policy that de-emphasize the
development of industries which utilize products or services of the Company's
affiliates or other governmental policies, including changes in laws,
regulations or the interpretation thereof; confiscatory taxation; restrictions
on currency conversion, imports or sources of supplies; or the expropriation or
nationalization of private enterprises.

      Although the Chinese government has been pursuing economic reform policies
for approximately two decades, the Chinese government has recently announced
that it is considering introducing measures in certain sectors to avoid
overheating of the economy, including tightening bank lending policies and
increases in bank interest rates. Any measures or actions taken by the Chinese
government to control industries that utilize products or services of the
Company's affiliates could restrict their business operations and adversely
affect the financial positions of the Company and its affiliates.

      Although the Company believes that the economic reforms and macroeconomic
policies and measures adopted by the Chinese government will continue to have a
positive effect on economic development in China and that the Company and its
affiliates will continue to benefit from these policies and measures, there is
no assurance that the government will continue to pursue such policies or that
such policies may not be significantly altered, especially in the event of a
change in leadership, social or political disruption, or other circumstances
affecting China's political, economic and social life.

      In addition, the Company's financial results are significantly dependent
on the economy in the region. The economy of the Greater China Region differs
significantly from the economies of the United States and Western Europe in such
respects as structure, level of development, growth rate, capital reinvestment,
resource allocation, self-sufficiency, rate of inflation and balance of payments
position, among others. Adverse changes in economic in China, in the policies of
the Chinese government, could have a material adverse effect on the overall
economic growth of China. These developments could adversely affect the
financial condition, results of operations and business of the Company and its
affiliates, by reducing the demand for the products and services of the
Company's affiliates.

      As a member of the World Trade Organization, China's economic activity is
expected to become more and more export driven and China's internal market is
expected to see more competition through imports. The expected change in
economic activity in China and the Greater China Region and a greater
interdependence of the Chinese economy on the general world economy as a result
of such changes could also impact the Company's financial results.

      In addition, the operation of affiliates of the Company may be affected by
the adequacy of supply of, and demand for electricity in, the Greater China
Region. Demand for resources such as electricity continues to increase. In early
2004, the demand for electricity in the Greater China Region exceeded the
available supply. Limitations on, or shortages in, available resources, such as
electricity, could result in lower production of products than anticipated and
could, accordingly, affect the growth of sales and profitability thereof.

<PAGE>

Government Control of Currency Conversion and Exchange Rate Risks in the Region
May Cause Obstacles to the Company's Business Development

      China's central government imposes controls over its foreign currency
reserves through organizing imports and through direct regulation of the
conversion of its national currency into foreign currencies.

      The Company's PRC entities conduct substantially all of their business in
China, and their financial performance and condition are measured in terms of
Rmb. Any devaluation of Rmb against US$ would consequently have an adverse
effect on the financial performance and asset values of the Company when
measured in terms of US$.

      Under current policies, Rmb paid as dividends, trade and service-related
foreign exchange transactions can be readily converted to US$ and other foreign
currencies. However, payments related to capital nature transactions such as
direct investment outside China are still subject to further government approval
before they can be converted into foreign currencies.

      Currently, there are few means and/or financial tools available in the
open market for the Company to hedge its exchange risk against any possible
devaluation of Rmb.

Limited Liquidity in the Company's Securities May Make It Difficult to Sell
Shares

      As a foreign private issuer whose business is substantially in the China
and Asian market, the Company has less exposure in the U.S. capital markets than
comparable U.S. issuers. In addition, the Company has a relative small public
float of its securities. These and other general economic, industry or Company
factors may result in low trading volumes or prices of the Company's securities.
Accordingly, shareholders of the Company bear risks regarding the liquidity of
the Company's shares and may not be able to sell shares in desired quantities,
at desired times or desired prices or a combination thereof.

Changes in Composition of the Company's Assets Could Result in the Company Being
Deemed a "Passive Foreign Investment Company" Which Could Have a Negative Impact
on U.S. Holders

      Special U.S. federal income tax rules apply to U.S. holders of shares of a
non-U.S. corporation that is classified as a passive foreign investment company
("PFIC"), for U.S. federal income tax purposes. The determination of the PFIC
status of the Company principally depends upon the composition of the Company's
assets, including goodwill, and the amount and nature of the income of the
Company, from time to time. The Company disposed of most of its operating
subsidiaries, or its majority interest therein, during the past three years.
There can be no assurance that the Company will not be considered as a PFIC for
any taxable year. If the Company is treated as a PFIC during any year of a U.S.
holder's holding period with respect to the Company's common stock, the U.S.
holder will generally be required to treat certain excess distributions and any
gain on the sale or other disposition of the Company's stock as ordinary income
and in some cases an interest charge will also apply, unless the U.S. holder
makes a mark-to market election.

As a result of changes in the Company's assets and sources of income, the
Company could become an investment company for purposes of the United States
Investment Company Act of 1940

      While the Company believes that through its subsidiaries and affiliates it
is actively engaged in operating businesses, and does not meet the definition of
an investment company for purposes of the United States Investment Company Act
of 1940 (the "1940 Act"), depending on the composition and valuation of the
Company's assets and the sources of the Company's income from time to time, the
Company could fall within the technical definition of the term "investment
company" for purposes of the 1940 Act. If the Company were to become subject to
the requirements of the 1940 Act, the Company's operations and results would be
negatively impacted, including among other possible effects, the inability of
the Company to raise capital through the offer and sale of its securities in the
United States. The Company's business strategy is to continue to engage in one
or more operating businesses through one or more majority-owned and/or primarily
controlled subsidiaries. However, there can be no assurance that as a result of
an unexpected shift in the composition and valuation of the Company's assets or
in the sources of the Company's income, the Company would inadvertently become
an investment company for purposes of the 1940 Act.

Weaknesses or Deficiencies in the Company's Internal Controls Could Have a
Negative Impact on the Company's Operations and Financial Position

      The Company has not completed a review of its internal control over
financial reporting so as to enable it to complete a report of management on
such internal control in accordance with rules of the Securities and Exchange
Commission which will first be required as part of the Company's Form 20-F for
the fiscal year ending December 31, 2005. There can be no assurance that the
completion of the review will not disclose a weakness or deficiency in the
controls. Any such weakness or deficiency could have a negative effect on the
Company's operations and financial position and could require increased costs to
remediate.

<PAGE>

Increased Demand on Corporate Management Time May Have Potential Distortion on
Overall Group Performance

      As more investment opportunities arise, a significant portion of
management time will be allocated to overseeing and monitoring the operations of
each of the Company's newly acquired subsidiaries and affiliates some of which
may be in industries completely different from the traditional core business of
the Company. This could result in inefficient allocation of managerial resources
in the Company. Moreover, the operation of businesses different from the core
business may require different managerial skills and business acumen. The
Company may not be able to successfully run newly acquired businesses in diverse
industries.

Diversification May Result in Lowered Responsiveness to Cyclical Changes of
Different Businesses

      Diversification of the Company's businesses will result in assets,
resources and management being committed or allocated to businesses in different
fields. As a result, the Company's flexibility in responding to seasonal changes
or periodic fluctuations in the business cycle in a particular business
operation may be limited.

The Company is Dependent upon Key Personnel, the Loss of Which Could Harm the
Company's Prospects

      The Company depends, to a large extent, on the abilities and participation
of its current management team, including Dr. Chan Kwok Keung, Charles and Dr.
Allan Yap (collectively referred to as the "Key Personnel"). The loss of the
services of any of the Key Personnel, for any reason, may have a materially
adverse effect on the Company's prospects. The Company does not have employment
agreements with the Key Personnel nor does the Company carry key man life
insurance for the Key Personnel. If the Company were to lose the services of
either of the Key Personnel, there can be no assurance that the Company would be
able to find a suitable replacement for such person.

Natural disasters in the Greater China Region Could Cause Significant Damage to
the Company's Business and Financial Results

      The products of the Company's affiliates are manufactured at the factories
located in the PRC. During the past years, the PRC has experienced natural
disasters, including floods and fires. A disaster could cause significant damage
to manufacturing factories which may not be adequately covered by insurance
proceeds and could materially and adversely affect our business and financial
results. The disaster relief and assistance in the PRC is not well developed and
there can be no assurance that adequate government assistance would be available
in the absence of sufficient insurance coverage. In addition, any natural
disaster in the region would adversely impact the travel business of an
affiliate of the Company which is focused on the Asia Pacific region.

Possible Volatility of Share Prices Worldwide May Have Significant Effects on
the Company's Share Price

      The trading price of the Company's shares has been and may continue to be
subject to wide fluctuations. Capital markets worldwide have generally
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of the listed companies
themselves. There can be no assurance that trading prices and price earnings
ratios previously experienced by the Company's common shares will be matched and
maintained. Broad market and industry factors may adversely affect the market
price of shares in the Company, regardless of its operating performance.
Shareholders and potential investors of the Company are advised to exercise
caution when dealing in the securities of the Company.

Legal System Differences between the Greater China Region and the United States
of America Could Impact Investors

      Unlike common law systems in the western world, China has a civil law
system based on written statutes and, therefore, decided legal cases are without
binding legal effect, although they are often followed by judges as guidance. As
the Chinese legal system develops, the promulgation of new laws, changes to
existing laws and the preemption of local regulations by national laws may
adversely affect the interests of foreign investors.

<PAGE>

              ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

OPERATING RESULTS

OVERVIEW

      The following discussion and analysis should be read in conjunction with
the restated financial statements and notes thereto contained in "Item 18.
Financial Statements" of this Form 20-F/A.

      The Company has historically been engaged in the tire manufacturing and
trading and related business. During 2001, the Company decided to reengineer its
operations to improve its financial performance. The Company began to dispose of
loss-making subsidiaries and tried to diversify its business.

      In early 2002, the Company acquired a substantive stake in Wing On,
diversifying its business into the travel industry. In fiscal 2003, the Company
further completed its disposals of three loss-making subsidiaries, Yinchuan CSI
and the Company's remaining interests in Double Happiness and ceased to account
for the results of operations and the assets and liabilities of these
subsidiaries from their respective disposal dates.

      In June 2003, in order to realize part of its investment, the Company
entered into a contract to sell a 25% interest in Hangzhou Zhongce on June 15,
2003. The sale was completed in September 2003 and Hangzhou Zhongce became an
affiliate of the Group at that time. The Company's Directors considered the
disposal as an attractive opportunity for the Company to realize part of its
investment. The Company also considered the introduction of an investor in
Hangzhou Zhongce to be beneficial to both its future development in the PRC and
hence its future value to the Company. The Company consolidated the results of
operations of Hangzhou Zhongce for the nine months period end September 30, 2003
and shared equity in earnings of Hangzhou Zhongce for the period from October 1,
2003 to December 31, 2003.

      After the completion of the above-mentioned restructuring activities, the
Company is concentrating on its investments in major affiliates, Hangzhou
Zhongce and Wing On.

      The Company has continued to seek investment opportunities, particularly
in the PRC. Since the signing of the Closer Economic Partnership Arrangement,
economic exchanges between Hong Kong and the Mainland China have gained in
momentum. The Company believes that, in part as a result of this development,
the economy of the PRC will grow at an increased rate.

TIRE BUSINESS

      During the year 2003, Hangzhou Zhongce continued to benefit from the
growth in tire market in the PRC and recorded significant improvement in
turnover. However, the results of Hangzhou Zhongce improved to a lesser extent
as compared to turnover due to the significant increase in the price of raw
materials. Nevertheless, Hangzhou Zhongce recorded an operating income of over
Rmb130 million during fiscal 2003.

<PAGE>

TRAVEL BUSINESS

      Wing On was mainly engaged in the business of providing package tours,
travel and other related services in Hong Kong. Its major affiliates are engaged
in the operation of hotels. Over 90% of Wing On's operations were derived from
Hong Kong whereas the majority of its assets are located in Hong Kong and the
PRC.

      In order to achieve greater operational efficiencies and cost savings,
Wing On implemented restructuring changes during the year. Several of its less
profitable local branches and overseas offices were closed and its loss-making
transportation business was disposed of during the year. However, Wing On's
business faced challenges during the year. In the first half of 2003, the travel
industry in the Asia Pacific region was adversely affected by, among other
factors, hostilities such as the Iraqi war, concerns over terrorism, SARS as
well as the high unemployment rate in Hong Kong. In response to these
challenges, Wing On shifted its business focus to increase emphasis on local
tours in Hong Kong. Special promotions and initiatives were launched to boost
public confidence in travel in the region. In addition, Wing On introduced new
adventure, photography and other tours to attract customers.

      As a result of the measures taken by Wing On and the recovery of economy
in the second half of 2003 due in part to the control of SARS, the launch of the
Individual Visit Scheme and the implementation of the Closer Economic
Partnership Arrangement by the Chinese government, Wing On's results picked up
in the second half of 2003.

      Even so, Wing On continued to report a net loss of HK$371.0 million
(equivalent to Rmb395.0 million) during fiscal 2003. The loss was mainly due to
an impairment loss recognized and allowances made, as well as loss on disposal
of investments, affiliates and discontinued operation and equity in losses of
affiliates. Despite the Company's equity loss in Wing On in fiscal 2003, the
Company is confident that Wing On's operations will improve as a result of the
measures taken to restructure its business and the increasing spending power of
the Chinese population.

POTENTIAL NEW BUSINESS

      Consistent with the Company's belief in the rapid growth of the Chinese
economy and the increasing number of international events held in Shanghai, the
PRC, such as the Formula One car racing and other international exhibitions and
conferences, the Company expects strong demand in hotel and commercial
properties in Shanghai. As a result, on June 16, 2004, the Company entered into
a conditional agreement for the proposed acquisition of the Properties for a
total consideration of Rmb450 million. Rmb70 million of this consideration will
be settled by the Company's internally generated fund whereas the remaining
consideration will be financed by bank borrowings. It is anticipated that the
Properties will be used for commercial and service apartment rental purposes.

      With the increasing number of international events, such as Formula 1
racing and other international exhibitions and conferences being held in
Shanghai on a regular basis, the Company believes that demand for
short-term/long-term residential accommodations will continue to increase. The
Company is optimistic that the acquisition could broaden the sources of income
for the Company and strengthen its asset base. However, as the Properties are
currently in the development stage and the acquisition remains subject to the
satisfaction of various conditions, the financial result of the Company for at
least the year 2004 will depend primarily on the Company's share of the earnings
and financial results of its affiliates in the tire and travel businesses.

<PAGE>

CRITICAL ACCOUNTING POLICIES

      The Company prepares its consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires the Company 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 amount of revenues and expenses
during the reporting period. On an on-going basis, the Company evaluates its
estimates and judgments, including those related to bad and doubtful debts,
inventories, warranty, income taxes and derivatives embedded in debt securities.
The Company bases its estimates and judgments on historical experience and on
various other factors that the Company believes are reasonable. Actual results
may differ from these estimates under different assumptions or conditions.

      The following critical accounting policies affect the more significant
judgments and estimates used in the preparation of the Company's consolidated
financial statements.

BAD AND DOUBTFUL DEBTS

      The Company maintains allowances for its bad and doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments. Estimates are used in determining the allowance for bad debts and are
based on the historical collection experience, current trends, credit policy and
a percentage of the accounts receivable by aging category. In determining these
percentages, the Company looks at historical write-offs of account receivables.
The Company also looks at current trends in the credit quality of its customer
base as well as changes in its credit policies. If the financial condition of
its customers changes, changes to these allowances may be required, which would
impact the Company's future operating results.

INVENTORY

      Inventories, consisting of finished goods, work in progress, raw materials
and supplies, are stated at the lower of cost, on an average cost basis, or
market value. The Company makes certain obsolescence and other assumptions to
adjust inventory based on historical experience and current information. The
Company writes down inventory for estimated obsolete or unmarketable inventory
equal to the difference between the costs of inventory and estimated market
value, based upon assumptions about future demand and market conditions. These
assumptions, although consistently applied, can have a significant impact on
current and future operating results and financial position.

WARRANTY

      The Company has established a tire warranty reserve based on the Company's
best estimate of the amounts necessary to settle future and existing claims on
products sold as of the balance sheet date. While the Company believes that the
warranty reserve is adequate and that the judgment applied is appropriate, such
amounts estimated to be due and payable could differ materially from what will
actually transpire in the future.

INCOME TAXES

      The Company records a valuation allowance to reduce its deferred tax
assets to the amount that the Company believes is more likely than not to be
realized. In the event the Company was to determine that it would be able to
realize its deferred tax assets in the future in excess of its recorded amount,
an adjustment to the deferred tax asset would increase income in the period such
determination was made. Likewise, should the Company determine that it would not
be able to realize all or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the period
such determination was made.

DERIVATIVES EMBEDDED IN CERTAIN DEBT SECURITIES

      Convertible notes of Wing On held by the Company contain features that
enable the Company to, at its discretion, make cash payments to Wing On to
convert the debt securities into common stock of Wing On. These features
represent embedded derivatives which are required to be accounted for separately
from the related debt securities. The estimated fair value of these features is
valued using a simulation model that incorporates factors such as the current
price of common stock of Wing On, its volatility, and time to expiration.
Changes in the estimated fair value of the assets represented by these factors
are adjusted to the consolidated statements of operations. The adjustments will
be required until the features are either triggered or expire. The recorded
value of these assets can fluctuate significantly based on changes in the value
of the common stock of Wing On.

ACCOUNTING PRONOUNCEMENTS

      A detailed discussion of accounting policies adopted and recent accounting
pronouncements not yet adopted by the Company can be found in "Note 2. Summary
of Significant Accounting Policies" of the Consolidated Financial Statements
included in "Item 18. Financial Statements" of this annual report.
<PAGE>

RESULTS OF OPERATION

      The operating results of Double Happiness, Yinchuan CSI, Yantai CSI and
Shandong Synthetic have been segregated from continuing operations and reported
as a separate line item, discontinued operations, on the consolidated statement
of operations. See "Note 4. Discontinued Operations" of the Consolidated
Financial Statements included in "Item 18. Financial Statements" in this annual
report for more details.

