<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F
[   ]   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
        SECURITIES EXCHANGE ACT OF 1934

                                       OR

[ x ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                       OR

[   ]   TRANSITION 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 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


<PAGE>


                           FORWARD-LOOKING STATEMENTS

      This annual report contains certain forward-looking statements within the
meaning of Section 21E of the Securities Act of 1934, as amended. These
forward-looking statements are, by their nature, subject to significant risks
and uncertainties, and include, without limitation, statements relating to:

      -   our business strategy;

      -   the planned re-engineering of our tire plants and related
          applications;

      -   future developments in the tire industry in China and changes in
          government policies;

      -   future developments in the Asian travel industry; and

      -   other statements relating to our future business development and
          financial performance.

      The words "anticipate", "believe", "estimate", "expect", "intend" and
similar expressions, as they relate to us, are intended to identify certain of
such forward-looking statements. We do not intend to update these
forward-looking statements.

      These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. Actual results may
differ materially from information contained in the forward-looking statements
as a result of various internal and external factors. For a discussion of
certain of those factors, see "Risk Factors" in this annual report.

                            EXCHANGE RATE INFORMATION

      Unless otherwise specified, all references in this document to "U.S.
Dollars", "Dollars", "US$" or "$" are to United States dollars; all references
to "Renminbi" or "Rmb" are to Renminbi, which is the legal tender currency of
the People's Republic of China (the "PRC" or "China"); all references to "HK$"
are to Hong Kong dollars, which is the legal tender currency of the Hong Kong
Special Administrative Region ("Hong Kong"). 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, 2002. 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. See section "Exchange Control" under "Item 10. Additional
Information" of this annual report for more details.

      References and statements contained in this document regarding China do
not apply to Taiwan nor the Republic of China.


                                       2
<PAGE>


                                TABLE OF CONTENTS


                                                                            Page

PART I
    Item 1    Identity of Directors, Senior Management and Advisers            4
    Item 2    Offer Statistics and Expected Timetable                          5
    Item 3    Key Information                                                  6
    Item 4    Information on the Company                                      13
    Item 5    Operating and Financial Review and Prospects                    22
    Item 6    Directors, Senior Management and Employees                      31
    Item 7    Major Shareholders and Related Party Transactions               37
    Item 8    Financial Information                                           38
    Item 9    The Listing                                                     39
    Item 10   Additional Information                                          40
    Item 11   Quantitative and Qualitative Disclosure about Market Risk       45
    Item 12   Description of Securities Other than Equity Securities          46

PART II
    Item 13   Defaults, Dividend Arrearages and Delinquencies                 47
    Item 14   Material Modifications to the Rights of Security Holders
              and Use of Proceeds                                             48
    Item 15   Controls and Procedures                                         49
    Item 16   Reserved                                                        50

PART III
    Item 17   Financial Statements                                            51
    Item 18   Financial Statements                                           102
    Item 19   Exhibits                                                       141

SIGNATURES                                                                   142

EXHIBIT INDEX                                                                143





                                       3
<PAGE>


                                     PART I
                ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
                                  AND ADVISERS

DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

      As China Enterprises Limited (the "Company", which term shall include,
when the context so requires, the subsidiaries of the Company as defined below)
is filing this form as its annual report under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the information called for by Item 1 in
Part I of Form 20-F is not applicable. Nevertheless, the Company would like to
draw your kind attention to the information set forth below.

AUDITORS

      Since May 31, 2001, Deloitte Touche Tohmatsu, Hong Kong, has been engaged
by the Company to audit the annual accounts of the Company and its subsidiaries
for such year replacing Arthur Andersen & Co., Hong Kong ("Arthur Andersen"),
which had been the independent public accountants of the Company for the years
ended December 31, 1998, 1999 and 2000. The decision to change accountants was
recommended by the Company's audit committee and board of directors and approved
by its shareholders in its annual general meeting held on May 31, 2001. Arthur
Andersen's report on the financial statements for the year ended December 31,
2000 contained no adverse opinions or disclaimers of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with its audit for the year ended December 31, 2000, there had
been no disagreements with Arthur Andersen on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure.

      The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 144 effective January 1, 2001. The Company reclassified the 2001 and 2000
comparative figures contained in its 2002 consolidated financial statements to
present the comparative financial information in respect of discontinued
operations that occurred during 2002 pursuant to SFAS No. 144. Reclassifications
for 2001 were audited by Deloitte Touche Tohmatsu as part of its audit of the
2002 consolidated financial statements while those for 2000 were prepared based
on the financial statements audited by Arthur Andersen in 2000.

      As a result of Arthur Andersen ceasing to practice effective July 1, 2002,
the Company has been unable to obtain a manually signed reissued report of
Arthur Andersen which was dated April 23, 2001 and was unqualified with respect
to the Company's consolidated financial statements as of December 31, 2000 and
for the year ended December 31, 2000 prior to the reclassifications of
discontinued operations as described in Note 5 to the 2002 consolidated
financial statements. A copy of such report is included as an exhibit to this
Form 20-F. SUCH REPORT IS A COPY OF A PREVIOUSLY ISSUED REPORT BY ARTHUR
ANDERSEN AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN.



                                       4
<PAGE>


                 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

      As the Company is filing this form as an annual report under the Exchange
Act, the information called for by Item 2 in Part I of the Form 20-F is not
applicable.






                                       5
<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. In addition, Hangzhou
Zhongce Rubber Co., Limited ("Hangzhou Zhongce"), Double Happiness Tyre
Industries Corporation Limited ("Double Happiness"), Yinchuan C.S.I. (Greatwall)
Rubber Co., Limited ("Yinchuan CSI"), and Hangzhou Fu Chun Jiang Chemical
Industrial Co., Limited ("Fu Chun Jiang") are collectively known as the "PRC
Subsidiaries". For the purpose of this annual report, the latest practicable
date with respect to share and certain exchange rate information is June 23,
2003.

SELECTED FINANCIAL DATA

      The following table represents the selected consolidated financial
information of the Company as of and for the years ended December 31, 1998,
1999, 2000, 2001 and 2002.

      The consolidated financial statements of the Company and all accompanying
notes for the years ended December 31, 2001 and 2002 (the "Consolidated
Financial Statements") have been audited by Deloitte Touche Tohmatsu,
independent public accountants in Hong Kong, whose report with respect to the
Consolidated Financial Statements is included in this annual report.

      The Consolidated Statements of Operations Data and the Consolidated
Balance Sheet Data for the years ended and as of December 31, 1998, 1999 and
2000, 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 their
entirety by reference to, the respective consolidated financial statements and
their accompanying notes thereto.

For a discussion of the Company's change in auditors, see the section "Auditors"
under "Item 1. Identity of Directors, Senior Management and Advisers" in this
annual report.




                                       6
<PAGE>


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,
                                                 ---------------------------------------------------------------------------------
                                                     1998          1999           2000         2001                  2002
                                                 (a)(b)(c)(d)    (a)(c)(d)     (a)(c)(d)    (a)(c)(d)               (c)(d)
                                                 ------------    ---------     ---------    ----------     -----------------------
                                                      Rmb           Rmb           Rmb          Rmb            Rmb           US$
<S>                                              <C>             <C>           <C>          <C>            <C>          <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:

Revenues                                           1,302,884     1,360,298     1,605,842     2,087,885     2,610,076       315,226
Income (loss) from operations                         58,342         7,267         8,269        89,461       172,096        20,784
Income (loss) from continuing operations             (25,547)      (53,651)      (33,803)       36,425       (62,943)       (7,602)
Income (loss) from discontinued operations (c)        25,826       (99,545)      (45,581)     (171,784)     (199,838)      (24,135)
Net income (loss)                                        279      (153,196)      (79,384)     (135,359)     (262,781)      (31,737)
Net income (loss) from operations per share             6.41          0.80          0.91          9.92         19.09          2.30
Basic and diluted earnings (loss) from
   continuing operations per common share (d)          (2.81)        (5.89)        (3.73)         4.04         (6.98)        (0.84)
Basic and diluted earnings (loss) from
   discontinued operations per common share (c)
   & (d)                                                2.84        (10.94)        (5.02)       (19.05)       (22.16)        (2.68)
Basic and diluted earnings (loss) per common
   share (d)                                            0.03        (16.83)        (8.75)       (15.01)       (29.14)        (3.52)
Weighted-average number of common share
   outstanding (d)                                 9,100,000     9,100,000     9,069,956     9,017,310     9,017,310     9,017,310
Dividend declared per common share
 - in Rmb                                               0.66          0.66          0.66          0.17          --            --
 - in US$                                               0.08          0.08          0.08          0.02          --            --

CONSOLIDATED BALANCE SHEETS DATA:

Total assets                                       3,497,035     3,316,944     3,326,983     2,978,965     2,880,680       347,908
Shareholders' equity                               1,200,885     1,041,662       952,627       804,197       535,206        64,638
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           532           526           526           526            64
</Table>

Notes:

(a)   In response to a legal proceeding related to the proposed termination of
      the joint venture agreement of Chongqing C.S.I. Tyre Co. Limited
      ("Chongqing CSI") with its investment partner in the PRC, Chongqing Tyre
      Chief Factory ("Chongqing Factory"), a judgment of the Proceedings (the
      "Judgment") was obtained on March 31, 2000 that the joint venture
      agreement of Chongqing CSI was approved to be terminated and Chongqing CSI
      is to be liquidated in accordance with the relevant rules and regulations
      of the PRC. Under the Judgment, the Company was entitled to damages of
      approximately Rmb15.8 million and Chongqing Factory was discharged from
      other claims lodged by the Company. In view of the expected long duration
      of and the uncertainty of amounts to be recovered from the liquidation of
      Chongqing CSI, the Directors of the Company fully provided for the
      outstanding loan and interest accrued in the prior years except for the
      Rmb0.2 million recovered in early 2001.

      During 2001, the Company recovered an additional amount of Rmb10.0 million
      on the loan related to the Chongqing Factory of which Rmb9.8 million was
      recorded as recovery on loan receivable in the year ended December 31,
      2001.

(b)   The liquidation process of Dalian C.S.I. Rubber Co., Limited was
      substantially completed in 1998 and accordingly, the Company ceased
      accounting for this investment in July 1998.

(c)   Double Happiness was disposed of during 2001, Yantai C.S.I. Rubber Co.,
      Limited ("Yantai CSI") and Shandong C.S.I. Synthetic Fiber Co., Limited
      ("Shandong Synthetic") were disposed of during 2002, while the decision to
      dispose of Yinchuan CSI was made during 2002. The Company has thus
      recorded the operating result of Double Happiness, Yantai CSI, Shandong
      Synthetic and Yinchuan CSI separately from continued operations as income
      (loss) from discontinued operations retrospectively for all years
      presented.

(d)   The calculation of basic and diluted earnings (loss) from continuing
      operations per common share, basic and diluted earnings (loss) from
      discontinued operations per common share and basic and diluted earnings
      (loss) per common share from 1998 to 2002 is based on the weighted-average
      number of common stock outstanding during the years ended December 31,
      from 1998 to 2002. The weighted-average number of common stock outstanding
      for 1998 and 1999 was 9,100,000, for 2000 was 9,069,956 and for 2001 and
      2002 was 9,017,310. There were no dilutive securities.

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, 2002. As
of June 23, 2003, the exchange rate quoted by the People's Bank of China
remained at US$1.00 to Rmb8.28. No representation is made that




                                       7
<PAGE>


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, 1998, 1999, 2000, 2001 and 2002.

<Table>
<Caption>
                                                    YEAR ENDED DECEMBER 31,
                                        ----------------------------------------------
                                        1998       1999      2000       2001      2002
                                        ----       ----      ----       ----      ----
   (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 were as follows:

<Table>
<Caption>
                                        AT UNIFIED EXCHANGE RATE
                                        ------------------------
      (Rmb equivalent of US$1.00)        HIGH               LOW
                                         ----               ---
<S>                                      <C>                <C>
      May 31, 2003                       8.28               8.28
      April 30, 2003                     8.28               8.28
      March 31, 2003                     8.28               8.28
      February 28, 2003                  8.28               8.28
      January 31, 2003                   8.28               8.28
      December 31, 2002                  8.28               8.28
</Table>

      Please see the section "Exchange Control" under "Item 10. Additional
Information" of the annual report for more details.

RISK FACTORS

TIRE BUSINESS

-    Increased Competition in the Domestic Market for Tires and Rubber Products
     May Cause Downward Pressure on Market Prices and the Company's
     Profitability

      The PRC Subsidiaries of the Company will continue to face keen competition
from Chinese and foreign entities including internationally known tire companies
with significantly greater resources than the Company. Competition from foreign
tire companies may increase as a result of increased importation of such
manufacturers' products into China as it is now a World Trade Organization (the
"WTO") member country. Also, it is expected that these internationally known
tire companies can import more advanced plant and machinery to quickly expand
their production volume, market share and their production bases already
established in China. Although the Company has not been able to obtain exact
information regarding the production data of its Chinese competitors, the
Company believes that mergers, takeovers and other forms of re-organizations and
consolidations among existing operators will continue to create pressure on
market prices leaving little room for general market prices to rebound.

      Owing to the prevailing market positioning, the Company's sales volume of
radial tires remains lower than that of the less profitable bias tire. The
Company will keep exerting significant effort in upgrading its radial tire
production lines, and enhancing marketing strategies, however, there is no
guarantee that its market share in radial tires can be expanded.




                                       8
<PAGE>


-    If the Liquidity of Customers Continues to Erode, It Will Increase Credit
     Risk for the Company's Sales

      The Company has experienced payment collection problems during the past
few years as its customers suffered from the more conservative posture of local
banks which hampered cash flow and restricted access to credit. Considerable
amount of provisions for bad and doubtful debts had been provided over the
years, leading to a notable charge to the Company's earnings. While the Company
has implemented stronger measures to collect aging accounts, there can be no
assurance that future liquidity problems of the Company's customers will not
similarly adversely affect the Company's performance.

-    Any Changes in the Motor Vehicle Industry and the Development of Road
     Networks in China May Influence the Future Tire Market

      Although the existing business of the PRC Subsidiaries is focused on the
tire replacement market, the increasing number of new motor vehicles put into
use is expected to have significant multiplying effects to the future turnover
volume of the Company.

      In addition, the planned development of the road network in China is also
expected to have substantial effect on the future demand for tires. However, as
the concern towards environmental protection issues increase, the Chinese
government may prefer to place much more emphasis on railways and other means of
mass transit facilities to cater to the country's ever-growing transportation
needs instead of building new roads and highways.

-    Changes in the Control of Ventures May Affect the Continued Success of
     Such Operations

      As a result of the Company's recent sales and agreements to sell all or a
portion of the Company's interests in various of the PRC Subsidiaries, the
Company will, once such sales are completed, no longer have dominant control of
the tire business and the Company will only be able to exercise significant but
limited influence of the finance and daily operations of those companies.

      Correspondingly, the Company will have to depend on the talents and
expertise of third parties to ensure the continue success of its tire business.
See Note 25 to the Consolidated Financial Statements included in "Item 18.
Financial Statements" of this report for details of such dispositions.

-    Liquidation of Ventures May Affect the Continuity of the Company's
     Operations

      Each of the PRC Subsidiaries was established for an initial term of no
longer than 50 years, which may be extended by the mutual consent of the parties
to the respective ventures, subject to the approval of the relevant Chinese
government authorities. In the event the term of any joint venture is not
extended, such joint venture will be dissolved and liquidated pursuant to
provisions of applicable law and the relevant joint venture contract. In
addition, each of the PRC Subsidiaries may be terminated prior to the expiration
of its joint venture contract upon the occurrence of certain other events,
including the inability of the enterprise to conduct its business owing to a
breach by one of its parties to the joint venture contract.

DIVERSIFICATION OF BUSINESS

      The Company is currently considering and proceeding to diversify its
operations into businesses outside the tire manufacturing and trading sectors.
The acquisition of new businesses and business lines, including its investments
in Ananda, carries with it substantial risks and uncertainties, including
business and industry risk related to the business line and company risks
relating to, among others, diversion of and strains on management and
infrastructure resources, inability to successfully integrate the acquired
business or incompatibility of business culture. Additional risks include the
following:

      (i)   Uncertain Scope of Business of the Company May Hinder Individual
            Investor in Evaluating the Unsystematic Risk of his/her Investment
            Portfolio



                                       9
<PAGE>

         The Company's diversification efforts may make it difficult for the
      Company's shareholders to assess the Company's prospects with any degree
      of accuracy, at least during the diversification process. The ability of
      the Company to raise funds either in the capital market or in the debt
      market may be affected as a result of the Company's future directions
      becoming less clear in the short run. The cost of funds for the Company
      may also increase to account for such uncertainty.

      (ii)  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
      associated companies consisting of industries completely different from
      the existing core business of the Company. It may bring about 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.

      (iii) No Guarantee of Any Improvements in the Consolidated Performance of
            the Company after Diversification

           The combined results of different operations are subject to more
      complicated sets of external and internal factors. Although the Company
      has and will conduct appropriate due diligence review of any acquisition
      targets, there is no assurance of improved financial performance in the
      Company after diversification. As an example, given the current state of
      the travel industry in Asia, it might take a number of years for the
      performance of Ananda to turn around, if at all, and for the Company's
      investment in Ananda to have a positive impact on the Company's financial
      performance.

      (iv)  Lowered Responsiveness to Cyclical Changes of Different Businesses

           It is generally believed that revenue trend and profitability could
      be well balanced after diversification; however, the Company may no longer
      be as flexible as before when facing seasonal changes and periodic
      fluctuation of different business cycles in different business operations.

GENERAL

-    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. There can be no assurance in this
regard nor any assurance that the Company will be able to find a suitable
replacement for such persons. The Company does not carry key man life insurance
for the Key Personnel. In addition, no service agreement is in force with the
Key Personnel.

-    The Voting Power of the Company's Major Shareholder May Make it Difficult
     for the Company to Engage in Business Combinations that the Public
     Shareholders May Deem Desirable

      The authorized share capital of the Company is US$700,000, which consists
of 20,000,000 authorized shares of supervoting common stock, par value US$0.01
per share, and 50,000,000 authorized shares of common stock, par value US$0.01
per share. On each matter upon which the shareholders of the Company are
entitled to vote, each share of the supervoting common stock has ten votes and
each share of the common stock has one vote. As of December 31, 2002, 3,000,000
shares of supervoting common stock were issued and outstanding. All supervoting
common stock together with 1,629,200 shares of common stock were beneficially
and directly held by China Strategic Holdings Limited ("CSH"). Together with its
indirect interest equivalent to 349,630 shares of common stock in the Company,
CSH holds 88.8% of the voting rights of the outstanding capital stock



                                       10
<PAGE>
of the Company. For that reason, 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. The shares of common stock do not have cumulative voting rights.
Accordingly, the existence of the supervoting common stock and the voting
control represented thereby tends to preclude a change in control of the Company
unless it is being initiated by CSH.

-    The Political Considerations of the Company for Conducting Business in the
     Greater China Region

      The value of the Company's interests in the PRC Subsidiaries may be
adversely affected by significant political, economic and social uncertainties
in the Greater China Region. A change in policies by the Chinese government
could adversely affect the Company's interests in the PRC Subsidiaries by, among
other factors: 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, 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.

-    The Economic Considerations of the Company for Conducting Business in the
     Greater China 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, gross national product, growth rate, capital reinvestment,
resource allocation, self-sufficiency, rate of inflation and balance of payments
position, among others. During the past decade, China has successfully achieved
steady growth in gross national product through stimulating internal demands.
After its accession into the WTO, China's economic activity is expected to
become more and more export driven and, therefore, affected by developments in
the economies of the rest of the World. Consequently, any downturn in the
economic conditions of the region may have significant effects on the Company's
performance.

      With reference to the recent outbreak of the Severe Acute Respiratory
Syndrome ("SARS") in the Greater China Region, private consumption and business
development in the region has been significantly affected. Hence, the Company
will need to take a very conservative posture towards any possible changes in
its market resulting from SARS. The scope of the short-run and long-run impact
on the Group's business has not yet been fully identified.

-    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 exchange.

      The PRC Subsidiaries 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$.

      Rmb paid as dividends, trade and service-related foreign exchange
transactions can be readily convertible 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.

      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.



                                       11
<PAGE>



-    Legal System Differences between the Greater China Region and the United
     States of America

      Unlike common law systems in the western world, China adopts 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.

-    The Company Has Not Had Profitable Operation Results in Recent Periods and
     May Not Be Able to Return to Profitability

      During financial years 2000, 2001 and 2002, the Company incurred
substantial net losses. For the year ended December 31, 2002, the Company
incurred net losses of approximately US$31.73million. The Company has also
accumulated a deficit of approximately US$64.98million as at December 31, 2002.
Under the current economic environment, there is no guarantee that the Company
will be able to turn around its business and return to profitability.

-    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.

-    The Company's Future Sales Volume is Not Substantiated with Significant
     Long Term Contracts

      The major source of revenue of the Company is from the replacement tire
market in China. However, this market is mostly depends on the ever-changing
domestic market demand in China. The Company does not typically enter into
long-term contractual arrangements with its customers to secure their future
patronage. Hence, there can be no assurance that future customer demand for, or
the price points of, the Company's products will equal or be greater than the
existing level.

      In addition, the Company does not have any contractual arrangement with
its major suppliers of raw materials. Consequently, its production volume may be
affected if availability of raw materials was to decline substantially or if the
prices of raw material were to increase significantly.

-    Limited Liquidity in the Company's Securities May Make It Difficult to
     Trade

      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.




                                       12
<PAGE>


                       ITEM 4. INFORMATION ON THE COMPANY


HISTORY AND DEVELOPMENT OF THE COMPANY

      The Company was incorporated under the laws of Bermuda on January 28,
1993. From July 15, 1993 to late 2002, the Company's shares were listed on the
New York Stock Exchange, Inc. (the "NYSE"). Starting November 26, 2002, the
Company's shares began trading on the OTCBB in the United States. The Company
carries on business in Hong Kong under the commercial name of "China Tire
Holdings Limited" due to local company registration considerations.

      The principal place of business of the Company is located at 8th Floor,
Paul Y. Centre, 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong and its telephone
number is (852) 2372 0130.

IMPORTANT EVENTS OF THE COMPANY'S BUSINESS SINCE THE BEGINNING OF 2002

      On April 19, 2002, the Company completed an acquisition of the substantial
stake in Ananda Wing On Travel (Holdings) Limited ("Ananda"), a leading travel
operator based in Hong Kong whose shares are listed on the Stock Exchange of
Hong Kong Limited. The details of the acquisition have been set out in Note 9 of
the Consolidated Financial Statements in "Item 18. Financial Statements" of this
annual report.

      The NYSE notified the Company on December 31, 2002 that the U.S.
Securities and Exchange Commission (the "SEC") had granted the application of
the NYSE for removal of the common stock of the Company from listing and
registration on the NYSE under the Exchange Act effective on December 30, 2002.
Prior to that, on September 27, 2002, trading in the Company's shares was
suspended by the NYSE for the failure of the Company to meet the NYSE' s
continuing listing standards. The Company's common shares began trading on the
OTCBB under the stock symbol "CSHEF" on November 26, 2002.

      Although the Company dedicated its best efforts to reengineer the
operations 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 actual operating results of Yinchuan CSI
remained unsatisfactory throughout the period.

      In early 2003, the Company entered into a share transfer agreement with
the Chinese joint venture partner to sell its entire interest in Yinchuan CSI,
the then second largest revenue contributor of the Group in 2002, for
consideration determined based on the carrying value of the subsidiary as of
December 31, 2002. The sale was considered completed in January 2003 when
approval from the relevant governmental authorities was obtained and the Company
transferred substantially all its risks and benefits of ownership of Yinchuan
CSI to the buyer. The first installment of the aggregate sale proceeds of
approximately Rmb10,500,000 has been received and no material gain or loss has
been realized upon the completion of this disposition. The remaining
installments of the sale proceeds are scheduled to be paid to the Company on or
before September 2003.

        During late 2001, the Company managed to dispose of its entire interest
in the bias tire operations of Double Happiness, the then second largest revenue
contributor of the Group which suffered from losses for over three consecutive
years. The Company subsequently entered into a share transfer agreement with an
independent third party to sell the bias tire factory of Double Happiness for a
consideration of Rmb41,000,000. The Company transferred substantially all the
risks and benefits of ownership of the factory to the buyer in early December
2001 after receiving the total sale proceeds. On June 3, 2003, the Company has
entered into a contract to dispose of all its remaining interests in Double
Happiness (including an incomplete radial tire factory) for consideration of
Rmb10,000,000 to an independent third party. The completion of the sale is
pending upon certain approvals from the governmental authorities. The Company
transferred control and substantially all its risks and benefits of ownership of
the factory to the buyer on June 3, 2003 after receiving the total sale proceeds
of Rmb10,000,000, resulting in a gain on disposal of approximately the same
amount.

      On June 15, 2003, the Company entered into a contract for disposal with
Hangzhou Industrial & Commercial Trust & Investment Co. Ltd.,



                                       13
<PAGE>


an independent third party not connected with any directors, substantial
shareholders or chief executive of the Company or any of its subsidiaries,
pursuant to which the Company agreed to sell to the buyer a 25% interest in
Hangzhou Zhongce, currently a 51% owned subsidiary of the Company, for a
consideration of Rmb164,659,657 in order to widen the shareholders' base of
Hangzhou Zhongce. The Company considers the sale to be beneficial both to the
further development of Hangzhou Zhongce in the PRC and its future value to the
Company. The sale is conditional upon the parties receiving approval of the
transaction from the China Commercial Department, an agency of the government of
the PRC.

PRINCIPAL CAPITAL EXPENDITURES

      Principal capital expenditures, investment and divestitures over the last
three years include the following:

<Table>
<Caption>
                                                                       2000            2001             2002
                                                                      RMB'000         RMB'000          RMB'000
                                                                     ---------       ---------        ---------
<S>                                                                   <C>             <C>              <C>
      Purchase of property, plant and equipment                       (75,868)        (135,212)        (287,536)
      Proceeds from disposal of property, plant and equipment           3,784            2,267           77,320
      Acquisition of a subsidiary, net of cash acquired                    --            4,120               --
      Investments in and advances to affiliates                       (11,855)             929         (180,612)
      Proceeds from disposal of a business component, net                  --            1,734              833
</Table>

      The Company conducts its businesses through subsidiaries, joint ventures
and an associated company. Accordingly, much of the expenditures described above
have been made at the subsidiary level. For a description of the Company's
subsidiaries, please refer to the section "ORGANIZATION STRUCTURE" listed below.


BUSINESS OVERVIEW

For the three years ended December 31, 2002, the Group principally engaged in
the tire manufacturing and trading business. To the best understanding of the
Company, seasonality has no significant impact on its business. The current year
results of the Group can be substantially represented by the performance of
Hangzhou Zhongce as most active subsidiaries previously owned by the Group has
been sold or discontinued. For the sake of comparability and relevance,
comparative figures for year 2000 and 2001 presented below have been adjusted to
exclude all discontinued subsidiaries.

      Hangzhou Zhongce is mainly engaged in the manufacture and sale of bias and
radial tires. Besides, Hangzhou Zhongce vertically acquired Fu Chun Jiang in
1999 which manufactures a number of raw materials including tire rubbers and
carbon black. However, the latter's turnover volume and contribution to the
Group is insignificant as compared to Hangzhou Zhongce. In 2002, Hangzhou
Zhongce contributed approximately 96.6% of the Company's total revenues.

<Table>
<Caption>
                                             % CHANGE                     % CHANGE                  % CHANGE
                                            FROM PRIOR                   FROM PRIOR                FROM PRIOR
                                 AMOUNT        YEAR           AMOUNT        YEAR        AMOUNT        YEAR
                                 ------     ----------        ------     ----------     ------     ----------
                                       2000                         2001                      2002
                                                       (IN MILLIONS RMB EXCEPT PERCENTAGES)
<S>                             <C>         <C>              <C>         <C>            <C>        <C>
Revenues                          1,606        20%            2,065         29%         2,520         22%
</Table>

PRINCIPAL PRODUCTS

Hangzhou Zhongce manufactures and sells a broad line of tire products,
consisting of motor vehicle (bias and radial tire for truck, tractor, passenger
car and motorcycle), bicycle and wheelbarrow tires. This breadth of products
enables Hangzhou Zhongce to serve its diverse customer base in Zhejiang Province
and along the heavily populated and economically prosperous eastern coastal
region of China.



                                       14
<PAGE>



<Table>
<Caption>
                                                               HANGZHOU ZHONGCE SALES IN UNITS
                                        2000                                 2001                                 2002
                          ----------------------------------  ----------------------------------  ----------------------------------
TYPE OF TIRES                                       CHANGE                              CHANGE                              CHANGE
                                                     FROM                                FROM                                FROM
                             UNITS    % OF TOTAL  PRIOR YEAR    UNITS     % OF TOTAL  PRIOR YEAR     UNITS    % OF TOTAL  PRIOR YEAR
                          ----------  ----------  ----------  ----------  ----------  ----------   ---------  ----------  ----------
<S>                       <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Motor Vehicle Tires
  Passenger Car              921,000     22.61%     31.57%       789,092     16.90%    -14.32%     1,018,277      19.30%    29.04%
  Truck and Light Truck    2,512,000     61.67%     -0.63%     3,582,291     76.71%     42.61%     3,879,185      73.52%     8.29%
  Tractor                    267,000      6.56%     10.33%       265,219      5.68%     -0.67%       348,890       6.61%    31.55%
  Other                      373,000      9.16%      2.75%        33,492      0.71%    -91.02%        30,282       0.57%    -9.58%
                          ----------    ------                ----------    -------               ----------     ------
Total                      4,073,000    100.00%      6.26%     4,670,094    100.00%     14.66%     5,276,634     100.00%    12.99%
                          ==========    ======                ==========    =======               ==========     ======

Bicycle Tires             33,098,000                34.53%    35,625,601                 7.64%    40,651,193                14.11%
Wheelbarrow Tires          1,616,000                 0.98%     2,501,244                54.78%     2,723,131                 8.87%
</Table>


<Table>
<Caption>
                                                     HANGZHOU ZHONGCE SALES (SALES TAX EXCLUDED)
                                         2000                          2001                           2002
                              -------------------------      -------------------------      -------------------------
TYPE OF MOTOR VEHICLE
TIRES                           SALES                          SALES                          SALES
                               RMB'000       % OF TOTAL       RMB'000       % OF TOTAL       RMB'000       % OF TOTAL
                              ---------      ----------      ---------      ----------      ---------      ----------
<S>                           <C>            <C>            <C>             <C>            <C>             <C>
   Bias Tires                   958,287         82.02%         978,430         66.22%       1,053,238         55.66%
   Radial Tires                 210,002         17.98%         499,072         33.78%         839,017         44.34%
                              ---------        ------        ---------        ------        ---------        ------
Total                         1,168,289        100.00%       1,477,502        100.00%       1,892,255        100.00%
                              =========        ======        =========        ======        =========        ======
</Table>

      TRUCK AND PASSENGER VEHICLE TIRES. The rise in commercial activities in
China, improvement in living standard of the Chinese population and change in
governmental policy of China supported the recent increased demand for
commercial vehicles and road transportation in China. These factors stimulated
the sales of motor vehicle tires for Hangzhou Zhongce, especially for passenger
vehicle tires. Unit sales of passenger tires increased by 29% in the year of
2002 from the preceding year. Hangzhou Zhongce estimates that the demand of
passenger cars will continue to rise and hence it plans to increase its
production of truck and passenger vehicle tires (especially radial tires) to 4
million units per year in the near future. Truck and light truck tires continue
to be the major products of Hangzhou Zhongce and currently accounts for over 74%
of its total sales unit of motor vehicle tires.

      BICYCLE TIRES. Since "Chao Yang" tire, Hangzhou Zhongce self-established
brand name, is well known in the PRC, Hangzhou Zhongce sold approximately 40.7
million units of bicycle tires in 2002, and attained a leading position in the
domestic market. Sales of bicycle tires accounts for an increase in 14% in sales
unit compared to that of 2001. Bicycle remains one of the major modes of
transportation in China and hence the sales of bicycle tires were stable and
provided a steady source of operating income.

      TRACTOR AND WHEELBARROW TIRES. In 2002, sales of wheelbarrow tire slightly
increased. Tractor sales, which declined in 2001, rebounded by approximately 32%
due to strong market demand for the Company's products.

MARKETS

        MOTOR VEHICLE TIRES. Hangzhou Zhongce distributes its motor vehicle
tires regionally to a large customer base - Zhejiang Province. Hangzhou Zhongce
sells approximately 15% of its tires in Zhejiang and adjacent provinces. Other
major commercial and industrial centers along the eastern coastal region to
which Hangzhou Zhongce sells its products include the city of Shanghai, the
provinces of Jiangsu and Anhui and the provinces of Fujian and Jiangxi. Subject
to the increase in productive capacity, Hangzhou Zhongce has successfully
boosted its business in Northern China. During 2000-2002, Hangzhou Zhongce
started to expand its sales to other districts of China as a result of decrease
in percentage of sales in Eastern China and Export.



                                       15
<PAGE>



  GEOGRAPHICAL SALES DISTRIBUTION OF MOTOR VEHICLE TIRE - 2000, 2001 AND 2002

<Table>
<Caption>
                                               % OF REVENUE
                                      ---------------------------------
REGION                                 2000          2001          2002
<S>                                   <C>           <C>           <C>
      Eastern China (l)                36.5%         42.7%         33.5%
      Northern China (2)               13.8%         17.6%         21.5%
      Western China (3)                 3.8%          3.5%          5.3%
      Southwestern China (4)            4.8%          6.0%          6.3%
      Southern China (5)                9.3%          8.2%         11.9%
      Exports (6)                      31.8%         22.0%         21.5%
                                      -----         -----         -----
      Total                           100.0%        100.0%        100.0%
                                      =====         =====         =====
</Table>

(1)  Eastern China refers to the provinces of Shandong, Jiangsu, Anhui,
     Zhejiang, Jiangxi, Fujian and Shanghai.
(2)  Northern China refers to the provinces of Heilongjiang, Jilin, Liaoning,
     Hebei, Shanxi, Henan, Inner Mongolia, Beijing and Tianjin.
(3)  Western China refers to the provinces of Gansu, Qinghai, Shannxi, Xinjiang
     and Ningxia.
(4)  Southwestern China refers the provinces of Sichuan, Yunnan, Guizhou and
     Tibet.
(5)  Southern China refers to the provinces of Taiwan, Hubei, Hunan, Guangxi and
     Guangdong.
(6)  Export sales are primarily to the Middle East, Philippines, Singapore, the
     United States and Canada.

      Hangzhou Zhongce sells its motor vehicle tires and bicycle tires under its
established brand name "Chao Yang" and currently has five primary channels for
distributing its motor vehicle tires: (a) direct sales to the Original Equipment
Manufacturer customers, (b) substantial sales through the authorized wholesaler,
(c) auto repair shops, (d) Hangzhou Zhongce's retail sales offices, and (e)
export. The enterprise has 8 retail sales offices in 4 provinces and 2 central
municipalities, primarily situated in cities adjacent to the Zhejiang province.

      In order to market its products, Hangzhou Zhongce maintains a sales and
marketing department with a staff of 115, with the task of promoting, marketing
and gathering market information in assigned regions within China. In addition,
the enterprise has a foreign trade department with 14 employees responsible for
exports.

      The primary market for Hangzhou Zhongce's products is the replacement tire
market which accounted for over 95% of the domestic sales of Hangzhou Zhongce.
The Company estimates that, on average, tires are replaced more frequently in
China than in any other developed country because of poor road conditions,
frequent overloading of vehicles and the high daily usage rate of vehicles. As
is typical in the China tire market, Hangzhou Zhongce does not have long term
supply contracts with its customers, who customarily place orders for the
following year at the end of each year. Accordingly, Hangzhou Zhongce focuses
much of its marketing effort on developing new distribution opportunities in the
replacement market and strengthening existing relationships with large customers
and distributors.

      Sino-foreign equity joint venture enterprises are free to set prices for
their products without government control. Hangzhou Zhongce adjusts its prices
in response to market conditions. Based on quality and type of tire, radial
tires are sold for prices higher than those for bias tires of comparable size.

      Hangzhou Zhongce offers a "Triple Coverage" warranty for its tires,
guaranteeing repair, return or replacement of defective tires. In 2002, Hangzhou
Zhongce's tire manufacturing defect rate was 0.3%, compared to the national
average of 0.5% and the customer return rate was 2.2%.

      BICYCLE TIRES. In 2002, Hangzhou Zhongce produced approximately 20% of all
bicycle tires made in China. Hangzhou Zhongce sells bicycle tires primarily in
the Zhejiang Province, Shanghai and surrounding provinces. Its customer base is
mainly in the replacement market. Hangzhou Zhongce believes that it has strong
relationships with its customers. As with the motor vehicle tire market,
Hangzhou Zhongce does not have long term supply contracts with customers, who
customarily place orders for the following year at the end of each year.



                                       16
<PAGE>



RAW MATERIALS

      A typical bias tire is manufactured, on cost basis, from a mix of
approximately 25% natural rubber, 12% synthetic rubber, 31% nylon cord, 10%
carbon black, 4% steel thread and 18% other materials. A typical radial tire is
manufactured, on cost basis, from a mix of approximately 22% natural rubber, 5%
synthetic rubber, 9% carbon black, 43% steel cord and 21% other materials. As
indicated below, prices of key raw materials, other than synthetic rubber, have
slightly decreased in this year.

                          RAW MATERIAL COSTS: 2000-2002

<Table>
<Caption>
                                 2000              2001              2002
                                 ----              ----              ----
                                AVERAGE           AVERAGE           AVERAGE
                                  COST              COST              COST
                                PER TON (1)       PER TON (1)       PER TON (1)
<S>                             <C>               <C>               <C>
      Natural Rubber               6,220             6,730             6,450
      Synthetic Rubber             6,270             6,730             7,450
      Carbon Black                 3,690             3,850             3,560
      Nylon Cord                  21,950            21,400            18,250
      Steel Thread                 5,570             7,730             3,760
      Steel Cord                    --              18,760            17,570
</Table>

--------------------------------------------------------------------------------
(1)   In thousands Rmb.

      The Group currently pay their imported raw materials with Renminbi by
purchasing such materials through large Chinese import-export companies. Imports
sourced directly from foreign suppliers are subject to import duties and must be
purchased with foreign currency. However, by exporting its tires, the
Subsidiaries are exempted from paying import duties and earn foreign currency in
an amount sufficient to balance the amount expended on raw material imports. The
Company believes that the Subsidiaries will be able to continue exporting
sufficient quantities of tires to avoid any import duties on raw material
purchases. Because of the lower prices generally quoted by export agencies and
international tire distributors, domestic sales usually provide higher margins
than export sales.

      Part of the rubber and carbon black consumed during the year was supplied
by Fu Chun Jiang. However, the volume was insignificant as compared to those
outsourced from other suppliers and importers.

ENVIRONMENTAL ISSUES

      In China, the local provincial and municipal governments enforce pollution
control regulations. If a company was found to be in violation of such
regulations, it would be given a period of time to remedy the problem. Should it
fail to do so, the government could force a shutdown of the operations until
such time as that company is in compliance of the regulations.

      The PRC Subsidiaries believes that their products and manufacturing and
other operations are in compliance, in all material respects, with existing
applicable laws relating to air, water and noise pollution.




                                       17
<PAGE>


ORGANIZATIONAL STRUCTURE

      The Company is part of a group of companies whose ultimate parent company
is CSH (the "CSH Group"). See "Major Shareholders" in "Item 7. Major
Shareholders and Related Party Transactions" of this annual report for more
details.

      The chart below illustrates the simplified position of the Company within
the CSH Group at December 31, 2002.

                        ---------------------------
                                   CSH
                           (Listed in Hong Kong)
                        (Incorporated in Hong Kong)
                           (Investment Holding)
                        ---------------------------

                                  55.22%
                        ---------------------------
                                The Company
                             (Traded on OTCBB)
                         (Incorporated in Bermuda)
                        ---------------------------


                 -----------------------------------------
                  51.0%                                   32.21%

       --------------------                        ----------------------------
         Hangzhou Zhongce                                   Ananda
       (Incorporated in PRC)                          (Listed in Hong Kong)
        (Tire Manufacture)                          (Incorporated in Bermuda)
                                                       (Investment Holding)
       ---------------------                       ----------------------------

                                                                49.3%
                                                   ----------------------------
                                                   Rosedale Hotel Group Limited
                                                      (Listed in Hong Kong)
                                                    (Incorporated in Hong Kong)
                                                       (Investment Holding)
                                                   ----------------------------

      The Company itself is a holding company which has majority interests in a
number of Sino-foreign equity joint venture enterprises in the PRC and some
other international joint ventures as of December 31, 2002. The four
Sino-foreign equity joint venture enterprises are Hangzhou Zhongce, Double
Happiness, Yinchuan CSI and Fu Chun Jiang. The international joint ventures are
Orion Tire Corporation ("Orion Tire"), a California corporation, Orion (B.V.I)
Tire Corporation ("Orion BVI"), Container Limited, Century Lead Limited
("Century Lead"), Capital Canton Limited ("Capital Canton"), Leading Returns
Limited ("Leading Returns"), Sincere Ocean Limited ("Sincere Ocean"), Ventures
Kingdom Limited ("Ventures Kingdom"), Wealth Faith Limited ("Wealth Faith"),
Million Good Limited ("Million Good"), Honest Map Limited ("Honest Map"), Great
Windfall Agents Limited ("Great Windfall Agents"), Supreme Solutions Limited
("Supreme Solutions") and Easy Legend Limited ("Easy Legend"), BVI companies and
CSI Rubber Industries Limited ("CSI Rubber"), a company incorporated in Hong
Kong.



                                       18
<PAGE>



           CONSOLIDATED PRINCIPAL SUBSIDIARIES AS OF DECEMBER 31, 2002

<Table>
<Caption>

                              COUNTRY OF                                              COMPANY'S              JOINT VENTURE PARTNER'S
CONSOLIDATED SUBSIDIARY     INCORPORATION      PRINCIPAL ACTIVITIES               OWNERSHIP INTEREST            OWNERSHIP INTEREST
-----------------------     -------------      --------------------            ------------------------      -----------------------
                                                                               DIRECTLY      INDIRECTLY      DIRECTLY    INDIRECTLY
                                                                               --------      ----------      --------    ----------
<S>                         <C>             <C>                                <C>           <C>             <C>         <C>
Double Happiness (1)             PRC        Manufacture of rubber tires           55%             -             45%             -
Hangzhou Zhongce (2)             PRC        Manufacture of rubber tires           51%             -             49%             -
Yinchuan CSI (3)                 PRC        Manufacture of rubber tires           51%             -             49%             -
Fu Chun Jiang                    PRC        Manufacture and trade of
                                                tire rubbers and
                                                carbon powder                      -          26.13% (4)         -          73.87%
Orion Tire                       US         Inactive                              60%             -             40%             -
Orion BVI                        BVI        Inactive                              60%             -             40%             -
Container Limited                BVI        Investment holding                   100%             -              -              -
CSI Rubber                    Hong Kong     Investment holding                   100%             -              -              -
Century Lead                     BVI        Investment holding                   100%             -              -              -
Capital Canton                   BVI        Investment holding                   100%             -              -              -
Leading Returns                  BVI        Investment holding and
                                                financing                        100%             -              -              -
Sincere Ocean                    BVI        Investment holding                   100%             -              -              -
Ventures Kingdom                 BVI        Investment holding and
                                                financing                        100%             -              -              -
Wealth Faith                     BVI        Investment holding and
                                                financing                        100%             -              -              -
Million Good                     BVI        Investment holding                   100%             -              -              -
Honest Map                       BVI        Investment holding and
                                                financing                        100%             -              -              -
Great Windfall Agents            BVI        Investment holding and
                                                financing                        100%             -              -              -
Supreme Solutions                BVI        Investment holding and
                                                financing                        100%             -              -              -
Easy Legend                      BVI        Investment holding and
                                                financing                        100%             -              -              -
</Table>

(1)  In late September 2001, the Company entered into a share transfer agreement
     to dispose of its interests in the bias tire operations of Double
     Happiness. In June 2003, the Company entered into another share transfer
     agreement to dispose of its remaining interests in Double Happiness,
     comprised mainly of the incomplete radial tire factory.
(2)  In June 2003, the Company entered into a share transfer agreement to
     dispose of a 25% interest in Hangzhou Zhongce.
(3)  In January 2003, the Company entered into a share transfer agreement to
     dispose of its entire interests in Yinchuan CSI.
(4)  Held by Hangzhou Zhongce resulting in an effective ownership by the Company
     of 26.13%.

PROPERTY, PLANT AND EQUIPMENT

BERMUDA

      The registered office of the Company is located at Clarendon House, 2
Church Street, Hamilton, HM11, Bermuda. Only corporate administrative matters
are conducted at this office, through the Company's agent, Butterfield Corporate
Services Limited. The Company neither owns nor leases property in Bermuda.

HONG KONG

      The Company's principal executive office is located at 8th Floor, Paul Y.
Centre, 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong. The Company shares the
office with CSH and the Company has agreed to reimburse CSH for administrative
services rendered on behalf of the Company on a cost plus 5% basis. See "Item 7.
Major Shareholders and Related Party Transactions" in this annual report for
more details.



                                       19
<PAGE>

PRC

HANGZHOU ZHONGCE

      The Hangzhou municipal government has granted to Hangzhou Rubber Factory
("Hangzhou Rubber"), the predecessor of Hangzhou Zhongce, the right to use the
properties where the enterprise's three manufacturing plants are located. The
aggregate land area covered by the three locations is approximately 228,938
square meters. In the years 2000-2002,, Hangzhou Zhongce has been expanding its
productive capacities by purchasing plants and equipment, especially for the
radial tires production, in order to increase its market shares.

      MAIN FACTORY. The main factory is located in Hangzhou and covers a land
area of approximately 99,990 square meters. Hangzhou Zhongce was classified as a
technologically advanced enterprise in 1992 and was exempted from land use fees
for the first five years of use thereafter. Hangzhou Zhongce paid Rmb0.5 million
for the land use fee of the main factory in 2002. Hangzhou Zhongce owns all
necessary equipment for the main factory's current rubber processing and tire
manufacturing operations, which were purchased primarily from Chinese
manufacturers. The productive capacities of the main factory for bias tires,
radial tires and bicycle tires are 1 million units, 1.4 million units and 40
million units, respectively, per annum. In 2002, the factory fully utilized its
productive capacities.

      XINANJIANG BRANCH FACTORY. The Xinanjiang Branch Factory, which covers a
land area of approximately 87,758 square meters, is located in Jiande County,
144 kilometers from the Main Factory. Hangzhou Zhongce owns all of the equipment
used for the production of bias tires at this factory. The productive capacity
of the Xinanjiang Branch Factory for bias tires is 3 million units per annum. In
2002, the factory produced 3 million units of bias tires and Hangzhou Zhongce
paid Rmb0.7 million for land use fee of Xinanjiang Branch Factory.

      YONGGU BRANCH FACTORY. The Yonggu Branch Factory, which covers a land area
of approximately 41,190 square meters, is located in Hangzhou City, Moganshan
Road, Bei Daqiao. Yonggu Branch factory mainly produces wheelbarrow tires and
solid tires. The productive capacity of the Yonggu Branch Factory for
wheelbarrow tires and solid tires are 3 million units and 0.1 million units,
respectively, per annum. In 2002, the factory fully utilized its productive
capacities. No land use fee was required in 2002.

DOUBLE HAPPINESS

        INCOMPLETE RADIAL TIRE FACTORY. Pursuant to an agreement between Double
Happiness and the government of Qingxu County, Double Happiness has been granted
the right to use approximately 666,670 square meter of an undeveloped parcel of
land for 50 years. Qingxu is located in southwest Taiyuan, about 30 kilometers
from the city center. The Company has enter into an agreement to dispose of all
its remaining interest in Double Happiness including the incomplete radial tire
factory during June 2003. The completion of the sale is pending upon certain
approvals from the governmental authorities. The Company transferred control and
substantially all its risks and benefits of ownership of the factory to the
buyer on June 3, 2003 after received the total sale proceeds of Rmb10,000,000.

YINCHUAN CSI

      YINCHUAN CSI'S FACTORY. The factory is located in Yinchuan of Ningxia
Province and covers a land area of approximately 323,650 square meters. The
factory has been manufacturing tires since 1965. The Yinchuan municipal
government has allocated to Yinchuan CSI the right to use the approximately
323,650 square meter parcel of land on which Yinchuan CSI is located. The
factory building covers approximately 168,514 square meter of floor area for its
production line, administration and general office, laboratory, tire testing
center, storage warehouse, clinic and canteen. The productive capacities of the
factory for bias tires, radial tires and aircraft tires are 1.7 million units,
0.45 million units and 0.08 million units, respectively, per annum. In 2002,
Yinchuan CSI paid Rmb0.3 million for the land use fee. The Company disposed of
its entire interest in Yinchuan CSI in early 2003. The sale was considered as
completed in January 2003 after approval from the relevant governmental
authorities had been obtained and the Company transferred substantially all its





                                       20
<PAGE>


risks and benefits of ownership of Yinchuan CSI to the buyer.

FU CHUN JIANG

      FU CHUN JIANG'S FACTORY. The factory is located in Fu Yang City of
Hangzhou Province and covers a land area of approximately 87,117 square meters.

      The factory has been manufacturing tire rubbers and carbon black since
1999. The total land area of 87,117 square meters includes 64,937 square meters
parcel of land injected by the Chinese joint venture partners and 22,160 square
meters parcel of land purchased by Fu Chun Jiang. A further 91,710 square meters
parcel of land will be injected by the Chinese joint venture partners in the
year of 2003. The factory building includes its production line, administration
and general office, laboratory, tire testing center, storage warehouse and
reserved recreation area. The productive capacities of the factory for carbon
powder and tire rubber are 16 thousand tons and 20 thousand tons, respectively,
per annum.



                                       21
<PAGE>


              ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

OPERATING RESULTS

OVERVIEW

        In fiscal 2002, the Company started diversifying its business outside
the tire business through the acquisition of a substantive stake in a group of
companies in the region -- Ananda. The Company held a 32.21% equity interest in
Ananda as of December 31, 2002 and the investment was accounted for as an
investment in an affiliate since the acquisition date of April 19, 2002. On the
other hand, the Company completed its disposals of two subsidiaries, Yantai CSI
and Shandong Synthetic in fiscal 2002 and ceased to account for the results of
operations and the assets and liabilities of these subsidiaries from the
disposal date.

      In early 2003, the Company entered into a share transfer agreement with
the Chinese joint venture partner to sell its entire interest in Yinchuan CSI,
the second largest revenue contributor of the Group, at a consideration
determined by referring to the carrying value of the subsidiary as of December
31, 2002.

        During late 2001, the Company managed to dispose of its entire interest
in the bias tire operations of Double Happiness. The Company subsequently
entered into a share transfer agreement with an independent third party to sell
the bias tire factory of Double Happiness. The Company transferred substantially
all its risks and benefits of ownership of the factory to the buyer in early
December 2001 after receiving the total sale proceeds. On June 3, 2003, the
Company disposed of all its remaining interests in Double Happiness (including
an incomplete radial tire factory).

        On June 15, 2003, the Company entered into a contract to sell a 25%
interest in Hangzhou Zhongce.

CRITICAL ACCOUNTING POLICIES

        The Company prepares its consolidated financial statements in accordance
with the 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, income taxes, impairment of assets and litigation. 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. 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


                                       22
<PAGE>


position. Our current reserve for slow moving or obsolete raw materials is
Rmb3.08 million. We did not make any material changes to the provisions relating
to inventory for 2002.

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.

IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

        In August 2001, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets", that was applicable to
financial statements issued for fiscal years beginning after December 15, 2001.
The FASB's new rules on asset impairment supersede SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", and portions of Accounting Principles Board Opinion No. 30, "Reporting the
Results for Operations". The statement requires a single accounting model for
long-lived assets to be disposed of and significantly changes the criteria that
would have to be met to classify an asset as held-for-sale. Classification as
held-for-sale is an important distinction since such assets are not depreciated
and are stated at the lower of fair value or carrying amount. The statement also
requires expected future operating losses from discontinued operations to be
recorded in the period(s) in which the losses are incurred, rather than as of
the measurement date as previously required.

        The Company adopted SFAS No. 144 effective as of fiscal year 2001 and
reviews its long-lived assets for impairment whenever events or changes in the
circumstances indicate that the carrying amount of an asset may no longer be
recoverable. The Company evaluates the impairment of its long-lived assets based
on projection of cash flows. Estimates of future cash flows used to test the
recoverability of specific long-lived assets are based on expected cash flows
from the use and eventual disposition of the assets. In 2002, the Company
recognized an impairment loss for the long-lived assets of Yinchuan CSI and
Double Happiness. See "Note 5. Discontinued Operations" of the Consolidated
Financial Statements included in "Item 18. Financial Statements" of this annual
report for more details. Should actual results vary from management's estimates,
additional impairment charges may have to be recorded in the future, reducing
future operating results.

GOODWILL

        The excess of the purchase price over the fair value of net assets
acquired is recorded on the Company's consolidated balance sheet as goodwill.

        In June 2001, the FASB issued 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. Should actual results vary from
management's estimates, additional impairment charges may have to be recorded in
the future reducing future operating results.




                                       23
<PAGE>



LITIGATION

        The Company records contingent liabilities relating to litigation or
other loss contingencies when it believes that the likelihood of loss is
probable and the amount of the loss can reasonably be estimated. Changes in
judgments of outcome and estimated losses are recorded, as necessary, in the
period such changes are determined or become known. Any changes in estimates
would impact future operating results. Significant contingent liabilities, which
the Company believes are at least possible, are disclosed in the Notes to the
Consolidated Financial Statements.

ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

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

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 on the consolidated statement of operations. The Company
has also restated its prior years' financial statements to present the operating
results of Double Happiness, Yinchuan CSI, Yantai CSI and Shandong Synthetic as
discontinued operations. See "Note 5. Discontinued Operations" of the
Consolidated Financial Statements included in "Item 18. Financial Statements" in
this annual report for more details.

- 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 has remained high since 2001 and thus
Hangzhou Zhongce continues 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 is 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.



                                       24
<PAGE>

        Interest expenses increased from Rmb39.8 million in fiscal year 2001 to
Rmb54.0 million in fiscal year 2002. The increase is 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 17.7 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 Ananda totaling Rmb45.3 million and the Company's share of losses of
Ananda 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
Ananda 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.

- 2001 Compared to 2000

      Consolidated revenues arising from continuing operations amounted to
Rmb2.09 billion, representing a 29.8% increase over the fiscal year 2000
revenues of Rmb1.61 billion. This was mainly due to an increase in sales volume,
especially in the domestic radial tire market. Export sales constituted
approximately 21.8% of the total turnover in fiscal year 2001 as compared with
30.3% of total turnover in fiscal year 2000, representing a decrease of 28.1%
over the monetary amount in fiscal year 2000. The Company sold a total of 4.7
million units of vehicle tires, 33.0 million units of bicycle tires and 2.5
million units of wheelbarrow tires in fiscal year 2001.

      The Company's gross margin from continuing operations rose from 10.1% for
the year 2000 to 12.0% for the year 2001. The increase was mainly achieved
through efficiency gains in outsourcing procurement, repositioning the Company's
competitive products and increasing sales of its radial tire products due to the
abolishment of the 10% consumption tax effective January 1, 2001. In general,
the Company was able to achieve a better margin on its export sales in fiscal
year 2001, despite a decline in the sales volume.

      The Company was able to generate Rmb250.9 million of gross profit from
continuing operations in fiscal year 2001 versus Rmb162.1 million in fiscal year
2000 due to an increase in revenues and gross margin.

        Operating income from continuing operations increased to Rmb89.5 million
in fiscal year 2001 as compared with Rmb8.3 million in fiscal year 2000. This
was mainly due to an increase in gross profit as well as a decrease in selling
and administrative expenses by implementation of more efficient and effective
administrative and marketing strategies. This increase was partially offset by a
provision of Rmb27.0 million for an amount due from a related company.

        Profit from continuing operations increased to Rmb36.4 million in 2001
compared to a loss of Rmb33.8 million in 2000. This included a recovery of loan
from Chongqing Factory amounting to Rmb9.8 million in 2001 while a provision for
the compensation receivable amounting to Rmb15.0 million was made in 2000.



                                       25
<PAGE>

        Loss from discontinued operations increased to Rmb171.8 million in the
fiscal year 2001 from Rmb45.6 million in fiscal year 2000 which was mainly due
to the operating loss of Yinchuan CSI and the impairment loss for the long-lived
assets of the subsidiaries contemplated for disposal, including Double
Happiness, Yantai CSI and Shandong Synthetic.

        For the year ended December 31, 2001, the Company recorded a
consolidated net loss of Rmb135.4 million, or Rmb15.01 per share. By comparison,
net loss in 2000 was Rmb79.4 million and net loss per share was Rmb8.75.

SUBSIDIARIES OF THE COMPANY

        The following provides summary financial information for the Company's
subsidiaries. Hangzhou Zhongce provided 97% of the Company's revenues for 2002
and accordingly its results of operations are discussed below.

      No summary financial information have been provided for Double Happiness
and Yinchuan CSI as they are segregated as discontinued operations and disclosed
in Note 5 to the Consolidated Financial Statements as included in "Item 18.
Financial Statements" in this annual report. Also, no summary financial
information have been provided for Fu Chun Jiang, CSI Rubber, Container Limited,
Orion Tire, Orion BVI, Century Lead, Capital Canton, Leading Returns, Sincere
Ocean, Ventures Kingdom, Wealth Faith, Million Good, Easy Legend, Great Windfall
Agents, Honest Map and Supreme Solutions as their operations are not material to
the Company's results.

HANGZHOU ZHONGCE - SUMMARY FINANCIAL INFORMATION

<Table>
<Caption>
                             For the year ended    For the year ended    FOR THE YEAR ENDED
                             December 31, 2000     December 31, 2001     DECEMBER 31, 2002
                             ------------------    ------------------    ------------------
                                               (amounts in thousands Rmb)
<S>                          <C>                   <C>                   <C>
Revenues                         1,605,842              2,064,783             2,520,245
Gross profit                       162,115                244,397               338,924
Operating income (1)                49,115                 97,023               175,222
Net (loss) income                   (1,637)                53,502                65,937
</Table>

(1)    Operating income means income before income taxes, other income, net
       interest expenses and equity in profit (loss) of an affiliate.

- For the Years Ended December 31, 2002 and 2001

      For fiscal year 2002, revenues from tires operations increased by Rmb455.5
million or 22.1% to Rmb2.52 billion as a result of strong sales volume and
increased selling prices. Hangzhou Zhongce increased its sales volume of all
types of tires in 2002, especially for the sales of radial tires. Although the
overall percentage of sales of Hangzhou Zhongce shifted to domestic market,
sales amount of export sales of tires still rose by 19.7% to Rmb544.2 million.

      Total revenue for the year consisted of 74.4% from vehicle tires, 17.1%
from bicycle tires, 4.0% from wheelbarrow tires and 4.5% from others. Of the
vehicle tires, 44.3% were derived from sales of radial tires which amounted to
Rmb839.0 million and 55.7% were from bias tires which amounted to Rmb1.05
billion.

      Gross profit increased 38.7% to Rmb338.9 million for the year of 2002 due
to the following:

     (1)  Increase in demand of tires, including both bias and radial tires, in
          the China tire market by strong growth in outputs of motor vehicles
          manufactured in China and the development of roads and highways under
          PRC government policy;
     (2)  Radial tires production achieving a certain level of economies of
          scale;
     (3)  Increase in selling prices of tires, especially for radial tires, due
          to the higher market demand;

                                       26
<PAGE>

     (4)  Increase in productive capacity of the factories; and
     (5)  Implementation of more efficient and effective marketing strategies.

      Operating profit increased 80.6% to Rmb175.2 million for the year
resulting in a net profit of Rmb65.9 million for 2002 (compared to a net profit
of Rmb53.5 million in the previous year).

- For the Years Ended December 31, 2001 and 2000

      For fiscal year 2001, revenues from tires operations increased by Rmb458.9
million or 28.6% to Rmb2.06 billion as a result of strong sales volume in
vehicle, truck, bicycle and wheelbarrow tires. However, export sales of tires
fell by 11.0% due to better margin achieved in domestic market.

      Total revenue for the year 2001 consisted of 72.0% from vehicle tires,
18.4% from bicycle tires, 4.3% from wheelbarrow tires and 5.3% from others. Of
the vehicle tires, 33.8% were derived from sales of radial tires which amounted
to Rmb499.1 million and 66.2% were from bias tires which amounted to Rmb978.4
million.

      Gross profit amount increased 50.8% to Rmb244.4 million for the year of
2001 due to the following:

     (1)  Outsourcing of natural rubber led to improved quality and lower cost;
     (2)  Radial tires production achieved a certain level of economies of
          scale;
     (3)  Abolishment of the 10% consumption tax effective January 1, 2001; and
     (4)  Less competition in bicycle tire manufacturing as the other
          competitors had either scaled down their business volume or exited the
          market.

      Despite an increase in warranty claims from customers, operating profit
increased 97.5% to Rmb97.0 million for the year resulting in a net profit of
Rmb53.5 million for the year in review (compared to a net loss of Rmb1.6 million
in the previous year).

EXCHANGE RATE RISK

        The exchange rate between the Renminbi and the U.S. Dollar as quoted by
the People's Bank of China was approximately Rmb8.28 to US$1.00 at 2002. The PRC
economy has experienced steady growth during the years 2000 through 2002. In
order to avoid any sudden upsurge in general price level, the central government
of the PRC has from time to time adopted various measures designed to stabilize
the economy, regulate growth and control inflation. Therefore, management
believes that it is unlikely that there will be any devaluation of the Renminbi
against the U.S. Dollar. The Company therefore does not anticipate any exchange
rate fluctuation which would have a material adverse effect on the financial
performance and asset values of the Company when measured in terms of U.S.
Dollar.