    Selected Consolidated Statement of Income Data as a Percentage of Revenue

<TABLE>
<CAPTION>
                                                                  2001               2002         2003 (AS RESTATED)
                                                                --------           --------       ------------------
<S>                                                             <C>                <C>            <C>
Revenues:                                                       100.00%            100.00%             100.00%
Cost of revenues                                                (87.98%)           (86.23%)            (89.11%)
Gross Profit                                                     12.02%             13.77%              10.89%
Selling, general and administrative expenses                     (6.44%)            (7.36%)             (7.31%)
Interest income                                                   0.56%              1.55%               0.33%
Interest expenses                                                (1.90%)            (2.07%)             (1.18%)
Provision for income taxes                                       (0.12%)            (0.68%)             (0.38%)
Net loss                                                         (6.48%)           (10.07%)             (2.30%)
</TABLE>

2003 compared to 2002

      On September 30, 2003, the Company completed the sale of a 25% equity
interest in a major operating subsidiary, Hangzhou Zhongce. As a result of this
transaction, the Company's equity interest in Hangzhou Zhongce was reduced from
51% to 26%, and Hangzhou Zhongce became an equity method affiliate of the
Company. The Company consolidated results of the operations of Hangzhou Zhongce
up to September 30, 2003 in its consolidated financial statements for the year
ended December 31, 2003, and accounted for Hangzhou Zhongce's results thereafter
using the equity method of accounting.

      The Company completed its disposal of most of its operating subsidiaries
during 2003 and as a result, the operating performance of the Company for the
year was mainly generated through those subsidiaries before their disposition
during the nine-month period ended September 30, 2003.

      Consolidated revenues arising from continuing operations amounted to
Rmb2.81 billion, representing a 7.7% increase over the fiscal year 2002 revenues
of Rmb2.61 billion. This was mainly due to an increase in sales volume,
especially in the radial tire market. The demand for radial tire has remained
high since 2001 and Hangzhou Zhongce continued to increase its productive volume
of radial tires. The sales amount of radial tires increased by 47% in nine-month
period ended September 30, 2003 as compared to that of the whole year 2002. The
group sold a total of 5.3 million units of vehicle tires, 35.0 million units of
bicycle tires and 2.3 million units of wheelbarrow tires in the nine-month
period ended September 30, 2003. This nine-month period represents the period of
2003 during which Hangzhou Zhongce was part of the Company's consolidated group.

      The Company's gross margin from continuing operations decreased from 13.8%
for the year 2002 to 10.9% for the year 2003. The decrease was mainly due to the
increase in cost of raw materials, such as synthetic rubber and natural rubber.

      The Company's gross profit decreased by 14.8% from Rmb359.3 million for
the year 2002 to Rmb306.0 million for the year 2003. The decrease was due to the
increase in cost of raw materials and increase in warranty claims and sales
rebates. It also related to the deconsolidation effect of Hangzhou Zhongce for
the period of October 1, 2003 to December 31, 2003.

      The selling and administrative expenses increased to Rmb205.2 million in
2003 versus Rmb192.2 million in fiscal year 2002 due to an increase in amount of
sales and sales related expenses, e.g., cost of delivery.

      Operating income from continuing operations decreased to Rmb100.7 million
in fiscal year 2003 as compared with Rmb172.1 million in fiscal year 2002. It
represented the operating income of Hangzhou Zhongce for a nine-month period in
2003 instead of a whole year in 2002.

      Interest expense decreased by 38.8% from Rmb54.0 million for the year 2002
to Rmb33.0 million for the year 2003. This decrease was mainly due to the
decrease in loans obtained from third parties during the year and lower interest
rates in 2003.

      Loss from continuing operations decreased to Rmb56.8 million in 2003
compared to Rmb62.9 million in 2002. Loss from discontinued operations decreased
to Rmb7.8 million in the fiscal year 2003 from Rmb199.8 million in fiscal year
2002 and was mainly contributed by the loss on disposal of Yinchuan CSI and CSI
Rubber. The decrease in such loss was due to an impairment write down for
long-lived assets of Yinchuan CSI of Rmb174.4 million in 2002 but no similar
loss was recognized for the discontinued operations in 2003.

      For the year ended December 31, 2003, the Company recorded a consolidated
net loss of Rmb64.5 million. The consolidated net loss decreased by 75.4%
compared with Rmb262.8 million in 2002. This improvement resulted mainly from
divestitures of non-performing assets and businesses in 2002 and early 2003.

<PAGE>

2002 compared to 2001

      Consolidated revenues arising from continuing operations amounted to
Rmb2.61 billion, representing a 25% increase over the fiscal year 2001 revenues
of Rmb2.09 billion. This was mainly due to an increase in sales volume and tire
prices. Export sales constituted approximately 20.9% of the total turnover in
fiscal year 2002 as compared with 21.8% of total turnover in fiscal year 2001,
representing an increase of 19.6% over the monetary amount in fiscal year 2001.
The Company sold a total of 5.3 million units of vehicle tires, 40.7 million
units of bicycle tires and 2.7 million units of wheelbarrow tires in fiscal year
2002.

      The Company's gross margin from continuing operations rose from 12.0% for
the year 2001 to 13.8% for the year 2002. The increase was substantially due to
rise in margin of Hangzhou Zhongce to 13.5% in fiscal year 2002 compared to
11.8% for the previous year. The improved margin was mainly achieved through
increase in sales volume, higher selling prices and the resulting economies of
scale. The demand for radial tires remained high since 2001 and thus Hangzhou
Zhongce continued to increase its productive volume of radial tires.

      The Company was able to generate Rmb359.3 million of gross profit from
continuing operations in fiscal year 2002 versus Rmb250.9 million in fiscal year
2001 due to an increase in revenues.

      Selling, general and administrative expenses increased 43.0% to Rmb192.2
million in fiscal year 2002 as compared with Rmb134.4 million in fiscal year
2001. The increase was mainly due to increase in amount of sales and sales
related expenses, such as selling expenses and staff costs, in year 2002. The
increase in staff costs primarily resulted from Hangzhou Zhongce increasing its
number of staff during the year 2002 in order to support its increase in
production and distribution.

      Operating income from continuing operations increased to Rmb172.1 million
in fiscal year 2002 as compared with Rmb89.5 million in fiscal year 2001. This
was mainly due to the increase in gross profit and the implementation of more
efficient and effective marketing strategies. Further, there was a net recovery
of amounts due from related companies amounting to Rmb5.0 million during fiscal
2002.

      Interest expenses increased from Rmb39.8 million in fiscal year 2001 to
Rmb54.0 million in fiscal year 2002. The increase was due to the increase in
notes payable.

      The increase in sales of Hangzhou Zhongce, which resulted in an increase
in operating income from continuing operations, caused the increase in provision
for income taxes from Rmb2.5 million in year 2001 to Rmb17.7 million in year
2002. Loss from continuing operations increased to Rmb62.9 million compared to a
profit of Rmb36.4 million last year. This amount consisted primarily of a loss
upon a decrease in fair value of the call option associated with the convertible
note of Wing On totaling Rmb45.3 million and the Company's share of losses of
Wing On in an amount of Rmb93.1 million since its acquisition on April 19, 2002.
Due in part to the global concern about terrorism and the deflationary economy
in Hong Kong, appetite for international travel dampened. The travel business of
Wing On was in turn affected by the sharp fall in the long-haul tours while
short-haul tours to Asia were only slowly recovering.

      Loss from discontinued operations increased to Rmb199.8 million in the
fiscal year 2002 from Rmb171.8 million in fiscal year 2001 which was mainly due
to the impairment loss on Yinchuan CSI. Although the Company decided to
reengineer the operation of Yinchuan CSI during 2002 and engaged in negotiations
with its Chinese joint venture partner to formulate different alternatives for
the future operations of Yinchuan CSI, the operating results of Yinchuan CSI
remained poor. The Company recognized an impairment loss for the long-lived
assets of Yinchuan CSI of Rmb174.4 million in first half of 2002 and
subsequently initiated a process to sell Yinchuan CSI. An additional impairment
charge of Rmb74.8 million was recognized for fiscal year 2002 representing
management's best estimate of the loss to be recognized upon the sale of the
Company's entire interest in Yinchuan CSI.

      For the year ended December 31, 2002, the Company recorded a consolidated
net loss of Rmb262.8 million, or Rmb29.14 per share. By comparison, net loss in
2001 was Rmb135.4 million and net loss per share was Rmb15.01.

<PAGE>

IMPACT OF INFLATION

      The Chinese economy experienced an increase in the general price levels in
fiscal year 2003. The general deflation rate in China was approximately -3.0%,
-0.4% and -0.8% per annum in 1999, 2000 and 2002 respectively, while the
inflation rate in China was approximately 0.7% and 1.2% in 2001 and 2003
respectively. As a result of the inflation rate, the Company suffered from the
general increase in cost of locally sourced raw materials and operating
expenses.

      According to the figures of Hong Kong Census and Statistics Department,
Hong Kong's economy experienced an slightly increase in the general price levels
in fiscal year 2003 when compared with that of fiscal year 2002. The general
deflation rate in Hong Kong was approximately -1.6%, -3.0% and -2.6% in 2001,
2002 and 2003 respectively. The deflation rates reflected the impact of consumer
price change. As a result of the deflation rate, the Company's business suffered
from the decrease in consumer spending but benefited from the general decrease
in cost of operating expenses.

TAX REGULATIONS

      Hangzhou Zhongce Group's products are subject to value-added tax ("VAT")
and consumption tax ("CT") generally calculated at 17.0% and 10.0% respectively.
However, the 10% CT in radial tire products was abolished on January 1, 2001.

      Hangzhou Zhongce was granted approval by the local tax bureau for the
application of a reduced tax rate. It was subject to a 15% rate on the
applicable Chinese State unified income tax in fiscal year 2003. On the other
hand, Fu Chun Jiang was subject to a 30% rate on the applicable Chinese State
unified income tax in fiscal year 2003.

      For the impact of tax regulations on the Company, see Note 13 to the
Consolidated Financial Statements of the Company included in "Item 18. Financial
Statements".

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      In 2003, net cash provided by operating activities and financing
activities was approximately Rmb104.8 million and Rmb305.3 million,
respectively. Net cash used in investing activities was approximately Rmb591.1
million, which resulted in a net decrease in cash and cash equivalents of
Rmb181.0 million.

      The Company primarily used its cash and cash equivalents, bank loans and
the cash flows from operating activities to fund its capital expenditures,
investment in and advances to affiliates and subscription of note receivables.
Other than the subscription of a new convertible note from Wing On described in
Item 4 of the Form 20-F originally filed with the SEC on July 22, 2004, no
transactions, arrangements and other relationships with unconsolidated entities
or other persons that are reasonably likely to affect materially the liquidity
or the availability of or requirement for capital resources of the Group had
been entered into during the year. In management's opinion, the working capital
is sufficient for the Company's present requirements.

      The Company's working capital requirements for continuing operations
dramatically decreased in 2003 due to the disposal of the Hangzhou Zhongce
Group. From December 31, 2002 to December 31, 2003, net accounts receivable from
continuing operations decreased from Rmb314.2 million to RmbNil, short-term bank
loans of continuing operations decreased from Rmb659.4 million to RmbNil, and
long-term bank loans (including current portion) of continuing operations
decreased from Rmb116.6 million to RmbNil. Total bank borrowings as of December
31, 2003 amounted to RmbNil, representing a decrease of 100.0% over total
borrowings of Rmb776.0 million as of December 31, 2002.

      For the year ended December 31, 2003, the Company had expenditures for the
purchase of property, plant and equipment of Rmb256.9 million, representing a
decrease of approximately 10.6% from those of Rmb287.5 million for the year
ended December 31, 2002. The Company financed these expenditures by the cash
flows from operations, short-term bank loans and cash on hand. The Company also
decreased the amount of pledged deposits by 100.0% to RmbNil in 2003, compared
to Rmb26.2 million in 2002.

      In addition, cash and cash equivalents of the Company, including
continuing and discontinued operations, decreased from Rmb244.6 million at
December 31, 2002 to Rmb63.6 million at December 31, 2003 of which Rmb1.2
million (US$0.14 million) was U.S. dollar deposit.

      There are no material restrictions, including foreign exchange controls,
on the ability of the Company's subsidiaries to transfer funds to the Company in
the form of cash dividends, loans, advances or product/material purchases. With
respect to Hangzhou Zhongce, there are restrictions on the payment of dividends
and the removal of dividends from China due to the Company's reinvestment
program for tax purposes. In the event that dividends are paid by Hangzhou
Zhongce, they would reduce the amount available for the reinvestment program and
accordingly taxes would be payable on the profits not reinvested. The Company
believes such restrictions will not have a material effect on the Company's
liquidity or cash flows.

<PAGE>

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

<TABLE>
<CAPTION>
                                                                                Payments Due by Period
                                                                                                                   2010
                                                         TOTAL         2004     2005 - 2007     2008 - 2009     AND BEYOND
                                                        -------      -------    -----------     -----------     ----------
CONTRACTUAL OBLIGATIONS OF CONTINUING OPERATIONS        Rmb'000      Rmb'000      Rmb'000         Rmb'000        Rmb'000
<S>                                                     <C>          <C>        <C>             <C>             <C>
Short-Term Debt                                          27,708       27,708         -               -              -
                                                         ------       ------        --              --             --
Total Contractual Cash Obligations                       27,708       27,708         -               -              -
                                                         ======       ======        ==              ==             ==
</TABLE>

      Over the last few years, cash flow financing the operations of the Company
was principally obtained from internally generated funds and bank borrowings.
The Company had working capital of Rmb81.5 million and Rmb41.3 million as of
December 31, 2003 and 2002, respectively.

      On June 16, 2004, the Company entered into a conditional agreement with an
independent third party in relation for the proposed acquisition of the
Properties for a total consideration of Rmb450 million. The Company paid the
deposit of Rmb50 million in cash by internal resources upon signing of the
agreement. Rmb380 million of the consideration will be payable upon the grant
and drawdown of loans to be granted by PRC banks or financial institutions and
secured by the Properties. The remaining Rmb20 million will be financed by
internal resources of the Company and will be due upon completion of the
transfer of the ownership of the Properties from the sellers to the Company.

      The Company did not undertake any guarantee as of December 31, 2003.
During 2003, the Company did not enter into any off-balance sheet arrangement.

      On January 13, 2004, Wing On entered into agreements (as subsequently
amended on March 17 and May 4, 2004) with the Company and another holder of its
convertible notes in relation to the issuance of new convertible notes, whereby
Wing On would issue new convertible notes to the Company or its nominee for a
consideration of HK$155.0 million (Rmb165.2 million), of which HK$84.8 million
(Rmb90.0 million) was settled by the cancellation of the Company's current
convertible notes of Wing On and the remaining balance was satisfied in cash by
the Company's internal resources. The new convertible notes provide the Company
rights to convert into new shares of Wing On during a period of three years from
the date of issue, at the Company's discretion, at an initial conversion price
of HK$0.02 per share of Wing On, subject to adjustments.

<PAGE>

TREND INFORMATION

GENERAL

      Following its sale of a portion of its interest in Hangzhou Zhongce in
2003, the Company does not have a majority-owned operating subsidiary as of the
date of this report, except the entity investing in the Properties. The Company
continues to seek new investment opportunities, such as the Properties, and
expects to continue to diversify its operations into new business lines. For at
least the year 2004, the Company expects its financial results to be largely
dependent on its portion of the earnings and other results of affiliated
companies, such as Hangzhou Zhongce and Wing On.

      A substantial portion of the Company's results for the fourth quarter of
2003 was and for the year 2004 is expected to be derived from its affiliates,
major businesses of which are located in China. These businesses are dependent
in large part on the performance of the Chinese economy, as well as Chinese
government policy. As a result, the future financial condition and results of
operations of the Company could be adversely affected by slowdowns in the
Chinese economy, as well as Chinese macroeconomic policy that de-emphasize the
development of industries which utilize products or services of the Company's
affiliates. See "Item 3. Key Information" ~ "Risk Factors".

      TRENDS RELATED TO THE TIRE BUSINESS INDUSTRY

      As a result of the Group's ongoing strategy of investing in China, the
Company's operations and financial performance has historically been somewhat
mitigated from the negative external effects on economics outside of the Greater
China Region. During 2003, the economy in China remained strong.

      The growing economy and the relatively stable society in China during 2003
brought about strong internal demands in all sectors that, in turn, created a
relatively favorable environment for the Group's tire business. The PRC tire
market continued to experience strong growth during 2003 as, among other
factors, the construction of "five vertical and seven horizontal" National
Trunks System accelerated and resulted in increased demand for motor vehicles
and vehicle-related components, including tires.

      During 2003, sales of radial tires showed strong growth and are expected
to continue to grow compared to sales of bias tires. Most new motor vehicles are
specifically designed for use with more durable radial tires. At the same time,
sales of bias tires for the year 2003 continued to grow as heavy transportation
vehicles continued to install less expensive bias tires. The Company anticipates
that demand will increase for radial tires in 2004 and thus increase the equity
shared by the Company.

      TRENDS IN THE TRAVEL BUSINESS INDUSTRY

      The travel industry in Asia experienced a very difficult year in 2003.
However, the Company anticipates that the travel industry will begin to rebound
in 2004. Since the signing of the Closer Economic Partnership Arrangement,
economic exchanges between Hong Kong and the Mainland China have gained in
momentum. The "Individual Visit Scheme" implemented by the Chinese government in
late 2003 brought in more than a million new visitors to Hong Kong. The scheme
was extended to all Guangdong cities by May 2004 and may be extended to other
provinces. In part as a result of the Individual Visit Scheme, the prospects for
the travel industry, including hotel business as well as local tour operations,
are expected to improve for 2004.