        The PRC Subsidiaries import approximately 30-40% of their usage of
natural rubber, a major raw material for tire manufacturing from major producing
countries such as Malaysia and Thailand. Other raw materials, such as steel cord
and carbon black are mainly sourced domestically.

        Imported raw materials in China are subject to an overall tariff but the
tariff paid can be offset against credit given on exports. The import tariffs on
rubber products were 12% in 2002. The PRC Subsidiaries plan to increase their
level of exports. With the foreign currency proceeds obtained from export sales,
the PRC Subsidiaries should be able to satisfy the foreign currency requirement
for purchases of imported raw materials. The Company does not use derivative
instruments to manage risks.

      As export sales of the Group during year 2002 increased by 19.6% relative
to last year, the Group's exposure to exchange rate risk was correspondingly
higher.



                                       27
<PAGE>



IMPACT OF INFLATION

      The Chinese economy experienced an increase in the general price levels in
fiscal year 2001, and the country's GDP grew slowly. The general deflation rate
in China was approximately -2.6%, -3.0%, -0.4% and -0.8% per annum in 1998,
1999, 2000 and 2002 respectively, while the inflation rate in China was 0.7% in
2001. As a result of the general deflation, the Company benefited from the
general decrease in cost of locally sourced raw materials and operating
expenses.

TAX REGULATIONS

      Under the tax regulations which came into effect on January 1, 1994, the
PRC Subsidiaries are subject to value-added tax ("VAT") and consumption tax
("CT") generally calculated at 17.0% and 10.0% respectively, except that 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 2002. On the other
hand, Fu Chun Jiang was subject to a 30% rate on the applicable Chinese State
unified income tax in fiscal year 2002.

LIQUIDITY AND CAPITAL RESOURCES

      In 2002, net cash provided by operating activities and financing
activities was approximately Rmb131.5 million and Rmb442.2 million,
respectively. Net cash used in investing activities was approximately Rmb804.7
million, which resulted in a net decrease in cash and cash equivalents of
Rmb231.0 million.

      The Company primarily used the cash flows from operating activities to
fund its capital expenditures, investment in and advances to affiliates and
subscription of note receivable. 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 also
fluctuated between years. From December 31, 2001 to December 31, 2002, net
accounts receivable from continuing operations increased from Rmb252.9 million
to Rmb314.2 million, short-term bank loans of continuing operations increased
from Rmb614.2 million to Rmb659.4 million, and long-term bank loans (including
current portion) of continuing operations increased from Rmb62.6 million to
Rmb116.6 million. Total bank borrowings as of December 31, 2002 amounted to
Rmb776.0 million, representing an increase of 14.7% over total borrowings of
Rmb676.8 million as of December 31, 2001. During the year 2002, all borrowings
in the PRC, except Rmb16.5 million, are at fixed rates.

      On the other hand, from December 31, 2001 to December 31, 2002, net
accounts receivable from discontinued operations increased slightly from
Rmb234.4 million to Rmb234.5 million, short-term bank loans of discontinued
operations increased from Rmb205.3 million to Rmb207.1 million, and long-term
bank loans (including current portion) of discontinued operations increased from
Rmb33.2 million to Rmb61.3 million. Total bank borrowings as of December 31,
2002 amounted to Rmb268.4 million, representing an increase of 12.5% over total
borrowings of Rmb238.5 million as of December 31, 2001. During the year 2002,
all borrowings of the discontinued operations in the PRC are at fixed rates.

      For the year ended December 31, 2002, the Company had capital expenditures
of Rmb287.5 million, representing an increase of approximately 112.6% from the
capital expenditures of Rmb135.2 million for the year ended December 31, 2001.
The Company financed these expenditures by the cash flows from operations and
cash on hand. The Company also decreased the amount of pledged deposits by 54.7%
to Rmb26.2 million in 2002, compared to Rmb57.8 million in 2001. In fiscal 2002,
the Company subscribed for 4.8 billion new ordinary shares and a two-year
convertible note in Ananda by a cash consideration of HK$129.6 million and





                                       28
<PAGE>

HK$120.0 million, respectively.

      In addition, cash and cash equivalents decreased from Rmb475.7 million at
December 31, 2001 to Rmb244.6 million at December 31, 2002 of which Rmb63.2
million (US$7.6 million) were US dollar deposit.

      There are no material restrictions, including foreign exchange controls,
on the ability of the Subsidiaries to transfer funds to the Company in the form
of cash dividends, loans, advances or product/material purchases. With respect
to the PRC Subsidiaries, 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 the PRC Subsidiaries,
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.

      For related party information, please see "Item 7. Major Shareholders and
Related Party Transactions" in this annual report. In the opinion of management,
existence of this relationship has no material effect on the Company's liquidity
or cash flows.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

<Table>
<Caption>
                                                                         PAYMENTS DUE BY PERIOD
CONTRACTUAL OBLIGATIONS OF                                                                                               2009
   CONTINUING OPERATIONS                     TOTAL              2003            2004 - 2006        2007 - 2008        AND BEYOND
                                          -----------        -----------        -----------        -----------        -----------
                                              Rmb                Rmb                Rmb                Rmb                Rmb

<S>                                       <C>                <C>                <C>                <C>                <C>
Short-Term Debt                           659,387,532        659,387,532                 --                 --              --
Long-Term Debt                            116,600,000         41,600,000         75,000,000                 --              --
Operating Leases                            7,767,931          3,543,870          3,892,728            331,333              --
                                          -----------        -----------        -----------        -----------        -----------
Total Contractual Cash Obligations        783,755,463        704,531,402         78,892,728            331,333              --
                                          ===========        ===========        ===========        ===========        ===========
</Table>

        Over the last few years, cash flows financing the operations of the
Company is principally obtained from internally generated funds and bank
borrowings. The practice of the Company is to renew principal loans at maturity
and pay interest out of working capital. The Company had working capital of
Rmb41.3 million and Rmb346.7 million as of December 31, 2002 and 2001,
respectively.

        The Company leases certain of its warehouses under non-cancelable
operating leases. Rental expenditures under operating leases were Rmb3.1
million, Rmb5.2 million and Rmb4.4 million for the years ended December 31,
2000, 2001 and 2002, respectively, including amounts relating to discontinued
operations of Rmb1.6 million, Rmb1.8 million and RmbNil, respectively.


<Table>
<Caption>
                                                             AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
OTHER COMMERCIAL COMMITMENTS
                                         TOTAL AMOUNTS                                                           2009
                                           COMMITTED           2003         2004 - 2006      2007 - 2008      AND BEYOND
                                         -------------     -----------      -----------      -----------      -----------
                                              Rmb              Rmb              Rmb              Rmb              Rmb

<S>                                      <C>               <C>             <C>              <C>              <C>
Guarantees                                187,900,000      187,900,000            --               --               --
                                          -----------      -----------      -----------      -----------      -----------
Total Commercial Commitments              187,900,000      187,900,000            --               --               --
                                          ===========      ===========      ===========      ===========      ===========
</Table>

        Hangzhou Zhongce has undertaken to guarantee certain bank loan
facilities granted by certain banks to an affiliate and related parties in the
PRC amounting to approximately Rmb160.0 million and Rmb27.9 million,
respectively in fiscal year 2002. The affiliate and related parties have
likewise acted as guarantors for Hangzhou Zhongce in some instances.


                                       29
<PAGE>

TREND INFORMATION

TIRE BUSINESS

        As a result of the Group's ongoing strategy of investing in China, the
Company's operations and financial performance were somewhat mitigated from the
negative external effects striking economies of the western world. The economy
in China maintained good impetus throughout the year and, according to the
National Bureau of Statistics of the PRC, the gross domestic product (GDP) of
the year rose by 8 percent over the previous year at comparable prices (Sourced
from: The Statistical Communique 2002).

        The general level of consumer prices in China for the year was down only
slightly compared to the previous year. The growing economy and the relatively
stable society in China brought about strong internal demands in all sectors
that, in turn, created a relatively favorable environment for the Group's tire
business.

      The tire business of the Group enjoyed significant growth in trading
volume as outputs of motor vehicles, especially cars, in the country increased
substantially in 2002. Moreover, China kept investing in building roads during
2002, including express highways, which the Company believes demonstrates growth
potential for increased automobile usage in China.

      During 2002, sales of radial tires showed strong growth. Most new motor
vehicles (especially private cars) are specially designed for use with more
durable radial tires. At the same time, sales of bias tires for the year 2002
still achieved single digit percentage growth since heavy transportation
vehicles such as trucks and lorries continued to install less expensive bias
tires. It is expected that radial tires sales will continue to make up a larger
portion of the Company's revenue in the next year. However, the Company will
strive to maintain its existing market share in the bias tire market.

      To strengthen its marketing channels, the Group has put more emphasis on
the selection of regional tire distributors and other intermediaries. The Group
conducts regular screening of distributors' performance in order to get rid of
less competitive distributors and agents. The Group has also been more active in
attending various trade fair and exhibitions convened in various parts of the
PRC to get in touch with potential customers.

TRAVEL BUSINESS

        Having considered the steady improvement in the consumption power of the
population of China, the Group believes that the travel industry will continue
to increase notably in the medium to long run. For that reason, the Company
proceeded with its plans scheduled last year and acquired significant interests
in Ananda, one of the largest travel agencies in the Greater China Region, and
in a chain of well-developed hotels.

      In the short run, the outbound package tour business of Ananda in the year
of 2002 was beginning to recover from the lingering effects of the "9/11" event.
However, Ananda's performance in 2002 was still affected by the sharp fall in
long-haul tours and the slow recovery of short-haul tours to other Asian
countries.

      Travel business is sensitive to economic downturns and international
political crises. Starting from the beginning of 2003, the war in Iraq and the
outbreak of SARS dramatically has dramatically dampened the economy in the
region. The effects of these factors were evidence in the first half of 2003 in
the much weakened demand for both business and leisure travel.

      Although the recent SARS epidemic in the region has subsided, the World
Health Organization has warned that a return of the disease cannot be ruled out
completely on the basis of current knowledge. Ananda is putting contingency
plans in place to address the potential effect of any future SARS epidemic on
its business. Ananda has taken steps to improve its internal controls and
operating efficiency to reduce its operating costs.




                                       30
<PAGE>


               ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

        The directors, executive officers and senior management of the Company
as of December 31, 2002 are identified below.

DIRECTORS AND SENIOR MANAGEMENT

<Table>
<Caption>
                                                                                                        EMPLOYED
NAME                         AGE   POSITION                                                              SINCE
----                         ---   --------                                                            ---------
<S>                         <C>    <C>                                                               <C>
Chan Kwok Keung, Charles     48    Chairman and Director of the Company                                  2000 (1)
Allan Yap                    47    Vice Chairman and Director of the Company                             2001 (1)
Dorothy Law                  33    Director                                                              2000
Richard Whittall             44    Independent Director and Audit Committee Member of the Company        2000
David Edwin Bussmann         49    Independent Director and Audit Committee Member of the Company        2000 (2)
Lien Kait Long               55    Chief Financial Officer                                               1999 (3)
Shen Jin Rong                44    Vice President and General Manager of Hangzhou Zhongce                2000
Xie Meng Lin                 53    Vice President and General Manager of Yinchuan CSI                    2001
Ma Wei Ping                  46    President and General Manager of Fu Chun Jiang                        1999
</Table>

--------------------------------------------------------------------------------
(1)   Dr. Chan Kwok Keung, Charles and Dr. Allan Yap are also executive
      directors of CSH
(2)   Mr. David Edwin Bussmann is also an independent non-executive director
      of CSH
(3)   Mr. Lien Kait Long was appointed as a director of the Company on April 23,
      2003

BRIEF BIOGRAPHY OF DIRECTORS AND SENIOR MANAGEMENT

        Dr. Chan Kwok Keung, Charles, aged 48, is the chairman and director of
the Company and a chairman and chief executive officer of CSH. Dr. Chan holds an
honorary degree of Doctor of Laws and a bachelor's degree in civil engineering
and has over 23 years' international corporate management experience in the
construction and property sectors as well as in strategic investments. Dr. Chan
is also the chairman of ITC Corporation Limited ("ITC"), Paul Y.-ITC
Construction Holdings Limited ("Paul Y."), Hanny Holdings Limited ("Hanny") and
Dong Fang Gas Holdings Limited ("Dong Fang Gas"), whose shares are listed on the
Stock Exchange of Hong Kong Limited. He is also an executive director of Ananda
and a non-executive director of Downer EDI Limited, the latter is a company
whose shares are listed on the Australian Stock Exchange and the New Zealand
Stock Exchange.

        Dr. Yap, Allan, aged 47, is the vice-chairman of the Company and CSH. He
obtained the honorary degree of Doctor of Laws and has over 21 years' experience
in finance, investment and banking. Dr. Yap is the managing director of Hanny,
the vice-chairman of Dong Fang Gas and an executive director of Ananda. Dr. Yap
is also the chairman and chief executive officer of Burcon NutraScience
Corporation ("Burcon"), a public listed company in Canada, the executive
chairman and a director of Provisions Suppliers Corporation Limited, a public
listed company in Singapore, and a director of Ding Ing Technology Co., Limited,
a public listed company in Taiwan.

        Ms. Law, Dorothy, aged 33, is a director of the Company. She received
her Bachelor of Commerce and Bachelor of Laws degrees from the University of
British Columbia in Canada. Ms. Law is a Barrister and Solicitor licensed to
practice law in British Columbia and has also been admitted as a Solicitor of
the High Court of Hong Kong. Ms. Law is also a director of Burcon and corporate
counsel of Hanny.

        Mr. David Edwin Bussmann, aged 49, is an independent director and an
audit committee member of the Company and an independent non-executive director
of CSH. Mr. Bussmann has more than 21 years experience in the investment and
finance field, and is very familiar with investment issues related to China, as
well as sectors such as technology, real estate and direct investment. He
previously worked at Salomon Brothers, Citibank, Bank of America and Prudential
Asia.



                                       31
<PAGE>

        Mr. Richard Whittall, aged 44, is an independent director and the
chairman of the audit committee of the Company. He is the President of Watershed
Capital Partners Inc., an investment banking firm, based in Vancouver, British
Columbia, Canada. Mr. Whittall has 18 years experience in investment banking
advising domestic and international companies in the areas of fund raising,
mergers, acquisitions, divestitures and strategic business alliances. Mr.
Whittall currently serves as a director of a number of public and private
companies.

        Mr. Lien Kait Long, aged 55, is the chief financial officer of the
Company and was appointed as a director on April 23, 2003. Mr. Lien holds a
bachelor's degree in commerce and is a member of Institute of Certified Public
Accounts of Singapore and the CPA Australia. He has over 32 years' experience in
finance, accounting, investment and banking. He is the director of MRI Holdings
Limited, a company whose shares listed on the Australian Stock Exchange and the
non-executive director of China Development Corporation Limited.

SENIOR MANAGEMENT

        Mr. Shen Jin Rong, aged 44, is the vice president and the general
manager of Hangzhou Zhongce. Mr. Shen graduated in Hangzhou Huagongju Zhigong
University in 1984 and joined Hangzhou Zhongce in 1992. He is also the president
of Fu Chun Jiang and Hangzhou Sunrise.

        Mr. Xie Meng Lin, aged 53, is the vice president and the general manager
of Yinchuan CSI. Mr. Xie joined Yinchuan CSI in 2001. He is also the president
of Yinchuan Changcheng Rubber Co., Limited.

        Mr. Ma Wei Ping, aged 46, is the managing director of Fu Chun Jiang.
Mr. Ma joined Hangzhou Zhongce in 1992 and joined Fu Chun Jiang as the managing
director in 1999.

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

COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT

        For the year ended December 31, 2002, the aggregate amount of
compensation and bonuses paid by the Company and its subsidiaries as a
compensation to all directors and executive officers, for service in all
capacities, was approximately Rmb1.29 million (US$0.16 million). The grant of
bonuses is determined at the discretion of the board of directors.

BOARD PRACTICES

        All directors of the Company will hold office until the next annual
meeting of the shareholders and until their successors are elected and
qualified. During the annual general meeting of the Company held on May 30,
2003, all six existing members were re-appointed to the board of directors of
the Company.

        No director of the Company entered into any service contract nor
entitled to any benefits upon termination of employment with the Company.

        The audit committee of the board of directors reviews, acts on and
reports to the board of directors with respect to various auditing and
accounting matters, including the selection of our auditors, the scope of the
annual audits, fees to paid to the auditors, the performance of the auditors and
our accounting practices. As of June 23, 2003, the audit committee of the
Company consists of Mr. Richard Whittall and Mr. David Edwin Bussmann.

EMPLOYEES

        The Group has employed highly qualified engineering and technical staff
skilled in the production of bias tires; however, the Company has employed
overseas consultants to help its management for expansion into



                                       32
<PAGE>

radial tire production. As of December 31, 2002, the Group employed an aggregate
of approximately 10,000 employees. Details of the staff employment of the Group
as of December 31, 2002 are summarized as follows: -

HANGZHOU ZHONGCE

        The management of Hangzhou Zhongce consists of a board of directors, to
whom the general manager reports. The general manager's management team consists
of two deputy general managers, a chief accountant and a chief engineer. The
general manager, Mr. Shen Jin Rong, has been employed by Hangzhou Rubber since
2000.

        As of December 31, 2002, Hangzhou Zhongce had approximately 6,565
employees, 86% of whom were production workers, 4% of whom were managerial
staff, 5% of whom were engineering and technical staff, and 5% of whom were
service and other personnel.

        As of December 31, 2001, Hangzhou Zhongce had approximately 6,010
employees, 87% of whom were production workers, 5% of whom were managerial
staff, 7% of whom were engineering and technical staff, and 1% of whom were
service and other personnel.

        As of December 31, 2000, Hangzhou Zhongce had approximately 5,000
employees, 84% of whom were production workers, 11% of whom were managerial
staff, 3% of whom were engineering and technical staff, and 2% of whom were
service and other personnel.

        In general, Hangzhou Zhongce has entered into employment contracts with
its workers, with wages to be decided annually by the enterprise's board of
directors in accordance with applicable Chinese regulations governing the labor
management of Sino-foreign equity joint venture enterprises. Part of the labor
cost is paid by piece rate in certain production section.

        Hangzhou Zhongce has certain employer-funded benefits which include
pension funds and medical costs. In addition, Hangzhou Zhongce also maintains
bonus programs based on its production volume and profit.

        All employees of Hangzhou Zhongce, including members of senior
management, are members of a trade union. Hangzhou Zhongce has not suffered from
strikes or other significant labor disputes.

DOUBLE HAPPINESS

        The bias tire factory of Double Happiness was disposed by the Company
during 2001. As of December 31, 2002, 2001 and 2000, there were no employees in
the incomplete radial tire factory of Double Happiness as the construction of
this factory had been suspended since 1995. The Company has recently entered
into an agreement to dispose of all its remaining interest in Double Happiness
including the incomplete radial tire factory. The completion of the sale is
pending upon certain approvals from the governmental authorities.

YINCHUAN CSI

        The management team of Yinchuan CSI consists of one general manager and
three deputy general managers, a chief accountant and a chief engineer. The
general manager, Mr. Xie Meng Lin was employed by Yinchuan Rubber Factory since
July 2001.

        As of December 31, 2002, Yinchuan CSI had approximately 3,334 employees,
89% of whom were production workers, 5% of whom were managerial staff, 5% were
engineering and technical staff, and the remaining were supporting personnel.

        As of December 31, 2001, Yinchuan CSI had approximately 3,684 employees,
95% of whom were production workers, 2% of whom were managerial staff, 3% were
engineering and technical staff.



                                       33
<PAGE>

        As of December 31, 2000, Yinchuan CSI had approximately 4,000 employees,
95% of whom were production workers, 2% of whom were managerial staff, 3% were
engineering and technical staff.

        In general, Yinchuan CSI has entered into employment contracts with its
workers, with wages to be decided annually by the enterprise's board of
directors in accordance with applicable Chinese regulations governing the labor
management of Sino-foreign equity joint venture enterprises. Part of the labor
is paid by piece-rate in certain production sections.

        Yinchuan CSI has certain employer-funded benefits which included pension
funds and medical costs. In addition, Yinchuan CSI also maintains bonus programs
based on its production volume and profit.

        All employees of Yinchuan CSI, including members of senior management,
are members of a trade union. Yinchuan CSI, has not suffered from strikes or
other significant labor disputes.

      The Company had disposed of its interests in Yinchuan CSI in early 2003.
The sale was considered as completed in January 2003 after approval from the
relevant governmental authorities had been obtained and the Company transferred
substantially all its risks and benefits of ownership of Yinchuan CSI to the
buyer.

FU CHUN JIANG

        No summary employee information has been provided for Fu Chun Jiang as
its operations are insignificant when compared to the other subsidiaries.

SHARE OWNERSHIP

<Table>
<Caption>
NAME                                  POSITION        PERCENTAGE OF SHARES OWNED
----                                  --------        --------------------------
<S>                                  <C>              <C>
Dr. Chan Kwok Keung, Charles (1)      Chairman                   55.2%
</Table>

Note:
(1)  Dr. Chan's interest represents 3,000,000 super-voting shares and 1,978,830
     common shares, representing 55.2% of the equity interest and 88.8% of the
     voting rights, of the Company beneficially held by CSH directly and
     indirectly. Dr. Chan is the Chairman of CSH. Through indirect wholly owned
     subsidiaries, Dr. Chan owns 34.8% of ITC, of which he is also a Chairman.
     As of June 23, 2003, ITC indirectly owns 27.7% interest in Well Orient
     Limited, which owns 17.45% of CSH. ITC, through wholly owned direct and
     indirect subsidiaries, also owns 64.2% of Paul Y., which indirectly owns
     17.45% of CSH. Although Dr. Chan may be deemed a beneficial owner of the
     shares of the Company held by CSH pursuant to Rule 13d-3, he disclaims
     beneficial ownership of such shares.

        No other director or member of senior management of the Company
beneficially owns one percent or more of the shares of the Company.

SUMMARY OF THE OPTION SCHEME

        The Company's shareholders approved an Executive Share Option Scheme
(the "Option Scheme") at the 1994 Annual General Meeting. The Option Scheme
authorizes the granting of options to purchase up to 910,000 shares of the
Company's common stock to officers, directors who are also full-time employees
and other key full or part-time employees of the Company and its subsidiaries.
Options granted under the Option Scheme ("Options") will constitute nonqualified
stock options for purposes of the United States Internal Revenue Code of 1986,
as amended (the "Code").

        Common stock reserved for issuance pursuant to the Option Scheme is
authorized but un-issued common stock until such time as the Option is
exercised. The Option Scheme is administered by a committee, consisting of
independent directors of the Company, no member of which may be an employee of
the Company or a subsidiary of the Company.

        The Committee will determine the employees to whom grants of Options
will be offered, the number and terms of the Options to be granted to each
employee selected, the time or times when Options will be granted, the period
during which Options will be exercisable, and the exercise price per share of
common stock. The exercise price may not be less than 80% of the average closing
price of a share of common stock over the five trading days immediately




                                       34
<PAGE>

preceding the date the Option is granted.

        Optionees must accept an offer of an Option grant, if at all, within 60
days of such offer, by payment to the Company of US$1.00. The Option exercise
price is payable by the optionee in cash, certified or bank check, or in shares
of Company's common stock previously acquired by the Optionee. Options granted
to an employee may not be transferred by the employee, and such Option may be
exercisable during such person's lifetime only by the employee.

        No Option may be exercisable after the expiration of ten years from the
date such Option is granted. The terms of an Option may provide that it will be
or become exercisable at such time or upon such events as the committee may
specify. The Option Scheme provides that Options will be exercisable, to the
extent not already exercised, within 14 days (or such other period of time as
the Company shall determine) of an unconditional (or shareholder approved) offer
to acquire the outstanding common stock of the Company. In the event of an
effective shareholder resolution approving the voluntary winding-up of the
Company, an optionee, by notice to the Company within 21 days after the date of
such resolution, may elect to be treated as if the Option (to the extent not
already exercised) has been exercised immediately prior to such resolution and
to receive such amount, minus the subscription price, to which a holder of the
number of shares deemed received upon such deemed exercise would be entitled
upon such winding-up.

        If an optionee's employment with the Company or a subsidiary of the
Company terminates for any reason (other than the optionee's death or upon the
Company's termination of the optionee's employment for cause), the Options
granted to such person will expire one month from date of such termination of
employment. In the event of termination for cause, the Options will be
terminated upon receipt of notice of such termination. Upon the death of an
optionee, the Option will be terminated on the earlier of the option's
expiration date or twelve months from the date of death.

        The Option Scheme provides that, if there occurs a change in the capital
structure of the Company by reason of a capitalization of profits or reserves,
rights issue, consolidation, subdivision or reduction of the share capital of
the Company or other change in the corporate structure of the Company, the
Committee may make such adjustments, if any, as are appropriate in the number
and kind of shares that may be issued under the Option Scheme, including in the
number and kind of shares which are subject to outstanding Options, or in the
Option price thereof.

        The board of directors may discontinue the Option Scheme at any time and
may from time to time amend or revise the terms of the Option Scheme, except
that it may not revoke or alter in a manner unfavorable to the Option holders,
any Options then outstanding, or amend the Option Scheme so as to materially:
(i) modify the requirements as to eligibility for participation in the Option
Scheme (ii) change the Option period, (iii) increase the benefits accruing to
participants under the Option Scheme or (iv) increase the number of securities
which may be issued under the Option Scheme to the advantage of optionees or
future optionees without the prior sanction of a resolution of the Company.

        The Option Scheme will terminate on June 6, 2004 unless terminated
earlier by action of the board of directors or by the shareholders at a general
meeting. As of June 23, 2003, the closing price of the Company's common stock
was US$2.00 per share.

        A summary of movements of share options under the Company's options
scheme during the year is as follows:

<Table>
<Caption>
                                        OUTSTANDING AT   SURRENDERED/LAPSED    OUTSTANDING AT
EXERCISABLE PERIOD     EXERCISE PRICE      1.1.2002       DURING THE YEAR        12.31.2002
------------------     --------------   --------------   ------------------    --------------
                           (US$)
<S>                    <C>               <C>             <C>                   <C>
2.3.2000 to 2.2.2010      9.9375            20,000               --                20,000
                                            ------            ------               ------
                                            20,000               --                20,000
                                            ======            ======               ======
</Table>




                                       35
<PAGE>



        Details of the outstanding options granted to the Company are summarized
as follows:

<Table>
<Caption>
                                                                                 NO. OF COMMON                 NO. OF COMMON
                                                                                  STOCK UNDER      LAPSED       STOCK UNDER
                                                                     EXERCISE      OPTION AT       DURING        OPTION AT
GRANTEE       TITLE                           EXERCISABLE PERIOD       PRICE       1.1.2002       THE YEAR       12.31.2002
-------       -----                           ------------------     --------    --------------   --------     --------------
                                                                      (US$)
<S>          <C>                             <C>                     <C>         <C>              <C>         <C>
Sheng Yu      Vice President and Deputy      2.3.2000 to 2.2.2010     9.9375         20,000          --            20,000
                Chief Operating Officer
</Table>

        Save as disclosed above with respect to the Option Scheme and the shares
held by Mr. Sheng Yu, as at December 31, 2002, none of the Company's directors,
officers or their associates had any personal, family, corporate or other
interests in any shares of the Company or any of its associated corporations.
Mr. Sheng Yu tendered his resignation to the Company in February 2003 and the
Option granted to him expired one month from the date of his resignation. As of
June 23, 2003 of this annual report, no Options granted were outstanding.



                                       36
<PAGE>


            ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

      Based on filings on Schedule 13G under the Exchange Act, as of June 23,
2003, the following persons beneficially owned shares representing 5% or more of
the issued share capital of the Company.

<Table>
<Caption>
NAME OF HOLDER                      NUMBER OF SHARES HELD    PERCENTAGE OF CLASS
--------------                      ---------------------    -------------------
<S>                                 <C>                      <C>
CSH(1)                                    4,978,830                 55.2%
Forstmann-Leff Associates, LLC(2)         1,439,495                 16.0%
</Table>

(1)   Includes 3,000,000 shares of supervoting common stock, each share having
      10 votes on resolutions of shareholders, 1,978,830 shares of common stock,
      each share having 1 vote on resolutions of shareholders. There has been no
      change in the percentage ownership of CSH during the past three years. Dr.
      Chan Kwok Keung, Charles is deemed to be the beneficial owner of the
      interest in shares held by CSH as defined by General Instructions F for
      preparing the Form 20-F. Dr. Chan's interest represents 3,000,000
      super-voting shares and 1,978,830 common shares, representing 55.2% of the
      equity interest and 88.8% of the voting rights, of the Company
      beneficially held by CSH directly and indirectly. Dr. Chan is the Chairman
      of CSH. Through indirect wholly owned subsidiaries, Dr. Chan owns 34.8% of
      ITC, of which he is also a Chairman. As of June 23, 2003, ITC indirectly
      owns 27.7% interest in Well Orient Limited, which owns 17.45% of CSH. ITC,
      through wholly owned direct and indirect subsidiaries, also owns 64.2% of
      Paul Y. which indirectly owns 17.45% of CSH.

(2)   Represents shares of common stock; includes 489,400 shares of common stock
      held by FLA International Fund, Ltd., representing 5.4% of the outstanding
      capital stock of the Company. According to the disclosure in the Schedule
      13G and amendments thereto, Forstmann-Leff Associates, LLC, is a
      registered investment advisor under the Investment Advisers Act of 1940.
      FLA Advisers L.L.C., which also reported beneficial ownership of the
      1,439,495 shares, is also a registered investment adviser under such Act.
      The members of Forstmann-Leff Associates, LLC's Investment Committee are
      the managers of FLA Advisers L.L.C. FLA Advisers L.L.C. is the investment
      advisor to FLA International Fund, Ltd. The entities reported that various
      of their clients have the right to receive, or the power to direct the
      receipt of dividends from or the proceeds from the sale of, the common
      stock. According to the Schedule 13G and amendments thereto, no client
      held interests greater than 5% other than FLA International Fund, Ltd.

      For the years ended December 31, 2001 and 2000, Forstmann-Leff Associates,
      LLC, FLA Asset Management LLC, FLA Advisers L.L.C. and FLA International
      Fund, Ltd. reported jointly on Schedule 13G, reporting in the aggregate
      beneficial ownership of 1,459,095 and 1,226,820 shares, respectively, as
      of the end of such years.

      According to the shareholders list, dated April 4, 2003, provided to the
Company by its transfer agent, there are 107 shareholders (representing all
issued common stock of 6,017,310 shares) of record of the Company's common
stock. Among them, 104 holders of the Company's common stock (holding 6,017,060
common shares) are resident in the United States. All issued supervoting common
stock is held by CSH, the major shareholder of the Company which incorporated in
Hong Kong.

RELATED PARTY TRANSACTIONS

        The information required is contained in Note 19 to the Consolidated
Financial Statements included "Item 18. Financial Statements" of this annual
report.




                                       37
<PAGE>


                          ITEM 8. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

      See the Consolidated Financial Statements included in "Item 18. Financial
Statements" of this annual report. See also "Item 17. Financial Statements" of
this annual report for summarized financial statements of Ananda.

DIVIDEND POLICY

      On July 3, 2001, the board of directors of the Company announced that the
Company would suspend the declaration and payment of any quarterly dividend
until the profitability of the Company and its subsidiaries reached an
acceptable level. During 2002, no dividend was paid by the Company.

      Applicable Chinese laws and regulations require that, before a
Sino-foreign equity joint venture enterprise (such as each PRC Subsidiary)
distributes profits to investors, it must: (1) satisfy all tax liabilities; (2)
provide for losses in previous years; and (3) make allocations, in proportions
determined at the sole discretion of the board of directors, to a general
reserve fund, an enterprise expansion fund and a staff welfare and incentive
bonus fund.

      During 2002, no distribution of dividends was made from any subsidiary.

      Any future determination to pay a dividend to shareholders of the Company
will also depend on the Company's results of operations and financial condition,
and other factors deemed relevant by its board of directors.

SIGNIFICANT CHANGES

        On June 3, 2003, the Company entered into an agreement to dispose of all
its remaining interests in Double Happiness, comprised principally of an
incomplete radial tire factory, for a consideration of Rmb10,000,000. The
completion of the sale is pending upon certain approvals from the governmental
authorities. The Company transferred substantially all its risks and benefits of
ownership of the factory to the buyer on June 3, 2003 after receiving the total
sale proceeds of Rmb10,000,000.

        On June 15, 2003, the Company entered into a contract with Hangzhou
Industrial & Commercial Trust & Investment Co. Ltd., an independent third party
not connected with any directors, substantial shareholders or chief executive of
the Company or any of its subsidiaries. Pursuant to the contract the Company
agreed to sell to the buyer a 25% interests in Hangzhou Zhongce, currently a 51%
owned subsidiary of the Company, for a consideration of Rmb164,659,657 in order
to widen the shareholders' base of Hangzhou Zhongce. The Company considers the
sale to be beneficial both to the further development of Hangzhou Zhongce in the
PRC and its future value to the Company. The sale is conditional upon the
parties receiving approval of the transaction from the China Commercial
Department, an agency of the government of the PRC.




                                       38
<PAGE>


                               ITEM 9. THE LISTING

      Shares of the Company's common stock traded on the NYSE under the symbol
"CSH" from 1993 to late 2002. However, the trading was suspended on September
27, 2002 by the NYSE for the failure of the Company to meet the NYSE's
continuing listing standards. The SEC granted the application of the NYSE for
removal of the common stock of the Company from listing and registration on the
NYSE under the Exchange Act effective December 30, 2002.

      Since November 26, 2002, the Company's common stock has traded on the
OTCBB under the stock symbol "CSHEF". The OTCBB is a regulated quotation service
that displays real-time quotes, last sale prices and volume information in OTC
equity securities for companies which are registrants with the SEC.

      The following table set forth, for the periods indicated the high and low
closing sale prices of the common stock as reported by NYSE from January 1, 1998
to September 27, 2002 and by the OTCBB from November 26, 2002 to December 31,
2002.

<Table>
<Caption>
      YEAR ENDED                      HIGH             LOW
                                      -----            ----
<S>                                  <C>              <C>
      December 31, 2002                2.00            0.20
      December 31, 2001                2.90            0.71
      December 31, 2000                9.38            2.00
      December 31, 1999               10.62            3.56
      December 31, 1998                9.63            4.19
</Table>

      The following table sets forth the high and low closing sale prices for
the common stock as reported during each of the quarters in the two-year period
ended December 31, 2002.

<Table>
<Caption>
      QUARTER ENDED                                     HIGH            LOW
                                                        ----            ----
<S>                                                     <C>             <C>
      December 31, 2002 (from November 26)              0.74            0.20
      September 30, 2002 (through September 27)         1.40            0.28
      June 30, 2002                                     1.75            1.00
      March 31, 2002                                    2.00            1.03
      December 31, 2001                                 1.75            0.71
      September 30, 2001                                2.15            1.35
      June 30, 2001                                     2.05            1.63
      March 31, 2001                                    2.90            1.82
</Table>

      The following table sets forth the high and low closing sale prices for
the common stock as reported during each of the most recent six months.

<Table>
<Caption>
      MONTH ENDED                    HIGH             LOW
                                     -----            ----
<S>                                  <C>              <C>
      May 31, 2003                    1.10            0.30
      April 30, 2003                  0.45            0.30
      March 31, 2003                  0.35            0.30
      February 28, 2003               0.40            0.34
      January 31, 2003                0.55            0.25
      December 31, 2002               0.74            0.25
</Table>




                                       39
<PAGE>


                        ITEM 10. ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

      For a summary of the Company's Memorandum and Articles of Association see
Item 10 of the Company's Form 20-F for the year ended 2001 to which specific
reference is made.

MATERIAL CONTRACTS

      The following is a summary of material contracts, other than contracts
entered into in the ordinary course of business, to which the Company or any
subsidiary of the Company is a party, for the two years immediately preceding
the filing of this report.

      Contract for disposal between Taiyuan Municipal Economic Commission, a
third party to the Company, as a buyer and the Company as a seller for the sale
of seller's interest in the bias tire factory of Taiyuan Plant of Double
Happiness, a 55% owned subsidiary of the seller, for a consideration of
Rmb41,000,000.

      Contract for disposal dated January 8, 2003 between Ningxia Yinchuan
Rubber Manufacturing, the Chinese joint venture partner of Yinchuan CSI, as a
buyer and the Company as a seller for the sale of seller's interest in Yinchuan
CSI, a 51% owned subsidiary of the seller, for a consideration of Rmb35,000,000.

      Contract for disposal dated June 15, 2003 between Hangzhou Industrial &
Commercial Trust & Investment Co. Ltd., an independent third party not connected
with any directors, substantial shareholders or chief executive of the Company
or any of its subsidiaries, as a buyer and the Company as a seller for the sale
of seller's a 25% interest in Hangzhou Zhongce, currently a 51% owned subsidiary
of the seller, for a consideration of Rmb164,659,657.

EXCHANGE CONTROLS

CURRENCY CONVERSION AND EXCHANGE RATE RISKS

      The PRC Government imposes control over the convertibility of Renminbi
into foreign currencies and implemented a controlled floating exchange rate
system based on market supply and demand and established a managed foreign
exchange system. The People's Bank of China publishes a daily exchange rate (the
"PBOC Exchange Rate") for Renminbi based on the previous day's dealings. The
financial institutions authorized to deal in foreign currency may enter into
foreign exchange transactions at exchange rates within a set range above or
below the PBOC Exchange Rate, according to market conditions.

      On January 29, 1996, the State Council promulgated the Regulations of the
People's Republic of China Regarding Foreign Exchange Control (the
"Regulations") which came into effect in April 1996. Pursuant to the
Regulations, conversion of Rmb into foreign exchange for the use of recurring
items, including the distribution of dividends and profits to foreign investors
of joint ventures, is permissible. Foreign Investment Enterprises are permitted
to remit their foreign exchange from their foreign exchange bank accounts in the
PRC on the basis of the relevant joint venture contracts, the board resolutions
declaring the distribution of payment of the dividend, etc. Conversion of Rmb
into foreign exchange for capital items, such as fixed assets acquisitions,
direct investment, loans, security investment are still subject to controls.

      The PRC Subsidiaries conduct substantially all their business in China,
and their financial performance and condition are measured in terms of Renminbi.
Their products are primarily sold in China in Renminbi transactions. Thus, their
revenues and profits are predominantly in Renminbi, and will have to be
converted to pay dividends to the Company in U.S. Dollars. If the Renminbi
devalues against the U.S. Dollar, it is possible that such devaluation would
have a material adverse effect on the foreign currency equivalent of the profits
repatriated by the PRC Subsidiaries to the Company.

      Since the unification of the two-tier exchange rate system effective
January 1, 1994, the Renminbi continued to strengthen against


                                       40
<PAGE>


the U.S. Dollar. The Company currently does not hedge its exchange rate risks.

      Yinchuan CSI and Hangzhou Zhongce imported limited amounts of natural
rubber directly from Malaysia and Thailand and other countries. In general, most
of the raw materials, such as steel thread and nylon cords, carbon black and
natural rubbers are still sourced domestically. Given that most of the PRC
Subsidiaries' sales are at present in the domestic market, their exposure to
exchange rate risks resulting from any devaluation of the Renminbi against the
U.S. Dollar is limited. With the foreign currency proceeds obtained from export
sales, the PRC Subsidiaries should be able to satisfy the foreign currency
requirement for purchases of imported raw materials.

      Although the PRC Subsidiaries are gradually increasing their level of
export sales, most of their sales are still aimed at the domestic market which
will limit their exposure to exchange risks.

CERTAIN FOREIGN ISSUER CONSIDERATIONS

      The Company has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority, Foreign Exchange Control, whose
permission for the issue of shares of common stock of the Company has been
obtained.

      The transfer of shares between persons regarded as resident outside
Bermuda for exchange control purposes and the issue of shares to or by such
persons may be effected without specific consent under the Exchange Control Act
of 1972 and regulations thereunder. Issues and transfers of shares involving any
person regarded as resident in Bermuda for exchange control purposes require
specific prior approval under the Exchange Control Act of 1972.

      There are no limitations on the rights of non-Bermuda owners of the
Company's common stock to hold or vote their shares. Because the Company has
been designated as a non-resident for Bermuda exchange control purposes, there
are no restrictions on its ability to transfer funds in and out of Bermuda or to
pay dividends to United States residents who are holders of the Company's common
stock, other than in respect of local Bermuda currency.

      In accordance with Bermuda law, share certificates are only issued in the
names of corporations or individuals. In the case of an applicant acting in a
special capacity (for example, as an executor or trustee), certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity, the Company
is not bound to investigate or incur any responsibility in respect of the proper
administration of any such estate or trust.

      The Company will take no notice of any trust applicable to any of its
shares whether or not it had notice of such trust.

      As an exempted company, the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudan, but
as an exempted company the Company may not participate in certain business
transactions, including: (1) the acquisition or holding of land in Bermuda
(except that required for business and held by way of lease or tenancy for terms
of not more than 21 years) without the express authorization of the Bermuda
legislature; (2) the taking of mortgages on land in Bermuda to secure an amount
in excess of US$50,000 without the consent of the Minister of Finance of
Bermuda; (3) the acquisition of securities created or issued by, or any interest
in, any local company or business, other than certain types of Bermuda
government securities or securities of another exempted company, partnership or
other corporation resident in Bermuda but incorporated abroad; or (4) the
carrying on of business of any kind in Bermuda, except in furtherance of the
business of the Company carried on outside Bermuda or under a license granted by
the Minister of Finance of Bermuda.

      The Bermuda government actively encourages foreign investment in exempted
entities like the Company that are based in Bermuda but do not operate in
competition with local business. In addition to having no restrictions on the
degree of foreign ownership, the Company is subject neither to taxes on its


                                       41
<PAGE>


income or dividends nor to any foreign controls in Bermuda. In addition, there
is no capital gains tax in Bermuda, and profits can be accumulated by the
Company, as required, without limitation.

TAXATION

      The following discussion is a summary of certain anticipated tax
consequences of an investment in the common stock under Bermuda tax laws and
United States Federal income tax laws. The discussion does not deal with all
possible tax consequences relating to an investment in the common stock and does
not purport to deal with the tax consequences applicable to all categories of
investors, some of which (such as dealers in securities, insurance companies and
tax-exempt entities) may be subject to special rules. In particular, the
discussion does not address the tax consequences under State, local and other
(e.g., non-Bermuda, non-United States Federal tax laws). This discussion is
based upon laws and relevant interpretations thereof in effect as of the date of
this Annual Report, all of which are subject to change.

BERMUDA TAXATION

      The Company is incorporated in Bermuda. Under current Bermuda law, the
Company is not subject to tax on income or capital gains, and no Bermuda
withholding tax will be imposed upon payments of dividends by the Company to its
shareholders. Furthermore, the Company has received from the Minister of Finance
of Bermuda under the Exempted Undertakings Tax Protection Act of 1966, as
amended, an undertaking that, in the event that Bermuda enacts any legislation
imposing any tax computed on profits or income, including any dividend or
capital gains withholding tax, or computed on any capital assets appreciation
thereof, or any tax in the nature of an estate, duty or inheritance tax, the
imposition of such tax will not be applicable to the Company or any of its
operations, nor to the shares, debentures or other obligations of the Company,
until March 28, 2016. This undertaking does not, however, prevent the imposition
of property taxes on Company-owned real property or leasehold interests in
Bermuda.

      The United States does not have a comprehensive income tax treaty with
Bermuda.

      As an exempted company, the Company is liable to pay to the Bermuda
government an annual registration fee calculated on a sliding-scale basis by
reference to its assessable capital, that is, its authorized capital plus any
share premium.

UNITED STATES FEDERAL INCOME TAXATION

Taxation of Shareholders

      The following discussion addresses the United States Federal income
taxation of a United States person (i.e., a United States citizen or resident,
corporation or partnership organized under the laws of the United States or any
state thereof, or an estate or trust subject to United States tax on all of its
income regardless of source) (a "U.S. Investor") making an investment in the
common stock. The summary does not address the United States tax treatment of
certain types of investors (e.g., individual retirement and other tax deferred
accounts, life insurance companies and tax-exempt organizations) or of persons
other than a U.S. Investor, all of whom may be subject to tax rules that differ
significantly from those summarized below. If the U.S. investor holds its common
stock through a foreign branch or other foreign business unit, the following
discussion may not be accurate in all respects as to such investor. Investors
are advised to consult their own tax advisors with respect to their particular
circumstances and with respect to the effects of State, local or foreign tax
laws to which they may be subject. In addition, future changes to United States
tax laws could have an effect on the United States Federal income tax
consequences of the purchase, ownership and disposition of common stock.

      A U.S. Investor receiving a distribution in respect of the common stock
will be required to include such distribution in gross income as a taxable
dividend to the extent such distribution is paid from earnings and profits of
the Company as determined under United States Federal income tax principles.
Distributions in excess of the earnings and profits of the Company first will be
treated, for United States Federal income tax purposes, as a nontaxable return
on capital to the extent of the U.S. investor's tax basis in the common stock




                                       42
<PAGE>


and then as gain from the sale or exchange of a capital asset, provided that the
common stock constitutes a capital asset in the hands of the U.S. investor.
Dividends received on the common stock will not be eligible for the corporate
dividends-received deduction. Any amount treated as a dividend for United States
Federal income tax purposes generally will constitute foreign source "passive
income" (or, in the case of certain holders, "financial services income") and
will not be eligible for the dividends received deduction generally allowed to
corporate shareholders for dividends received from United States domestic
corporations. Except for corporations that own 10% or more of the common stock
of the Company, no shareholder will be entitled to claim a foreign tax credit
against United States Federal income tax for any tax paid by the Company or any
entity in which the Company invests, directly or indirectly. For reporting
purposes, any dividends that are paid in any currency other than US dollars must
be translated into US dollars at the spot rate on the date the dividends are
accrued or received by the U.S. Investor, regardless of whether the dividend
receipt is in fact converted into US dollars.

      With certain exceptions, gain or loss on the sale or exchange of the
common stock will be treated as capital gain or loss (if the common stock is
held as a capital asset). Such capital gain or loss will be long-term capital
gain or loss if the U.S. Investor has held the common stock for more than one
year at the time of the sale or exchange. Gains realized upon the disposition of
common stock will be domestic source gain for purposes of the United States
foreign tax credit limitation. Under existing authorities, the source of any
loss on the sale of common stock is not clear in all cases. While the source of
a loss arguably would be domestic source, the United States Internal Revenue
Service might contend that the loss should be treated as foreign source. U.S.
Investors should consult their own tax advisors regarding the foreign tax credit
limitation consequences of selling Common Stock at a loss.

      The "personal holding company" ("PHC"), "foreign personal holding company"
("FPHC"), "controlled foreign corporation" ("CFC"), and "passive foreign
investment company" ("PFIC") rules under United States Federal income tax law
could apply to the Company and U.S. investors who own Common Stock. However,
based on the current and anticipated ownership of the Company and the Company's
current and anticipated ownership of assets, the Company believes that neither
the taxation of the Company nor any of its shareholders will be affected by any
of those rules. However, no assurances can be given as to the company's future
PHC, FPHC, CFC or PFIC status.

UNITED STATES BACKUP WITHHOLDING AND INFORMATION REPORTING

      The receipt of dividends on the common stock by a holder of the common
stock (a) made by mail or wire transfer to an address in the United States, (b)
made by a paying agent, broker or other intermediary in the United States or (c)
made by a United States broker or a "United States-related" broker to such
holder outside the United States may be subject to United States information
reporting requirements. Holders of common stock who are not United States
persons ("Non-U.S. Holders") generally would be exempt from these reporting
requirements, but may be required to comply with certification and
identification procedures in order to prove their exemption. Treasury
regulations currently in effect do not require backup withholding with respect
to dividends paid by a foreign corporation such as the Company. The United
States Treasury Department is considering, however, whether to extend the backup
withholding rules to dividends from foreign corporations.

      The payment of the proceeds of the disposition of common stock by a holder
to or through the United States office of a broker generally will be subject to
information reporting and backup withholding at a rate of 28% unless the holder
either certifies its status as a non-U.S. holder under penalties of perjury or
otherwise establishes an exemption. The payment of the proceeds of the
disposition by a holder of common stock to or through a non-U.S. office of a
broker will generally not be subject to backup withholding and information
reporting. Information reporting (but not "backup" withholding) may apply,
however, to such a holder who sells a beneficial interests in Common Stock
through a non-United States branch of a United States broker, or through a
non-United States office of a "United States-related" broker, in either case
unless the holder establishes an exemption or the broker has documentary
evidence in its files of the holder's status as a non-U.S. holder. For purposes
of these rules, a "United States-related" broker is a broker or other
intermediary that is a controlled foreign corporation for United States Federal
income tax purposes or that is a person 50% or more of the gross income from all
sources of which, over a specified three-year period, is effectively connected


                                       43
<PAGE>



with a United States trade or business.

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

DOCUMENTS ON DISPLAY

      We are subject to certain of the information reporting requirements of the
Exchange Act . We, as a "foreign private issuer", are exempt from the rules and
regulations under the Exchange Act prescribing the furnishing and content of
proxy statements, and our officers, directors and principal shareholders are
exempt from the reporting and "short-swing" profit recovery provisions contained
in Section 16 of the Exchange Act, with respect to their purchase and sale of
our shares. In addition, we are not required to file reports and financial
statements with the SEC as frequently or as promptly as U.S. companies whose
securities are registered under the Securities Exchange Act. However, we do file
with the SEC an annual report on Form 20-F containing consolidated financial
statements audited by an independent accounting firm. We also furnish an interim
report on Form 6-K containing unaudited financial information after the end of a
six-month period in a year.

      You may read and copy any document we file with the SEC at its public
reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
also obtain copies of the documents at prescribed rates by writing to the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
The SEC also maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. The address of this web site is http://www.sec.gov. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference facilities.




                                       44
<PAGE>



       ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

      The Company is exposed to fluctuations in interest rates and currency
exchange rates primarily with respect to borrowings. Under its current policies,
the Company does not use interest rate derivative instruments to manage exposure
to interest rate changes.

EXCHANGE RATE INFORMATION

      The Consolidated Financial Statements are prepared in Rmb. The financial
statements of foreign subsidiaries are translated into Rmb in accordance with
SFAS No. 52.

      The Hong Kong dollars and Rmb are tied to and allowed to fluctuate within
a narrow range against the value of the U.S. dollars. There is currently
restriction on the flow of Rmb, between the PRC and the United States.

      Fluctuations in the value of foreign currencies cause U.S. dollar
translated amounts to change in comparison with previous periods. However, the
fluctuation in exchange rates did not have material effect on the financial
position of the Company in the past three years.

FOREIGN CURRENCY RISK

      As of December 31, 2002, the Company had no open forward contracts or
option contracts. The Company's cash on hand as of December 31, 2002 was
Rmb141.0 million of which Rmb63.2 million equivalent (US$7.6 million) was held
in US dollar deposit.

INTEREST RATE FLUCTUATIONS

      The Company's interest income are sensitive to change in interest rates.
The Company had short-term and long-term debts of Rmb776.0 million as of
December 31, 2002. All borrowings in the PRC, except Rmb16.6 million, bear
various fixed rates of interest. As a result, any fluctuation in the interest
rate will not have direct impact on the Company's interest expenses.

<Table>
<Caption>
                                                                 EXPECTED MATURITY DATE
                                      WITHIN 1 YEAR      BETWEEN 1 TO 2 YEARS    BETWEEN 3 TO 5 YEARS         TOTAL
                                      -------------      --------------------    --------------------         -----
<S>                                   <C>                <C>                     <C>                         <C>
LONG-TERM DEBT
   Fixed Rate (Rmb'000)                  684,434                 35,000                 40,000                759,434
   Average Interest Rate                       5%                     5%                     5%                    --
   Variable Rate (Rmb'000)                16,554                     --                     --                 16,554
   Average Interest Rate                       5%                    --                     --                     --
                                                                                                              -------
                                                                                                              775,988
                                                                                                              =======
</Table>

      The Company will be exposed to interest rate fluctuations on any new
borrowings under the various loan facilities and any change in interest rate
could affect its results of operations and cash flows.




                                       45
<PAGE>


         ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

      As the Company is filing this form as its annual report under the Exchange
Act, the information called for by Item 12 in Part I of Form 20-F is not
applicable.




                                       46
<PAGE>



                                     PART II
            ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

      There has been no material default in the payment of principal or interest
or other material default requiring disclosure pursuant to this item. There has
been no arrears in the payment of dividends or other material delinquency
requiring disclosure pursuant to this item.




                                       47
<PAGE>



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

      There has been no material modification to the rights of security holders
required to be disclosed pursuant to this item.




                                       48
<PAGE>



                        ITEM 15. CONTROLS AND PROCEDURES

        Our Chief Executive Officer and our Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and
procedures, as defined in Exchange Act Rule 13a-14(c), within 90 days of the
date of this Form 20-F, have concluded that, as of such date, the Company's
disclosure controls and procedures were effective to ensure that material
information relating to the Company was made known to them by others within the
Company particularly during the period in which this Form 20-F was being
prepared. In this context, Arthur Andersen was the independent auditor who
audited the Company's financial statements for the year 2000. As a result of the
Company's decision to sell certain of its operations during 2001 and 2002, a
reclassification of financial information in the Company's 2000 financial
statements was necessitated pursuant to SFAS No. 144. As Arthur Andersen has
ceased to practice accounting effective July 1, 2002, the Company is unable to
obtain a reissued audit report from Arthur Andersen for the 2000 consolidated
statement of operations after the reclassifications in respect of discontinued
operations. The Company is also not able to gain access to the books and records
of the discontinued operations, after reasonable efforts, to enable its current
independent auditors to perform a reaudit of the 2000 consolidated statement of
operations. Accordingly, the Company has been unable to obtain an audit of the
reclassification of the discontinued operations in the Company's 2000
consolidated statement of operations. Also, as a result of the cessation of
Arthur Andersen's auditing operations, the Company has been unable to obtain an
audit report on the financial information with respect to the year ended
December 31, 2000 in the financial statements schedule contained in Item 18.

        There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of our Chief Executive Officer and our Chief Financial Officer
completed their evaluation, nor were there any significant deficiencies or
material weaknesses in the Company's internal controls requiring corrective
actions.



                                       49
<PAGE>



                                ITEM 16. RESERVED









                                       50
<PAGE>


                                    PART III
                          ITEM 17. FINANCIAL STATEMENTS

      See "Item 18. Financial Statements" of this annual report for the
Company's Consolidated Financial Statements.


      Pursuant to Article 3-09 of Regulation S-X of the Exchange Act, separate
financial statements of significant unconsolidated companies of the Company
prepared in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP") or reconciled to U.S. GAAP must be filed
as part of the Company's Form 20-F. For the year ended December 31, 2002, Ananda
was a significant affiliated company to the Company in accordance with Article
3-09 of Regulation S-X. Ananda prepared its financial statements in accordance
with accounting principles generally accepted in Hong Kong ("Ananda
Statements"). Pursuant to Article 3-09 of Regulation S-X, Ananda Statements for
the period from April 1, 2002 (date approximating the date that the Company's
initial investment in Ananda occurred) to December 31, 2002, including a
reconciliation to U.S. GAAP, are set out as follows.



                                       51
<PAGE>












                ANANDA WING ON TRAVEL (HOLDINGS) LIMITED
                (INCORPORATED IN BERMUDA WITH LIMITED LIABILITY)

                REPORT AND FINANCIAL STATEMENTS
                FOR THE PERIOD FROM 1 APRIL 2002 TO 31 DECEMBER 2002



                                       52
<PAGE>


                         REPORT AND FINANCIAL STATEMENTS
              FOR THE PERIOD FROM 1 APRIL 2002 TO 31 DECEMBER 2002






CONTENTS                                                                 PAGE(S)
--------                                                                 -------



INDEPENDENT AUDITORS' REPORT                                               54


CONSOLIDATED INCOME STATEMENT                                              55


CONSOLIDATED BALANCE SHEET                                                56-57


CONSOLIDATED STATEMENT OF CHANGES IN
  SHAREHOLDERS' EQUITY                                                     58


CONSOLIDATED CASH FLOW STATEMENT                                          59-60


NOTES TO THE FINANCIAL STATEMENTS                                         61-101



                                       53
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS OF ANANDA WING ON TRAVEL (HOLDINGS) LIMITED
(incorporated in Bermuda with limited liability)

We have audited the accompanying consolidated balance sheet of Ananda Wing On
Travel (Holdings) Limited and its subsidiaries as of 31 December 2002 and the
related statements of income, changes in shareholders' equity, and cash flows
for the nine months ended 31 December 2002, all expressed in Hong Kong dollars.
These financial statements, which have been prepared for the special purpose
disclosed in note 1, are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Ananda Wing On Travel (Holdings)
Limited and its subsidiaries as of 31 December 2002 and the results of their
operations and their cash flows for the nine months ended 31 December 2002 in
conformity with accounting principles generally accepted in Hong Kong.

Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of net income for the nine months ended 31 December 2002 and the
determination of shareholders' equity and financial position at 31 December
2002, to the extent summarized in note 51.





/s/ Deloitte Touche Tohmatsu

Certified Public Accountants
Hong Kong, 23 April 2003



                                       54
<PAGE>


                          CONSOLIDATED INCOME STATEMENT
              FOR THE PERIOD FROM 1 APRIL 2002 TO 31 DECEMBER 2002

<TABLE>
<CAPTION>
                                                                     1.4.2002
                                                                        to
                                                         NOTES      31.12.2002
                                                         -----      ----------
                                                                     HK$'000

<S>                                                      <C>       <C>
Turnover                                                    4         1,323,286
Direct operating costs                                               (1,170,593)
                                                                   ------------

Gross profit                                                            152,693
Other operating income                                      6            16,925
Advertising costs                                                       (30,974)
Administrative expenses                                                (172,800)
Allowance for short term investment deposit                28           (23,000)
Allowance for advances to service suppliers                 7          (162,122)
Allowance for irrecoverable trade debts                                 (22,813)
Unrealised holding loss on investment in securities                        (733)
Amortisation of goodwill arising on acquisition of
  subsidiaries                                             22              (165)
Impairment loss recognised in respect of leasehold
  land and buildings                                       15           (12,281)
Impairment loss recognised in respect of properties
  under construction                                       15            (1,000)
                                                                   ------------

Loss from operations                                        9          (256,270)
Finance costs                                              11           (12,708)
Share of results of associates                                          (33,463)
Loss on deemed disposal/disposal of subsidiaries           40            (1,712)
                                                                   ------------

Loss before taxation                                                   (304,153)
Taxation credit                                            12                59
                                                                   ------------

Loss before minority interests                                         (304,094)
Minority interests                                                        1,236
                                                                   ------------

Net loss for the period                                                (302,858)
                                                                   ============

Dividends                                                  13              --
                                                                   ============

Loss per share
  Basic                                                    14      (1.83) cents
                                                                   ============
</TABLE>

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

See notes to consolidated financial statements.




                                       55
<PAGE>


                           CONSOLIDATED BALANCE SHEET
                               AT 31 DECEMBER 2002

<TABLE>
<CAPTION>
                                                         NOTES       31.12.2002
                                                         -----       ----------
                                                                       HK$'000
<S>                                                      <C>         <C>
Non-current assets
  Property, plant and equipment                            15          237,611
  Investment property                                      16            1,230
  Interest in associates                                   17          496,072
  Other long term investment                               19           70,500
  Long term investment deposit                             20           60,000
  Investments in securities                                21           22,626
  Goodwill                                                 22           13,067
                                                                       -------

                                                                       901,106
                                                                       -------

Current assets
  Inventories                                              23            1,263
  Amounts due from related companies                       24              956
  Amounts due from associates                              25            4,450
  Trade and other receivables                              26          338,097
  Loan receivables                                         27          122,472
  Short term investment deposit                            28             --
  Investments in securities                                21            5,450
  Tax recoverable                                                          760
  Pledged bank deposits                                                    802
  Trading cash balances                                    29            1,163
  Bank balances and cash                                                61,510
                                                                       -------

                                                                       536,923
                                                                       -------

Current liabilities
  Trade and other payables                                 30          241,560
  Loans from related companies                             31            6,474
  Amounts due to associates                                25           25,488
  Amounts due to related companies                         32           11,669
  Tax payable                                                               61
  Obligations under finance leases and sale and lease
    back arrangements - amount due within one year         33            8,764
  Borrowings - amount due within one year                  34          184,474
                                                                       -------

                                                                       478,490
                                                                       -------

Net current assets                                                      58,433
                                                                       -------

Total assets less current liabilities c/f                              959,539
                                                                       -------
</TABLE>




                                       56
<PAGE>


                     CONSOLIDATED BALANCE SHEET - CONTINUED
                               AT 31 DECEMBER 2002

<TABLE>
<CAPTION>
                                                              NOTES   31.12.2002
                                                              -----   ----------
                                                                        HK$'000

<S>                                                           <C>     <C>
Total assets less current liabilities b/f                               959,539
                                                                        -------

Minority interests                                                         --
                                                                        -------

Non-current liabilities
  Obligations under finance leases and sale and lease
    back arrangements - amount due after one year               33       14,384
  Borrowings - amount due after one year                        34       21,689
  Deferred taxation                                             35        8,050
  Convertible notes                                             36      254,125
                                                                        -------

                                                                        298,248
                                                                        -------

Net assets                                                              661,291
                                                                        =======


Capital and reserves
  Share capital                                                 37      183,167
  Reserves                                                      39      478,124
                                                                        -------

Shareholders' funds                                                     661,291
                                                                        =======
</TABLE>


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

See notes to consolidated financial statements.