      The hotel chain, indirectly owned by an affiliate, Wing On, became a
subsidiary of Wing On effective January 2004. Wing On is preparing to market its
hotel products more aggressively by combining them with its package tour
products. It is expected that Wing On's hotel operation will contribute an
improvement to the Group in the future.

<PAGE>

                          ITEM 18. FINANCIAL STATEMENTS

CHINA ENTERPRISES LIMITED

Report of Independent Registered Public Accounting Firm and Consolidated
Financial Statements
For the years ended December 31, 2001, 2002 and 2003 (as restated)

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CHINA ENTERPRISES LIMITED

<TABLE>
<S>                                                                                     <C>
Report of Independent Registered Public Accounting Firm..............................   F-1

Consolidated Financial Statements:

Consolidated Statements of Operations and Comprehensive Loss
  for the years ended December 31, 2001, 2002 and 2003 (as restated).................   F-2

Consolidated Balance Sheets as of December 31, 2002 and 2003 (as restated)...........   F-4

Consolidated Statements of Shareholders' Equity for the years
  ended December 31, 2001, 2002 and 2003 (as restated)...............................   F-6

Consolidated Statements of Cash Flows for the years ended
  December 31, 2001, 2002 and 2003 (as restated).....................................   F-7

Notes to Consolidated Financial Statements (as restated).............................  F-10
</TABLE>

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the Shareholders of China Enterprises Limited

We have audited the accompanying consolidated balance sheets of China
Enterprises Limited and its subsidiaries as of December 31, 2002 and 2003 and
the related consolidated statements of operations and comprehensive loss,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2003, all expressed in Renminbi. These consolidated 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of China Enterprises
Limited and its subsidiaries as of December 31, 2002 and 2003, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.

Our audits also comprehended the translation of Renminbi amounts into United
States dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 2(l). Such United States dollar amounts
are presented solely for the convenience of the reader.

As discussed in Note 25, the accompanying 2003 consolidated financial statements
have been restated.

DELOITTE TOUCHE TOHMATSU
Hong Kong
April 23, 2004
(June 16, 2004 as to Note 24 and September 2, 2005 as to the effects of the
restatement discussed in Note 25)

                                      F-1
<PAGE>

          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

       (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                             ---------------------------------------------------------------------
                                                                2001               2002              2003                2003
                                                                ----               ----              ----                ----
                                                                 Rmb                Rmb               Rmb                 US$
                                                                                                 (as restated,       (as restated,
                                                                                                 see Note 25)        see Note 25)
<S>                                                          <C>                <C>              <C>                 <C>
REVENUES:
  - third parties.........................................   1,903,683          2,400,964          2,613,398           315,628
  - related parties.......................................     184,202            209,112            194,971            23,547
                                                            ----------         ----------         ----------          --------

Total (note 21)...........................................   2,087,885          2,610,076          2,808,369           339,175
COST OF REVENUES..........................................  (1,837,000)        (2,250,785)        (2,502,413)         (302,224)
                                                            ----------         ----------         ----------          --------

Gross profit..............................................     250,885            359,291            305,956            36,951
Selling, general and administrative expenses..............    (134,424)          (192,211)          (205,210)          (24,784)
(Provision for) recovery on amounts due from
  related companies (note 18).............................     (27,000)             5,016                  -                 -
                                                            ----------         ----------         ----------          --------

OPERATING INCOME..........................................      89,461            172,096            100,746            12,167
NON-OPERATING INCOME (EXPENSES):
Interest income...........................................      11,687             40,413              9,228             1,114
Interest expenses.........................................     (39,770)           (53,997)           (33,027)           (3,989)
Other (expense) income....................................        (385)               191              1,810               219
Change in fair value of call option (note 10).............           -            (45,328)                 -                 -
Recovery on loan receivable (note 9)......................       9,800                  -                  -                 -
Loss on disposal of a subsidiary (note 3).................           -                  -             (1,158)             (140)
Provision for income taxes (note 13)......................      (2,454)           (17,697)           (10,592)           (1,279)
Equity in losses of affiliates ...........................      (2,486)           (89,520)           (77,448)           (9,354)
Minority interests........................................     (29,428)           (69,101)           (46,340)           (5,596)
                                                            ----------         ----------         ----------          --------

PROFIT (LOSS) FROM CONTINUING OPERATIONS..................      36,425            (62,943)           (56,781)           (6,858)

DISCONTINUED OPERATIONS
Loss from discontinued operations, net of
  applicable income taxes of RmbNil in 2001,
  2002 and 2003 (note 4)..................................    (171,784)          (199,838)            (7,760)             (937)
                                                            ----------         ----------         ----------          --------

NET LOSS..................................................    (135,359)          (262,781)           (64,541)           (7,795)
Other comprehensive income
  - translation adjustments relating to an affiliate......           -                 38              1,636               198
                                                            ----------         ----------         ----------          --------

COMPREHENSIVE LOSS........................................    (135,359)          (262,743)           (62,905)           (7,597)
                                                            ==========         ==========         ==========          ========
</TABLE>

                                      F-2
<PAGE>

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                       AND COMPREHENSIVE LOSS - CONTINUED

       (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                  ---------------------------------------------------------------
                                                                     2001             2002            2003             2003
                                                                     ----             ----            ----             ----
                                                                      Rmb              Rmb            Rmb               US$
                                                                                                  (as restated,    (as restated,
                                                                                                  see Note 25)     see Note 25)
<S>                                                               <C>              <C>            <C>              <C>
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
Continuing operations.......................................           4.04            (6.98)           (6.30)           (0.76)
Discontinued operations.....................................         (19.05)          (22.16)           (0.86)           (0.10)
                                                                  ---------        ---------        ---------        ---------

Basic and diluted loss per common share.....................         (15.01)          (29.14)           (7.16)           (0.86)
                                                                  =========        =========        =========        =========

Weighted average number of common shares
  used in the calculation of basic and diluted
  earnings (loss) per common share..........................      9,017,310        9,017,310        9,017,310        9,017,310
                                                                  =========        =========        =========        =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                           CONSOLIDATED BALANCE SHEETS

      (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND THEIR PAR VALUES)

<TABLE>
<CAPTION>
                                                                                              AS OF DECEMBER 31,
                                                                                ----------------------------------------------
                                                                                   2002           2003             2003
                                                                                   ----           ----             ----
                                                                                   RMB             RMB              US$
                                                                                                (as restated,    (as restated,
                                                                                                see Note 25)     see Note 25)
<S>                                                                             <C>             <C>              <C>
ASSETS

Current assets:
  Cash and cash equivalents...............................................        140,957           63,623           7,684
  Restricted cash.........................................................         26,183                -               -
  Accounts receivable, net of allowance for doubtful receivables
    of Rmb50,974 in 2002 and RmbNil in 2003...............................        314,183                -               -
  Other receivables.......................................................         39,932            2,697             326
  Inventories (note 6)....................................................        597,325                -               -
  Marketable securities (note 7)..........................................             50                -               -
  Prepaid expenses and other current assets...............................         50,165               20               2
  Due from related companies, net of allowance for doubtful receivables
    of Rmb21,984 in 2002 and RmbNil in 2003 (note 18).....................        112,943                -               -
  Due from ultimate parent company........................................              -            4,030             487
  Notes receivable (note 5)...............................................         25,319           48,016           5,799
  Current assets of discontinued operations (note 4)......................        565,044                -               -
                                                                                ---------          -------          ------

  Total current assets....................................................      1,872,101          118,386          14,298

Investments in and advances to affiliates (note 8)........................        232,982          309,826          37,418
Due from Chinese joint venture partners (note 19).........................          1,150                -               -
Convertible note receivable from an affiliate, net (note 10)..............         53,339           81,448           9,837
Prepayments for equipment.................................................         78,106                -               -
Property, plant and equipment, net (note 11)..............................        469,694                -               -
Deferred income taxes (note 13)...........................................         14,277                -               -
Other assets..............................................................          1,331                6               1
Goodwill..................................................................          3,876                -               -
Non-current assets of discontinued operations (note 4)....................        153,824                -               -
                                                                                ---------          -------          ------

  Total assets............................................................      2,880,680          509,666          61,554
                                                                                =========          =======          ======
</TABLE>

                                      F-4

<PAGE>

                     CONSOLIDATED BALANCE SHEETS - CONTINUED

      (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND THEIR PAR VALUES)

<TABLE>
<CAPTION>
                                                                                         AS OF DECEMBER 31,
                                                                           -------------------------------------------
                                                                             2002            2003           2003
                                                                             ----            ----           ----
                                                                              Rmb             Rmb            US$
                                                                                         (as restated,   (as restated,
                                                                                         see Note 25)    see Note 25)
<S>                                                                        <C>           <C>             <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Short-term bank loans (note 12).....................................       659,388               -              -
  Long-term bank loans - current portion (note 12)....................        41,600               -              -
  Other short-term loan payable.......................................             -          27,708          3,346
  Accounts payable....................................................       401,486             311             38
  Other payables......................................................        43,266           1,310            158
  Accrued liabilities.................................................        71,545           4,759            575
  Income taxes payable................................................        13,828               -              -
  Other taxes payable.................................................        16,190           2,753            332
  Current liabilities of discontinued operations
    (note 4)..........................................................       583,460               -              -
                                                                           ---------       ---------        -------

  Total current liabilities...........................................     1,830,763          36,841          4,449
Long-term bank loans, net of current portion
  (note 12)...........................................................        75,000               -              -
Due to Chinese joint venture partners (note 19).......................           150               -              -
Loans from related companies (note 18)................................         1,058               -              -
Non-current liabilities of discontinued operations
  (note 4)............................................................        12,671               -              -
                                                                           ---------       ---------        -------

  Total liabilities...................................................     1,919,642          36,841          4,449
                                                                           ---------       ---------        -------

Minority interests....................................................       346,819               -              -
Minority interests of discontinued operations
  (note 4)............................................................        79,013               -              -
                                                                           ---------       ---------        -------

  Total minority interests............................................       425,832               -              -
                                                                           ---------       ---------        -------

Obligations and commitments (note 16)

Shareholders' equity:
  Supervoting common stock - par value US$0.01 per
    share (20,000,000 shares authorized; 3,000,000
    shares outstanding at December 31, 2002 and 2003) (note 14).......           244             244             29
  Common stock - par value US$0.01 per share
    (50,000,000 shares authorized; 6,017,310
    shares outstanding at December 31, 2002
    and 2003) (note 14)...............................................           526             526             64
  Additional paid-in capital..........................................     1,033,253       1,033,253        124,789
  Dedicated capital...................................................        39,708             524             63
  Accumulated other comprehensive (losses)
    income............................................................          (505)          1,131            137
  Accumulated deficit.................................................      (538,020)       (562,853)       (67,977)
                                                                           ---------       ---------        -------

  Total shareholders' equity..........................................       535,206         472,825         57,105
                                                                           ---------       ---------        -------

  Total liabilities and shareholders' equity..........................     2,880,680         509,666         61,554
                                                                           =========       =========        =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

       (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                                 ACCUMULATED
                                              SHARES OF                                                            OTHER
                                             SUPERVOTING  SHARES OF  SUPERVOTING          ADDITIONAL               COMPRE-
                                               COMMON      COMMON      COMMON     COMMON   PAID-IN    DEDICATED    HENSIVE
                                                STOCK       STOCK       STOCK      STOCK   CAPITAL     CAPITAL     LOSSES
                                             -----------  ---------  -----------  ------  ----------  ---------  -----------
                                                                         Rmb        Rmb      Rmb         Rmb         Rmb
<S>                                          <C>          <C>        <C>          <C>     <C>         <C>        <C>
Balance at January 1, 2001.................   3,000,000   6,017,310      244        526   1,040,994     36,118       (543)
Net loss...................................           -           -        -          -           -          -          -
Released on disposition of discontinued
  operations...............................           -           -        -          -           -    (11,578)         -
Transfer to dedicated capital..............           -           -        -          -           -     13,009          -
Dividends declared (Rmb0.1655 per share)...           -           -        -          -      (1,493)         -          -
                                              ---------   ---------      ---        ---   ---------    -------      -----

Balance at December 31, 2001...............   3,000,000   6,017,310      244        526   1,039,501     37,549       (543)
Net loss...................................           -           -        -          -           -          -          -
Loss on dilution of interest in an
  affiliate and a subsidiary of an
  affiliate................................           -           -        -          -      (6,248)         -          -
Foreign currency translation adjustment
  relating to an affiliate.................           -           -        -          -           -          -         38
Transfer to dedicated capital..............           -           -        -          -           -      2,159          -
                                              ---------   ---------      ---        ---   ---------    -------      -----

Balance at December 31, 2002...............   3,000,000   6,017,310      244        526   1,033,253     39,708       (505)
Net loss (as restated, see Note 25)........           -           -        -          -           -          -          -
Foreign currency translation adjustment
  relating to an affiliate.................           -           -        -          -           -          -      1,636
Transfer to dedicated capital..............           -           -        -          -           -      3,010          -
Transfer ..................................           -           -        -          -           -    (42,718)         -
Share of dedicated capital of an
  affiliate ...............................           -           -        -          -           -        524          -
                                              ---------   ---------      ---        ---   ---------    -------      -----

Balance at December 31, 2003 (as
  restated, see Note 25)...................   3,000,000   6,017,310      244        526   1,033,253        524      1,131
                                              =========   =========      ===        ===   =========    =======      =====

<CAPTION>
                                             ACCUMULATED
                                               DEFICIT      TOTAL
                                             -----------  ---------
                                                 Rmb         Rmb
<S>                                          <C>          <C>
Balance at January 1, 2001.................   (124,712)    952,627
Net loss...................................   (135,359)   (135,359)
Released on disposition of discontinued
  operations...............................          -     (11,578)
Transfer to dedicated capital..............    (13,009)          -
Dividends declared (Rmb0.1655 per share)...          -      (1,493)
                                              --------    --------

Balance at December 31, 2001...............   (273,080)    804,197
Net loss...................................   (262,781)   (262,781)
Loss on dilution of interest in an
  affiliate and a subsidiary of an
  affiliate................................          -      (6,248)
Foreign currency translation adjustment
  relating to an affiliate.................          -          38
Transfer to dedicated capital..............     (2,159)          -
                                              --------    --------

Balance at December 31, 2002...............   (538,020)    535,206
Net loss (as restated, see Note 25)........    (64,541)    (64,541)
Foreign currency translation adjustment
  relating to an affiliate.................          -       1,636
Transfer to dedicated capital..............     (3,010)          -
Transfer ..................................     42,718           -
Share of dedicated capital of an
  affiliate ...............................          -         524
                                              --------    --------

Balance at December 31, 2003 (as
  restated, see Note 25)...................   (562,853)    472,825
                                              ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                               ---------------------------------------------------
                                                                 2001        2002        2003           2003
                                                               --------    --------   -------------  -------------
                                                                 Rmb          Rmb         Rmb            US$
                                                                                      (as restated,  (as restated,
                                                                                       see Note 25)   see Note 25)
<S>                                                            <C>         <C>        <C>            <C>
Cash flows from operating activities:
  Net loss ..................................................  (135,359)   (262,781)     (64,541)       (7,795)
  Adjustments to reconcile net loss to net cash
    provided by operating activities:
    Loss (gain) on disposition of discontinued
      components ............................................    28,588     (20,144)       7,017           847
    Loss on disposal of a subsidiary ........................         -           -        1,158           140
    Minority interests ......................................   (57,840)    (76,073)      46,340         5,597
    Change in fair value of call option .....................         -      45,328            -             -
    Equity in losses of affiliates ..........................     2,486      89,520       77,448         9,354
    Deferred income taxes ...................................    (8,127)     (6,150)      (3,139)         (379)
    Impairment loss provision for advances to
      affiliates ............................................         -       4,451            -             -
    Recovery on loan receivable .............................    (9,800)          -            -             -
    Impairment loss provision for long-lived assets .........    50,133     291,648          150            18
    Impairment loss provision for goodwill ..................     4,023           -            -             -
    Provision for (recovery on) amounts due from
      related companies .....................................    27,000      (5,016)           -             -
    Loss (gain) on disposal of property, plant and
      equipment .............................................    21,322        (895)         581            70
    Depreciation and amortization ...........................   118,399     106,015       50,889         6,146
    Amortisation of discount on subscription of
      the convertible note receivable .......................         -     (21,914)      (6,301)         (761)
Changes in operating assets and liabilities
  (net of effects of acquisition and disposition):
    Accounts and other receivables, net .....................   (25,536)    (91,973)     (67,339)       (8,133)
    Inventories .............................................   (48,825)    (97,220)      31,942         3,858
    Prepaid expenses and other current assets ...............     3,910     (21,832)      (4,661)         (563)
    Due from related companies ..............................    32,414     (10,641)       1,495           181
    Other assets ............................................    (1,795)       (223)         194            23
    Accounts payable and other payables .....................   119,352     159,801       35,151         4,245
    Accrued liabilities .....................................    14,880      28,154       14,408         1,740
    Income taxes payable ....................................       182      12,437       (7,087)         (856)
    Other taxes payable .....................................     7,584       9,002       (8,904)       (1,075)
                                                               --------    --------      -------        ------
  Net cash provided by operating activities..................   142,991     131,494      104,801        12,657
                                                               --------    --------      -------        ------
</TABLE>