                                       57
<PAGE>


            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
              FOR THE PERIOD FROM 1 APRIL 2002 TO 31 DECEMBER 2002

<TABLE>
<CAPTION>
                                                                         Total equity
                                                                         ------------
                                                                            HK$'000

<S>                                                                      <C>
At 1 April 2002                                                             647,334
                                                                           --------

Exchange difference arising on translation of financial statements of
  operations outside Hong Kong                                                 (322)
Share of reserve of an associate                                                (65)
                                                                           --------

Amount of unrecognised loss not recognised in the income statement             (387)
                                                                           --------
                                                                            646,947
Issue of shares                                                             322,560
Repurchase of shares                                                         (5,896)
Reserve released on deemed disposal/disposal of subsidiaries                    538
Net loss for the period                                                    (302,858)
                                                                           --------

At 31 December 2002                                                         661,291
                                                                           ========

</TABLE>

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

See notes to consolidated financial statements.




                                       58
<PAGE>


                        CONSOLIDATED CASH FLOW STATEMENT
              FOR THE PERIOD FROM 1 APRIL 2002 TO 31 DECEMBER 2002

<TABLE>
<CAPTION>
                                                                 1.4.2002
                                                                    to
                                                                31.12.2002
                                                                ----------
                                                                 HK$'000
<S>                                                             <C>
Cash flows from operating activities
  Loss before taxation                                           (304,153)
  Adjustments for:
    Share of results of associates                                 33,463
    Allowance for short term investment deposit                    23,000
    Depreciation and amortisation of property, plant
      and equipment                                                18,575
    Interest income                                               (10,679)
    Interest expenses                                              11,858
    Loss on disposal of property, plant and equipment               2,042
    Finance lease charges                                             850
    Unrealised holding loss on investments in securities              733
    Loss on deemed disposal/disposal of subsidiaries                1,712
    Amortisation of goodwill arising on acquisition of
      subsidiaries                                                    165
    Allowance for advances to service suppliers                   162,122
    Allowance for irrecoverable trade debts                        22,813
    Impairment loss recognised in respect of leasehold
      land and buildings                                           12,281
    Impairment loss recognised in respect of properties
      under construction                                            1,000
                                                                 --------

Operating cash flows before movement in working capital           (24,218)
                                                                 --------

Movement in working capital
  Decrease in inventories                                             254
  Increase in amounts due from related companies                  (11,989)
  Increase in amounts due from associates                          (1,267)
  Increase in trade and other receivables                          (9,153)
  Increase in trading cash balances                                  (469)
  Decrease in trade and other payables                             (6,305)
  Increase in amounts due to associates                             7,372
  Increase in amounts due to related companies                      4,443
                                                                 --------

                                                                  (17,114)
                                                                 --------
</TABLE>




                                       59
<PAGE>


                  CONSOLIDATED CASH FLOW STATEMENT - CONTINUED
              FOR THE PERIOD FROM 1 APRIL 2002 TO 31 DECEMBER 2002


<TABLE>
<CAPTION>
                                                                       1.4.2002
                                                                          to
                                                             NOTES    31.12.2002
                                                             -----    ----------
                                                                        HK$'000

<S>                                                         <C>       <C>
Cash used in operations                                                (41,332)
Interest paid                                                           (8,616)
Finance lease charges paid                                                (850)
Taxation in other jurisdictions refunded                                    99
                                                                      --------

Net cash used in operating activities                                  (50,699)
                                                                      --------

Cash flows from investing activities
  Investment in an associate                                          (300,217)
  Long term investment deposits paid                                   (99,400)
  Net cash outflow to loans advanced to certain
    overseas companies and individuals                                 (22,272)
  Acquisition of additional interest in a subsidiary                   (10,169)
  Purchase of investments in securities                                 (6,008)
  Purchase of property, plant and equipment                             (3,489)
  Deemed disposal/disposal of subsidiaries
    (net of cash and cash equivalents disposed of)             40       (1,448)
  Repayment of loan receivables                                         10,000
  Interest received                                                      6,368
  Short term investment deposits refunded                                5,000
  Bank deposits released                                                 1,217
  Proceeds from disposal of property, plant and
    equipment                                                              900
                                                                      --------

Net cash used in investing activities                                 (419,518)
                                                                      --------

Cash flows from financing activities
  Proceeds from issue of convertible notes                             370,000
  Proceeds from issue of new shares for cash,
    net of expenses of HK$2,915,000                                    206,685
  Net cash inflow from other borrowings                                150,000
  Net cash inflow from loans from related companies                      6,474
  Repayment of bank loans and other loans                             (139,024)
  Repayment of obligations under finance leases and
    sale and lease back arrangements                                    (7,376)
  Repurchase of shares                                                  (5,896)
                                                                      --------

Net cash from financing activities                                     580,863
                                                                      --------

net increase in cash and cash equivalents                              110,646
Cash and cash equivalents at beginning of the period                   (56,969)
Effect of foreign exchange rate changes                                    116
                                                                      --------

Cash and cash equivalents at end of the period                 42       53,793
                                                                      ========
</TABLE>


--------------------------------------------------------------------------------
See notes to consolidated financial statements.



                                       60
<PAGE>


                        NOTES TO THE FINANCIAL STATEMENTS
              FOR THE PERIOD FROM 1 APRIL 2002 TO 31 DECEMBER 2002


1.       GENERAL

         Ananda Wing On Travel (Holdings) Limited is an exempted company
         incorporated in Bermuda with limited liability. Its shares are listed
         on The Stock Exchange of Hong Kong Limited (the "Stock Exchange").

         The Company is an investment holding company. Its subsidiaries are
         principally engaged in the business of providing package tours, travel,
         transportation and other related services.

         These financial statements have been prepared for the special purpose
         of filing with the US Securities and Exchange Commission for the
         express purpose of complying with rule 3-09 of Regulation S-X. This
         filing requirement is based on the Company being a significant investee
         of China Enterprises Limited.

         The accompanying consolidated financial statements have been prepared
         on a going concern basis, which contemplates the realisation of assets
         and the satisfaction of liabilities in the normal course of business.
         As shown in the consolidated financial statements, the Company incurred
         a net loss of HK$302,858,000 and used cash in operating activities of
         HK$50,699,000 during the period from 1 April 2002 to 31 December 2002,
         and the Company had working capital of HK$58,433,000 at 31 December
         2002. Management is implementing plans to increase the Company's
         profitability. Management believes that the successful achievement of
         these initiatives should provide the Company with sufficient resources
         to meet its near term cash requirements. In addition, the Company is
         also considering a number of other strategic financing alternatives.

2.       ADOPTION OF NEW AND REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE

         In the current period, the Company and its subsidiaries (the "Company")
         has adopted, for the first time, a number of new and revised Statements
         of Standard Accounting Practice ("SSAP"s) issued by the Hong Kong
         Society of Accountants. Adoption of these new and revised SSAPs has
         resulted in a change of the format of presentation of the cash flow
         statement and the introduction of the statement of changes in equity.

         The adoption of these new and revised SSAPs has had no material effect
         on the results for the current or prior periods.

         Cash flow statements

         In the current period, the Company has adopted SSAP 15 (Revised) "Cash
         flow statements". Under SSAP 15 (Revised), cash flows are classified
         under three headings - operating, investing and financing, rather than
         the previous five headings. Interest paid and received, which were
         previously presented under a separate heading, are classified as
         operating and investing cash flows, respectively. Cash flows arising
         from taxes on income are classified as operating activities, unless
         they can be separately identified with investing or financing
         activities.





                                       61
<PAGE>


         Foreign currencies

         The revisions to SSAP 11 "Foreign currency translation" have eliminated
         the choice of translating the income statements of overseas
         subsidiaries and associates at the closing rate for the period, the
         policy previously followed by the Company. They are now required to be
         translated at an average rate. This change in accounting policy has not
         had any material effect on the results for the current or prior
         accounting periods.

         Employee benefits

         In the current period, the Company has adopted SSAP 34 "Employee
         benefits", which introduces measurement rules for employee benefits,
         including retirement benefit plans. Because the Company participates
         only in defined contribution retirement benefit schemes, the adoption
         of SSAP 34 has not had any material impact on the financial statements.


3.       SIGNIFICANT ACCOUNTING POLICIES

         The financial statements have been prepared under the historical cost
         convention, as modified for the revaluation of certain property, plant
         and equipment, investment property and investments in securities. The
         financial statements have been prepared in accordance with the
         principal accounting policies set out below which conform with
         accounting principles generally accepted in Hong Kong. For the purpose
         for which the financial statements have been prepared, comparative
         figures are not required to be presented.

         The principal accounting policies are as follows:

         Basis of consolidation

         The consolidated financial statements incorporate the financial
         statements of the Company and its subsidiaries made up to 31 December.

         The results of subsidiaries acquired or disposed of during the period
         are included in the consolidated income statement from the effective
         date of acquisition or up to the effective date of disposal, as
         appropriate.

         All significant inter-company transactions and balances within the
         Company are eliminated on consolidation.

         Goodwill

         Goodwill represents the excess of the cost of acquisition over the
         Company's interest in the fair value of the identifiable assets and
         liabilities of a subsidiary or an associate at the date of acquisition.

         Goodwill arising on acquisition is capitalised and amortised on a
         straight line basis over its useful economic life. Goodwill arising on
         acquisition of an associate is included within the carrying amount of
         the associate. Goodwill arising on the acquisition of subsidiaries is
         presented separately in the balance sheet.

         Negative goodwill

         Negative goodwill represents the excess of the Company's interest in
         the fair value of the identifiable assets and liabilities of a
         subsidiary or an associate at the date of acquisition over the cost of
         acquisition.

         Negative goodwill arising on the acquisition of an associate is
         deducted from the carrying value of that associate. Negative goodwill
         is released to income based on an analysis of the circumstances from
         which the balance resulted. To the extent that the negative goodwill is
         attributable to losses or expenses anticipated at the date of
         acquisition, it is released to income in the period in which those
         losses or expenses arise. The remaining negative goodwill is recognised
         as income on a straight line basis over the remaining average useful
         life of the identifiable acquired depreciable assets. To the extent
         that such negative goodwill exceeds the aggregate



                                       62
<PAGE>


         fair value of the acquired identifiable non-monetary assets, it is
         recognised as income immediately.

         Revenue recognition

         Income from tour and travel services is recognised upon the departure
         date of each tour. Income from other travel related services is
         recognised when the services are rendered.

         Income from transportation services is recognised when the services are
         rendered.

         Interest income is accrued on a time basis by reference to the
         principal outstanding and at the interest rate applicable.

         Rental income, including rental invoiced in advance from properties
         under operating leases, is recognised on a straight line basis over the
         term of the relevant lease.

         Dividend income from investments is recognised when the shareholders'
         rights to receive payment have been established.

         Income from disposal of investments is recognised when the risks and
         rewards of the ownership of the investments have been transferred.

         Property, plant and equipment

         Property, plant and equipment other than properties under construction
         are stated at cost or valuation less accumulated depreciation or
         amortisation and any identified impairment loss.

         The gain or loss arising from disposal or retirement of an asset is
         determined as the difference between the sale proceeds and the carrying
         amount of the asset and is recognised in the income statement.

         Depreciation and amortisation is provided to write off the cost or
         valuation of property, plant and equipment other than properties under
         construction over their estimated useful lives, using the straight line
         method, at the following rates per annum:

<TABLE>
<S>                                         <C>
         Leasehold land                      Over the remaining unexpired terms
                                               of the leases
         Buildings                           2% or over the remaining unexpired
                                               terms of the leases, whichever
                                               the shorter
         Motor vehicles                      8.33% - 20%
         Office equipment and machinery      20%
         Leasehold improvements              10% - 20%
         Furniture and fixtures              10% - 20%
         Vessels                             5%
</TABLE>

         Assets held under finance leases and sale and lease back arrangements
         are depreciated over their estimated useful lives on the same basis as
         owned assets.

         Properties under construction are stated at cost less impairment loss.
         Cost includes all development expenditure and other direct costs
         attributable to such projects. Properties under construction are not
         depreciated until completion of construction. Cost on completed
         properties is transferred to other categories of property, plant and
         equipment.



                                       63
<PAGE>



         Investment properties

         Investment properties are completed properties which are held for their
         investment potential, any rental income being negotiated at arm's
         length.

         No depreciation is provided in respect of investment properties which
         are held under leases with unexpired terms, including the renewable
         period, of more than twenty years. Investment properties are stated at
         their open market values based on a professional valuation at the
         balance sheet date.

         Any surplus or deficit arising on revaluation of investment properties
         is credited or charged to the investment property revaluation reserve
         unless the balance of this reserve is insufficient to cover a deficit,
         in which case the excess of the deficit over the balance on the
         investment property revaluation reserve is charged to the income
         statement.

         On subsequent sale of an investment property, any revaluation surplus
         thereon is included in the determination of the gain or loss on
         disposal.

         Impairment

         At each balance sheet date, the Company reviews the carrying amounts of
         its assets to determine whether there is any indication that those
         assets have suffered an impairment loss. If the recoverable amount of
         an asset is estimated to be less than its carrying amount, the carrying
         amount of the asset is reduced to its recoverable amount. An impairment
         loss is recognised as an expense immediately, unless the relevant asset
         is carried at a revalued amount under another SSAP, in which case the
         impairment loss is treated as a revaluation decrease under that SSAP.

         Where an impairment loss subsequently reverses, the carrying amount of
         the asset is increased to the revised estimate of its recoverable
         amount, but so that the increased carrying amount does not exceed the
         carrying amount that would have been determined had no impairment loss
         been recognised for the asset in prior years. A reversal of an
         impairment loss is recognised as income immediately, unless the
         relevant asset is carried at a revalued amount under another SSAP, in
         which case the reversal of the impairment loss is treated as a
         revaluation increase under that other SSAP.

         Interest in associates

         An associate is an enterprise over which the Company is in a position
         to exercise significant influence, including participation in financial
         and operating policy decisions.

         The consolidated income statement includes the Company's share of the
         post-acquisition results of its associates for the period. In the
         consolidated balance sheet, the interest in associates is stated at the
         Company's share of net assets of the associates less any negative
         goodwill on acquisition in so far as it has not already released to
         income and any identified impairment loss.

         Other long term investment

         Other long term investment is stated at cost less impairment loss.



                                       64
<PAGE>



         Investments in securities

         Investments in securities are recognised on a trade-date basis and are
         initially measured at cost.

         At subsequent reporting dates, debt securities that the Company has the
         expressed intention and ability to hold to maturity (held-to-maturity
         debt securities) are measured at amortised cost, less any impairment
         loss recognised to reflect irrecoverable amounts. The annual
         amortisation of any discount or premium on the acquisition of a
         held-to-maturity security is aggregated with other investment income
         receivable over the terms of the investment so that the revenue
         recognised in each period represents a constant yield on the
         investment.

         Investments other than held-to-maturity debt securities are classified
         as investment securities and other investments.

         Investment securities, which are securities held for an identified
         long-term strategic purpose, are measured at subsequent reporting dates
         at cost, as reduced by any impairment loss that is other than
         temporary.

         Other investments are measured at fair value, with unrealised gains and
         losses included in net profit or loss for the period.

         Inventories

         Inventories, representing principally consumables, are stated at the
         lower of cost and net realisable value. Cost is calculated using the
         first-in, first-out method.

         Taxation

         The charge for taxation is based on the results for the period after
         adjusting for items which are non-assessable or disallowed. Certain
         items of income and expense are recognised for tax purposes in a
         different accounting period from that in which they are recognised in
         the financial statements. The tax effect of the resulting timing
         differences, computed under the liability method, is recognised as
         deferred taxation in the financial statements to the extent that it is
         probable that a liability or an asset will crystallise in the
         foreseeable future.

         Retirement benefit scheme

         The retirement benefit costs charged in the income statement represent
         the contributions payable in respect of the current period to the
         Company's defined contribution schemes.

         Stock-based compensation

         The Company operates a share option scheme where its directors or
         employees are granted options to acquire shares of the Company at
         specified exercise prices. No compensation costs are recognised in the
         income statement.



                                       65
<PAGE>



         Leases

         Leases are classified as finance leases whenever the terms of the
         leases transfer substantially all the risks and rewards of ownership of
         the leased assets to the Company. Assets held under finance leases are
         capitalised at their fair value at the date of acquisition. The
         corresponding principal portions of leasing commitments are shown as
         obligations under finance leases. The finance costs, which represent
         the difference between the total leasing commitments and the original
         principal outstanding at the inception of the leases, are charged to
         the income statement over the period of the relevant leases so as to
         produce a constant periodic rate of charge on the remaining balances of
         the obligations for each accounting period.

         Assets under sale and lease back arrangements of which the Company has
         been granted options to buy back the assets at pre-determined buy-back
         prices at the expiration of the lease periods are stated at the
         original carrying values of the assets in the balance sheet. The
         corresponding amounts received from sales of the assets are shown as
         liabilities under sale and lease back arrangements. The finance
         charges, which comprise the aggregate of the rentals payable for the
         use of the assets under the leases and the difference between the
         buy-back prices and the original sale values of the assets, are charged
         to the income statement over the period of the relevant leases so as to
         produce a constant periodic rate of charge on the remaining balance of
         the obligations for each accounting period.

         All other leases are classified as operating leases and their rentals
         payable are charged to the income statement on a straight line basis
         over the term of the relevant lease.

         Foreign currencies

         Transactions in foreign currencies are translated at the approximate
         rates ruling on the dates of the transactions. Monetary assets and
         liabilities denominated in foreign currencies are re-translated at the
         rates ruling on the balance sheet date. Gains and losses arising on
         exchange are dealt with in the income statement.

         On consolidation, the assets and liabilities of operations outside Hong
         Kong are translated at the rates ruling on the balance sheet date.
         Income and expense items are translated at the average exchange rate
         for the period. All exchange differences arising on translation are
         dealt with in the translation reserve.

4.       TURNOVER

         Turnover represents the amounts received and receivable for services
         provided and goods sold to outside customers, less trade discounts and
         returns during the period. An analysis of the Company's turnover is as
         follows:

<TABLE>
<CAPTION>
                                                    1.4.2002
                                                       to
                                                   31.12.2002
                                                   ----------
                                                     HK$'000

<S>                                                <C>
         Travel and related services                1,185,560
         Transportation services                      137,726
                                                    ---------

                                                    1,323,286
                                                    =========
</TABLE>




                                       66
<PAGE>



5.       BUSINESS AND GEOGRAPHICAL SEGMENTS

         Business segments

         For management purposes, the Company is currently organised into two
         operating divisions - travel and related services, and transportation
         services. These divisions are the basis on which the Company reports
         its primary segment information.

         Principal activities are as follows:

<TABLE>
<CAPTION>
                                                        Travel and
                                                         related         Transportation
                                                         services           services         Elimination        Consolidated
                                                        ----------       --------------      -----------        ------------
                                                          HK$'000           HK$'000            HK$'000             HK$'000
<S>                                                     <C>              <C>                 <C>                <C>
         For the period from 1 April 2002
         to 31 December 2002

         TURNOVER
         External sales                                  1,185,560            137,726               --            1,323,286
         Inter-segment sales                                  --                6,768             (6,768)              --
                                                        ----------         ----------         ----------         ----------

         Total                                           1,185,560            144,494             (6,768)         1,323,286
                                                        ==========         ==========         ==========         ==========

         Inter-segment sales are charged at
           prevailing market price

         RESULTS
         Segment results                                    (6,524)            (7,621)              --              (14,145)
                                                        ==========         ==========         ==========

         Interest income                                                                                             10,679
         Amortisation of goodwill arising
           on acquisition of subsidiaries                     --                 (165)              --                 (165)
         Allowance for advances to service
           suppliers                                      (162,122)              --                 --             (162,122)
         Allowance for short term investment
           deposit                                         (23,000)              --                 --              (23,000)
         Impairment loss recognised in respect
           of leasehold land and buildings                 (12,281)              --                 --              (12,281)
         Impairment loss recognised in respect
           of properties under construction                 (1,000)              --                 --               (1,000)
         Allowance for irrecoverable trade debts           (22,813)              --                 --              (22,813)
         Unrealised holding loss on
           investments in securities                                                                                   (733)
         Unallocated corporate expenses                                                                             (30,690)
                                                                                                                 ----------

         Loss from operations                                                                                      (256,270)
         Finance costs                                                                                              (12,708)
         Share of results of associates                    (33,463)              --                 --              (33,463)
         Loss on deemed disposal/disposal of
           subsidiaries                                     (1,712)              --                 --               (1,712)
                                                                                                                 ----------

         Loss before taxation                                                                                      (304,153)
         Taxation credit                                                                                                 59
                                                                                                                 ----------

         Loss before minority interests                                                                            (304,094)
         Minority interests                                                                                           1,236
                                                                                                                 ----------

         Net loss for the period                                                                                   (302,858)
                                                                                                                 ==========
</TABLE>




                                       67
<PAGE>


<TABLE>
<CAPTION>

                                                 Travel and
                                                  related       Transportation
                                                  services         services       Consolidated
                                                 ----------     --------------    ------------
                                                   HK$'000         HK$'000           HK$'000
<S>                                              <C>           <C>               <C>
         As at 31 December 2002

         ASSETS
         Segment assets                             665,175          137,481          802,656
         Interest in associates                     500,522             --            500,522
         Unallocated corporate assets                                                 134,851
                                                                                    ---------

         Consolidated total assets                                                  1,438,029
                                                                                    =========

         LIABILITIES
         Segment liabilities                        440,167           57,061          497,228
         Unallocated corporate liabilities                                            279,510
                                                                                    ---------

         Consolidated total liabilities                                               776,738
                                                                                    =========

         OTHER INFORMATION
         Capital additions                           14,576           14,300           28,876
         Depreciation and amortisation of
           property, plant and equipment              5,474           13,101           18,575
         Loss on disposal of property,
           plant and equipment                        1,355              687            2,042
         Impairment losses recognised                13,281             --             13,281
         Amortisation of goodwill arising
           on acquisition of subsidiaries              --                165              165
                                                  =========        =========        =========
</TABLE>


         Geographical segments

         No geographical segment information in respect of the Company's
         operations has been presented as over 90% of the Company's operations
         was derived from Hong Kong.

         The analysis of carrying amount of segment assets and additions to
         property, plant and equipment and intangible assets analysed by the
         geographical area in which the assets are located is as follows:

<TABLE>
<CAPTION>
                                                                         Additions to
                                                                        property, plant
                                                 Carrying amount         and equipment
                                                of segment assets    and intangible assets
                                                -----------------    ---------------------
                                                                          1.4.2002
                                                       At                    to
                                                   31.12.2002            31.12.2002
                                                   ----------            ----------
                                                    HK$'000               HK$'000
<S>                                            <C>                  <C>
         The People's Republic of China
           (excluding Hong Kong) (the "PRC")         429,409                  --
         Hong Kong                                   715,737                28,876
         South-east Asia                             144,927                  --
         Japan and Korea                             146,316                  --
         Others                                        1,640                  --
                                                   ---------             ---------

                                                   1,438,029                28,876
                                                   =========             =========
</TABLE>




                                       68
<PAGE>



6.       OTHER OPERATING INCOME

<TABLE>
<CAPTION>
                                                                   1.4.2002
                                                                      to
                                                                  31.12.2002
                                                                  ----------
                                                                    HK$'000
<S>                                                              <C>
         An analysis of the Company's other operating income
         is as follows:

         Interest income                                            10,679
         Exchange gain                                                 168
         Sundry income                                               6,078
                                                                    ------

                                                                    16,925
                                                                    ======
</TABLE>


7.       ALLOWANCE FOR ADVANCES TO SERVICE SUPPLIERS

         The Company makes advances to its overseas tour operators for financing
         their provision of tourist services to the Company in their destination
         points. The allowance made represents the amounts due from those tour
         operators with whom the Company does not have further business and the
         directors consider that their recoverability is remote.


8.       ACQUISITION OF MINORITY INTEREST OF A SUBSIDIARY

         In July 2002, the Company entered into a share sales agreement to
         acquire the 25% non-controlling interest in Trans-Island Limousine
         Service Limited ("Trans-Island") for HK$30,000,000. The consideration
         exceeded the estimated fair value of net assets acquired by
         HK$13,232,000 which resulted in goodwill of this amount.

         Had the acquisition be completed at 1 April 2002, the loss for the
         period of the Company would have been increased by the amount of
         HK$1,401,000.


9.       LOSS FROM OPERATIONS

<TABLE>
<CAPTION>
                                                                      1.4.2002
                                                                         to
                                                                     31.12.2002
                                                                     ----------
                                                                       HK$'000
<S>                                                                 <C>
         Loss from operations has been arrived at after charging:

         Auditors' remuneration                                         1,598
         Depreciation and amortisation on:
           Owned assets                                                14,622
           Assets held under finance leases and sale and lease
             back arrangements                                          3,953
         Information technique development expenses                       844
         Loss on disposal of property, plant and equipment              2,042
         Minimum lease payments paid in respect of rented premises     19,850
         Staff costs *                                                125,272

         and after crediting:

         Rental income from investment property less negligible
           outgoings                                                       82
                                                                      =======
</TABLE>


         *  The amount includes retirement benefit scheme contributions of
            HK$4,615,000.



                                       69
<PAGE>



10.      DIRECTORS' REMUNERATION AND HIGHEST PAID EMPLOYEES

<TABLE>
<CAPTION>
                                                                     1.4.2002
                                                                        to
                                                                    31.12.2002
                                                                    ----------
                                                                      HK$'000

<S>                                                                 <C>
         Fees to independent non-executive directors                    --
                                                                      ------

         Emoluments to executive directors:
           Fees                                                         --
           Salaries and other benefits (Note)                          4,513
           Compensation for loss of office                             2,600
           Retirement benefit scheme contributions                       389
                                                                      ------

                                                                       7,502
                                                                      ------

         Emoluments to non-executive directors:
           Fees                                                         --
           Salaries and other benefits                                 1,286
           Retirement benefit scheme contributions                       137
                                                                      ------

                                                                       1,423
                                                                      ------

                                                                       8,925
                                                                      ======
</TABLE>


         Note:    The directors' salaries and other benefits include the
                  operating lease rentals amounting to HK$1,401,000 in respect
                  of rented premises provided to directors. The amounts are also
                  included in the minimum lease payments paid in respect of
                  rented premises under note 9 above.

<TABLE>
<CAPTION>
                                                          Number of director(s)
                                                          ---------------------
                                                                1.4.2002
                                                                   to
                                                               31.12.2002
                                                          ---------------------
<S>                                                      <C>
         Emoluments of the directors were within the
         following bands:

         Nil - HK$1,000,000                                         9
         HK$1,000,001 - HK$1,500,000                                1
         HK$2,500,001 - HK$3,000,000                                1
         HK$3,500,001 - HK$4,000,000                                1
                                                                  ====
</TABLE>


         Details of emoluments paid by the Company to the five highest paid
         individuals (including directors, details of whose emoluments are set
         out above) are as follows:

<TABLE>
<CAPTION>
                                                              1.4.2002
                                                                 to
                                                             31.12.2002
                                                             ----------
                                                               HK$'000

<S>                                                          <C>
         Salaries and other benefits                             8,479
         Retirement benefit scheme contributions                   601
                                                                ------

                                                                 9,080
                                                                ======
</TABLE>




                                       70
<PAGE>



<TABLE>
<CAPTION>

                                                                    1.4.2002
                                                                       to
                                                                   31.12.2002
                                                                   ----------
<S>                                                               <C>
         Emoluments of the five highest paid individuals
           were within the following bands:

         Nil - HK$1,000,000                                             2
         HK$1,000,001 - HK$1,500,000                                    1
         HK$2,500,001 - HK$3,000,000                                    1
         HK$3,500,001 - HK$4,000,000                                    1
                                                                      ===


         Number of directors                                            3
         Number of employees                                            2
                                                                      ---

                                                                        5
                                                                      ===
</TABLE>



11.      FINANCE COSTS

<TABLE>
<CAPTION>
                                                                    1.4.2002
                                                                       to
                                                                   31.12.2002
                                                                   ----------
                                                                     HK$'000

<S>                                                                <C>
         Finance lease charges                                           850
         Interest on borrowings wholly repayable within
          five years                                                  11,858
                                                                      ------

         Total finance costs                                          12,708
                                                                      ======
</TABLE>



12.      TAXATION CREDIT

<TABLE>
<CAPTION>
                                                                    1.4.2002
                                                                       to
                                                                   31.12.2002
                                                                   ----------
                                                                     HK$'000
<S>                                                                <C>
         The taxation credit comprises:

         The Company:
           Taxation in other jurisdictions                               11
           Overprovision of taxation in other jurisdictions
             in prior years                                             (19)
           Deferred taxation (note 35)                                 (460)
                                                                      -----

                                                                       (468)
                                                                      -----

         Share of taxation attributable to associates:
           Hong Kong Profits Tax                                        270
           Taxation in other jurisdictions                              139
                                                                      -----

                                                                        409
                                                                      -----

                                                                        (59)
                                                                      =====
</TABLE>




                                       71
<PAGE>




         No provision for Hong Kong Profits Tax has been made in the current
         period as the Company did not have any assessable profit in the period.

         Taxation in other jurisdictions is calculated at the rates prevailing
         in the respective jurisdictions.

         The deferred taxation (credit) charge for the period comprises the tax
         effect of timing differences attributable to:

<TABLE>
<CAPTION>
                                                                     1.4.2002
                                                                        to
                                                                    31.12.2002
                                                                    ----------
                                                                      HK$'000
<S>                                                                <C>
         Difference between depreciation allowances claimed
           for tax purposes and depreciation charged in the
           financial statements                                          132
         Taxation losses incurred                                       (592)
                                                                       -----

                                                                        (460)
                                                                       =====
</TABLE>


13.      DIVIDENDS

         No dividends were declared by the Company for the period.


14.      LOSS PER SHARE

         The calculation of the basic loss per share is based on the net loss
         for the period of HK$302,858,000 and on the weighted average of
         16,509,000,000 shares in issue during the period.

         No diluted loss per share has been presented for the period ended 31
         December 2002 as the conversion of the convertible notes and shares
         issuable under the subscription agreement dated 31 May 2002 as
         mentioned in note 37 (as stated in the Company's announcement dated 4
         April 2003, the subscription agreement in relation to 2,000,000,000
         shares in the Company is in dispute; further announcement will be made
         as and when appropriate) would result in a decrease in loss per share.