                                      F-7
<PAGE>

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                             ---------------------------------------------------------------------
                                                               2001               2002              2003                 2003
                                                             --------           --------         -------------       -------------
                                                               Rmb                Rmb                Rmb                 US$
                                                                                                 (as restated,       (as restated,
                                                                                                  see Note 25)        see Note 25)
<S>                                                          <C>                <C>              <C>                 <C>
Cash flows from investing activities:
  Subscription of a convertible note receivable ..........          -           (127,284)                 -                  -
  Increase in notes receivable ...........................          -           (464,961)          (114,001)           (13,768)
  (Increase) decrease in restricted bank deposits ........    (46,328)            31,596            (14,431)            (1,743)
  Investments in and advances to affiliates, net .........        929           (180,612)          (197,358)           (23,836)
  Purchase of property, plant and equipment .............    (135,212)          (287,536)          (256,872)           (31,023)
  Proceeds from disposal of property, plant and
    equipment ............................................      2,267             77,320              4,601                556
  Proceeds from disposal of trading securities ...........        170                170                  -                  -
  Repayment of loans receivable ..........................     10,000                  -                  -                  -
  Repayment of notes receivable ..........................          -            140,412             91,304             11,027
  (Increase) decrease in due from Chinese joint
    venture partners .....................................    (10,036)             5,356               (200)               (24)
  Acquisition of a subsidiary, net of cash acquired             4,120                  -                  -                  -
  Proceeds from disposal of business
    components, net ......................................      1,734                833           (104,128)           (12,576)
                                                             --------           --------           --------            -------

Net cash used in investing activities ....................   (172,356)          (804,706)          (591,085)           (71,387)
                                                             --------           --------           --------            -------

Cash flows from financing activities:
  Payment of dividends to shareholders ...................     (1,493)                 -                  -                  -
  Payment of dividends to minority interests .............        (66)            (5,801)            (1,527)              (184)
  Net increase in notes payable ..........................          -            299,230                  -                  -
  Increase (decrease) in due to ultimate
    parent company .......................................        424             (1,772)            (4,030)              (487)
  Advance (repayment) of loans from a
    related company ......................................     24,198            (22,809)            (1,058)              (127)
  Increase in short-term bank loans ......................    113,739             84,858            238,498             28,804
  Proceeds of long-term bank loans .......................     68,189            144,410            100,000             12,077
  Repayment of long-term bank loans ......................    (80,000)           (36,000)           (26,600)            (3,213)
  Decrease in due to Chinese joint venture partners           (10,194)           (19,936)                 -                  -
  Payment of capital lease obligations ...................    (18,973)                 -                  -                  -
                                                             --------           --------           --------            -------

Net cash provided by financing activities ................     95,824            442,180            305,283             36,870
                                                             --------           --------           --------            -------

Net increase (decrease) in cash and cash
  equivalents ............................................     66,459           (231,032)          (181,001)           (21,860)
Cash and cash equivalents, beginning of year .............    409,197            475,656            244,624             29,544
                                                             --------           --------           --------            -------

Cash and cash equivalents, end of year ...................    475,656            244,624             63,623              7,684
                                                             ========           ========           ========            =======
</TABLE>

                                      F-8
<PAGE>

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                           -------------------------------------------
                                                                            2001         2002        2003        2003
                                                                           ------       -------     ------      ------
                                                                            Rmb           Rmb        Rmb          US$
<S>                                                                       <C>           <C>         <C>         <C>
Supplemental disclosures of cash flow information:
    Cash paid during the year for:
      Interest paid - net of amounts capitalized ....................      49,034        74,873     33,375       4,031
      Net income tax (refunded) paid ................................        (182)       11,410     20,228       2,445
                                                                          =======       =======     ======      ======

Supplemental schedule of non-cash investing and financing activities:
    Assignment of notes receivable to a holder
      of notes payable ..............................................           -       299,230          -           -
    Capital lease obligations incurred ..............................      18,973             -          -           -
    Conversion of convertible note receivable,
      and the related transfer from derivative
      instruments, to equity interest in an affiliate
      (see note 8) ..................................................           -        50,531          -           -
    Long-term advance from a Chinese joint
       venture partner capitalized in a subsidiary ..................      19,600             -          -           -
                                                                          =======       =======     ======      ======

    Details of acquisition:
      Fair value of assets acquired (including cash
        acquired of Rmb4,120) .......................................      50,644             -          -           -
      Minority interests acquired ...................................     (10,058)            -          -           -
      Loan advance capitalized in connection with
        the acquisition .............................................     (10,569)            -          -           -
                                                                          -------       -------     ------      ------

      Liabilities assumed ...........................................      30,017             -          -           -
                                                                          =======       =======     ======      ======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-9
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

1.    ORGANIZATION AND BASIS OF PREPARATION

      China Enterprises Limited (the "Company") was incorporated in Bermuda on
      January 28, 1993. Its common stock traded on the New York Stock Exchange
      (the "NYSE") until September 27, 2002 when it was suspended from trading
      as a result of the Company's failure to meet the NYSE's continuing listing
      standards. On November 26, 2002, the Company's common stock began trading
      on the OTC (Over-the-Counter) Bulletin Board. On December 30, 2002, the
      common stock of the Company was delisted from trading on the NYSE.

      As of December 31, 2003, the Company had the following principal
      subsidiaries (together with the Company, collectively referred to as the
      "Group"):

      -     Container Limited ("Container", incorporated in the British Virgin
            Islands (the "BVI"));

      -     Capital Canton Limited ("Capital Canton", incorporated in the BVI);

      -     Century Lead Limited ("Century Lead", incorporated in the BVI);

      -     Honest Map Limited ("Honest Map", incorporated in the BVI);

      -     Leading Returns Limited ("Leading Returns", incorporated in the
            BVI);

      -     Million Good Limited ("Million Good", incorporated in the BVI);

      -     Sincere Ocean Limited ("Sincere Ocean", incorporated in the BVI);
            and

      -     Ventures Kingdom Limited ("Ventures Kingdom", incorporated in the
            BVI);

      All of these subsidiaries are distinct legal entities with limited
      liability.

                                      F-10
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

1.    ORGANIZATION AND BASIS OF PREPARATION - CONTINUED

      Details of these subsidiaries are summarized as follows:

<TABLE>
<CAPTION>
                                   Capital     Century      Honest        Leading      Million     Sincere     Ventures
                      Container    Canton        Lead         Map         Returns       Good        Ocean      Kingdom
                     ----------- ----------- ----------- ------------- ------------- ----------- ----------- -------------
<S>                  <C>         <C>         <C>         <C>           <C>           <C>         <C>         <C>
Legal status         Limited     Same as     Same as     Same as       Same as       Same as     Same as     Same as
                       liability   Container   Container   Container     Container     Container   Container   Container
                       company

Principal activities Investment  Investment  Investment  Investment    Investment    Investment  Investment  Investment
                       holding     holding     holding     holding and   holding and    holding    holding     holding and
                                                           financing     financing                             financing

Registered capital/     US$1        US$1        US$1        US$1         US$1            US$1       US$1         US$1
  Issued capital
  (amount as stated)

Percentage of            100         100         100         100          100             100        100          100
  ownership by the
  Company (%)
</TABLE>

      As of December 31, 2003, the Company had the following significant equity
      method affiliates:

      -     Hangzhou Zhongce Rubber Co., Limited ("HZ", located in Hangzhou,
            Zhejiang Province, the People's Republic of China (the "PRC")); and

      -     Wing On Travel (Holdings) Limited ("formerly known as Ananda Wing On
            Travel (Holdings) Limited and incorporate in Bermuda) (together with
            its subsidiaries, collectively referred to as "Wing On").

      HZ remained as a consolidated subsidiary of the Company for the periods
      presented until the Company sold a 25% equity interest in HZ on September
      30, 2003. HZ is engaged in the manufacture of rubber tires in the PRC. See
      note 3 for details of this disposition.

      The Company has a 32.21% equity interest in Wing On, which, together its
      subsidiaries, is engaged in business of providing package tours, travel
      and other related services with its shares listed on The Stock Exchange of
      Hong Kong Limited.

      HZ, together with its subsidiary, conducts its operations in the PRC. The
      Company is, accordingly, subject to special considerations and significant
      risks not typically associated with investments in equity securities of
      the United States of America (the "US") and western European companies.
      These include, among others, risks associated with the political and
      economic environment, foreign currency exchange, import restrictions and
      legal system of the PRC.

      The consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the US ("US GAAP"). This
      basis of accounting differs from that used in the statutory financial
      statements of Wing On and HZ, which were prepared in accordance with
      accounting principles generally accepted in Hong Kong and the accounting
      principles and the relevant financial regulations as established by the
      Ministry of Finance of the PRC, respectively.

                                      F-11
<PAGE>



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (a)   BASIS OF CONSOLIDATION

            The consolidated financial statements include the assets,
            liabilities, revenue and expenses of the Company and all of its
            majority owned and controlled subsidiaries. All significant
            intercompany balances and transactions have been eliminated on
            consolidation. Investments in 50% or less owned companies over which
            the Company exercises significant influence but not control, are
            accounted for using the equity method. Under the equity method, the
            Company's proportionate share of the affiliate's net income or loss
            is included in the consolidated statement of operations.

      (b)   REVENUES

            Revenues represent the invoiced value of goods, net of value-added
            tax ("VAT") and other sales taxes, supplied to customers. Revenues
            are recognized upon delivery and acceptance of goods by the
            customers. The Company permits the return of damaged or defective
            products and accounts for these returns as deduction from sales.

      (c)   SHIPPING AND HANDLING FEES AND COSTS

            Costs for transportation of products to customers is recorded as a
            component of selling, general and administrative expense (see note
            22).

      (d)   CASH AND CASH EQUIVALENTS

            The Company considers cash on hand, demand deposits with banks and
            liquid investments with an original maturity of three months or less
            when purchased to be cash and cash equivalents. Included in cash and
            cash equivalents as of December 31, 2002 and 2003 were United States
            dollar deposits of US$7,628 (Rmb63,160) and US$140 (Rmb1,160),
            respectively.

            Cash and cash equivalents included in the consolidated statements of
            cash flows included cash and cash equivalents of discontinued
            operations shown under the current assets of discontinued operations
            in the consolidated balance sheets totaling Rmb103,667 and RmbNil as
            of December 31, 2002 and 2003, respectively.

                                      F-12
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (e)   MARKETABLE SECURITIES

            The Company determines the appropriate classification of marketable
            securities at the time of purchase and re-evaluates such designation
            at each balance sheet date. Marketable securities are classified as
            either trading or available-for-sale. Trading securities are carried
            at fair value, based on quoted market prices, with unrealized gains
            and losses included in the consolidated statement of operations for
            the year. Investments in marketable securities classified as
            available-for-sale are also carried at fair value, with unrealized
            gains or losses excluded from the consolidated statement of
            operations and reported as other comprehensive income. If the
            decline in fair value is determined to be other than temporary, the
            amount of write-down to fair value is included in the determination
            of operating results for the year as a realized loss. The cost of
            securities sold is based on the average cost method and income
            earned is included in other income.

      (f)   INVENTORIES

            Inventories are stated at the lower of cost, on an average cost
            basis, or market value. Costs of work-in-progress and finished goods
            comprise direct materials, direct labor and an attributable
            proportion of production overheads. Provision for potentially
            obsolete or slow-moving inventory is made based on management's
            analysis of inventory levels.

      (g)   PROPERTY, PLANT AND EQUIPMENT

            Property, plant and equipment is stated at cost of acquisition less
            accumulated depreciation and provision for impairment loss. The cost
            of major improvements and betterments is capitalized whereas the
            cost of maintenance and repairs is expensed in the year incurred.

            Depreciation of property, plant and equipment is computed using the
            straight-line method over the assets' remaining estimated economic
            useful lives and an estimated residual value of 4% to 10% of the
            costs except for land use rights which have no residual value. The
            estimated useful lives of property, plant and equipment are as
            follows:

<TABLE>
<S>                                                           <C>
Land use rights                                               50 years
Buildings                                                     20 years
Machinery and equipment                                       10 years
Motor vehicles                                                5 years
Furniture, fixtures and office equipment                      5 years
</TABLE>

            Construction-in-progress represents factory and office buildings
            under construction and plant and machinery pending installation.
            This includes the costs of construction, the costs of plant and
            machinery and interest capitalized on borrowings during the period
            of construction or installation. Assets under construction are not
            depreciated until construction completed and the assets are ready
            for their intended use. Interest capitalized was RmbNil, Rmb3,954
            and Rmb3,000 for the year ended December 31, 2001, 2002 and 2003,
            respectively.

                                      F-13
<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (h)   GOODWILL

            The excess of the purchase price over the fair value of net assets
            acquired is recorded on the consolidated balance sheet as goodwill.
            Prior to January 1, 2002, goodwill was amortized to expense on a
            straight-line basis over 20 years. As of December 31, 2001, the
            gross carrying amount of the Company's goodwill was Rmb7,408 and
            accumulated amortization was Rmb3,532. The amortization expense
            charged to the consolidated statements of operations during the year
            ended December 31, 2001 was Rmb891. In June 2001, the Financial
            Accounting Standards Board (the "FASB") issued Statement of
            Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
            Intangible Assets", which provides that goodwill and other
            intangible assets with indefinite lives will not be amortized, but
            will be tested for impairment on an annual basis. The Company
            adopted SFAS No. 142 on January 1, 2002 and discontinued
            amortization of its existing goodwill. The Company also evaluated
            goodwill for impairment and determined that no impairment of
            recorded goodwill was necessary as of January 1, 2002.

            The following transitional disclosure represents the Company's
            reported and adjusted net loss, and basic and diluted loss per share
            assuming that SFAS No. 142 had been adopted beginning January 1,
            2001:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                    -------------------------------------
                                                      2001           2002          2003
                                                    --------       --------       -------
                                                       Rmb           Rmb           Rmb
<S>                                                 <C>            <C>            <C>
Net loss:
As reported (as restated, see Note 25) ...........  (135,359)      (262,781)      (64,541)
Add back: goodwill amortization ..................       891              -             -
                                                    --------       --------       -------

As adjusted ......................................  (134,468)      (262,781)      (64,541)
                                                    ========       ========       =======

Basic and diluted loss per share:
As reported (as restated, see Note 25) ...........    (15.01)        (29.14)        (7.16)
Add back: goodwill amortization ..................      0.10              -             -
                                                    --------       --------       -------

As adjusted ......................................    (14.91)        (29.14)        (7.16)
                                                    ========       ========       =======
</TABLE>

      (i)   IMPAIRMENT

            In accordance with SFAS No. 144, "Accounting for the Impairment or
            Disposal of Long-Lived Assets," the Company evaluates the impairment
            of long-lived assets based on the projection of undiscounted cash
            flows whenever events or changes in circumstances indicate that the
            carrying amounts of such assets may not be recoverable. In the event
            such cash flows are not expected to be sufficient to recover the
            recorded value of the assets, the assets are written down to their
            estimated fair values (see note 4).

                                      F-14
<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (j)   INCOME TAXES

            The Company accounts for income taxes using the liability method in
            accordance with SFAS No. 109, "Accounting for Income Taxes". Under
            this method, deferred tax assets and liabilities are recognized for
            the future tax consequences attributable to differences between the
            financial statement carrying amounts of existing assets and
            liabilities and their respective tax bases and to operating loss and
            tax credit carry forwards. Deferred tax assets and liabilities are
            measured using enacted tax rates expected to apply when those
            temporary differences are expected to reverse. Valuation allowances
            are established to reduce the amount of deferred tax assets if it is
            considered more likely than not that some portion of, or all of, the
            deferred tax asset will not be realized.

      (k)   VAT AND CONSUMPTION TAX ("CT")

            All of the Group's PRC entities are subject to VAT and CT. They are
            recognized on an accrual basis and revenues are recorded net of
            these taxes.

      (l)   FOREIGN CURRENCIES

            The PRC entities of the Group maintain their books and records in
            Renminbi, their functional currency. Foreign currency transactions
            are translated into Renminbi at the applicable exchange rates quoted
            by the People's Bank of China (the "unified exchange rates")
            prevailing at the dates of transactions. Monetary assets and
            liabilities denominated in foreign currencies are translated into
            Renminbi using the applicable unified exchange rates prevailing at
            the respective balance sheet dates. Non-monetary assets and
            liabilities are translated at the unified exchange rates prevailing
            at the time the assets or liabilities were acquired. The resulting
            exchange differences are included in the consolidated statement of
            operations.

            Orion Tire and Orion BVI maintain their books and records in United
            States dollars. The remaining companies in the Group other than the
            PRC entities, Orion Tire and Orion BVI maintain their books and
            records in Hong Kong dollars, their functional currency. For
            consolidation purposes, their balance sheets were translated into
            Renminbi using the unified exchange rates prevailing at the
            respective balance sheet dates. Their statements of operations are
            translated using a weighted average rate for the period. Exchange
            differences arising on the translation of these financial statements
            are treated as translation adjustments and included in the
            accumulated other comprehensive losses account within shareholders'
            equity in the consolidated financial statements.

            The Company's share capital is denominated in United States dollar.
            For financial reporting purposes, the United States dollar capital
            amounts have been translated into Renminbi at the respective
            exchange rates prevailing at the capital injection dates.

                                      F-15
<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (l)   FOREIGN CURRENCIES - CONTINUED

            The Renminbi currently is not generally a freely convertible
            currency. The State Administration for Foreign Exchange, under the
            authority of the People's Bank of China, controls the conversion of
            Renminbi into foreign currencies. The value of the Renminbi is
            subject to changes in central government policies and to
            international economic and political developments affecting supply
            and demand in the China Foreign Exchange Trading System market.