                                       72
<PAGE>



15.      PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                            Office
                                      Leasehold   Properties               equipment               Furniture
                                      land and      under        Motor        and      Leasehold      and
                                      buildings  construction   vehicles   machinery  improvements  fixtures    Vessels     Total
                                      ---------  ------------   --------   ---------  ------------  --------    -------     -----
                                      HK$'000      HK$'000      HK$'000     HK$'000     HK$'000     HK$'000     HK$'000    HK$'000
<S>                                   <C>        <C>            <C>        <C>        <C>           <C>         <C>        <C>
         COST OR VALUATION
         At 1 April 2002               311,341       46,728      303,534      24,779      10,328       4,146       7,175    708,031
         Reclassification                 --           --           --          --           (51)         51        --         --
         Currency realignment             --           --             72          44           1          29        --          146
         Additions                        --           --         14,123         885         307         323           6     15,644
         Disposals                        --           --         (7,054)     (1,746)     (5,110)     (1,272)       --      (15,182)
         Disposal of subsidiaries         --           --         (1,148)       (283)       --          (148)       --       (1,579)
                                      --------     --------     --------    --------    --------    --------    --------   --------

         At 31 December 2002           311,341       46,728      309,527      23,679       5,475       3,129       7,181    707,060
                                      --------     --------     --------    --------    --------    --------    --------   --------

         Comprising:
           At cost                     304,341       46,728      309,527      23,679       5,475       3,129       7,181    700,060
           At valuation                  7,000         --           --          --          --          --          --        7,000
                                      --------     --------     --------    --------    --------    --------    --------   --------

                                       311,341       46,728      309,527      23,679       5,475       3,129       7,181    707,060
                                      --------     --------     --------    --------    --------    --------    --------   --------

         DEPRECIATION,
           AMORTISATION AND
           IMPAIRMENT
         At 1 April 2002               211,091        4,728      203,922      15,369       6,711       3,148       5,829    450,798
         Reclassification                 --           --           --          --           (26)         26        --         --
         Currency realignment             --           --             41          32        --            24        --           97
         Provided for the period         1,089         --         12,943       3,102       1,024         279         138     18,575
         Impairment loss recognised
           for the period               12,281        1,000         --          --          --          --          --       13,281
         Eliminated on disposals          --           --         (5,196)     (1,483)     (4,425)     (1,136)       --      (12,240)
         Eliminated on disposal of
           subsidiaries                   --           --           (677)       (237)       --          (148)       --       (1,062)
                                      --------     --------     --------    --------    --------    --------    --------   --------

         At 31 December 2002           224,461        5,728      211,033      16,783       3,284       2,193       5,967    469,449
                                      --------     --------     --------    --------    --------    --------    --------   --------

         NET BOOK VALUE
         At 31 December 2002            86,880       41,000       98,494       6,896       2,191         936       1,214    237,611
                                      ========     ========     ========    ========    ========    ========    ========   ========
</TABLE>


         An analysis of the properties of the Company held as at 31 December
         2002 is as follows:

<TABLE>
<CAPTION>
                                                     Leasehold                Properties
                                                land and buildings        under construction
                                                ------------------        ------------------
                                                    31.12.2002                31.12.2002
                                                ------------------        ------------------
                                                      HK$'000                   HK$'000

<S>                                                   <C>                       <C>
         Long leases in Hong Kong                     76,100                      --
         Medium term leases in Hong Kong              10,780                      --
         Medium term leases outside Hong Kong           --                      41,000
                                                      ------                    ------

                                                      86,880                    41,000
                                                      ======                    ======
</TABLE>


         During the period, the directors reviewed the carrying amounts of the
         Company's property, plant and machinery and identified that the value
         of certain properties was impaired. Accordingly, the carrying amounts
         of the properties were reduced to their recoverable amounts, which were
         determined with reference to the independent professional valuation on
         an open market value as at 31 December 2002.




                                       73
<PAGE>


         Details of property, plant and equipment which are stated at valuation
         at 31 December 2002 are as follows:

<TABLE>
<CAPTION>
                                                                   Leasehold
                                                              land and buildings
                                                              ------------------
                                                                  31.12.2002
                                                              ------------------
                                                                    HK$'000
<S>                                                           <C>
         At valuation
           - 31 July 1997                                             4,800
           - 31 March 1998                                            2,200
                                                                     ------

                                                                      7,000
         Less: Accumulated depreciation, amortisation
         and impairment                                              (4,548)
                                                                     ------

         Net book value                                               2,452
                                                                     ======
</TABLE>


         The valuations at 31 July 1997 and 31 March 1998 represent the carrying
         values (equivalent to their approximately fair value) of the leasehold
         land and buildings at the time when they ceased to be classified as
         investment properties. Had the leasehold properties been carried at
         their historical cost less accumulated depreciation, amortisation and
         impairment loss, the carrying value of the leasehold properties would
         have been stated at HK$2,452,000.

         The net book value of motor vehicles and office equipment and machinery
         of the Company held under finance leases and sale and lease back
         arrangements at 31 December 2002 was approximately HK$33,155,000 and
         HK$2,023,000 respectively.


16.      INVESTMENT PROPERTY

<TABLE>
<CAPTION>
                                                                  1.4.2002
                                                                     to
                                                                 31.12.2002
                                                                 ----------
                                                                   HK$'000

<S>                                                              <C>
         At beginning of the period and at end of the period        1,230
                                                                   ======
</TABLE>


         The investment property of the Company is freehold and held outside
         Hong Kong.

         The investment property was revalued at 31 December 2002 by a firm of
         independent professional property valuers, Norton Appraisals Limited,
         on an open market value basis at HK$1,230,000.


17.      INTEREST IN ASSOCIATES

<TABLE>
<CAPTION>
                                                                      31.12.2002
                                                                      ----------
                                                                       HK$'000

<S>                                                                    <C>
         Share of net assets                                           554,990
         Negative goodwill arising on acquisition of an associate
         (note 18)                                                     (58,918)
                                                                       -------

                                                                       496,072
                                                                       =======
</TABLE>




                                       74
<PAGE>



         Particulars of the Company's associates as at 31 December 2002 are as
         follows:

<TABLE>
<CAPTION>
                                                                  Issued and          Proportion of
                                             Place of               paid up         issued/registered
                                           incorporation        share capital/        capital held
         Name of associate                 and operation      registered capital     by the Company      Principal activities
         -----------------                 -------------      ------------------    -----------------    --------------------
                                                                     '000

<S>                                       <C>                <C>                    <C>                  <C>
         CYTS Wing On Travel               Hong Kong                HK$2,000               50%           Travel and related services
           Service Company Limited

         Heilongjiang Ananda               PRC                    RMB283,140               50%           Operation of a hotel
           Entertainment Company                                                                           and an entertainment
           Limited ("Heilongjiang                                                                          resort complex and
           Ananda")                                                                                        development of a
                                                                                                           residential and
                                                                                                           commercial complex

         Guilin Osmanthus Hotel            PRC                      US$3,489              49.5%          Operation of a hotel

         Rosedale Hotel Group              Hong Kong              HK$432,757              49.3%          Investment holding
          Limited ("Rosedale")
           (formerly known as
           China Land Group Limited)

         Wing On International Travel      PRC                      RMB5,000              49%            Travel and related services
           Service Ltd. Guangdong

         Wing On JAS Nice Wing             Hong Kong                HK$1,000              50%            Travel and related
           Limited                                                                                         services

         Ananda Travel Service             Australia                   A$400              40%*           Travel and related services
           (Aust.) Pty. Limited
</TABLE>

         *    The interest in this company was diluted from 100% to 40% during
              the period.

         Other than Wing On JAS Nice Wing Limited and Ananda Travel Service
         (Aust.) Pty. Limited whose financial statements end on 31 March, the
         financial statements of all other associates end on 31 December. The
         Company's share of their results and net assets under the equity method
         is based on their financial statements made to 31 December 2002.

         On 22 July 2002, the Company together with other parties entered into a
         series of agreements with Rosedale, a Hong Kong listed company. One of
         the agreements included disposing of the Company's interest in an
         investment company for a consideration of HK$110,000,000 which was
         satisfied by 366,666,666 new shares of Rosedale based on their quoted
         market value on the date of the agreement. The transaction was
         completed in December 2002 upon approvals by shareholders and other
         regulatory bodies. The operations of the investment company during the
         period prior to its disposal was not significant.

         In addition to the above 366,666,666 new shares in Rosedale, the
         Company also subscribed for 1,000,000,000 shares in Rosedale at a price
         of HK$0.30 per share amounting in aggregate to a total consideration of
         HK$300,000,000. The transaction was also approved by the independent
         shareholders of the Company at the special general meeting held on 28
         October 2002. As at the date of this report, the Company holds a 49.3%
         interest in Rosedale.



                                       75
<PAGE>



         Included in the interest in associates at 31 December 2002 are the
         interest in Rosedale and Heilongjiang Ananda. Extracts from the
         financial statements prepared in accounting principles generally
         accepted in Hong Kong of Rosedale and Heilongjiang Ananda for the year
         ended 31 December 2002 are as follows:

<TABLE>
<CAPTION>
                                                                        At
         Rosedale                                                   31.12.2002
                                                                    ----------
                                                                      HK$'000
<S>                                                                <C>
         FINANCIAL POSITION

         Non-current assets                                          2,126,452
                                                                    ----------

         Current assets                                                166,972
         Current liabilities                                          (186,306)
                                                                    ----------

         Net current liabilities                                       (19,334)
                                                                    ----------

         Total assets less current liabilities                       2,107,118
         Non-current liabilities                                    (1,056,027)
         Minority interests                                           (103,766)
                                                                    ----------

         Net assets                                                    947,325
                                                                    ==========


         Share of net assets attributable to the Company               466,747
                                                                    ==========
</TABLE>

<TABLE>
<CAPTION>

                                                                     Year ended
                                                                     31.12.2002
                                                                     ----------
                                                                       HK$'000
<S>                                                                 <C>
         RESULTS FOR THE YEAR

         Turnover                                                      181,692
                                                                       =======

         Net loss for the year                                         (99,810)
                                                                       =======

         Net loss for the period attributable to the Company
           since acquisition on 2 December 2002                         (2,447)
                                                                       =======
</TABLE>


<TABLE>
<CAPTION>
                                                                          At
         Heilongjiang Ananda                                          31.12.2002
                                                                      ----------
                                                                        HK$'000
<S>                                                                  <C>
         FINANCIAL POSITION

         Non-current assets                                             901,714
                                                                       --------

         Current assets                                                  26,632
         Current liabilities                                           (812,074)
                                                                       --------

         Net current liabilities                                       (785,442)
                                                                       --------

         Net assets                                                     116,272
                                                                       ========

         Share of net assets attributable to the Company                 58,136
                                                                       ========
</TABLE>



                                       76
<PAGE>

<TABLE>
<CAPTION>

                                                                     Year ended
                                                                     31.12.2002
                                                                       HK$'000
<S>                                                                 <C>
         RESULTS FOR THE YEAR

         Turnover                                                      56,223
                                                                      =======


         Net loss for the year                                        (60,430)
                                                                      =======


         Net loss for the year attributable to the Company            (30,215)
                                                                      =======
</TABLE>



18.      NEGATIVE GOODWILL ARISING ON ACQUISITION OF AN ASSOCIATE

<TABLE>
<CAPTION>
                                                                       1.4.2002
                                                                          to
                                                                      31.12.2002
                                                                      ----------
                                                                       HK$'000
<S>                                                                   <C>
         NEGATIVE GOODWILL
         Arising on acquisition of an associate during the period       59,043

         REALISATION
         Released to the income statement during the period                125
                                                                        ------

         NET BOOK VALUE
         At end of the period                                           58,918
                                                                        ======
</TABLE>


         Negative goodwill is recognised to the income statement over 40 years,
         which is determined based on the remaining average useful life of
         identifiable acquired depreciable assets.


19.      OTHER LONG TERM INVESTMENT

         The other long term investment represents the contribution paid to a
         joint venture partner in 2001 for a joint development of a piece of
         land in Chengdu, the PRC, into a tourist attraction. On 11 December
         2002, the Company entered into an agreement with the joint venture
         partner to withdraw from the project. Under the agreement, the joint
         venture partner will transfer the titles of a total of approximately
         3,000 square meters of commercial areas and car parking spaces in a
         commercial building in Chengdu, the PRC, to the Company, with aggregate
         fair values that approximate the Company's initial investment in the
         joint venture. The fair value of the assets to be transferred to the
         Company will be based on a professional valuation. To the extent the
         fair value of the assets to be transferred to the Company is below the
         Company's initial investments, the joint venture partner will be
         obligated to make a cash payment to the Company for the deficiency. Up
         to the date of this report, the transaction is still not yet completed.




                                       77
<PAGE>



20.      LONG TERM INVESTMENT DEPOSIT

<TABLE>
<CAPTION>
                                                                  31.12.2002
                                                                  ----------
                                                                    HK$'000

<S>                                                              <C>
         Deposit for acquisition of investment (Note)               60,000
                                                                    ======
</TABLE>


         Note:    During the period, the Company paid a refundable deposit of
                  HK$60 million to an independent third party to acquire the
                  100% interest in a co-operative joint venture which will
                  develop and operate a hotel in Guangdong, the PRC.


21.      INVESTMENTS IN SECURITIES

<TABLE>
<CAPTION>

                                           Investment      Other
                                           securities   investments     Total
                                           ----------   -----------     -----
                                           31.12.2002   31.12.2002   31.12.2002
                                           ----------   ----------   ----------
                                             HK$'000      HK$'000      HK$'000
<S>                                        <C>          <C>          <C>
         Equity securities:

         Unlisted shares, at cost            22,626         --         22,626
         Listed shares in Hong Kong            --          5,450        5,450
                                             ------       ------       ------

                                             22,626        5,450       28,076
                                             ======       ======       ======

         Market value of listed shares         --          5,450        5,450
                                             ======       ======       ======

         Carrying amount analysed for
            reporting purposes as:

         Non-current                         22,626         --         22,626
         Current                               --          5,450        5,450
                                             ------       ------       ------

                                             22,626        5,450       28,076
                                             ======       ======       ======
</TABLE>


         The unlisted investments in securities represent 19% interests in King
         Fu Investment Holdings Limited ("King Fu") and Jian Shen Co. Ltd.,
         ("Jian Shen"), both of which were formerly wholly-owned by the Company.
         In the opinion of the directors, based on a valuation performed by an
         independent appraiser, the investment securities are worth at least
         their carrying value.




                                       78
<PAGE>



22.      GOODWILL

<TABLE>
<CAPTION>

                                                                     1.4.2002
                                                                        to
                                                                    31.12.2002
                                                                    ----------
                                                                      HK$'000
<S>                                                                <C>
         COST
         At beginning of the period                                   59,807
         Arising on acquisition during the period                     13,232
         Eliminated on disposal of a subsidiary                      (59,807)
                                                                     -------

         Balance at end of the period                                 13,232
                                                                     -------

         AMORTISATION AND IMPAIRMENT
         At beginning of the period                                   59,807
         Charge for the period                                           165
         Eliminated on disposal of a subsidiary                      (59,807)
                                                                     -------

         At end of the period                                            165
                                                                     -------

         NET BOOK VALUE
         At end of the period                                         13,067
                                                                     =======
</TABLE>


         The amortisation period adopted for the goodwill is 20 years.


23.      INVENTORIES

         At the balance sheet date, all inventories were carried at cost. The
         inventories represent principally consumables which are to be utilised
         in the ordinary course of operations. The amount recognised as an
         expense in the income statement during the period was insignificant.


24.      AMOUNTS DUE FROM RELATED COMPANIES

         The balances represent the aggregate amounts due from related parties.
         Certain directors of the Company are also directors of and/or have
         beneficial interests in those companies. The balances are principally
         trading balances including prepayments in respect of the tour operator
         costs. The amounts are unsecured and interest free.

         During the period, the directors reviewed the amounts due from such
         related companies controlled by Messrs. Chan Yeuk Wai and Chan Yeuk Pun
         ("Messrs. Chan"), the former executive directors of the Company, or in
         which Messrs. Chan have minority beneficial interests. The directors
         considered that the recoverability of such amounts is remote and
         accordingly, a total allowance of HK$11,248,000 was made in the
         financial statements as a component of allowance for irrecoverable
         trade debts of HK$22,813,000.


25.      AMOUNTS DUE FROM (TO) ASSOCIATES

         The amounts due from (to) associates are unsecured, interest free and
         have no fixed terms of repayment.




                                       79
<PAGE>



26.      TRADE AND OTHER RECEIVABLES

<TABLE>
<CAPTION>

                                                                   31.12.2002
                                                                   ----------
                                                                     HK$'000

<S>                                                               <C>
         Trade receivables                                            26,579
         Advance cost to tour operators                              268,654
         Deposits and prepayments                                     29,306
         Other receivables                                            13,558
                                                                     -------

                                                                     338,097
                                                                     =======
</TABLE>


         The aged analysis of the trade receivables at the reporting date is as
         follows:

<TABLE>
<CAPTION>
                                                                   31.12.2002
                                                                   ----------
                                                                    HK$'000

<S>                                                               <C>
         0 - 30 days                                                 11,858
         31 - 60 days                                                 7,816
         61 - 90 days                                                 2,569
         Over 90 days                                                 4,336
                                                                     ------

                                                                     26,579
                                                                     ======
</TABLE>


         The Company allows an average credit period of 60 days to local
         customers and 90 days to overseas customers.

         During the period, the directors reviewed the advance cost payments to
         certain tour operators and considered that their recoverability is
         remote. Accordingly, the amounts were fully provided for in the
         financial statements as allowance for advances to service suppliers, as
         described in note 7.


27.      LOAN RECEIVABLES

<TABLE>
<CAPTION>
                                                                      31.12.2002
                                                                      ----------
                                                                        HK$'000

<S>                                                                  <C>
         Loan to the property purchaser (Note a)                         77,200
         Loan to tour operator (Note b)                                  23,000
         Loan to certain overseas companies and individuals (Note c)     22,272
                                                                        -------
                                                                        122,472
                                                                        =======
</TABLE>

         Notes:

          (a)  The loan to the property purchaser arose from the disposal by the
               Company of its 81% interests in each of two subsidiaries, King Fu
               and Jian Shen prior to 1 April 2002. The loan is secured by the
               properties owned by King Fu and Jian Shen and bears interest at
               2.57% per annum. On 13 December 2002, the Company entered into an
               agreement with the property purchaser, to settle a sum of HK$77.2
               million due to the Company. Under the agreement, the property
               purchaser will transfer its holding of a 26% interest in a
               property company incorporated in Guangxi, the PRC, to the Company
               to settle the aforesaid sum owed. The amount to be settled
               through this arrangement will be based on the professional
               valuation of the property interests in the property company to be
               transferred. The parties have agreed that any difference between
               the fair value of the property to be received and HK$77.2 million
               will be paid in cash. Up to the date of this report, the
               transaction is still not yet completed and the Company maintains
               its secured interest in the original properties sold. The
               directors are of the opinion that the value of property interests
               to be transferred is commensurate with the outstanding balance.



                                       80
<PAGE>

          (b)  The loan to tour operator represents an advance made to one of
               the tour operators used by the Company for the designated purpose
               of purchasing coaches. The amount is secured, by the assets
               acquired, and bears interest at a rate of 10% per annum and the
               repayment date of the loan is 31 December 2003.

          (c)  During the period, the Company provided loan facilities to
               certain overseas companies and individuals to earn interest. The
               amounts are unsecured, carrying interest at market rates and
               repayable within one year.


28.      SHORT TERM INVESTMENT DEPOSIT

<TABLE>
<CAPTION>
                                                                    31.12.2002
                                                                    ----------
                                                                      HK$'000
<S>                                                                <C>
         Deposit for acquisition of interest in a manufacturing
           enterprise in PRC                                           23,000
         Less: Allowance                                              (23,000)
                                                                      -------
                                                                         --
                                                                      =======
</TABLE>


         During the period, the Company received an amount of HK$5,000,000 on a
         deposit outstanding as of 1 April 2002 of HK$28,000,000, and wrote off
         the remaining amount as it was deemed unrecoverable.


29.      TRADING CASH BALANCES

         The amounts represent foreign currencies held for money exchange
         purposes.


30.      TRADE AND OTHER PAYABLES

<TABLE>
<CAPTION>
                                                                     31.12.2002
                                                                     ----------
                                                                       HK$'000

<S>                                                                 <C>
         Trade creditors                                               81,669
         Amounts payable for acquisition of investments                76,200
         Accrued liabilities                                           66,504
         Other payables                                                17,187
                                                                      -------

                                                                      241,560
                                                                      =======
</TABLE>


         The aged analysis of the trade payables at the reporting date is as
         follows:

<TABLE>
<CAPTION>

                                                                    31.12.2002
                                                                    ----------
                                                                      HK$'000

<S>                                                                <C>
         0 - 30 days                                                  37,664
         31 - 60 days                                                 18,117
         61 - 90 days                                                 12,265
         Over 90 days                                                 13,623
                                                                      ------

                                                                      81,669
                                                                      ======
</TABLE>



31.      LOANS FROM RELATED COMPANIES

         The loans are from related parties. Certain directors of the Company
         are also directors of and/or have beneficial interests in those
         companies. The loans are unsecured, bear interest at market rates and
         are repayable within one year.


                                       81
<PAGE>

32.      AMOUNTS DUE TO RELATED COMPANIES

         The balances represent principally trading balances including trade
         payables and loan interest payable, which are unsecured, interest free
         and repayable on demand.


33.      OBLIGATIONS UNDER FINANCE LEASES AND SALE AND LEASE BACK ARRANGEMENTS

<TABLE>
<CAPTION>
                                                                                Present value
                                                                 Minimum          of minimum
                                                             lease payments     lease payments
                                                             --------------     --------------
                                                               31.12.2002         31.12.2002
                                                               ----------         ----------
                                                                 HK$'000            HK$'000
<S>                                                         <C>                 <C>
         Amounts payable under finance leases and sale
           and lease back arrangements:

         Within one year                                          10,167              8,764
         Between one to two years                                  7,835              7,087
         Between two to five years                                 7,638              7,297
                                                                 -------            -------

                                                                  25,640             23,148
         Less: Future finance charges                             (2,492)              --
                                                                 -------            -------

         Present value of lease obligations                       23,148             23,148
                                                                 =======

         Less: Amount due within one year shown under
                     current liabilities                                             (8,764)
                                                                                    -------

         Amount due after one year                                                   14,384
                                                                                    =======
</TABLE>


         The Company entered into finance leases to acquire certain of its
         property, plant and equipment. The terms of the finance leases ranged
         from 2 to 4 years and the average effective borrowing rate was 8.5% per
         annum. Interest rate was fixed at the contract date. The leases were on
         a fixed repayment basis and no arrangement had been entered into for
         contingent rental payments. The Company's obligations under the finance
         leases were secured by the lessors' charge over the leased assets.




                                       82
<PAGE>

34.      BORROWINGS

<TABLE>
<CAPTION>
                                                                                                    31.12.2002
                                                                                                    ----------
                                                                                                       HK$'000

<S>                                                                                                  <C>
         Bank loans                                                                                      48,446
         Bank overdrafts                                                                                  7,717
         Other loans                                                                                    150,000
                                                                                                        -------
                                                                                                        206,163
         Less: Amount due within one year shown under current liabilities                              (184,474)
                                                                                                        -------
         Amount due after one year                                                                       21,689
                                                                                                        =======

         Secured                                                                                        121,046
         Unsecured                                                                                       85,117
                                                                                                        -------
                                                                                                        206,163
                                                                                                        =======
         Borrowings are repayable as follows:
         Within one year or on demand                                                                   184,474
         Between one to two years                                                                        11,579
         Between two to five years                                                                       10,110
                                                                                                        -------
                                                                                                        206,163
                                                                                                        =======
</TABLE>

         Interest rates for bank loans and overdrafts are generally based on the
         banks' usual lending rates in Hong Kong. Other loans amounting to
         HK$100,000,000 carried a fixed interest rate of 12% per annum and the
         remainder carries interest at prime interest rate per annum.


35.      DEFERRED TAXATION

<TABLE>
<CAPTION>
                                                                                                      1.4.2002
                                                                                                         TO
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                                  <C>
         Balance at beginning of the period                                                              8,525
         Released on deemed disposal of a subsidiary                                                       (15)
         Movement for the period (note 12)                                                                (460)
                                                                                                        ------
         Balance at end of the period                                                                    8,050
                                                                                                        ======
</TABLE>


         At the balance sheet date, the major components of deferred taxation
         liabilities provided in the financial statements are as follows:

<TABLE>
<CAPTION>
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                                 <C>
         Tax effect of timing differences because of:
         Excess of depreciation allowances claimed for tax purposes
           over depreciation charged in the financial statements                                        13,062
         Tax losses available to set off against future profits                                         (5,012)
                                                                                                       -------
                                                                                                         8,050
                                                                                                       =======
</TABLE>




                                       83
<PAGE>



         The surplus arising from valuation of the Company's investment property
         does not constitute a timing difference for taxation purposes as any
         profits realised on subsequent disposal of this asset would not be
         subject to taxation.

         At the balance sheet date, the major components of deferred taxation
         assets (liabilities) which have not been recognised or provided are as
         follows:

<TABLE>
<CAPTION>
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                                 <C>
         Tax effect of timing differences because of:

         Tax losses available to set off against future profits                                         73,943
         Excess of depreciation allowances claimed for tax purpose over
           depreciation charged in the financial statements                                             (2,138)
                                                                                                        ------
                                                                                                        71,805
                                                                                                        ======
</TABLE>



         A net deferred tax asset has not been recognised in the financial
         statements as it is not certain that the timing differences will be
         utilised in the foreseeable future.

         The amounts of unprovided deferred taxation credit (charge) for the
         period are as follows:

<TABLE>
<CAPTION>
                                                                                                      1.4.2002
                                                                                                         TO
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                                  <C>
         Tax effect of timing differences because of:
         Tax losses arising                                                                             31,626
         Excess of depreciation allowances claimed for tax purpose
           over depreciation charged in the financial statements                                          (645)
                                                                                                        ------
                                                                                                        30,981
                                                                                                        ======
</TABLE>



36.      CONVERTIBLE NOTES

<TABLE>
<CAPTION>
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                                  <C>
         Convertible notes                                                                              370,000
         Less: Conversion into shares                                                                  (115,875)
                                                                                                       --------
                                                                                                        254,125
                                                                                                       ========
</TABLE>

         During the period, the Company issued convertible notes amounting to
         HK$370,000,000. The convertible notes carry interest at 2% per annum
         and are repayable within two years. The holders of the convertible
         notes have the right to convert on any business day the convertible
         notes into new shares of the Company at any time from time to time
         during a period of two years from the date of issues of the convertible
         notes, at an initial conversion price of HK$0.032 per share, subject to
         adjustments. Had the convertible notes been converted into new shares
         in the Company in full at issuance, the excess of the aggregate fair
         value of the new shares in the Company that the notes holder would have
         been received over the proceeds received by the Company amounted to
         approximately HK$185,000,000. Upon full conversion of the outstanding
         convertible notes at 31 December 2002, a total of 7,941,395,000 shares
         of the Company will be issued.




                                       84
<PAGE>



37.      SHARE CAPITAL

<TABLE>
<CAPTION>
                                                                                     NUMBER OF SHARES             AMOUNT
                                                                                     ----------------             ------
                                                                                                                  HK$'000
<S>                                                                                  <C>                          <C>
         Authorised:

         Balance as at 1 April 2002                                                   20,000,000,000               200,000
         Increased on 10 April 2002 (Note a)                                          30,000,000,000               300,000
                                                                                      --------------               -------
         Balance as at 31 December 2002                                               50,000,000,000               500,000
                                                                                      ==============               =======
         Issued and fully paid:

         Balance as at 1 April 2002                                                    9,081,317,770                90,813
         Issued on 19 April 2002 (Note b)                                              4,800,000,000                48,000
         Issued to strategic partners (Note c)                                         1,000,000,000                10,000
         Conversion into shares from convertible notes                                 3,621,105,000                36,211
         Shares repurchased and cancelled (Note d)                                      (185,690,000)               (1,857)
                                                                                      --------------               -------
         Balance as at 31 December 2002                                               18,316,732,770               183,167
                                                                                      ==============               =======
</TABLE>


         Notes:

         (a)      Pursuant to a resolution passed by the shareholders of the
                  Company at a special general meeting on 10 April 2002, the
                  authorised share capital of the Company was increased from
                  HK$200,000,000 to HK$500,000,000 by the creation of an
                  additional 30,000,000,000 new shares of HK$0.01 each in the
                  capital for the Company.

         (b)      Pursuant to the subscription agreement dated 1 February 2002
                  which was approved by the shareholders of the Company at the
                  special general meeting of the Company held on 10 April 2002,
                  the Company issued 4,800,000,000 new shares of HK$0.01 each of
                  the Company at a price of HK$0.027 per share to Million Good
                  Limited, a substantial shareholder of the Company as at the
                  balance sheet date. The net proceeds of approximately
                  HK$129,600,000 together with that from the issue of
                  convertible notes as described in note 36 will be used to
                  repay debts, acquire investment, expand business of the
                  Company with the balance be used as additional working capital
                  of the Company. The new shares issued rank pari passu with the
                  then existing shares in all respects.

         (c)      The subscription agreements dated 31 May 2002 in respect of
                  the subscription of shares of the Company by Japan Air System
                  Hong Kong Limited, Dobetta Enterprises Ltd. and Beijing
                  Tourism Group a total of 3,000,000,000 new shares of HK$0.01
                  each of the Company at a price of HK$0.08 per share were
                  approved by the shareholders of the Company at the special
                  general meeting of the Company held on 4 July 2002. The
                  Company would issue a total of 3,000,000,000 new shares of
                  HK$0.01 each of the Company at a price of HK$0.08 per share to
                  the three strategic partners. The net proceeds of
                  approximately HK$240,000,000, upon receipt, will be used to
                  expand and consolidate the Company's business in the PRC,
                  which may involve investments and acquisition by the Company
                  of existing companies or operations in those business where
                  appropriate. During the period, 500,000,000 shares of HK$0.01
                  each were issued to Dobetta Enterprises Limited or its nominee
                  on 9 July 2002 and to Beijing Tourism Group or its nominee on
                  4 September 2002 respectively. The new shares issued rank pari
                  passu with the then existing shares in all respects. As stated
                  in the Company's announcement dated 4 April 2003, the
                  subscription agreement in relation to 2,000,000,000 shares in
                  the Company is in dispute. Further announcement will be made
                  as and when appropriate.



                                       85
<PAGE>



         (d)      During the period, the Company repurchased a total number of
                  185,690,000 of its own shares on the Stock Exchange as
                  follows:

<TABLE>
<CAPTION>
                                                        NUMBER
                                                      OF SHARES               PRICE PER SHARE                  AGGREGATE
                  MONTH OF REPURCHASE                REPURCHASED           HIGHEST         LOWEST          CONSIDERATION PAID
                  -------------------                -----------           -------         ------          ------------------
                                                                             HK$             HK$                 HK$'000
<S>                                                 <C>                   <C>             <C>                  <C>
                  July 2002                           20,080,000            0.038           0.035                  728
                  August 2002                        151,170,000            0.038           0.025                4,809
                  September 2002                      14,440,000            0.017           0.016                  245
</TABLE>

         The above shares were cancelled upon repurchase and accordingly the
         issued share capital of the Company was reduced by the nominal value of
         these shares. The premium paid on repurchase was charged against the
         share premium account.


38.      SHARE OPTION SCHEME

         During the period, the Company had an executive share option scheme
         (the "1997 share option scheme") which was adopted at a special general
         meeting of the Company held on 19 September 1997. Under the 1997 share
         option scheme, the board of directors of the Company might, at its
         discretion, offer full-time employees, including executive directors of
         the Company and/or any of its subsidiaries, options to subscribe for
         shares in the Company in accordance with the terms of the 1997 share
         option scheme. The maximum number of shares in respect of which options
         might be granted under the 1997 share option scheme shall not exceed
         10% of the issued share capital of the Company from time to time.