            The PRC entities conduct their business substantially in the PRC,
            and their financial performance and position are measured in terms
            of Renminbi. Any devaluation of the Renminbi against the United
            States dollar would consequently have an adverse effect on the
            financial performance and asset values of the Company when measured
            in terms of United States dollars. The PRC entities' products are
            primarily sold in the PRC for Renminbi. Thus, their revenues and
            profits are predominantly denominated in Renminbi, and will have to
            be converted by the Company to pay dividends to the Company in
            United States dollars. Should the Renminbi devalue against the
            United States dollar, such devaluation could have a material adverse
            effect on the Company's profits and the foreign currency equivalent
            of such profits repatriated by the PRC entities to the Company. The
            Company currently is not able to hedge its Renminbi - United States
            dollar exchange rate exposure in the PRC because neither the
            People's Bank of China nor any other financial institution
            authorized to engage in foreign exchange transactions in the PRC
            offers forward exchange contracts.

            The translation of Renminbi (Rmb) amounts into United States dollar
            (US$) amounts are included solely for the convenience of readers in
            the United States of America and have been made at US$1.00 =
            Rmb8.28, the unified exchange rate on December 31, 2003. No
            representation is made that the Renminbi amounts could have been, or
            could be, converted into United States dollar at that or at any
            other rate.

      (m)   DEDICATED CAPITAL

            In accordance with the relevant laws and regulations for
            Sino-foreign equity joint venture enterprises, the PRC entities
            maintain discretionary dedicated capital, which includes a general
            reserve fund, an enterprise expansion fund, and a staff welfare and
            incentive bonus fund. The respective boards of directors of the PRC
            entities will determine on an annual basis the amount of the annual
            appropriations to dedicated capital. In 2001, 2002 and 2003, certain
            PRC entities appropriated 5% respectively of the profits after tax
            as reflected in their statutory financial statements prepared in
            accordance with accounting principles generally accepted in the PRC
            to the general reserve fund, enterprise expansion fund, and/or staff
            welfare and incentive bonus fund. The general reserve fund is used
            to offset future extraordinary losses. The PRC entities may, upon
            resolution passed by the shareholders, convert the general reserve
            fund into capital. The enterprises expansion fund is used for the
            expansion of the PRC entities' operation and can be converted to
            capital subject to approval by the relevant authorities. The staff
            welfare and incentive bonus fund is used for the collective welfare
            of the employees of the PRC entities. These reserves represent
            appropriations of accumulated earnings of determining according to
            Chinese law and may not be distributed. The Company's proportionate
            interest in appropriations to the general reserve fund and the
            enterprise expansion fund are reflected in the consolidated balance
            sheets under shareholders' equity as dedicated capital; however, the
            appropriation for the staff welfare and incentive bonus fund is
            charged to consolidated statements of operations and the unused
            portion is recorded as a current liability.

                                      F-16
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (n)   BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

            The Company calculates basic and diluted earnings (loss) per share
            in accordance with SFAS No. 128, "Earnings Per Share". Basic
            earnings (loss) per share is computed using the weighted-average
            number of common shares outstanding during the year. Diluted
            earnings (loss) per share is computed using the weighted-average
            number of common shares and common stock equivalent shares
            outstanding during the year. Common stock equivalent shares such as
            shares issuable upon the exercise of stock options are excluded from
            the computation if their effect is anti-dilutive. During 2001, 2002
            and 2003, all outstanding options were anti-dilutive (see note 15).

      (o)   USE OF ESTIMATES

            The preparation of financial statements in conformity with U.S. GAAP
            requires management to make estimates and assumptions that affect
            the reported amounts of assets and liabilities and disclosures 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 may differ from those
            estimates. Significant items subject to such estimates and
            assumptions include the carrying value and estimated useful lives of
            long-lived assets; impairment of goodwill; valuation allowances for
            receivables and deferred tax assets; liability for product warranty;
            and the valuation of certain financial instruments.

      (p)   FINANCIAL INSTRUMENTS

            The Company adopted SFAS No. 133, "Accounting for Derivative
            Instruments and Hedging Activities" as of January 1, 2001 and
            recognizes all derivative instruments on the balance sheet at fair
            value. The Company does not purchase derivative instruments to
            manage risks.

            The Group's financial instruments that are exposed to concentration
            of credit risk consist primarily of its cash and cash equivalents,
            accounts and other receivables, notes receivable, amounts due from
            ultimate parent company and advances to affiliates. The Group's cash
            and cash equivalents are high-quality deposits placed with banking
            institutions with high credit ratings; therefore, the credit risk is
            limited. The accounts receivable largely represent amounts due from
            the Group's customers and are typically on an open account basis.
            Concentrations of credit risk associated with the accounts
            receivable are considered minimal due to the Group's diverse
            customer base. In no period did sales to any one customer accounts
            for 10% or more of the Group's sales. The Group maintains allowances
            to cover potential bad debts and believes that no significant credit
            risk exists as a result of its diverse group of customers. Credit
            losses, when realized, have historically been within the range of
            management's expectations. The other receivables comprise
            principally interest receivable from notes holders. The Company does
            not believe there is a significant credit risk from any of these
            counterparties as they are either major suppliers of the Group or
            local government authorities. The notes receivable are due from
            three parties and the Group has reviewed their credit worthiness and
            does not expect to incur significant loss for uncollected accounts.
            The Group has reviewed the credit worthiness and financial position
            of its ultimate parent company and affiliates for credit risks
            associated with amount due from ultimate parent company and advances
            to affiliates. These entities have good credit standing and the
            Group does not expect to incur significant loss for uncollected
            advances from these entities.

                                      F-17
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (p)   FINANCIAL INSTRUMENTS - CONTINUED

            The carrying value of current financial assets and current financial
            liabilities approximates fair value due to the short-term nature of
            these instruments. Bank loans approximate their carrying value as
            the interest rates approximate those which would have been available
            for loans of similar remaining maturity at the respective year ends.
            The fair value of convertible note receivable as of December 31,
            2002 and 2003 was Rmb89,947, which was determined based on the
            estimated net amount the Company would receive as of December 31,
            2003 from the note issuer and the interest rates of similar
            instruments from market.

      (q)   COMPREHENSIVE INCOME (LOSS)

            The Company reports comprehensive income in accordance with SFAS No.
            130, "Reporting Comprehensive Income". Comprehensive income consists
            of net income (loss) and other gains and losses affecting
            shareholders' equity that, under U.S. GAAP are excluded from net
            income (loss). Comprehensive loss for 2001 only represents the
            Company's net loss, but for 2002 and 2003, the amount also includes
            translation adjustment relating to an affiliate. Comprehensive loss
            has been disclosed within the consolidated statements of operations
            and comprehensive loss.

      (r)   SEGMENT INFORMATION

            The Company reports information about operating segments on a basis
            consistent with the Company's internal organization structure as
            well as information about geographic areas and major customers in
            accordance with SFAS No. 131, "Disclosures about Segments of an
            Enterprise and Related Information".

      (s)   RELATED PARTIES

            Parties are considered to be related to the Company if the parties
            that, directly or indirectly, through one or more intermediaries,
            control, are controlled by, or are under common control with the
            Company. Related parties also include principal owners of the
            Company, its management, members of the immediate families of
            principal owners of the Company and its management and other parties
            with which the Company may deal if one party controls or can
            significantly influence the management or operating policies of the
            other to an extent that one of the transacting parties might be
            prevented from fully pursuing its own separate interests. A party
            which can significantly influence the management or operating
            policies of the transacting parties or if it has an ownership
            interest in one of the transacting parties and can significantly
            influence the other to an extent that one or more of the transacting
            parties might be prevented from fully pursuing its own separate
            interests is also a related party.

                                      F-18
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (t)   STOCK-BASED COMPENSATION

            The Company accounts for stock-based employee compensation
            arrangements in accordance with the provisions of Accounting
            Principles Board Opinion ("APB") No. 25, "Accounting for Stock
            Issued to Employees", and has adopted the disclosure-only
            requirements of SFAS No. 123, "Accounting of Stock-Based
            Compensation". Compensation expense related to employee stock
            options is recorded only if, on the measurement date, the quoted
            market price of the underlying stock exceeds the exercise price.

      (u)   ADVERTISING EXPENSES

            The Company expenses advertising costs as incurred. Advertising
            expenses were Rmb5,332, Rmb7,550 and Rmb5,145 for the years ended
            December 31, 2001, 2002 and 2003, respectively.

      (v)   DILUTION OF INTEREST IN EQUITY AFFILIATE/SUBSIDIARY

            The Company records the gains or losses arising from issuance by an
            equity affiliate or subsidiary of its own stock in additional
            paid-in capital account within shareholders' equity in the
            consolidated financial statements.

      (w)   RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

            In April 2003, the Financial Accounting Standards Board ("FASB")
            issued SFAS No. 149, "Amendment to Statement 133 on Derivative
            Instruments and Hedging Activities". SFAS No. 149 amends and
            clarifies accounting for derivative instruments, including certain
            derivative instruments embedded in other contracts, and for hedging
            activities under SFAS No. 133. SFAS No. 149 is applied prospectively
            and is effective for contracts entered into or modified after June
            30, 2003, except for SFAS No. 133 implementation issues that have
            been effective for fiscal quarters that began prior to June 15, 2003
            and certain provisions relating to forward purchases and sales on
            securities that do not yet exist. The adoption of SFAS No. 149 did
            not have a material impact on its results of operations or financial
            position.

            In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
            Financial Instruments with Characteristics of both Liabilities and
            Equity". It establishes standards for how an issuer classifies and
            measures certain financial instruments. SFAS No. 150 is effective
            for financial instruments entered into or modified after May 31,
            2003, and otherwise is effective at the beginning of the first
            interim period beginning after June 15, 2003. It requires that
            certain financial instruments that, under previous guidance, could
            be accounted for as equity be classified as liabilities, or assets
            in some circumstances. It does not apply to features embedded in a
            financial instrument that is not a derivative in its entirety. SFAS
            No. 150 also requires disclosures about alternative ways of settling
            the instruments and the capital structure of entities whose shares
            are mandatorily redeemable. The management has not yet determined
            the impact, if any, on its financial position, results of operations
            or cash flows.

                                      F-19
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (w)   RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED - continued

            In January 2003, the FASB issued FIN No. 46, "Consolidation of
            Variable Interest Entities". FIN 46 clarifies the application of
            Accounting Research Bulletin No. 51, "Consolidated Financial
            Statements" and provides guidance on the identification of entities
            for which control is achieved through means other than voting rights
            ("variable interest entities" or "VIEs") and how to determine when
            and which business enterprise should consolidate the VIEs. This new
            model for consolidation applies to an entity in which either: (1)
            the equity investors (if any) lack one or more characteristics
            deemed essential to a controlling financial interest or (2) the
            equity investment at risk is insufficient to finance that entity's
            activities without receiving additional subordinated financial
            support from other parties. FIN 46 was applicable for periods ended
            December 15, 2003. In December 2003, the FASB issued FIN 46R which
            defers the implementation date to the end of the first reporting
            period after March 15, 2004 unless the Company has a special purpose
            entity in which case the provisions must be applied for fiscal years
            ended December 31, 2003. The Company does not have a special purpose
            entity therefore they will adopt the provisions in December 2004.

            In November 2002, the Emerging Issue Task Force ("EITF") reached a
            consensus on Issue No. 00-21 ("EITF No. 00-21"), "Revenue
            Arrangements with Multiple Deliverables". EITF No. 00-21 addresses
            certain aspects of the accounting by a vendor for arrangements under
            which the vendor will perform multiple revenue generating
            activities. EITF No. 00-21 is effective for fiscal periods beginning
            after June 15, 2003. The Company does not expect the adoption of
            EITF No. 00-21 to have a material impact on the Company's financial
            position, cash flows or results of operations.

      (x)   RECLASSIFICATIONS

            Certain prior year amounts in the accompanying consolidated
            financial statements have been reclassified to conform to the
            current year presentation. These reclassifications had no effect on
            the results of operations or financial position for any year
            presented.

                                      F-20
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

3.    ACQUISITION AND DIVESTITURE

      Divestiture

      On September 30, 2003, the Company completed the sale of its 25% equity
      interest in HZ, for Rmb164,660 in cash, and recognized a loss of Rmb1,158
      on the sale. As a result of this transaction, the Company's equity
      interest in HZ is reduced from 51% to 26%, and the Company can only
      exercise significant influence but not control over HZ, which becomes an
      equity method affiliate of the Company. The Company has included the
      results of the operations of HZ for the nine-month period ended September
      30, 2003 in its consolidated financial statements for the year ended
      December 31, 2003, and has accounted for HZ's results of operations from
      October 1, 2003 to December 31, 2003 using equity method of accounting. In
      the opinion of the Company's management, the Company has no plan to sell
      its remaining interest in HZ.

      See note 4 for other divestitures that have been classified as
      discontinued operations.

      Acquisition

      In September 2001, HZ capitalized an amount of Rmb10,569 ("Purchase
      Price") previously advanced to the Chinese joint venture partner of FCJ
      for a 51.24% interest in that company. There were no differences between
      the Purchase Price and the estimated fair values of the net assets
      acquired. Cash acquired through the acquisition was Rmb4,120. This
      acquisition was immaterial to the Group's results from operations and
      financial position.

4.    DISCONTINUED OPERATIONS

      SFAS No. 144 requires a component of an entity that either has been
      disposed of or is classified as held for sale to be reported as
      discontinued operations if certain conditions are met.

      During 2001 and 2002, the Company decided to dispose of certain of its
      subsidiaries which included Double Happiness Tyre Industries Corporation
      Limited ("DH"), Yantai C.S.I. Rubber Co., Limited ("YT"), Shandong C.S.I.
      Synthetic Fiber Co., Limited ("SD") and Yinchuan C.S.I. (Greatwall) Rubber
      Co., Ltd. ("YC").

                                      F-21
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

4.    DISCONTINUED OPERATIONS - CONTINUED

      (a)   DH

            DH consisted of a bias tire factory and a radial tire factory under
            construction. All of DH's revenue was contributed by the bias tire
            factory as trading and manufacturing activities were only carried
            out in this factory. In fiscal 1995, DH temporarily suspended
            construction of the radial tire factory. Total costs incurred for
            the factory up to December 31, 2002, net of provisions, were
            approximately Rmb39,886, and had been included in
            construction-in-progress under property, plant and equipment.

            In late September 2001, the Company's management adopted a plan to
            dispose of its entire interest in DH and subsequently entered into a
            share transfer agreement with a third party to dispose of its entire
            interest in the bias tire factory only for a consideration of
            Rmb41,000. Although the completion of the sale was pending upon
            certain approvals being obtained from government authorities, the
            Company transferred substantially all its risks and benefits of
            ownership of the factory to the buyer in early December 2001 and
            accordingly, the Company recognized a net realized loss on such
            disposition of Rmb28,588 during fiscal 2001 and has ceased to
            account for the results of operations and the assets and liabilities
            of the factory from the disposal date. The sales proceeds were
            received by the Company in cash during fiscal 2001.

            The Company had also recognized an impairment loss of Rmb31,187 in
            fiscal 2001 for the planned disposition of the radial tire factory
            calculated on the basis of anticipated sales value of Rmb30,000
            which was expected to be received in fiscal 2002 less a loss of
            Rmb73,728 from the waiver of loan advances by the Company to the
            factory.

            The estimated selling price of Rmb30,000 was derived from prior
            discussions with potential purchasers of the factory; however, the
            market conditions worsened in fiscal 2002 and, as a result, the
            factory remained unsold as of December 31, 2002. The Company
            recognized an additional impairment expense of Rmb42,479 in the
            fourth quarter of fiscal 2002 to write down the net assets of the
            factory to a nominal value of Rmb1 in view of the deteriorating
            market conditions.

            In June 2003, the Company entered into a share transfer agreement
            with a third party and completed the disposition of the radial tire
            factory for a consideration of Rmb10,000. The Company recognized a
            gain on such disposition of Rmb11,211 in 2003.

            Interest expense incurred on the outstanding loans used to finance
            the construction of the factory, amounting to Rmb1,113, Rmb7,000 and
            Rmb743 for the years ended December 31, 2001, 2002 and 2003,
            respectively, has been included in loss from discontinued
            operations.

                                      F-22
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

4.    DISCONTINUED OPERATIONS - CONTINUED

      (b)   YT

            In the fourth quarter of fiscal 2001, the Company decided to sell
            its interests in YT as a result of the change in business climate on
            the demand of traditional pneumatic tire. The Company recorded a
            non-cash impairment charge of Rmb16,774 for fiscal 2001 to write
            down the carrying value of the long-lived assets representing
            management's best estimate of the loss to be recognized on sale of
            the Company's interests in this subsidiary. The Company subsequently
            entered into a share transfer agreement with a third party to
            dispose of its entire interest in YT and the respective
            shareholder's advance of Rmb20,167 for an aggregate consideration of
            Rmb26,000. The sale was completed in 2002 and the direct selling
            costs were Rmb550. The Company recognized a gain on such disposition
            of Rmb7,967 in 2002.

      (c)   SD

            Production at SD was suspended in October 1996 due to unfavourable
            market conditions for synthetic nylon cord fabric. Management of SD
            and the Company, together with the Laizhou City Government, were
            unable to agree on a concrete plan for the future operations of SD
            and the Company recorded an impairment charge on its long-lived
            assets of Rmb3,852 in fiscal 2000 based on the estimated future cash
            flows for SD.

            During 2001, the Company had approved and committed to a plan to
            sell its interest in SD and recognized an additional impairment
            charge of Rmb2,172 representing management's best estimate of the
            loss to be recognized on its sale. In January 2002, the Company
            signed a transfer agreement to sell its entire interest in SD to its
            Chinese joint venture partner for a consideration of Rmb10. The sale
            was completed in July 2002 upon obtaining approval from the relevant
            government authorities. The Company transferred substantially all
            its risks and benefit of ownership of SD to the buyer and recognized
            a gain on such disposition of Rmb12,177 in the third quarter of
            2002.

      (d)   YC

            The Company recognized an impairment loss provision for goodwill of
            YC of Rmb4,023 in fiscal 2001. YC has recurring losses from its
            existing bias tire products and the Company's management identified
            this as an indicator of asset impairment. This condition led to
            operating results and forecasted future results that were less than
            had been anticipated at the time of the Company's acquisition of YC.
            The Company revised its projections and determined that the
            projected results would not fully support the future amortization of
            the goodwill balance of YC resulting in the recognition of this
            non-cash impairment charge.

            In the second quarter of 2002, the Company recognized an impairment
            loss provision for the long-lived assets of YC of Rmb174,384. Due to
            poor operating results and continued weakness in markets operated by
            YC, the Company reviewed and revised the projected future operating
            results of YC and determined that its expected future undiscounted
            cash flows were less than the carrying amount of its long-lived
            assets resulting in the recognition of this non-cash impairment
            charge.

                                      F-23
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

4.    DISCONTINUED OPERATIONS - CONTINUED

      (d)   YC - continued

            In the second half of fiscal 2002, the Company initiated a process
            to sell YC. The Company recognized an additional non-cash impairment
            charge of Rmb74,785 to write down the carrying value of the
            long-lived assets of YC representing management's best estimate of
            the loss to be recognized on the sale.

            In January 2003, the Company entered into a share transfer agreement
            with the Chinese joint venture partner of YC to dispose of its
            entire interest in YC for an initial aggregate consideration of
            Rmb35,000 approximating the carrying value as of December 31, 2002.

            In September 2003, the Company entered into a supplemental agreement
            with the Chinese joint venture partner of YC to reduce the sale
            consideration to Rmb29,000. The sale was completed in January 2003
            and the Company recognized a loss on this disposition of Rmb14,724
            in 2003.

      Accordingly, the operating results of DH, YT, SD and YC have been
      segregated from continuing operations and reported as a separate line item
      on the consolidated statement of operations. The Company has also restated
      its financial statements for the year ended December 31, 2001 to present
      the operating results of these subsidiaries as discontinued operations.

      Operating results of the discontinued operations are summarized below:

<TABLE>
<CAPTION>
                                                                                             YEAR ENDED DECEMBER 31,
                                                                                     ------------------------------------
                                                                                        2001           2002         2003
                                                                                     ----------      --------      ------
                                                                                         Rmb            Rmb          Rmb
<S>                                                                                  <C>             <C>           <C>
Revenues .......................................................................      1,066,083       621,653           -
                                                                                     ==========      ========      ======
Loss from operations of discontinued components before income taxes and minority
  interests (including impairment write-downs for those business components of
  Rmb54,156 in 2001, Rmb291,648 in 2002 and RmbNil in 2003, loss on disposition
  of Rmb28,558 in 2001, gain on disposition of Rmb20,144 in 2002 and loss on
  disposition of Rmb7,017 in 2003, respectively), net of applicable income tax
  of Rmb26 in 2001, RmbNil in 2002 and 2003 ....................................       (259,052)     (345,012)     (7,760)
Minority interests .............................................................         87,268       145,174           -
                                                                                     ----------      --------      ------
Loss from discontinued operations ..............................................       (171,784)     (199,838)     (7,760)
                                                                                     ==========      ========      ======
</TABLE>

                                      F-24
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

4.    DISCONTINUED OPERATIONS - CONTINUED

      The components of assets and liabilities of the discontinued operations
      included in the Company's consolidated balance sheets as of December 31,
      2002 and 2003 are summarized below:

<TABLE>
<CAPTION>
                                                                             2002         2003
                                                                             ----         ----
                                                                              Rmb          Rmb
<S>                                                                        <C>           <C>
Cash and cash equivalents ............................................      103,667           -
Accounts receivable, net .............................................      234,490           -
Inventories ..........................................................      210,999           -
Prepaid expenses, deferred expenses and other current assets .........       12,014           -
Due from related companies ...........................................        3,874           -
                                                                           --------      ------

  Current assets of discontinued operations ..........................      565,044           -
                                                                           --------      ------

Property, plant and equipment, net ...................................      153,273           -
Other assets .........................................................          551           -
                                                                           --------      ------

  Non-current assets of discontinued operations ......................      153,824           -
                                                                           --------      ------

Short-term bank loans ................................................     (207,080)          -
Long-term bank loans - current portion ...............................      (60,000)          -
Accounts payable .....................................................     (221,389)          -
Other payables .......................................................      (38,472)          -
Accrued liabilities ..................................................      (31,204)          -
Other taxes payable ..................................................      (25,315)          -
                                                                           --------      ------

  Current liabilities of discontinued operations .....................     (583,460)          -
                                                                           --------      ------

Long-term bank loans net, of current portion .........................       (1,319)          -
Due to Chinese joint venture partners ................................      (10,721)          -
Loans from related companies .........................................         (631)          -
                                                                           --------      ------

  Non-current liabilities of discontinued operations .................      (12,671)          -
                                                                           --------      ------

Minority interests of discontinued operations ........................      (79,013)          -
                                                                           --------      ------

                                                                             43,724           -
                                                                           ========      ======
</TABLE>

                                      F-25
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

5.    NOTES RECEIVABLE

      The notes, carrying interest at commercial rates, are unsecured,
      receivable from unrelated parties and due in 2004.

6.    INVENTORIES

      Inventories by major categories are summarized as follows:

<TABLE>
<CAPTION>
                                                         2002         2003
                                                         ----         ----
                                                          Rmb          Rmb
<S>                                                    <C>           <C>
Raw materials ....................................      344,300           -
Work-in-progress .................................       21,985           -
Finished goods ...................................      442,039           -
                                                       --------      ------

Total ............................................      808,324           -
Less: Inventories of discontinued operations .....     (210,999)          -
                                                       --------      ------

                                                        597,325           -
                                                       ========      ======
</TABLE>

7.    MARKETABLE SECURITIES

      As of December 31, 2002, trading securities comprised municipal bonds in
      the PRC of which Rmb170 each was redeemed at its par value in fiscal 2002
      resulting in no gain or loss on redemption.

                                      F-26
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

8.    INVESTMENTS IN AND ADVANCES TO AFFILIATES

      WING ON:

      In April 2002, Million Good subscribed for 4,800,000,000 new ordinary
      shares of HK$0.01 each ("Subscription Shares") in Wing On, representing
      approximately 34.6% of the then outstanding share capital of Wing On, at
      an issue price of HK$0.027 per Subscription Shares for an aggregate
      subscription price of HK$132,715 (Rmb140,784, including transaction costs
      of Rmb3,304), pursuant to an agreement entered into in February 2002. Wing
      On is a Hong Kong based travel company which mainly provides package
      tours, travel, transportation and other related services. Its shares are
      listed on the Hong Kong Stock Exchange.

      The excess of the equity in the fair value of net assets of Wing On over
      Million Good's aggregate investment costs of Rmb146,552 was allocated on a
      pro rata basis to Wing On's non-current assets pursuant to the rules
      specified in SFAS No. 141, "Business Combinations" and out of which
      Rmb84,538 was allocated to property, plant and equipment that are subject
      to depreciation and amortisation. As a result, Million Good has a
      different basis in those assets than Wing On has, and such difference is
      amortised over the average depreciable lives of the underlying property,
      plant and equipment. The remainder was allocated to other equity method
      affiliates and long-term investments of Wing On.

      As part of the acquisition of an equity interest in Wing On, Million Good
      also subscribed for a two-year convertible note (the "Note") issued by
      Wing On in the principal amount of HK$120,000 (Rmb127,284). In July 2002,
      Million Good exercised certain of its conversion rights under the terms of
      the Note resulting in the issuance of 1,100,000,000 new ordinary shares of
      Wing On to Million Good. This additional investment amounted to HK$47,639
      (Rmb50,531) which comprised HK$15,373 (Rmb16,306) of the carrying value of
      the Note (net of unamortized discount on subscription) and the related
      transfer from derivative instruments of HK$32,266 (Rmb34,225). No
      conversion rights were exercised by Million Good or other convertible note
      holders during fiscal 2003.

      Had the outstanding conversion right of the Note as of December 31, 2002
      and 2003 been exercised in full for subscribing shares in Wing On on the
      date of its subscription, the Company's equity in losses of affiliates for
      fiscal 2002 and 2003 would have been increased to Rmb123,137 and
      Rmb123,145 (as restated, see Note 25), respectively.

      From May through September of 2002, several convertible note holders of
      Wing On exercised the conversion right of certain of their notes and Wing
      On also repurchased certain of its ordinary shares through unsolicited
      block transactions. This resulted in a net dilution of the Company's
      interest in Wing On. In accordance with Staff Accounting Bulletin No. 51
      "Accounting for Sales of Stock by a Subsidiary", the Company recorded a
      net unrealized loss as a reduction of additional paid-in capital totaling
      Rmb5,622 during the fiscal year 2002. The net unrealized loss represents
      the difference between the Company's carrying basis and the fair value of
      the portion of the investment in Wing On deemed to have been sold or
      acquired. The Company also recorded its

                                      F-27
<PAGE>

      share of unrealized loss of Rmb626 in additional paid-in capital as a
      result of dilution of interest in a subsidiary of Wing On during fiscal
      2002.

                                      F-28
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

8.    INVESTMENTS IN AND ADVANCES TO AFFILIATES - CONTINUED

      HZ:

      In June 2003, the Group entered into a share transfer agreement for the
      disposition of 25% equity interest in its then 51% owned subsidiary, HZ
      (which in turn owns 51.24% equity interest of FCJ). HZ and FCJ
      (hereinafter collectively referred to as "HZ Tire") were major
      subsidiaries of the Group. The sale was completed in September 2003 and as
      a result of this disposition, HZ Tire became a major affiliate of the
      Group. See note 1 for details of HZ and note 21 for segment information of
      HZ Tire prior to the disposition.

      OTHERS:

      In 1998, an agreement was entered into by HZ with three other PRC
      enterprises in Hangzhou to establish a Sino-foreign equity joint venture,
      Hangzhou Sunrise Rubber Co., Ltd. ("Hangzhou Sunrise"), to construct and
      operate a radial tire factory. The total investment and registered capital
      of this new joint venture is US$29,980 (Rmb248,000). The equity interest
      owned by HZ was 49.2% and its investment commitment was satisfied by the
      contribution of its existing radial tire project under construction into
      Hangzhou Sunrise. The radial tire factory of Hangzhou Sunrise commenced
      operations in 2000. As a result of the disposition of the 25% equity
      interest in HZ, Hangzhou Sunrise ceased to be an affiliate of the Group.

      On August 20, 2001, Sincere Ocean acquired a 33.33% of the outstanding
      issued share capital of X One Holdings Limited ("X One", formerly known as
      Yutu Holdings Limited) for a nominal consideration of US$3 (amount as
      stated) and advanced a shareholder loan of approximately Rmb1,700. During
      fiscal 2002 and 2003, Sincere Ocean advanced further loans aggregating
      Rmb4,362 and Rmb884, respectively, to X One to finance its working
      capital.

      The following table presents summarized comparative financial information
      for the Company's investments in 50% or less owned investments, over which
      the Company has the ability to exercise significant influence but does not
      control, which are accounted for using the equity method:

<TABLE>
<CAPTION>
                                                                 2001                 2002                 2003
                                                                -------            ---------             ---------
                                                                  Rmb                 Rmb                   Rmb
<S>                                                             <C>                <C>                   <C>
Revenues.............................................           127,612            1,603,559             5,307,123
Operating loss.......................................            (7,148)            (258,975)              (83,656)
Net loss.............................................            (7,583)            (323,191)             (355,237)
Current assets.......................................            31,939              671,185             2,106,765
Non-current assets...................................           479,557            1,416,045             1,575,892
Current liabilities..................................           183,369              735,234             2,277,462
Non-current liabilities..............................            96,153              511,772               326,991
Shareholders' equity.................................           231,974              840,224             1,027,988
</TABLE>

                                      F-29
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

8.    INVESTMENTS IN AND ADVANCES TO AFFILIATES - CONTINUED

      Advances to the affiliates are Rmb49,368 and Rmb90,644 as adjusted for the
      equity method loss of RmbNil and Rmb60,898 as of December 31, 2002 and
      2003, respectively. As of December 31, 2003, other than aggregated
      advances to an affiliate of Rmb90,510 as adjusted for the equity method
      loss of Rmb60,898 which bear interest at Hong Kong Prime Rate, the amounts
      are interest free. Advances to affiliates are repayable upon demand;
      however, the Company will not require repayment prior to June 2005. An
      allowance relating to these advances amounting to Rmb4,451 was charged to
      income as a component of selling, general and administrative expenses for
      fiscal 2002 and no such allowance was maintained and charged to income for
      fiscal 2001 and 2003.

      Equity ownership percentages for these affiliates are presented below:

<TABLE>
<CAPTION>
                                                             Place of
                                                          incorporation/
                    AFFILIATE                              registration      2002          2003
----------------------------------------------------      --------------    ------        ------
<S>                                                       <C>               <C>           <C>
Wing On.............................................        Bermuda         32.21%        32.21%
Hangzhou Sunrise....................................        PRC             49.20%            -
X One...............................................        Hong Kong       33.33%        33.33%
HZ..................................................        PRC                 -            26%
</TABLE>

9.    LOAN RECEIVABLE

      In late 1993, the Company acquired a majority interest in a formerly
      state-owned enterprise located in Chongqing, the PRC, through the
      formation of Chongqing C.S.I. Tyre Co. Limited ("CQ") with Chongqing Tyre
      Chief Factory ("Chongqing Factory").

      However, the Company began to renegotiate the terms of the joint venture
      agreement of CQ during fiscal 1995. Pending the outcome of the
      negotiations, the parties agreed that the capital injected by the Company
      was treated as an interest-bearing loan to Chongqing Factory with effect
      from the date of contribution. Accordingly, the original capital
      contribution of Rmb56,966 (US$6,600) was accounted for as a loan
      receivable (the "Loan") from Chongqing Factory and the financial position
      and results of operations of CQ have not been included in the consolidated
      financial statements since fiscal 1996. The Company had also made full
      provision against recorded interest income on the Loan.

      In fiscal 1997, the Company proposed to formally terminate the joint
      venture agreement of CQ (the "Termination") with Chongqing Factory.
      Pursuant to an approval document issued by the supervisory authority of
      Chongqing Factory (the "Supervisor") on April 10, 1997, the Supervisor
      agreed to the Termination as well as the transfer of the original
      investment by the Company in CQ to other projects in the Chongqing region.
      Since the Company was unable to identify a suitable project in Chongqing
      in which it could reinvest, the Company initiated arbitration proceedings
      in early 1998 (the "Proceedings") in the PRC against Chongqing Factory to
      enforce the Termination, and to recover the Loan and accrued interest up
      to June 30, 1998 as well as the related legal expenses for the
      Proceedings.

                                      F-30
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

9.    LOAN RECEIVABLE - CONTINUED

      A judgement of the Proceedings (the "Judgement") was obtained on March 31,
      2000 that the joint venture agreement of CQ was approved to be terminated
      and CQ is to be liquidated in accordance with the relevant rules and
      regulations of the PRC. Under the Judgement, the Company was entitled to
      damages (the "Damages") of approximately Rmb15,796 and Chongqing Factory
      was discharged from other claims lodged by the Company. The Damages were
      required to be paid to the Company within 45 days from the date of the
      Judgement. In view of the expected long duration of and the uncertainty of
      amounts to be recovered from the liquidation of CQ and after taking into
      consideration the compensation for financial losses to be paid by
      Chongqing Factory, the Directors of the Company made an aggregate
      provision against the outstanding principal balance of the Loan of
      approximately Rmb34,935 up to fiscal 1999.

      Subsequent to the Judgement, Rmb200 was recovered from Chongqing Factory
      in early 2001. Accordingly, the remaining balance of the Loan as of
      December 31, 2000, other than the Rmb200 recovered in early 2001, was
      fully provided for and this provision amounting to Rmb14,962 was included
      in the consolidated statement of operations for the year ended December
      31, 2000.

      In fiscal 2001, the Company had recovered a total amount of Rmb10,000 for
      the loan of which Rmb9,800 was recorded as a non-operating income. The
      Directors of the Company believe that no further amount of significance
      will be recovered from Chongqing Factory.

10.   CONVERTIBLE NOTE RECEIVABLE FROM AN AFFILIATE, NET

      As of December 31, 2002 and 2003, the Note consisted of Rmb53,339 and
      Rmb81,448, respectively, principal amount, net of unamortized discount on
      subscription of the Note. The Note bears interest at a rate of 2% per
      annum payable semi-annually in arrears. The Company has a right to convert
      the Note into ordinary shares of Wing On at a rate per share equal to
      HK$0.032, subject to adjustments, at any time prior to the Note's maturity
      date, which will be two years from the date the Note is issued.

      In accordance with SFAS No. 133 "Accounting for Derivative Instruments and
      Hedging Activities", as amended, the conversion option element of the Note
      is an embedded derivative instrument and has to be measured at fair value
      when initially recorded and at subsequent reporting dates. The fair value
      of this conversion option, representing a discount on subscription of the
      Note, was estimated using the Black-Scholes option pricing model at the
      date of subscription of the Note, and as of December 31, 2002 and 2003, at
      approximately Rmb79,553, RmbNil and RmbNil, respectively. The impact of
      changes in fair value of this conversion option, taking into account the
      portion of the conversion option exercised during fiscal 2002 (see note
      8), was an expense of approximately Rmb45,328 and had been recognized in
      the consolidated statement of operations for fiscal 2002.

      See note 24 for details of a significant subsequent event on convertible
      note receivable.