         No share options have been granted under the 1997 share option scheme
         since its adoption. The 1997 share option scheme was terminated on 3
         May 2002 pursuant to a shareholders' resolution.

         A new share option scheme (the "Scheme"), which was approved and
         adopted by shareholders of the Company on 3 May 2002, enables the
         directors to grant options to employees, executives or officers of the
         Company or any of its subsidiaries (including executive and
         non-executive directors of the Company or any of its subsidiaries) and
         any suppliers, consultants, agents or advisers who will contribute or
         have contributed to the Company or any of its subsidiaries as
         incentives and rewards for their contribution to the Company or such
         subsidiaries. The maximum number of shares in respect of which options
         may be granted under the Scheme, when aggregated with any shares
         subject to any other schemes, shall not exceed 10% of the issued share
         capital of the Company on the date of approval and adoption of the
         Scheme.

         Option granted must be taken up within 30 days of the date of offer.
         The consideration payable for the option is HK$1. Options may be
         exercised at any time from the date of acceptance of the share option
         to such date as determined by the board of directors but in any event
         not exceeding 10 years. The exercise price is determined by the
         directors of the Company and will not be less than the higher of (i)
         the average closing price of the shares for the five business days
         immediately preceding the date of grant, (ii) the closing price of the
         shares on the date of grant or (iii) the nominal value of the shares of
         the Company.

         No share options have been granted under the Scheme since its adoption.




                                       86
<PAGE>



39.      RESERVES

<TABLE>
<CAPTION>
                                                                          INVESTMENT
                                                                           PROPERTY
                                                    SHARE      SPECIAL   REVALUATION   TRANSLATION  STATUTORY  ACCUMULATED
                                                   PREMIUM     RESERVE     RESERVE       RESERVE    RESERVES     LOSSES        TOTAL
                                                   -------     -------   -----------   -----------  ---------  -----------     -----
                                                   HK$'000     HK$'000      HK$'000       HK$'000    HK$'000    HK$'000      HK$'000

<S>                                               <C>          <C>             <C>          <C>         <C>    <C>         <C>
         At 1 April 2002                           795,296     55,554          573          (262)       150    (294,790)    556,521
         Premium on issue of shares,
           net of expenses of HK$2,915,000         228,349         --           --            --         --          --     228,349
         Premium utilised on repurchase
           of shares                                (4,039)        --           --            --         --          --      (4,039)
         Exchange difference arising on
           translation of financial statements
           of operations outside Hong Kong              --         --           --          (322)        --          --        (322)
         Share of reserve of an associate               --         --           --           (65)        --          --         (65)
         Reserve released on disposal of
           subsidiaries                                 --         --           --            68         --         --           68
         Reserve released on deemed
           disposal of a subsidiary                     --         --           --           470         --          --         470
         Net loss for the period                        --         --           --            --         --    (302,858)   (302,858)
                                                  ---------    ------          ---          ----        ---    --------     -------
         At 31 December 2002                      1,019,606    55,554          573          (111)       150    (597,648)    478,124
                                                  =========    ======          ===          ====        ===    ========     =======
</TABLE>





         The special reserve represents the difference between the nominal value
         of the shares of the acquired subsidiaries and the nominal value of the
         shares of the Company issued for the acquisition under the group
         reorganisation in September 1997.

         The accumulated losses, translation reserve and statutory reserves of
         the Company include losses of HK$223,662,000, deficits of HK$65,000 and
         HK$150,000 respectively attributable to the associates of the Company.




                                       87
<PAGE>



40.      DEEMED DISPOSAL/DISPOSAL OF SUBSIDIARIES

         During the period, several subsidiaries of the Company were deemed
         disposed/disposed of. The aggregate assets and liabilities of these
         subsidiaries at their respective dates of disposal were as follows:

<TABLE>
<CAPTION>
                                                                                              1.4.2002
                                                                                                 TO
                                                                                             31.12.2002
                                                                                             ----------
                                                                                               HK$'000
<S>                                                                                           <C>
                  Net assets disposed of:
                  Property, plant and equipment                                                    517
                  Trade and other receivables                                                    7,659
                  Amounts due from related companies                                                56
                  Tax recoverable                                                                   47
                  Bank balances and cash                                                         1,448
                  Trade and other payables                                                      (5,733)
                  Tax payable                                                                     (346)
                  Amounts due to related companies                                                 (15)
                  Obligations under finance leases                                                 (56)
                  Bank borrowings                                                                 (792)
                  Deferred taxation                                                                (15)
                                                                                              --------
                                                                                                 2,770
                  Retained as investments in associates by the Company                          (1,596)
                  Reserves released on disposal of subsidiaries                                    538
                                                                                              --------
                                                                                                 1,712
                  Loss on deemed disposal/disposal of subsidiaries                              (1,712)
                                                                                              --------
                  Consideration                                                                     --
                                                                                              ========
                  Satisfied by:
                  Cash consideration                                                                --
                  Loan receivables                                                                  --
                                                                                              --------
                                                                                                    --
                                                                                              ========
                  Analysis of net cash outflow of cash and cash equivalents in connection
                    with the deemed disposal/disposal of subsidiaries:
                  Cash consideration                                                                --
                  Bank balances and cash disposed of                                            (1,448)
                                                                                              --------
                                                                                                (1,448)
                                                                                              ========
</TABLE>

         The subsidiaries disposed of during the period ended 31 December 2002
         did not have any significant impact on the turnover, operating results
         and cash flows of the Company.



                                       88
<PAGE>



41.      MAJOR NON-CASH TRANSACTIONS

         (a)      As disclosed in note 17 to the financial statements, the
                  disposal of the Company's interest in an investment company to
                  Rosedale for a consideration of HK$110,000,000 was satisfied
                  by 366,666,666 new shares of Rosedale. Accordingly, the
                  Company's investment in associates amounting to HK$110,000,000
                  was transferred from long term investment deposits which
                  comprised of HK$24,400,000 brought forward, an amount of
                  HK39,400,000 paid during the period and the balance of
                  HK$46,200,000 unpaid as at the balance sheet date.

         (b)      During the period, the Company acquired the remaining 25%
                  interest in Trans-Island for HK$30,000,000 as described in
                  note 8 to the financial statements. At 31 December 2002, a
                  balance of HK$30,000,000 was still outstanding.

         (c)      During the period, the Company entered into finance lease
                  arrangements in respect of assets with a total capital value
                  of HK$12,155,000 at the inception of the finance leases.


42.      ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000

<S>                                                                                                   <C>
         Bank balances, deposits and cash                                                               61,510
         Bank overdrafts                                                                                (7,717)
                                                                                                        ------
                                                                                                        53,793
                                                                                                        ======
</TABLE>

43.      PLEDGE OF ASSETS

         At 31 December 2002, the Company's credit facilities were secured by
         the Company's assets as follows:

<TABLE>
<CAPTION>
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000

<S>                                                                                                  <C>
         Property interests                                                                              86,880
         Motor vehicles                                                                                  33,961
         Office equipment and machinery                                                                   2,023
         Bank balances                                                                                      802
                                                                                                        -------
                                                                                                        123,666
                                                                                                        =======
</TABLE>

         In addition, at 31 December 2002, the Company also pledged its holding
         of 1,000,000,000 shares in Rosedale with a market value of
         approximately HK$200,000,000 to secure other loans of HK$100,000,000
         granted to the Company.



                                       89
<PAGE>



44.      CONTINGENT LIABILITIES

<TABLE>
<CAPTION>
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                                  <C>
         Guarantees given to banks, financial institutions and suppliers
           in respect of credit facilities granted                                                      15,348
         Undertakings to Rosedale to indemnify it against any potential
           loss upon the transfer of the land use right to an investment
           company in relation to the disposal thereof during the period
           as disclosed in note 17 to the financial statements                                          37,347
                                                                                                        ------
                                                                                                        52,695
                                                                                                        ======
</TABLE>

45.      OPERATING LEASE COMMITMENTS

         As lessee

         At 31 December 2002, the Company had commitments for future minimum
         lease payments under non-cancellable operating leases in respect of
         rented premises which fall due as follows:

<TABLE>
<CAPTION>
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                                  <C>
         Within one year                                                                                18,154
         In the second to fifth years inclusive                                                         13,884
                                                                                                        ------
                                                                                                        32,038
                                                                                                        ======
</TABLE>



         Operating lease payments represent rentals payable by the Company for
         certain of its office properties, shops and employees' quarters. Leases
         are negotiated for an average term of two years.

         As lessor

         At 31 December 2002, the Company had not contracted with tenants for
         any future minimum lease payments.


46.      CAPITAL COMMITMENTS

<TABLE>
<CAPTION>
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                                  <C>
         Contracted for but not provided in the financial statements
           in respect of acquisition of property, plant and equipment                                    3,751
         Contracted for but not provided in the financial statements
           in respect of investments                                                                     5,000
                                                                                                        ------
                                                                                                         8,751
                                                                                                        ======
</TABLE>





                                       90
<PAGE>



47.      PROVIDENT FUND SCHEMES

         The Company has retirement schemes covering a substantial portion of
         its employees. The principal schemes are defined contribution schemes.
         The assets of these schemes are held separately from those of the
         Company in funds under the control of independent trustees.

         With effect from 1 December 2000, the Company joined a Mandatory
         Provident Fund scheme ("MPF Scheme") for all its new employees employed
         therefrom or existing employees wishing to join the MPF Scheme. The MPF
         Scheme is registered with the Mandatory Provident Fund Scheme Authority
         under the Mandatory Provident Fund Schemes Ordinance. The assets of the
         MPF Scheme are held separately from those of the Company in funds under
         the control of an independent trustee. Under the rules of the MPF
         Scheme, the employer and its employees are required to make
         contributions to the MPF Scheme at rates specified in the rules. The
         only obligation of the Company in respect of MPF Scheme is to make the
         required contributions under the MPF Scheme.

         The amounts charged to the income statement represent contributions
         payable to schemes and the MPF Scheme by the Company at rates specified
         in the rules of the schemes less forfeiture of HK$650,000 arising from
         employees leaving the Company prior to completion of the qualifying
         service period, if any.

         At the balance sheet date, the total amount of forfeited contributions,
         which arose upon employees leaving the retirement benefit schemes and
         which are available to reduce the contributions payable in future years
         was HK$233,000.

48.      POST BALANCE SHEET EVENT

         Subsequent to the balance sheet date, the directors proposed a capital
         reorganisation of the Company ("Capital Reorganisation") for approval
         by the shareholders of the Company. The Capital Reorganisation
         includes, among other things, the following:

         (i)      every eighty shares of the Company ("Existing Shares") in
                  issue of HK$0.01 each will be consolidated into one share of
                  HK$0.80 ("Consolidated Share");

         (ii)     the nominal value of each of the issued Consolidated Shares
                  will then be reduced in value from HK$0.80 to HK$0.01 each by
                  cancelling HK$0.79 of the capital paid up thereon so as to
                  form one share of HK$0.01;

         (iii)    the authorised share capital of the Company will be reduced
                  from HK$500 million to HK$100 million by cancelling
                  40,000,000,000 unissued Existing Shares;

         (iv)     an amount of approximately HK$1,019,606,000 standing to the
                  credit of the share premium account of the Company as at 31
                  December 2002 will be cancelled; and

         (v)      the credit arising from the above capital reduction and share
                  premium reduction in the aggregate amount of approximately
                  HK$1,200,484,000 will be credited to the contributed surplus
                  account of the Company in respect of which the directors of
                  the Company are authorised to apply such surplus in any manner
                  permitted by the laws of Bermuda and the Bye-laws, including
                  the elimination of the accumulated losses of the Company.

         The Capital Reorganisation has not been completed at the date of this
         report.



                                       91
<PAGE>



49.      RELATED PARTY TRANSACTIONS

         (a)      During the period, the Company had transactions with related
                  parties as follows:

<TABLE>
<CAPTION>
                                                                                                               1.4.2002
                                                                                                                  TO
                  (I)      NATURE OF TRANSACTIONS       NOTE    NAME OF COMPANY                               31.12.2002
                           ----------------------       ----    ---------------                               ----------
                                                                                                                HK$'000
<S>               <C>      <C>                          <C>     <C>                                           <C>
                           Agency fees paid by the       (i)    HK Ananda Travel (Malaysia)
                             Company                              Sdn. Bhd.                                        484
                                                                Ananda Travel Company Limited**                    321
                                                                Ananda Travel Service, Inc.                        111
                                                                Ananda Travel Philippines, Inc.                    103
                                                                                                                 -----
                                                                                                                 1,019
                                                                                                                 =====
                           Property rental expenses     (ii)    Tower Property Limited
                             paid by the Company                                                                 5,439
                                                                                                                 =====
                           Printing expenses paid       (iii)   Ananda Public Relations &
                             by the Company                       Advertising Limited                            1,013
                                                                                                                 =====
                           Air ticketing and travel     (iv)    Ananda Travel Service, Inc.                         64
                             services income received           HK Ananda Travel (Malaysia)
                             by the Company                       Sdn. Bhd.                                         14
                                                                                                                 -----
                                                                                                                    78
                                                                                                                 =====
</TABLE>

                           Notes:

                           (i)      The above companies acted as the Company's
                                    tour operators in the jurisdictions in which
                                    they are located. Agency fees are calculated
                                    in accordance with the agency agreements
                                    entered into between the Company and each of
                                    the above related companies on 20 September
                                    1997.

                           (ii)     The Company continued to occupy office
                                    premises owned by Tower Property Limited
                                    until December 2002. The rentals were
                                    calculated on the basis of an amount
                                    determined by reference to the floor area of
                                    the relevant property, and comparable rent
                                    paid for similar properties by tenants
                                    occupying such premises.

                           (iii)    Ananda Public Relations & Advertising
                                    Limited provided printing services for the
                                    Company's promotional materials at prices
                                    comparable to market rates.

                           (iv)     The above companies purchased air tickets
                                    and other travel related services from the
                                    Company at rates comparable to market rates.



                                       92
<PAGE>




         The Company accrued a fee of HK$9,000 payable to each of Ananda
         Development Limited and Ananda Holdings Limited for the Company to use
         the address of certain premises in Guangzhou and Hong Kong as the
         correspondence address of the Company's representative office in
         Guangzhou and the Company's head office and principal place of business
         respectively.

         The Company paid an annual fee of HK$10 to Ananda Holdings Limited for
         a non-exclusive licence to the Company to use the "Ananda" trademark.

         Messrs. Chan have controlling interests in the above companies, except
         for Ananda Travel Philippines, Inc., Ananda Travel Service, Inc.,
         Ananda Travel Company Limited** and HK Ananda Travel (Malaysia) Sdn.
         Bhd., companies in which they have minority interests.

         ** Being English translation of legal Chinese name as the company does
         not have any legal English name.

<TABLE>
<CAPTION>
                                                                                                      1.4.2002
                                                                                                         TO
         (II)     NATURE OF TRANSACTIONS            NOTE    NAME OF COMPANY                          31.12.2002
                  ----------------------            ----    ---------------                          ----------
                                                                                                       HK$'000
<S>      <C>      <C>                               <C>     <C>                                      <C>
                  Property rental expenses           (i)    Mass Success International
                    paid and payable                          Limited                                     288
                    by the Company                                                                     ======
                  Air ticketing and travel          (ii)    Hanny Holdings Limited
                    service income received                   and its subsidiaries                      1,056
                    and receivable by the                   Star East Holdings Limited
                    Company                                   and its subsidiaries                        901
                                                            Paul Y. - ITC Construction
                                                              Holdings Limited and its
                                                              subsidiaries                                838
                                                            ITC Corporation Limited
                                                              and its subsidiaries                        460
                                                            Leadership Publishing
                                                              Group Limited
                                                              (formerly known as
                                                              Sing Pao Media Company
                                                              Limited) and its subsidiaries               439
                                                            Rosedale and its subsidiaries                 303
                                                            China Strategic Holdings
                                                              Limited and its subsidiaries                248
                                                                                                       ------
                                                                                                        4,245
                                                                                                       ======
                  Interest on convertible notes     (iii)   Million Good Limited                        1,345
                                                                                                       ======
                  Loan interest paid and            (iv)    Hanny Holdings Limited
                    payable by the Company                    and its subsidiaries                      1,298
                                                            China Strategic Holdings Limited
                                                              and its subsidiaries                        891
                                                                                                       ------
                                                                                                        2,189
                                                                                                       ======
</TABLE>




                                       93
<PAGE>



         Notes:

         (i)      The majority of the Company's subsidiaries started to occupy
                  office premises owned by Mass Success International Limited in
                  December 2002. The pricing of the transactions was determined
                  in accordance with the terms of relevant agreements.

         (ii)     The above companies purchased air tickets from the Company at
                  rates comparable to market rates.

         (iii)    The interest on convertible notes was calculated at the rate
                  specified in the convertible notes issued.

         (iv)     The interest paid and payable by the Company for loans from
                  these companies was calculated at rates stated in the relevant
                  agreements.

         Certain directors of the Company are also directors of and/or have
         beneficial interests in those companies other than Rosedale. Rosedale
         is an associate of the Company.

(b)      During the period, the Company received hotel management fees of
         HK$1,075,000 from Heilongjiang Ananda in accordance with the hotel
         management contract entered into with Heilongjiang Ananda.

(c)      During the period, two directors of the Company including a former
         executive director executed personal guarantees to a bank and a
         securities company to secure their loans granted to the Company. No
         commission or charges were paid to the directors by the Company in
         respect of the above guarantees.

(d)      During the period, the Company received loans from related companies.
         Details of their relationship and the terms of the loans are set out in
         note 31 to the financial statements.

(e)      During the period from 1 April 2002 to 31 December 2002, the Company
         maintained trading accounts with related companies. Terms of the
         balances and allowances made during the period are set out in notes 24
         and 32 to the financial statements.

(f)      On 22 July 2002, the Company together with other parties entered into a
         series of agreements with Rosedale. As at the balance sheet date,
         Rosedale is an associate of China Strategic Holdings Limited which is
         an indirect substantial shareholder of the Company. One of them
         included disposing of its interest in an investment company holding a
         right to acquire a 60% interest in Luoyang Golden Gulf Hotel Co.,
         Limited whose principal asset is the Golden Gulf Hotel in Luoyang, the
         PRC, for a consideration of HK$110,000,000 which was satisfied by
         366,666,666 new shares of Rosedale. The transaction was completed in
         December 2002 upon approvals by shareholders and other regulatory
         bodies.

         The Company, in relation to the disposal of the interest in the
         investment company holding Luoyang Golden Gulf Hotel Co., Limited gave
         an undertaking to Rosedale to indemnify it against any potential loss
         they may suffer as a result of failure to transfer the land use right
         to the investment company including the payment of any land premium
         payable for such transfer. It is estimated that the land premium for
         such transfer would be approximately RMB39.7 million (equivalent to
         approximately HK$37,347,000).

         In addition to the above 366,666,666 new shares in Rosedale, the
         Company also subscribed for 1,000,000,000 shares in Rosedale at a price
         of HK$0.30 per share amounting in aggregate to a total


                                       94
<PAGE>


         consideration of HK$300,000,000. The transaction was also approved by
         the independent shareholders of the Company at the special general
         meeting held on 28 October 2002.

50.      PRINCIPAL SUBSIDIARIES

         Details of the Company's principal subsidiaries as at 31 December 2002,
         all of which are wholly owned by the Company, unless otherwise stated,
         are as follows:

<TABLE>
<CAPTION>
                                                                      ISSUED AND
                                                 PLACE OF               PAID UP
                                              INCORPORATION/        SHARE CAPITAL/
         NAME OF COMPANY                       REGISTRATION       REGISTERED CAPITAL      PRINCIPAL ACTIVITIES
         ---------------                       ------------       ------------------      --------------------
<S>                                            <C>                <C>                     <C>
         Airport Hotelink Limited              Hong Kong                   HK$10,000      Shuttle bus services

         Ananda Autotech Service               Hong Kong                  HK$100,000      Motor vehicles repair and
           Limited                                                                          maintenance services

         Ananda China Hotel                    British Virgin                   US$1      Investment holding
           Investment Limited                    Islands

         Ananda Hotel Management               British Virgin                   US$4      Hotel management services
           Limited                               Islands                                    in the PRC

         Ananda Travel (Canada)                Canada                       C$15,000      Travel and related services
           Limited

         Ananda Travel Limited                 Hong Kong                HK$2,000,000      Travel and related services

         Ananda Travel Limited                 Macau                    MOP1,000,000      Travel and related services

         Ananda Travel (U.K.) Limited          United Kingdom                   GBP2      Travel and related services

         Ananda Wing On Travel (BVI)           British Virgin              US$10,000      Investment holding
           Limited                               Islands

         Asian Fame Int'l Limited              British Virgin                   US$1      Investment holding
                                                 Islands

         Asian Pearl Investments               British Virgin                   US$1      Investment holding
           Limited                               Islands

         Asian Universe Limited                Hong Kong                        HK$2      Property investment in
                                                                                            Hong Kong

         Benchmark Pacific Limited             British Virgin                   US$1      Investment holding
                                                 Islands

         Credit Paradise Limited               Hong Kong                        HK$2      Property investment in
                                                                                            Malaysia

         Golden Sun Limited                    Hong Kong                        HK$2      Investment holding

         Guangdong Ananda Bus Co.              Hong Kong                   HK$10,000      Shuttle bus services
           Limited

         Guangdong Ananda                      Hong Kong                   HK$10,000      Shuttle bus services
           Trans-Island Limousine
           Co. Limited
</TABLE>

                                       95

<PAGE>

<TABLE>
<CAPTION>
                                                                      ISSUED AND
                                                 PLACE OF               PAID UP
                                              INCORPORATION/        SHARE CAPITAL/
         NAME OF COMPANY                       REGISTRATION       REGISTERED CAPITAL      PRINCIPAL ACTIVITIES
         ---------------                       ------------       ------------------      --------------------
<S>                                            <C>                <C>                     <C>
         Guangdong Ananda Wing                 Hong Kong                   HK$10,000      Shuttle bus services
           On Bus Co. Limited

         Guangdong Wing On Bus                 Hong Kong                   HK$10,000      Shuttle bus services
           Co. Limited


         Hong Kong Wing On Travel              Hong Kong                  Ordinary -      Outbound travel and related
           Service Limited                                                    HK$100        services
                                                                          Deferred -
                                                                       HK$20,000,000 *

         Intercontinental Hire Cars            Hong Kong               HK$10,000,000      Transportation services
           Limited

         Kingsgrove International              Hong Kong                        HK$2      Property investment in
           Limited                                                                          Hong Kong

         Many Good Money Exchange              Hong Kong                  HK$100,000      Money exchange services
           Limited
         (formerly known as
           Many Good Limited)

         Mexmara Holdings Limited              British Virgin                   US$1      Property investment in
                                                 Islands                                    Hong Kong

         Millennium Target Holdings            British Virgin                   US$1      Investment holding
           Limited                               Islands

         Moreton International Limited         Hong Kong                        HK$2      Property investment in
                                                                                            Hong Kong

         Shenzhen Airport-HK Shuttle           Hong Kong                   HK$10,000      Transportation services
           Bus Limited

         South Africa Express Limited          British Virgin                   US$1      Overseas travel services
                                                 Islands

         Success Fund Industrial Limited       Hong Kong                      HK$100      Property investment in the PRC

         Super Grade Investment                British Virgin                   US$1      Property investment in
           Limited                               Islands                                    Hong Kong

         Trans-Island Limousine                Hong Kong                  Ordinary -      Transportation services
           Service Limited                                                  HK$1,000
                                                                          Deferred -
                                                                       HK$30,000,000 *

         Watertours of Hong Kong               Hong Kong                  Ordinary -      Watertour services
           Limited                                                      HK$1,500,000
                                                                           "B" - 100 *

         World Way (Pacific) Limited           Hong Kong                        HK$2      General trading
</TABLE>

         * The deferred shares and "B" shares are owned by the Company,
           practically carry no rights to dividends or to receive notice of or
           to attend or vote at any general meeting of the respective companies
           or to participate in any distribution in winding up.

         All of the above principal subsidiaries, other than Ananda Wing On
         Travel (BVI) Limited, are held indirectly by the Company.



                                       96
<PAGE>


         The above principal subsidiaries operate in their respective place of
         incorporation or registration unless as stated otherwise.

         The above table lists the subsidiaries of the Company which, in the
         opinion of the directors, principally affected the results or assets
         and liabilities of the Company. To give details of other subsidiaries
         would, in the opinion of the directors, result in particulars of
         excessive length.

         No debt securities have been issued by any of the subsidiaries.

51.      SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED
         IN HONG KONG ("HK GAAP") AND IN UNITED STATES ("US GAAP")

         The consolidated financial statements are prepared in accordance with
         HK GAAP, which differ in certain significant respects from US GAAP. The
         cash flow statement used in the primary financial statements complies
         with International Accounting Standards No. 7.

         The significant differences between HK GAAP and US GAAP as they relate
         to the Company are principally attributable to the accounting for the
         goodwill arising on acquisition, convertible notes with beneficial
         conversion features, deferred taxation, investment properties and share
         options.

         Under HK GAAP, the acquisition of the minority interest in Trans-Island
         in July 2002 resulted in an excess of purchase consideration paid over
         the fair value of the net assets acquired, which was recorded as
         goodwill and is being amortised over a period of 20 years. Under US
         GAAP, intangible assets, including goodwill, with indefinite useful
         lives are not amortised but instead tested for impairment at least
         annually in accordance with the provisions of SFAS 142 "Goodwill and
         Other Intangible Assets".

         Under HK GAAP, the excess of the fair value of the net assets acquired
         over the purchase consideration paid for the acquisition of the equity
         interest in Rosedale, as described in note 18, has been recorded as
         negative goodwill, which is presented as a deduction from the assets of
         the Company in the consolidated balance sheet. The Company releases the
         negative goodwill to the statement of income on a systematic basis over
         the remaining weighted average useful life of the identifiable acquired
         depreciable/amortisable assets. Under US GAAP, the excess of assigned
         value of identifiable assets over the cost of an acquired company,
         should be allocated on a pro rata basis to all acquired assets except
         financial assets other than investments accounted for by the equity
         method, assets to be disposed of by sale, deferred tax assets, prepaid
         assets relating to pension or other postretirement benefit plans, and
         any other current assets.

         The Company follows the current practice in Hong Kong of not accounting
         for convertible notes with a nondetachable conversion feature that is
         in-the-money (a "beneficial conversion feature"). Under US GAAP, the
         embedded beneficial conversion feature should be valued separately upon
         issuance. The discount resulting from allocation of proceeds to the
         beneficial conversion feature should be recognised as interest expense
         over the maturity of the convertible notes. All of the unamortised
         discount remaining at the date of conversion should be immediately
         recognised as interest expense.

         Under HK GAAP, deferred tax liabilities are provided in full on all
         taxable temporary differences while deferred tax assets are recognised
         to the extent that it is probable that future taxable profit will be
         available against which the temporary differences can be utilised. For
         US GAAP purposes, deferred tax assets and liabilities are recorded for
         the expected future tax consequences of all taxable temporary
         differences and loss or tax credit carryforwards. Valuation allowances
         are recorded for deferred tax assets for which it is more likely than
         not that such assets will not be realised. This difference in
         accounting under HK GAAP and US GAAP has no significant impact on the
         Company's results of operations or financial position as the
         realisation of the Company's operating loss carryforwards is not more
         likely than not and a valuation allowance has been recorded under US
         GAAP.


         Under HK GAAP, investment properties are stated on the basis of
         appraised values and depreciation is not provided. Under


                                       97
<PAGE>
         US GAAP, investment properties not held for resale are stated at
         historical cost less accumulated depreciation. This difference in
         accounting under HK GAAP and US GAAP had no significant impact on the
         Company's results of operations or financial position.

         The Company follows the current practice in Hong Kong that no
         accounting entry is made on grant of share options to its employees and
         directors. Under US GAAP, the Company accounts for its share option
         scheme under the recognition and measurement provisions of Accounting
         Principles Board Opinion No. 25, "Accounting for Stock Issued to
         Employees", and related interpretations. Accordingly, the amount of
         compensation expense is determined based on the intrinsic value, i.e.
         the excess, if any, of the quoted market price of the shares over the
         exercise price of the options at the date of the grant and is amortised
         over the vesting period of the related options. Since no options have
         been granted under the Company's option plans, this difference in
         accounting under HK GAAP and US GAAP has no significant impact on the
         Company's results of operations or financial position.

         The adjustments necessary to present net loss and shareholders' equity
         in accordance with US GAAP, for the nine months ended 31 December 2002,
         respectively, are shown in the tables set out below.

<TABLE>
<CAPTION>
                                                                                                      1.4.2002
                                                                                                         TO
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                               <C>
         Net loss as reported under HK GAAP                                                            (302,858)

         US GAAP adjustments:
           Reversal of amortisation of goodwill                                                             165
           Difference in amortisation attributable to the excess of fair value
               of net assets acquired over the purchase consideration
               paid for a business acquired                                                                  49
           Interest expense attributable to amortisation of the beneficial
                  conversion feature present in the convertible notes                                  (102,233)
                                                                                                   ------------
         Net loss under US GAAP                                                                        (404,877)
                                                                                                   ============
         Loss per share under US GAAP                                                              (2.45) cents
                                                                                                   ============
</TABLE>






                                       98
<PAGE>



         In addition, in the income statement table, interest income of
         HK$10,679,000 classified as a component of other operating income for
         HK GAAP purposes is considered non-operating income for US GAAP
         purposes.

<TABLE>
<CAPTION>
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                                 <C>
         Shareholders' equity as reported under HK GAAP                                                 661,291

         US GAAP adjustments:
           Reversal of amortisation of goodwill                                                             165
           Difference in amortisation attributable to negative goodwill                                      49
           Accounting for beneficial conversion feature
               present in the convertible notes                                                          82,767
                                                                                                        -------
         Shareholders' equity under US GAAP                                                             744,272
                                                                                                        =======
</TABLE>

         Other comprehensive loss

<TABLE>
<CAPTION>
                                                                                                      1.4.2002
                                                                                                         TO
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                                  <C>
         US GAAP net loss                                                                              (404,877)
         Foreign currency translation adjustment                                                           (387)
                                                                                                       --------
         Comprehensive loss                                                                            (405,264)
                                                                                                       ========
</TABLE>

         Total assets

<TABLE>
<CAPTION>
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                                  <C>
         Total assets under US GAAP                                                                   1,438,243
                                                                                                      =========
</TABLE>

         Total liabilities

<TABLE>
<CAPTION>
                                                                                                     31.12.2002
                                                                                                     ----------
                                                                                                       HK$'000
<S>                                                                                                  <C>
         Total liabilities under US GAAP                                                               693,971
                                                                                                       =======
</TABLE>



         The unamortised balance of the beneficial conversion feature present in
         the convertible notes has been included in the carrying value of the
         convertible notes.