                                      F-31
<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

11.   PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                                 2002         2003
                                                                                 ----         ----
                                                                                  Rmb          Rmb
<S>                                                                             <C>           <C>
At cost:

Land use rights............................................................         3,791       -
Buildings..................................................................       295,375       -
Machinery and equipment....................................................       767,811       -
Motor vehicles.............................................................        24,109       -
Furniture, fixtures and office equipment...................................        32,893       -
Construction-in-progress...................................................       103,047       -
                                                                                ---------     ---

Total......................................................................     1,227,026       -
Less: Accumulated depreciation and amortization............................      (604,059)      -
                                                                                ---------     ---

Total net book value.......................................................       622,967       -
Less: Property, plant and equipment of discontinued operations.............      (153,273)      -
                                                                                ---------     ---

                                                                                  469,694       -
                                                                                =========     ===
</TABLE>

12.   BANK LOANS

      As of December 31, 2002 and 2003, Rmb16,000 and RmbNil of the long-term
      bank loans were guaranteed by third parties, respectively, including
      amount relating to discontinued operations of Rmb16,000 and RmbNil,
      respectively. Rmb20,000 and RmbNil of the long-term bank loans as of
      December 31, 2002 and 2003, respectively, were also guaranteed by related
      companies. Long-term bank loans bear fixed interest rates and had average
      annual interest rates of approximately 7.46% in 2001 and 7.86% in 2002.

      Short-term bank loans included United States dollar loans of US$84,743
      (Rmb701,672) and US$Nil as of December 31, 2002 and 2003, respectively.

      As of December 31, 2002 and 2003, Rmb683,106 and RmbNil of the short-term
      bank loans were guaranteed by related companies, respectively, including
      amount relating to discontinued operations of Rmb93,000 and RmbNil,
      respectively. As of December 31, 2002, Rmb7,500 of the short-term bank
      loans were also guaranteed by third parties. Short-term bank loans of
      Rmb127,700 and RmbNil were secured by buildings and equipment of two of
      the PRC entities as of December 31, 2002 and 2003, respectively, including
      Rmb70,700 and RmbNil relating to discontinued operations, respectively.
      The short-term bank loans carried fixed interest rates and the average
      annual interest rates were approximately 6.95% in 2001 and 5.11% in 2002.

                                      F-32
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

12.   BANK LOANS - CONTINUED

      In addition to the above loan facilities provided by banks, the Group had
      available import credit facilities amounting to Rmb124,200 in 2002 and
      RmbNil in 2003, of which Rmb70,794 in 2002 and RmbNil in 2003 had been
      utilized. The Group also had available letters of credit facilities which
      were secured by bank deposits of the Group of Rmb16,178 in 2002 and RmbNil
      in 2003; no facilities were utilized as of December 31, 2002 and 2003.
      Interest rates were generally based on the banks' best lending rates plus
      1% to 2% per annum, subject to fluctuations at the banks' discretion. The
      banking facilities were subject to annual review by the banks.

13.   PROVISION FOR INCOME TAXES

      The components of profit from continuing operations before income taxes
      and minority interests are as follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                         ------------------------------
                                                          2001        2002       2003
                                                         ------     --------   --------
                                                          Rmb         Rmb         Rmb
<S>                                                      <C>        <C>        <C>
The PRC..............................................    60,471      154,900    117,650
All other jurisdictions (as restated,
  see Note 25).......................................     7,836     (131,045)  (117,499)
                                                         ------     --------   --------

                                                         68,307       23,855        151
                                                         ======     ========   ========
</TABLE>

      The Company was incorporated under the laws of Bermuda and, under current
      Bermuda law, is not subject to tax on income or on capital gains. The
      Company has received an undertaking from the Ministry of Finance of
      Bermuda pursuant to the provisions of the Exempted Undertakings Tax
      Protection Act, 1966, as amended, that in the event that Bermuda enacts
      any legislation imposing tax computed on profits or income, including any
      dividend or capital gains withholding tax, or computed on any capital
      asset, gain or appreciation, or any tax in the nature of estate duty or
      inheritance tax, then the imposition of any such tax shall not be
      applicable to the Company or to any of its operations or the shares,
      debentures or other obligations of the Company until March 28, 2016. This
      undertaking is not to be construed so as to (i) prevent the application of
      any such tax or duty on such person as an ordinary resident in Bermuda; or
      (ii) prevent the application of any tax payable in accordance with the
      provision of the Land Tax Act, 1967 or otherwise payable in relation to
      any land leased to the Company in Bermuda.

      Except as stated in the following paragraphs, the Group's PRC entities and
      other subsidiaries are subject to income taxes calculated at tax rates
      (ranging from 15% to 44%) on the taxable income as reported in the
      statutory financial statements adjusted for taxation based on tax laws
      prevailing at their respective places of incorporation and operations.

                                      F-33
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

13.   PROVISION FOR INCOME TAXES - CONTINUED

      In accordance with the relevant income tax laws applicable to Sino-foreign
      joint ventures in the PRC, the Group's PRC entities, other than FCJ,
      having a joint venture term of not less than 10 years and engaging in
      production industries, are fully exempt from the Chinese State unified
      income tax for two years starting from the first profit-making year (after
      utilization of available accumulated losses carried forward), followed by
      a 50% reduction of the Chinese State unified income tax for the next three
      years thereafter ("tax holiday"). In accordance with the same tax laws,
      the PRC entities, other than FCJ, are also exempt from the PRC local
      income tax. Accumulated losses brought forward by the PRC entities, not
      exceeding a period of five years, can be offset against the profits to
      arrive at the assessable profits for income tax computation purposes. A
      summary of the tax concessions available to the PRC entities for fiscal
      2001 and 2002 is as follows:

<TABLE>
<CAPTION>
              CHINESE STATE
                 UNIFIED     CHINESE LOCAL    CONCESSION FROM           CONCESSION             YEAR OF
              INCOME TAX      INCOME TAX       CHINESE STATE            FROM CHINESE         COMMENCEMENT
PRC ENTITIES     RATE (%)       RATE (%)     UNIFIED INCOME TAX       LOCAL INCOME TAX      OF TAX HOLIDAY
------------  -------------  -------------  --------------------  ------------------------  --------------
<S>           <C>            <C>            <C>                   <C>                       <C>
HZ                15.0           1.5        None                  Full exemption for           1993
                                                                    10 years starting from
                                                                    the commencement
                                                                    of tax holiday

DH                24.0           3.0        None                  Same as HZ                   1992

YC                24.0           3.0        Specifically allowed  Full exemption for           1994
                                              to extend the         6 years starting from
                                              50% reduction         commencement of
                                              for 2001              tax holiday followed
                                                                    by a 50% reduction
                                                                    for the next 4 years
                                                                    thereafter

FCJ               30.0           3.0        None                  None                         N/A
</TABLE>

      During fiscal 2003, the PRC entities are not entitled to any tax
      concessions as all tax concession periods have expired. During fiscal 2001
      and 2002, if the PRC entities were neither in the tax holiday period nor
      had they been specifically allowed special tax concessions, they would
      have recorded additional income tax expenses of Rmb1,174 and Rmb1,960, the
      consolidated net loss would have been increased by Rmb599 and Rmb1,000,
      and basic and diluted net loss per share would have been increased to
      Rmb15.08 and Rmb29.03 for the years ended December 31, 2001 and 2002,
      respectively.

                                      F-34
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

13.   PROVISION FOR INCOME TAXES - CONTINUED

      The PRC entities are required to provide for VAT and CT which are the
      principal taxes on the sales of tangible goods and the provision of
      certain specified services. The general VAT rate applicable to the PRC
      entities is 17% while CT is calculated at 10% on the domestic sales
      amount, except that the 10% CT on radial tire products was abolished since
      January 1, 2001. VAT and CT are recognized on an accrual basis and sales
      are recorded net of these taxes.

      The reconciliation of the effective income tax rate based on profit from
      continuing operations before income taxes and minority interests to the
      statutory income tax rates in Hong Kong, the PRC and the United States is
      as follows:

<TABLE>
<CAPTION>
                                                        2001    2002         2003
                                                        ----    ----     -------------
                                                         Rmb     Rmb          Rmb
                                                                         (as restated,
                                                                          see Note 25)
<S>                                                     <C>     <C>      <C>
Weighted average statutory tax rates.................     15%    17%             18%
Effect of tax holiday................................     (1%)   (8%)             -
Permanent differences relating to
  non-taxable income and non-deductible
  expenses...........................................      1%    74%          8,272%
Valuation allowance..................................    (11%)   (5%)             -
Others...............................................      -     (4%)        (1,275%)
                                                         ---     --          ------

Effective tax rate...................................      4%    74%          7,015%
                                                         ===     ==          ======
</TABLE>

      Provision for income taxes consists of:

<TABLE>
<CAPTION>
                                                         2001       2002       2003
                                                        ------     ------     ------
                                                         Rmb         Rmb        Rmb
<S>                                                     <C>        <C>        <C>
Current..............................................   10,581     23,847     13,732
Deferred.............................................     (889)    (5,071)    (3,140)
Adjustment of valuation allowance....................   (7,238)    (1,079)         -
                                                        ------     ------     ------

                                                         2,454     17,697     10,592
                                                        ======     ======     ======
</TABLE>

                                      F-35
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

13.   PROVISION FOR INCOME TAXES - CONTINUED

      The tax impact of temporary differences gives rise to the following
      deferred tax assets (liabilities):

<TABLE>
<CAPTION>
                                                                                   2002         2003
                                                                                  -------      -------
                                                                                    Rmb          Rmb
<S>                                                                               <C>          <C>
Allowance for doubtful receivables.........................................         9,931            -
Allowance for inventory obsolescence.......................................           508            -
Provision for warranty expenses............................................         3,911            -
Impairment loss provision for long-lived assets............................           297            -
Depreciation...............................................................         3,586            -
Tax losses carried forward.................................................        16,562       16,562
Others.....................................................................           519            -
Valuation allowance for deferred tax assets................................       (21,037)     (16,562)
                                                                                  -------      -------

                                                                                   14,277            -
                                                                                  =======      =======
</TABLE>

      As of December 31, 2002 and 2003, the tax losses from continuing
      operations carried forward derived principally from subsidiaries subject
      to US income tax, which amounted to Rmb16,562 and expire at various times
      through 2006. The loss carry forwards can only be utilized by the
      subsidiaries generating the losses. The valuation allowance refers to the
      portion of the deferred tax assets that are not "more likely than not"
      going to be realized.

14.   CAPITAL STOCK

      CAPITAL STOCK

      Each share of Supervoting Common Stock is entitled to 10 votes whereas
      each share of Common Stock is entitled to one vote. The Common Stock is
      identical to the Supervoting Common Stock as to the payment of dividends.
      Except for the difference in voting rights described above, the
      Supervoting Common Stock and the Common Stock rank pari passu in all
      respects.

      SHARE CAPITAL

      The Company was incorporated with an initial share capital of 1,200,000
      Common Stock with a par value of US$0.01 each which was later reclassified
      to Supervoting Common Stock. On May 14, 1993, the authorized share capital
      of the Company was further increased from US$12 to US$700 by the creation
      of 50,000,000 shares of Common Stock of par value US$0.01 each and
      18,800,000 shares of Supervoting Common Stock of par value US$0.01 each.
      6,000,000 shares of Supervoting Common Stock (including the 1,200,000
      Common Stock reclassified to Supervoting Common Stock) were issued to the
      ultimate parent company of the Company as a consideration for the transfer
      of two PRC entities to the Company and on June 23, 1993, the Company
      redeemed 3,000,000 shares of its outstanding Supervoting Common Stock at
      their par value of US$0.01 per share.

      There were no movements in share capital of the Company during fiscal
      2001, 2002 or 2003.

                                      F-36
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

15.   STOCK OPTIONS

      Pursuant to an executive stock option scheme adopted on June 7, 1994, the
      Company grants options to officers and employees, and directors who are
      also employees, of the Company and its subsidiaries to subscribe Common
      Stock of the Company, subject to a maximum of 910,000 shares. Shares of
      Common Stock to be issued upon the exercise of options will be authorized
      and unissued shares. An independent committee (the "Committee") of the
      Board of Directors, consisting of non-employee directors has been formed
      to monitor and consider the granting of options under the scheme. The
      subscription price will be determined by the Committee, and will not be
      less than 80% of the average closing market price of shares of Common
      Stock over the five trading days immediately preceding the date of offer
      of the option.

      A summary of stock options activity during the three years ended December
      31, 2001, 2002 and 2003 is as follows:

<TABLE>
<CAPTION>
                                                                    WEIGHTED
                                                                     AVERAGE
                                                    NUMBER OF       EXERCISE
                                                     SHARES           PRICE
                                                    ---------       --------
                                                                        US$
<S>                                                 <C>             <C>
Outstanding at January 1, 2001...................     239,990           6.76
Lapsed...........................................    (219,990)          6.47
                                                     --------

Outstanding at December 31, 2001 and 2002........      20,000           9.94
Lapsed...........................................     (20,000)          9.94
                                                     --------

Outstanding at December 31, 2003.................           -
                                                     ========
</TABLE>

      No stock options were granted in fiscal 2001, 2002 or 2003.

      All the above share options vested immediately upon the date of grant and
      the exercise prices were set at 100% of the market prices of the shares of
      the Company prevailing at the dates of grant. Accordingly, no compensation
      expense was recognized in the consolidated statements of operations.

                                      F-37
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

16.   OBLIGATIONS AND COMMITMENTS

      As of December 31, 2002 and 2003, the Group had outstanding capital
      commitments for construction of factory premises and purchases of
      equipment amounting to approximately Rmb219,945 and RmbNil, respectively,
      including commitments of subsidiaries classified as discontinued
      operations amounting to Rmb61,913 and RmbNil, respectively.

      The Group leases certain of its warehouses under non-cancellable operating
      leases expiring at various dates through 2008. Rental expense under
      operating leases was Rmb5,156, Rmb4,397 and Rmb2,250 for the years ended
      December 31, 2001, 2002 and 2003, respectively, including amount relating
      to discontinued operations of Rmb1,811, RmbNil and RmbNil, respectively.

      As of December 31, 2003, the Group's subsidiaries with continuing
      operations and the subsidiaries classified as discontinued operations did
      not have any significant commitments under operating leases.

      The Company also records an estimate of the product warranty obligation at
      the time of sale based on the Company's historical experience. Changes in
      product warranty provision are as follows:

<TABLE>
<CAPTION>
                                                CONTINUING OPERATIONS                  DISCONTINUED OPERATIONS
                                          ---------------------------------      ---------------------------------
                                           2001          2002         2003         2001         2002         2003
                                          -------       ------      -------      -------       ------      -------
                                            Rmb          Rmb           Rmb          Rmb          Rmb          Rmb
<S>                                       <C>           <C>         <C>          <C>           <C>         <C>
Balance at beginning of year...........    13,130       19,972       23,720       14,632       18,000       13,337
Warranties paid........................   (45,057)     (56,183)     (46,019)     (37,125)      (9,988)           -
Warranty provision.....................    51,899       59,931       66,799       45,697        5,325            -
Eliminated on disposition of business
  components...........................         -            -      (44,500)      (5,204)           -      (13,337)
                                          -------      -------      -------      -------       ------      -------

Balance at end of year.................    19,972       23,720            -       18,000       13,337            -
                                          =======      =======      =======      =======       ======      =======
</TABLE>

17.   DISTRIBUTION OF PROFIT

      Dividends from the PRC entities will be declared based on the profits as
      reported in their statutory financial statements. Such profits will be
      different from the amounts reported under U.S. GAAP. As of December 31,
      2002, the Company's subsidiaries in the PRC had an aggregate accumulated
      deficit of Rmb137,229, as reported in their statutory financial
      statements, including deficit of Rmb269,972 of the PRC entities classified
      as discontinued operations. As of December 31, 2003, the Company had no
      subsidiaries established in the PRC and the Company's affiliates in the
      PRC had an aggregate accumulated deficit of Rmb106,454 as reported in
      their statutory financial statements.

      The Company proposed and paid dividends of US$180 (Rmb1,493), US$Nil and
      US$Nil for the years ended December 31, 2001, 2002 and 2003, respectively,
      on the outstanding Supervoting Common Stock and Common Stock.

                                      F-38
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

18.   RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS

      (a)   DUE FROM/TO RELATED COMPANIES

            The amounts due from related companies primarily arise from sales of
            tires and are unsecured, non-interest bearing and repayable at the
            end of credit periods granted ranging from 90 days to 180 days.
            Historically, the Company has not experienced losses related to
            these receivables with the exception of an allowance for doubtful
            accounts amounting to Rmb27,000 charged to the consolidated
            statement of operations during fiscal 2001. The management reviewed
            the recoverability of these receivables during fiscal 2002 and
            recognized a net recovery of Rmb5,016 in the consolidated statement
            of operations for fiscal 2002.

            As of December 31, 2002, the loans from related companies
            represented funds advanced to the Company and were unsecured,
            non-interest bearing and had no fixed repayment terms. As of
            December 31, 2003, the Company had no amounts due from/to related
            companies as a result of the disposition of its subsidiaries in the
            PRC.

      (b)   LAND USE RIGHT

            The Taiyuan municipal government granted its approval for Taiyuan
            Rubber Factory, the Chinese joint venture partner of DH, to use the
            parcel of land on which DH's bias tire factory is located, but had
            not issued any land use right certificate. Taiyuan Rubber Factory
            had agreed in principle to lease the land to DH for the 50-year term
            of the joint venture and indicated that there would be a rent-free
            period during the initial five-year period, an annual fee of Rmb129
            for the following five-year period, and an annual fee of Rmb258 for
            the remaining period of the lease. A lease contract had not yet been
            signed between the parties, and such lease would be subject to the
            prior formal transfer of the land use right to Taiyuan Rubber
            Factory from the Taiyuan municipal government. Taiyuan Rubber
            Factory had undertaken to bear any cost associated with the
            arrangements to be made for the transfer and to bear any loss which
            DH may suffer as a result of the failure to effect the transfer;
            such agreement ceased upon disposition of the Company's entire
            interest in the bias tire factory to a third party during fiscal
            2001.

      (c)   MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT

            Pursuant to a management and administrative services agreement
            between the Company and the ultimate parent company in 1993 and
            renewed in 1997 and 2000, for a term of three years, the ultimate
            parent company will provide certain management services to the
            Company for an annual fee of US$30 (Rmb248). In addition, the
            Company has agreed to reimburse the ultimate parent company for
            administrative services of approximately Rmb4,127, Rmb4,731 and
            Rmb5,708 for the years ended December 31, 2001, 2002 and 2003,
            respectively, rendered on behalf of the Company on a cost plus 5%
            basis.

                                      F-39
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

18.   RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS - CONTINUED

      (d)   SALES TO/PURCHASES FROM RELATED PARTIES

            HZ recorded sales to related companies of approximately Rmb184,202,
            Rmb209,112 and Rmb194,971 that have been reflected in the Company's
            consolidated financial statements for the years ended December 31,
            2001, 2002 and 2003, respectively.

            HZ paid subcontracting charges to an affiliate of approximately
            Rmb127,989, Rmb199,373 and Rmb277,470 for tire processing that have
            been reflected in the Company's consolidated financial statements
            for the years ended December 31, 2001, 2002 and 2003, respectively.

            These transactions were carried out after negotiations between HZ
            and the respective related companies in the ordinary course of
            business and on the basis of the estimated market value as
            determined by the management of HZ.

      (e)   INDEMNIFICATION FROM A CHINESE JOINT VENTURE PARTNER OF ACCOUNTS
            RECEIVABLE BALANCE

            The Chinese joint venture partner of DH agreed to indemnify DH
            against any financial losses resulting from any uncollectible trade
            and other receivable balance transferred into DH by the predecessor
            state-owned enterprise upon the establishment of the joint venture.
            As of December 31, 2000, the Chinese joint venture partner of DH
            agreed to indemnify Rmb4,403 of these receivable balances. Such
            arrangement ceased upon disposition of the Company's entire interest
            in the bias tire factory of DH to a third party during fiscal 2001.

      (f)   CONTINGENT LIABILITIES

            As of December 31, 2002, HZ had undertaken to guarantee, without
            charge, certain bank loan facilities of approximately Rmb160,000
            granted by certain banks to an affiliate in the PRC.

      (g)   LOAN GUARANTEES PROVIDED BY RELATED COMPANIES

            Certain parties guaranteed certain of the Group's bank borrowings at
            no cost to the Company as of December 31, 2002. Details of the
            borrowings are shown in note 12.

                                      F-40
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

19.   DUE FROM/TO CHINESE JOINT VENTURE PARTNERS

      (i)   As of December 31, 2002, the amounts due from Chinese joint venture
            partners represented:

            (a)   advances made from FCJ to the Chinese joint venture partner;
                  and

            (b)   payment of various operating expenses by HZ and FCJ on behalf
                  of their Chinese joint venture partners.

            These amounts were unsecured, non-interest bearing and had no fixed
            repayment terms.

      (ii)  As of December 31, 2002, the amounts due to Chinese joint venture
            partners represented:

            (a)   the excess of the book value of the net assets contributed by
                  the Chinese joint venture partners upon the formation of FCJ
                  over their shares of the registered capital of these joint
                  venture enterprises;

            (b)   other working capital assets, consisting primarily of
                  inventories, property, plant and equipment, less accounts
                  payable and bank loans of the Chinese joint venture partners,
                  loaned to the FCJ by the Chinese joint venture partners; and

            (c)   advances provided by the Chinese joint venture partners to FCJ
                  to finance their working capital requirements.

            These amounts were unsecured and had no stipulated fixed repayment
            dates. Interest was charged on Rmb3,000 of the outstanding balance
            due to a Chinese joint venture partner of a subsidiary classified as
            discontinued operations at its effective cost of borrowing of 6.1%
            per annum for the year ended December 31, 2002. The remaining
            outstanding balances are non-interest bearing.

            As of December 31, 2003, the Company had no amounts due from/to
            Chinese joint venture partners as a result of the Company's
            disposition of a subsidiary during fiscal 2003.

                                      F-41
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

20.   STAFF RETIREMENT PLANS

      All of the Chinese employees of the PRC entities are entitled to an annual
      pension on retirement, which is equal to their ending basic salaries at
      their retirement dates. The Chinese government is responsible for the
      pension liabilities to these retired employees. The PRC entities are only
      required to make specified contributions to the state-sponsored retirement
      plan calculated at rates ranging from 20% to 23.5% of average monthly
      salaries for the years ended December 31, 2001, 2002 and 2003. The
      expenses reported in the consolidated statements of operations related to
      these arrangements were Rmb21,438, Rmb26,549 and Rmb17,940 for the years
      ended December 31, 2001, 2002 and 2003, respectively.

      Certain PRC entities and their employees are also required to contribute
      5% of the monthly salaries to designated bank accounts opened by these
      subsidiaries under a regulation implemented by certain PRC municipal
      governments. Upon resignation or retirement of the employees, they are
      entitled to withdraw the principal and related interest from these bank
      accounts to purchase housing. These bank deposits cannot be withdrawn for
      other uses by these PRC entities. As of December 31, 2002 and 2003, such
      restricted bank deposits amounted to Rmb10,005 and RmbNil, respectively.

                                      F-42
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

21.   SEGMENT INFORMATION

      The Group operates principally in the tire manufacturing industry and has
      only one reportable segment for continuing operations based on HZ Tire,
      the Company's major PRC entities operating in Hangzhou. This reportable
      segment is a strategic business unit and is managed separately. The
      accounting policies of this segment are the same as those described in the
      summary of significant accounting policies. All intercompany transactions
      have been eliminated.

      The remaining segment includes other subsidiaries of the Company except
      for DH, SD, YT and YC which are presented separately under the
      discontinued operations segment. Corporate identifiable assets include
      primarily cash and goodwill. The chief operating decision maker evaluates
      the operating income of each segment in assessing performance and
      allocating resources between segments.

<TABLE>
<CAPTION>
                                                                                  2001
                                                      -----------------------------------------------------------
                                                                                                     DISCONTINUED
                                                                   CONTINUING OPERATIONS              OPERATIONS
                                                      -----------------------------------------------------------
(Rmb)                                                  HZ TIRE     OTHERS    CORPORATE     TOTAL
                                                      ---------   --------   ---------    ---------
<S>                                                   <C>         <C>        <C>          <C>        <C>
Revenues............................................  2,087,885          -           -    2,087,885    1,066,083
Depreciation and amortization.......................     54,606          -         370       54,976       63,423
Impairment loss provision for long-lived assets.....          -          -           -            -       50,133
Impairment loss provision for goodwill..............          -          -           -            -        4,023
Provision for an amount due from a related company..     27,000          -           -       27,000            -
Operating income (loss).............................    101,878       (315)    (12,102)      89,461     (182,847)
Recovery of impairment loss on loan rveceivable.....          -          -       9,800        9,800            -
Equity in losses of affiliates......................      2,486          -           -        2,486            -
Loss on disposition of discontinued components......          -          -           -            -       28,588
Capital expenditures................................    123,876          -           -      123,876       30,309
Identifiable assets.................................  1,545,627    231,955     106,867    1,884,449    1,094,516
Included in identifiable assets above are
  the following:
  - Investments in and advances to affiliates.......    102,022          -           -      102,022            -
  - Deferred income taxes assets....................      8,127          -           -        8,127            -
</TABLE>

                                      F-43
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

21.   SEGMENT INFORMATION - CONTINUED

<TABLE>
<CAPTION>
                                                                                  2002
                                                      ------------------------------------------------------------
                                                                                                       DISCONTINUED
                                                                   CONTINUING OPERATIONS                OPERATIONS
                                                      ------------------------------------------------------------
(Rmb)                                                  HZ TIRE     OTHERS      CORPORATE     TOTAL
                                                      ---------   --------     ---------    ---------
<S>                                                   <C>         <C>          <C>          <C>        <C>
Revenues..........................................    2,610,076          -             -    2,610,076      621,653
Depreciation and amortization.....................       63,687          -             -       63,687       42,328
Impairment loss provision for long-lived assets...            -          -             -            -      291,648
Change in fair value of call option...............            -    (45,328)            -      (45,328)           -
Operating income (loss)...........................      188,429     (4,854)      (11,479)     172,096      (70,965)
Equity in (earnings) losses of affiliates.........       (3,591)    93,111             -       89,520            -
Gain on disposition of discontinued components....            -          -             -            -       20,144
Capital expenditures..............................      210,264          -             -      210,264       77,272
Identifiable assets...............................    1,969,286    148,181        44,345    2,161,812      718,868
Included in identifiable assets above are
  the following:
  - Investments in and advances to affiliates.....      137,156     95,826             -      232,982            -
  - Deferred income taxes assets..................       14,277          -             -       14,277            -
</TABLE>

<TABLE>
<CAPTION>
                                                                              2003
                                                  ------------------------------------------------------------
                                                                                                   DISCONTINUED
                                                               CONTINUING OPERATIONS                OPERATIONS
                                                  ------------------------------------------------------------
(Rmb)                                              HZ TIRE     OTHERS      CORPORATE     TOTAL
                                                  ---------   --------     ---------    ---------
<S>                                               <C>         <C>          <C>          <C>        <C>
Revenues........................................  2,808,369          -             -    2,808,369            -
Depreciation and amortization...................     50,889          -             -       50,889            -
Operating income (loss).........................    121,849       (456)      (20,647)     100,746            -
Equity in (earnings) losses of affiliates
  (as restated, see Note 25)....................    (15,120)    92,568             -       77,448            -
Loss on disposition of discontinued components..          -          -             -            -       (7,017)
Capital expenditures............................    256,872          -             -      256,872            -
Identifiable assets (as restated, see Note 25)..    176,547    310,123        22,996      509,666            -
Included in identifiable assets above are
  the following:
  - Investments in and advances to
     affiliates (as restated, see Note 25)......    176,547    133,279             -      309,826            -
  - Deferred income taxes assets................          -          -             -            -            -
</TABLE>

      Revenues of the Group are primarily derived from sales of tires and their
      geographical analysis of revenues is as follows:

<TABLE>
<CAPTION>
                                            CONTINUING OPERATIONS                DISCONTINUED OPERATIONS
                                        -------------------------------          -----------------------
                                            YEAR ENDED DECEMBER 31,               YEAR ENDED DECEMBER 31,
                                        2001         2002          2003         2001        2002       2003
                                        ----         ----          ----         ----        ----       ----
                                         Rmb          Rmb          Rmb           Rmb        Rmb         Rmb
<S>                                   <C>          <C>          <C>            <C>        <C>          <C>
PRC............................       1,632,962    2,061,236    2,248,825      818,269    422,878         -
Middle East Countries..........         112,540      165,664      101,718       17,783     99,682         -
US and Canada..................          70,486      137,933      143,054       86,326     67,178         -
Others.........................         271,897      245,243      314,772      143,705     31,915         -
                                      ---------    ---------    ---------    ---------    -------      ----

                                      2,087,885    2,610,076    2,808,369    1,066,083    621,653         -
                                      =========    =========    =========    =========    =======      ====
</TABLE>

      Identifiable assets of the Group are principally located in the PRC.

                                      F-44
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

22.   OTHER SUPPLEMENTAL INFORMATION

      The following items are included in the consolidated statements of
      operations:

<TABLE>
<CAPTION>
                                                 CONTINUING OPERATIONS                DISCONTINUED OPERATIONS
                                           -------------------------------         ----------------------------
                                                 YEAR ENDED DECEMBER 31,              YEAR ENDED DECEMBER 31,
                                           2001         2002          2003         2001         2002       2003
                                           ----         ----          ----         ----         ----       ----
                                            Rmb          Rmb           Rmb          Rmb          Rmb        Rmb
<S>                                        <C>          <C>          <C>          <C>          <C>         <C>
Foreign exchange losses (gain), net...        466         (152)      (1,810)         220          153        -
Sales taxes...........................     47,981       40,639       48,954       63,081       33,137        -
Shipping and handling costs...........     67,942       62,707       80,296       49,970       34,072        -
</TABLE>

23.   LEGAL PROCEEDINGS

      In 1994, the Company acquired a 70% indirect interest in Dalian C.S.I.
      Rubber Co. Ltd. ("DL") from its ultimate parent company. Subsequent to the
      completion of the acquisition, the Company was made aware that the Chinese
      joint venture partner of DL had entered into another joint venture
      contract with a major United States manufacturer of tires and rubber
      products (the "Tire Manufacturer"). The terms of the new joint venture
      contract involved the sale to the Tire Manufacturer of the same radial
      tire factory and related facilities (the "Assets") which were to have been
      contributed into DL by the Chinese joint venture partner under the
      original joint venture agreement.

      On March 14, 1995, the Company and its subsidiary, Orion Tire filed a
      claim in the US against the Tire Manufacturer for compensation in
      connection with the Tire Manufacturer's alleged wrongful acquisition of
      the Assets.

      In August 1999, the US District Court for the Central District of
      California (the "District Court") granted the Tire Manufacturer's motion
      for summary judgment to dismiss Orion Tire's merits of the case.

      In November 2001, the US Court of Appeals for the Ninth Circuit reversed
      the judgment of the District Court and remanded Orion Tire's claim against
      the Tire Manufacturer for further proceedings. The Company and Orion Tire
      then proceeded to claim for economic advantage against the Tire
      Manufacturer. During the two years ended December 31, 2002 and 2003, there
      have been no significant development of these legal proceedings.

      No representations regarding the outcome of the case can be made at this
      time. As of the date of this report, the Directors of the Company believe
      the outcome of the proceedings will not have any material adverse
      financial effect on the Company or any of the operating subsidiaries.

                                      F-45
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

24.   SUBSEQUENT EVENT

      On January 13, 2004 and March 17, 2004, Wing On entered into agreements
      with the Company and another holder of its convertible notes in relation
      to the issuance of new convertible notes, whereby Wing On would issue new
      convertible notes to the Company for a consideration of HK$155,000
      (Rmb165,183), of which HK$84,800 (Rmb89,956) will be settled by the
      cancellation of the Company's current convertible notes of Wing On and the
      remaining balance will be satisfied in cash by the Company. The new
      convertible notes entitles the Company to convert into new shares of Wing
      On during a period of three years from the date of issue, at an initial
      conversion price of HK$0.02 per share, subject to adjustments.

      At the date of this report, these arrangements are subject to the approval
      of Wing On's Shareholders that do not have an interest in Wing On's
      current convertible notes.

25.   RESTATEMENT

      Subsequent to issuance of the 2003 financial statements, the Company
      determined its previously issued consolidated financial statements for the
      year ended December 31, 2003 required restatement to correct the Group's
      investment in affiliates as of December 31, 2003 and its equity in losses
      of affiliates for the year then ended.

      As detailed in note 8, when the Group acquired an equity interest in Wing
      On in 2002, the excess of the equity in the fair value of net assets of
      Wing On over the Group' aggregate investment cost was allocated on a pro
      rata basis to Wing On's non-current assets pursuant to SFAS No. 141. As a
      result, the Group has a different basis in the assets of Wing On than
      those recorded by Wing On.

      During 2003, Wing On disposed of a substantial part of its non-current
      assets and the Group should have computed the gain or loss on the disposal
      of these non-current assets using the adjusted basis instead of the
      carrying value in Wing On's books and records. As a result, the Group's
      investment in affiliates as of December 31, 2003 has been increased by
      Rmb42,769 and its equity in losses of affiliates for the year then ended
      has been reduced by Rmb42,769.

                                      F-46
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

25.   RESTATEMENT - continued

      The consolidated financial statements for the years ended December 31,
      2003 have been restated from the amounts previously reported. A summary of
      the significant effects of the restatement is as follows:

      STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
      (in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31, 2003
                                                          ----------------------------
                                                          AS PREVIOUSLY          AS
(Rmb)                                                        REPORTED         RESTATED
------------------------------------------------------    -------------      ---------
<S>                                                       <C>                <C>
Non-operating expenses:
  Equity in loses of affiliates.......................         (120,217)       (77,448)
Loss from continuing operations.......................          (99,550)       (56,781)
Net loss..............................................         (107,310)       (64,541)
Comprehensive loss....................................         (105,674)       (62,905)
Loss per common share:
  Basic and diluted - continuing operations...........           (11.04)         (6.30)
</TABLE>

      BALANCE SHEETS INFORMATION
      (in thousands)

<TABLE>
<CAPTION>
                                                           AS OF DECEMBER 31, 2003
                                                         --------------------------
                                                         AS PREVIOUSLY       AS
(Rmb)                                                       REPORTED      RESTATED
------------------------------------------------------   -------------    ---------
<S>                                                      <C>              <C>
Assets
  Investment in and advance to affiliates.............         267,057      309,826
Total assets..........................................         466,897      509,666

Liabilities and shareholders' equity
  Shareholders' equity
    Accumulated deficit...............................        (605,622)    (562,853)
  Total shareholders' equity..........................         430,056      472,825
</TABLE>

      In addition, certain numbers previously disclosed in the following
      footnotes have been restated:

      Note 2 (h), "Goodwill"
      Note 8 "Investments in and advances to affiliates"
      Note 13 "Provision for income taxes"
      Note 21 "Segment information"

                                    * * * * *

                                      F-47
<PAGE>

                                   SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F/A and that it has duly caused and authorized the undersigned to
sign this annual report on its behalf.

                                                       CHINA ENTERPRISES LIMITED
                                                                    (REGISTRANT)

                                                      /s/ Chow Chun Man, Jimmy
                                                      ------------------------
                                                        CHOW CHUN MAN, JIMMY
                                                       Chief Financial Officer

Date: December 12, 2005