                                       99
<PAGE>



         Valuation allowances

         Roll forward schedule of allowances for doubtful assets

<TABLE>
<CAPTION>
                                                                      CHARGED TO
                                                                       COSTS AND
                                                   1.4.2002            EXPENSES            WRITE-OFF          31.12.2002
                                                   --------            --------            ---------          ----------
                                                    HK$'000             HK$'000             HK$'000             HK$'000

<S>                                                 <C>                  <C>               <C>                <C>
         Allowance for doubtful debts                  9,877               22,813                --              32,690
         Allowance for advances to
           service suppliers                          47,263              162,122                --             209,385
         Allowance for short term
           investment deposit                             --               23,000                --              23,000
                                                      ======              =======           =======             =======
</TABLE>

         Recent Accounting Pronouncements Not Yet Adopted

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 143,
         "Accounting for Asset Retirement Obligations", which must be adopted no
         later than 1 January 2003. This statement establishes accounting
         standards for recognition and measurement of a liability for an asset
         retirement obligation and the associated asset retirement cost. The
         Company will adopt SFAS No. 143 effective 1 January 2003. Management
         does not believe that the adoption of this standard will have a
         significant impact on the Company's financial position or results of
         operations.

         In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
         Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
         Technical Corrections". Statements No. 4 and 64 deals with the
         extinguishment of debt. Statement No. 44 deals with the accounting for
         intangible assets of motor carriers, and Statement No. 13 deals with
         accounting for leases. The Company expects the changes to Statements
         No. 4, 44, 64, and 13 and the Technical Corrections will not materially
         impact its financial position or results of operations.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
         Associated with Exit or Disposal Activities". SFAS No. 146 requires
         recording costs associated with exit or disposal activities at their
         fair values when a liability has been incurred. Under previous
         guidance, certain exit costs were accrued upon management's commitment
         to an exit plan, which is generally before an actual liability has been
         incurred. The requirements of SFAS No. 146 are effective prospectively
         for exit or disposal activities initiated after 31 December 2002;
         however, early application is encouraged. Management does not expect
         the adoption of SFAS No. 146 to have a material effect on the Company's
         financial position or results of operations.

         In November 2002, the FASB issued Interpretation Number 45,
         "Guarantor's Accounting and Disclosure Requirements for Guarantees,
         Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
         This interpretation requires certain disclosures to be made by a
         guarantor in its interim and annual financial statements about its
         obligations under certain guarantees that it has issued. It also
         requires a guarantor to recognize, at the inception of a guarantee, a
         liability for the fair value of the obligation undertaken in issuing
         the guarantee. The disclosure requirements of FIN 45 are effective for
         interim and annual periods after 15 December 2002 and the Company has
         adopted those requirements for these financial statements. The initial
         recognition and initial measurement requirements of FIN 45 are
         effective prospectively for guarantees issued or modified after 31
         December 2002. The Company is assessing, but has not determined the
         impact on its financial position or results of operations of the
         adoption of the initial recognition and measurement provision of FIN
         45.


                                      100
<PAGE>

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
         Stock-Based Compensation - Transition and Disclosure". SFAS No. 148
         amends SFAS No. 123, "Accounting for Stock-Based Compensation" to
         provide alternative methods of transition for a voluntary change to the
         fair value based method of accounting for stock-based employee
         compensation. In addition, SFAS No. 148 amends the disclosure
         requirements of SFAS No. 123 to require prominent disclosures in both
         annual and interim financial statements about the method of accounting
         for stock-based employee compensation and the effect of the method used
         on reported results. Management does not expect the adoption of SFAS
         No. 148 to have a material effect on the Company's financial position
         or results of operations.

         In January 2003, the FASB issued Interpretation No. 46, "Consolidation
         of Variable Interest Entities" ("FIN 46"). This interpretation requires
         that if a business enterprise has a controlling financial interest in a
         variable interest entity, the assets, liabilities and results of the
         activities of the variable interest entity should be included in
         consolidated financial statements of the business enterprise. FIN 46
         applies immediately to variable interest entities created after 31
         January 2003. For variable interest entities created or acquired prior
         to 1 February 2003, the provisions of FIN 46 are effective beginning in
         the third quarter of 2003. Management does not expect the adoption of
         FIN 46 to have a material impact on the Company's financial position or
         results of operations.





                                      101
<PAGE>



                          ITEM 18. FINANCIAL STATEMENTS

CHINA ENTERPRISES LIMITED AND SUBSIDIARIES:

1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
DESCRIPTIONS                                                               PAGE NO.
------------                                                               --------
<S>                                                                          <C>
Report of Independent Public Accountants
   for the Years Ended December 31, 2001 and 2002                            103

Consolidated Statements of Operations and
   Comprehensive loss for the years ended
   December 31, 2000, 2001 and 2002                                          104

Consolidated Balance Sheets as of December 31, 2001 and 2002                 106

Consolidated Statements of Shareholders'
   Equity for the years ended December 31, 2000, 2001 and 2002               108

Consolidated Statements of Cash Flows for the
   years ended December 31, 2000, 2001 and 2002                              109

Notes to Consolidated Financial Statements                                   112

2. INDEX TO FINANCIAL STATEMENT SCHEDULE

Schedule VIII - Valuation and Qualifying Accounts                            140
</TABLE>

The report of independent public accountants for the year ended December 31,
2000 is filed as Exhibit 10(b)1.

For a discussion of the Company's change of independent public accountants in
2001, see "Auditors" under "Item 1. Identity of Directors, Senior Management and
Advisers" of this annual report.




                                      102
<PAGE>


             REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEARS
                        ENDED DECEMBER 31, 2001 AND 2002

                          INDEPENDENT AUDITORS' REPORT

     To the Board of Directors and Shareholders of China Enterprises Limited

         We have audited the accompanying consolidated balance sheets of China
Enterprises Limited and its subsidiaries as of December 31, 2001 and 2002 and
the related consolidated statements of operations and comprehensive loss,
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 2002, all expressed in Renminbi. Our audits also included the
financial statement schedule for each of the two years in the period ended
December 31, 2002 listed in the index at Item 18(2). These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. The
consolidated statements of operations and comprehensive loss, shareholders'
equity and cash flows of the Company for the year ended December 31, 2000
(hereinafter collectively referred to as "2000 Consolidated Financial
Statements"), before the revisions discussed below to Note 3(h) to the
consolidated financial statements, were audited by other auditors who have
ceased operations. Those auditors expressed in their report dated April 23, 2001
an unqualified opinion on those statements.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, such 2001 and 2002 consolidated financial statements
present fairly, in all material respects, the financial position of China
Enterprises Limited and its subsidiaries as of December 31, 2001 and 2002, and
the results of their operations and their cash flows for each of the two years
in the period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule for each of the two years in the period ended
December 31, 2002, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

         As discussed in Note 5 to the consolidated financial statements, the
Company changed its method of accounting for the impairment or disposal of
long-lived assets effective January 1, 2001 to conform with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". Also, as discussed in Note 3 to the
consolidated financial statements, on January 1, 2002, the Company adopted SFAS
No. 142, "Goodwill and Other Intangible Assets".

         As discussed above, the 2000 Consolidated Financial Statements were
audited by other auditors who have ceased operations. As described in Note 3(h),
these financial statements have been revised to include the transitional
disclosures required by SFAS No. 142, which was adopted by the Company as of
January 1, 2002. We audited the disclosures in Note 3(h) that were included to
revise the 2000 Consolidated Financial Statements. In our opinion, such
disclosures are appropriate. However, we were not engaged to audit, review, or
apply any procedures to the 2000 Consolidated Financial Statements other than
with respect to such disclosures and, accordingly, we do not express an opinion
or any other form of assurance on the 2000 Consolidated Financial Statements
taken as a whole.

/s/ DELOITTE TOUCHE TOHMATSU
Hong Kong
April 23, 2003 (June 15, 2003 as to Note 25)



                                      103
<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,
                                                  ----------------------------------------------------
                                                     2000          2001         2002            2002
                                                  ----------    ----------    ----------      --------
                                                      Rmb           Rmb          Rmb             US$
<S>                                               <C>           <C>           <C>             <C>
REVENUES:
 - third parties                                   1,275,532     1,903,683     2,400,964       289,971
 - related parties                                   330,310       184,202       209,112        25,255
                                                  ----------    ----------    ----------      --------

Total                                              1,605,842     2,087,885     2,610,076       315,226
COST OF REVENUES                                  (1,443,726)   (1,837,000)   (2,250,785)     (271,834)
                                                  ----------    ----------    ----------      --------

Gross profit                                         162,116       250,885       359,291        43,392
Selling, general and administrative expenses        (153,847)     (134,424)     (192,211)      (23,214)
(Provision for) recovery on amounts due from
  related companies                                       --       (27,000)        5,016           606
                                                  ----------    ----------    ----------      --------

OPERATING INCOME                                       8,269        89,461       172,096        20,784
NON-OPERATING (EXPENSES) INCOME:
  Interest income                                     14,653        11,687        40,413         4,881
  Interest expenses                                  (36,675)      (39,770)      (53,997)       (6,521)
  Other income (expense)                               1,800          (385)          191            23
  Change in fair value of call option                     --            --       (45,328)       (5,474)
  (Impairment loss) recovery on loan receivable      (14,962)        9,800            --            --
  Equity in losses of affiliates                      (1,967)       (2,486)      (89,520)      (10,812)
                                                  ----------    ----------    ----------      --------

(LOSS) PROFIT FROM CONTINUING OPERATIONS BEFORE
  INCOME TAXES AND MINORITY INTERESTS                (28,882)       68,307        23,855         2,881
Provision for income taxes                            (5,322)       (2,454)      (17,697)       (2,137)
Minority interests                                       401       (29,428)      (69,101)       (8,346)
                                                  ----------    ----------    ----------      --------

(LOSS) PROFIT FROM CONTINUING OPERATIONS             (33,803)       36,425       (62,943)       (7,602)

DISCONTINUED OPERATIONS
Loss from discontinued operations, net of
  applicable income taxes of Rmb26 in 2000,
  RmbNil in 2001 and 2002                            (45,581)     (171,784)     (199,838)      (24,135)
                                                  ----------    ----------    ----------      --------

NET LOSS                                             (79,384)     (135,359)     (262,781)      (31,737)
Other comprehensive income
 - translation adjustments relating
   to an affiliate                                        --            --            38             5
                                                  ----------    ----------    ----------      --------
COMPREHENSIVE LOSS                                   (79,384)     (135,359)     (262,743)      (31,732)
                                                  ==========    ==========    ==========      ========
</TABLE>




                                      104
<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,
                                                       ---------------------------------------------------------
                                                         2000            2001             2002           2002
                                                          Rmb             Rmb             Rmb             US$
                                                       ---------       ---------       ---------       ---------
<S>                                                    <C>             <C>             <C>             <C>
BASIC AND DILUTED (LOSS) EARNINGS PER COMMON
  SHARE
Continuing operations                                      (3.73)           4.04           (6.98)          (0.84)
Discontinued operations                                    (5.02)         (19.05)         (22.16)          (2.68)
                                                       ---------       ---------       ---------       ---------
Basic and diluted loss per common share                    (8.75)         (15.01)         (29.14)          (3.52)
                                                       =========       =========       =========       =========

Weighted average number of common shares
  used in the calculation of basic and diluted
  (loss) earnings per common share                     9,069,956       9,017,310       9,017,310       9,017,310
                                                       =========       =========       =========       =========
</TABLE>

See accompanying notes to consolidated financial statements.





                                      105
<PAGE>


                           CONSOLIDATED BALANCE SHEETS

      (Amounts in thousands, except number of shares and their par values)


<TABLE>
<CAPTION>
                                                         AS OF DECEMBER 31,
                                                 ---------------------------------
                                                   2001         2002         2002
                                                 ---------   ---------     -------
                                                    Rmb         Rmb          US$
<S>                                              <C>         <C>           <C>
ASSETS

Current assets:
  Cash and cash equivalents                        389,602     140,957      17,024
  Restricted cash                                   57,779      26,183       3,162
  Accounts receivable, net of allowance for
     doubtful receivables of Rmb52,956 in 2001
     and Rmb50,974 in 2002                         252,853     314,183      37,945
  Other receivables                                 16,524      39,932       4,822
  Inventories                                      472,795     597,325      72,141
  Marketable securities                                220          50           6
  Prepaid expenses, deferred assets and other
    current assets                                  29,661      50,165       6,059
  Due from related companies, net of allowance
    for doubtful receivables of Rmb27,000 in
    2001 and Rmb21,984 in 2002                     100,299     112,943      13,640
  Notes receivable                                      --      25,319       3,058
  Current assets of discontinued operations        585,605     565,044      68,242
                                                 ---------   ---------     -------
  Total current assets                           1,905,338   1,872,101     226,099

Investments in and advances to affiliates          102,022     232,982      28,138
Due from Chinese joint venture partners              5,413       1,150         139
Convertible note receivable, net                        --      53,339       6,442
Prepayments for equipment                           20,380      78,106       9,433
Property, plant and equipment, net                 423,851     469,694      56,727
Deferred income taxes                                8,127      14,277       1,724
Other assets                                         1,047       1,331         160
Goodwill, net                                        3,876       3,876         468
Non-current assets of discontinued operations      508,911     153,824      18,578
                                                 ---------   ---------     -------
  Total assets                                   2,978,965   2,880,680     347,908
                                                 =========   =========     =======

</TABLE>





                                      106
<PAGE>


                     CONSOLIDATED BALANCE SHEETS - CONTINUED

      (Amounts in thousands, except number of shares and their par values)

<TABLE>
<CAPTION>
                                                                                       AS OF DECEMBER 31,
                                                                               -------------------------------------
                                                                                 2001          2002           2002
                                                                               ---------     ---------       -------
                                                                                  Rmb           Rmb            US$
<S>                                                                            <C>           <C>             <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Short-term bank loans                                                          614,230       659,388        79,636
  Long-term bank loans - current portion                                          36,000        41,600         5,024
  Accounts payable                                                               264,430       401,486        48,489
  Other payables                                                                  35,348        43,266         5,225
  Accrued liabilities                                                             46,506        71,545         8,641
  Due to ultimate parent company                                                   1,772            --            --
  Taxes other than income                                                          9,572        16,190         1,956
  Income taxes payable                                                             1,391        13,828         1,670
  Current liabilities of discontinued operations                                 549,411       583,460        70,466
                                                                               ---------     ---------       -------
  Total current liabilities                                                    1,558,660     1,830,763       221,107
                                                                               ---------     ---------       -------
Long-term bank loans, net of current portion                                      26,600        75,000         9,058
Due to Chinese joint venture partners                                                175           150            18
Loans from related companies                                                      23,934         1,058           128
Non-current liabilities of discontinued operations                                42,575        12,671         1,530
                                                                               ---------     ---------       -------
  Total liabilities                                                            1,651,944     1,919,642       231,841
                                                                               ---------     ---------       -------
Minority interests                                                               280,621       346,819        41,886
Minority interests of discontinued operations                                    242,203        79,013         9,543
                                                                               ---------     ---------       -------
  Total minority interests                                                       522,824       425,832        51,429
                                                                               ---------     ---------       -------
Obligations and commitments (Note 17)
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, 2001 and 2002)                                                      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, 2001
     and 2002)                                                                       526           526            64
  Additional paid-in capital                                                   1,039,501     1,033,253       124,789
  Dedicated capital                                                               37,549        39,708         4,795
  Accumulated other comprehensive losses                                            (543)         (505)          (61)
  Accumulated deficit                                                           (273,080)     (538,020)      (64,978)
                                                                               ---------     ---------       -------
  Total shareholders' equity                                                     804,197       535,206        64,638
                                                                               ---------     ---------       -------
  Total liabilities and shareholders' equity                                   2,978,965     2,880,680       347,908
                                                                               =========     =========       =======
</TABLE>

See accompanying notes to consolidated financial statements.



                                      107
<PAGE>

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

       (Amounts in thousands, except number of shares and per share data)

<TABLE>
<CAPTION>
                                                                                                 ACCUMULATED
                               SHARE OF    SHARES                                                   OTHER
                             SUPERVOTING     OF      SUPERVOTING          ADDITIONAL               COMPRE-
                               COMMON      COMMON      COMMON     COMMON   PAID-IN     DEDICATED   HENSIVE    ACCUMULATED
                                STOCK      STOCK        STOCK     STOCK    CAPITAL      CAPITAL    LOSSES       DEFICIT      TOTAL
                              ---------  ---------   -----------  ------  ---------    --------- -----------  -----------   -------
                                                         Rmb       Rmb       Rmb          Rmb          Rmb          Rmb       Rmb
<S>                          <C>         <C>         <C>          <C>     <C>          <C>        <C>         <C>         <C>
Balance at January 1, 2000    3,000,000  6,100,000        244       532   1,044,636      35,192       (543)     (38,400)  1,041,661
Net loss                             --         --         --        --          --          --         --      (79,384)    (79,384)
Issuance of shares for
 stock options exercised             --         10         --        --          --          --         --           --          --
Repurchase of shares                 --    (82,700)        --        (6)     (3,642)         --         --           --      (3,648)
Transfer to dedicated
 capital                             --         --         --        --          --         926         --         (926)         --
Dividends declared
 (Rmb0.662 per share)                --         --         --        --          --          --         --       (6,002)     (6,002)
                              ---------  ---------        ---       ---   ---------      ------       ----     --------   ---------
Balance at December
 31, 2000                     3,000,000  6,017,310        244       526   1,040,994      36,118       (543)    (124,712)    952,627
Net loss                             --         --         --        --          --          --         --     (135,359)   (135,359)
Released on disposition
 of discontinued operations          --         --         --        --          --     (11,578)        --           --     (11,578)
Transfer to dedicated
 capital                             --         --         --        --          --      13,009         --      (13,009)         --
Dividends declared
 (Rmb0.1655 per share)               --         --         --        --      (1,493)         --         --           --      (1,493)
                              ---------  ---------        ---       ---   ---------      ------       ----     --------   ---------
Balance at December
 31, 2001                     3,000,000  6,017,310        244       526   1,039,501      37,549       (543)    (273,080)    804,197
Net loss                             --         --         --        --          --          --         --     (262,781)   (262,781)
Loss on dilution of
 interest in an affiliated
 and a subsidiary of an
 affiliate                           --         --         --        --      (6,248)         --         --           --      (6,248)
Foreign currency
translation
 adjustment relating
 to an affiliate                     --         --         --        --          --          --         38           --          38
Transfer to dedicated
 capital                             --         --         --        --          --       2,159         --       (2,159)         --
                              ---------  ---------        ---       ---   ---------      ------       ----     --------   ---------
Balance at December
 31, 2002                     3,000,000  6,017,310        244       526   1,033,253      39,708       (505)    (538,020)    535,206
                              =========  =========        ===       ===   =========      ======       ====     ========   =========
</TABLE>

See accompanying notes to consolidated financial statements.







                                      108
<PAGE>


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                      --------------------------------------------
                                                        2000        2001        2002        2002
                                                      --------    --------    --------    --------
                                                         Rmb        Rmb         Rmb         US$
<S>                                                    <C>        <C>         <C>          <C>
Cash flows from operating activities:
  Net loss                                             (79,384)   (135,359)   (262,781)    (31,737)
  Adjustments to reconcile net loss to net cash
    provided by operating activities:
    Loss (gain) on disposition of discontinued
      components                                            --      28,588     (20,144)     (2,433)
    Minority interests                                 (40,758)    (57,841)    (76,073)     (9,188)
    Change in fair value of call option                     --          --      45,328       5,474
    Equity in losses of affiliates                       1,967       2,486      89,520      10,812
    Deferred income taxes                                   --      (8,127)     (6,150)       (743)
    Impairment loss provision for advances to
      affiliates                                            --          --       4,451         538
    Impairment loss provision for
      available-for-sale securities                      1,941          --          --          --
    Impairment loss provision (recovery) on
      loan receivable                                   14,962      (9,800)         --          --
    Impairment loss provision for long-lived assets      3,852      50,133     291,648      35,223
    Impairment loss provision for goodwill                  --       4,023          --          --
    Provision for (recovery on) amounts due from
      related companies                                     --      27,000      (5,016)       (606)
    Loss on disposal of available-for-sale
      securities                                         2,943          --          --          --
    Loss (gain) on disposal of property, plant and
      equipment                                          3,468      21,323        (895)       (108)
    Depreciation and amortization                      109,985     118,399     106,015      12,804
    Amortization of discount on subscription of
      the convertible note receivable                       --          --     (21,914)     (2,646)
Changes in operating assets and liabilities
  (net of effects of acquisition and disposal):
    Accounts and other receivables, net                (20,357)    (25,536)    (91,973)    (11,108)
    Marketable securities (US treasury bond)            79,734          --          --          --
    Inventories                                        (78,986)    (48,825)    (97,220)    (11,741)
    Prepaid expenses, deferred assets and
      other current assets                              (7,501)      3,910     (21,832)     (2,637)
    Due from related companies                         (43,787)     32,414     (10,641)     (1,285)
    Other assets                                        (3,668)     (1,795)       (223)        (27)
    Accounts payable and other payables                147,139     119,352     159,801      19,299
    Accrued liabilities                                 47,270      14,880      28,154       3,400
    Taxes other than income                             16,906       7,584       9,002       1,087
    Income taxes payable                                (1,359)        182      12,437       1,502
                                                      --------    --------    --------    --------
Net cash provided by operating activities              154,367     142,991     131,494      15,880
                                                      --------    --------    --------    --------

</TABLE>






                                      109
<PAGE>


                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                    --------------------------------------------
                                                      2000        2001        2002        2002
                                                    --------    --------    --------    --------
                                                       Rmb        Rmb         Rmb         US$
<S>                                                  <C>         <C>          <C>          <C>
Cash flows from investing activities:
  Proceeds from sales of available-for-sale
    securities                                         8,554          --          --          --
  Subscription of a convertible note receivable           --          --    (127,284)    (15,372)
  Increase in notes receivable                            --          --    (464,961)    (56,155)
  (Increase) decrease in restricted bank deposits    (11,451)    (46,328)     31,596       3,816
  Investment in and advances to affiliates, net      (11,855)        929    (180,612)    (21,813)
  Purchase of property, plant and equipment          (75,868)   (135,212)   (287,536)    (34,727)
  Proceeds from disposal of property, plant and
    equipment                                          3,784       2,267      77,320       9,339
  Proceeds from disposal of trading securities            --         170         170          21
  Repayment of loans receivable                           --      10,000          --          --
  Repayment of notes receivable                           --          --     140,412      16,958
  Decrease (increase) in due from Chinese
    Joint venture partners                             7,570     (10,036)      5,356         647
  Acquisition of a subsidiary, net
    of cash acquired                                      --       4,120          --          --
  Proceeds from disposal of business
    components, net                                       --       1,734         833         100
                                                    --------    --------    --------    --------
Net cash used in investing activities                (79,266)   (172,356)   (804,706)    (97,186)
                                                    --------    --------    --------    --------
Cash flows from financing activities:
  Payment of dividends to shareholders                (6,002)     (1,493)         --          --
  Repurchase of common stock                          (3,648)         --          --          --
  Payment of dividends to minority interests          (1,299)        (66)     (5,801)       (700)
  Net increase in notes payable                           --          --     299,230      36,139
  (Decrease) increase in due to ultimate
    parent company                                    (2,936)        424      (1,772)       (214)
  (Repayment) advance of loans from a
    related company                                     (295)     24,198     (22,809)     (2,755)
  Net increase in short-term bank loans               25,479     113,739      84,858      10,249
  Proceeds of long-term bank loans                        --      68,189     144,410      17,441
  Repayment of long-term bank loans                  (38,900)    (80,000)    (36,000)     (4,348)
  Decrease in due to Chinese joint venture
    partners                                         (52,174)    (10,194)    (19,936)     (2,408)
  Payment of capital lease obligations                    --     (18,973)         --          --
                                                    --------    --------    --------    --------
Net cash (used in) provided by financing
  activities                                         (79,775)     95,824     442,180      53,404
                                                    --------    --------    --------    --------
Net (decrease) increase in cash and cash
  equivalents                                         (4,674)     66,459    (231,032)    (27,902)
                                                    --------    --------    --------    --------
Cash and cash equivalents, beginning of year         413,871     409,197     475,656      57,446
                                                    --------    --------    --------    --------
Cash and cash equivalents, end of year               409,197     475,656     244,624      29,544
                                                    ========    ========    ========    ========
</TABLE>




                                      110
<PAGE>


                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                               -------------------------------------
                                                                                2000     2001       2002       2002
                                                                               ------   -------    -------   -------
                                                                                 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                                 47,009    49,034     74,873     9,043
    Net income tax paid (refunded)                                              1,359      (182)    11,410     1,378
                                                                               ======   =======    =======   =======

Supplemental schedule of non-cash investing and financing activities:
    Assignment of notes receivable to a holder
      of notes payable                                                             --        --    299,230    36,139
    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 9)                                                       --        --     50,531     6,103
    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.




                                      111
<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 PRINCIPAL ACTIVITIES

         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, 2002, the Company had the following subsidiaries (together
with the Company, collectively referred to as the "Group"):

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

         *        Double Happiness Tyre Industries Corporation Limited ("DH",
                  located in Taiyuan, Shanxi, the PRC);

         *        Yinchuan C.S.I. (Greatwall) Rubber Co. Limited ("YC", located
                  in Yinchuan, Ningxia, the PRC);

         *        Hangzhou Fu Chun Jiang Chemical Industrial Co., Limited
                  ("FCJ", located in Hangzhou, Zhejiang, the PRC);

         CSI Rubber Industries Limited ("CSI Rubber", incorporated in Hong
         Kong);

         Orion Tire Corporation ("Orion Tire", incorporated in the United States
         of America (the "US"));

         Orion (B.V.I.) Tire Corporation ("Orion BVI", incorporated in the
         British Virgin Islands (the "BVI"));

         Container Limited ("Container", incorporated in the BVI);

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

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

         Easy Legend Limited ("Easy Legend", incorporated in the BVI);

         Great Windfall Agents Limited ("Great Windfall Agents", 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);

         Supreme Solutions Limited ("Supreme Solutions", incorporated in the
         BVI);

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


                                      112
<PAGE>

       Wealth Faith Limited ("Wealth Faith", incorporated in the BVI).

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

       *      These subsidiaries are collectively known as the "PRC
              Subsidiaries".

       Details of these subsidiaries are summarized as follows:

<TABLE>
<CAPTION>
                                                                                        CSI                ORION          ORION
                             HZ              DH           YC            FCJ            RUBBER              TIRE             BVI
                         --------------  ------------  -----------   -------------  -----------------   -------------  ------------
<S>                      <C>             <C>           <C>           <C>            <C>                 <C>            <C>
Legal status             Sino-foreign    Same as HZ    Same as HZ    Same as HZ     Limited liability   Same as        Same as
                         equity joint                                               company             CSI Rubber     CSI Rubber
                         venture

Principal activities     Manufacture of  Same as HZ    Same as HZ    Manufacture    Investment          Inactive       Inactive
                         rubber tires                                and trade of   holding
                                                                     tire rubbers
                                                                     and carbon
                                                                     powder


Registered               Rmb470          Rmb280        Rmb668        Rmb4.61        HK$2                US$1           US$100
capital/Issued           million         million       million       million
capital (amount
as stated)

Percentage of            51              55            51            26.13*         100                 60             60
ownership by
the Company (%)

Term of joint            50 years        Same as HZ    Same as HZ    20 years       N/A                 N/A            N/A
venture (if              from the date                               from the date
applicable)              of issuance                                 of issuance
                         of business                                 of business
                         license                                     license
</TABLE>


<TABLE>
<CAPTION>
                                                                                           GREAT
                                            CAPITAL       CENTURY       EASY             WINDFALL          HONEST
                            CONTAINER       CANTON         LEAD        LEGEND             AGENTS             MAP
                         --------------  ------------  -----------   -------------  -----------------   -------------
<S>                      <C>             <C>           <C>           <C>            <C>                 <C>
Legal status             Same as CSI     Same as CSI   Same as CSI   Same as CSI    Same as CSI         Same as CSI
                         Rubber          Rubber        Rubber        Rubber         Rubber              Rubber

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

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

Percentage of            100             100           100           100            100                 100
ownership by
the Company (%)

Term of joint            N/A             N/A           N/A           N/A            N/A                 N/A
venture (if
applicable)
</TABLE>

<TABLE>
<CAPTION>

                             LEADING        MILLION       SINCERE       SUPREME        VENTURES            WEALTH
                             RETURNS         GOOD         OCEAN         SOLUTIONS       KINGDOM            FAITH
                         --------------  ------------  -----------   -------------  -----------------   -------------
<S>                      <C>             <C>           <C>           <C>            <C>                 <C>
Legal status             Same as CSI     Same as CSI   Same as CSI   Same as CSI    Same as CSI         Same as CSI
                         Rubber          Rubber        Rubber        Rubber         Rubber              Rubber

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

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

Percentage of            100             100           100           100            100                 100
ownership by
the Company (%)

Term of joint            N/A             N/A           N/A           N/A            N/A                 N/A
venture (if
applicable)
</TABLE>

*      Held by HZ resulting in an effective ownership by the Company of 26.13%.


       The PRC Subsidiaries conduct their 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
and Western European companies. These include, among others, risks associated
with political and economic environment, foreign currency exchange, import
restrictions and legal system of the PRC.

       On February 18, 2002, March 28, 2002, January 29, 2002 and May 21, 2002,
the Company established four wholly owned subsidiaries, namely, Easy Legend,
Great Windfall Agents, Honest Map and Supreme Solutions, respectively, at an
investment cost of US$1 (amount as stated) each. Their principal activities are
investment holding and financing.

2. BASIS OF PRESENTATION

       The consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP"). This basis of accounting differs from that used in the statutory
financial statements of the PRC Subsidiaries, which were prepared in accordance
with the accounting principles and the relevant financial regulations as
established by the Ministry of Finance of the PRC.

       The principal adjustments made to conform the statutory financial
statements of the PRC Subsidiaries to U.S. GAAP included the following:

       - Additional impairment loss provision for long-lived assets;

       - Non-capitalization of interest expense related to the financing of
       certain construction-in-progress which have been temporarily suspended
       from construction; and

       - Recording appropriations to staff welfare and incentive bonus fund as a
       charge to income.




                                      113
<PAGE>


3. 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 23).

       (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, 2001 and 2002 were United States dollar
       deposits of US$18,960 (Rmb156,989) and US$7,628 (Rmb63,160),
       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 Rmb86,055 and Rmb103,667 as of
       December 31, 2001 and 2002, respectively.

       (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.

              For the year ended December 31, 2000, a write-down of the carrying
       amounts of the Group's available-for-sale securities in the amount of
       Rmb1,900 was considered to be impairment loss other than temporary and,
       accordingly, was included in the determination of the operating results
       of the Group. The Group sold these securities at a loss of Rmb2,900
       during that year.




                                      114
<PAGE>


       (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:

        Land use rights                                                50 years
        Buildings                                                      20 years
        Machinery and equipment                                        10 years
        Motor vehicles                                                  5 years
        Furniture, fixtures and office equipment                        5 years

              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 Rmb1,580, RmbNil and Rmb3,954 for the year ended
       December 31, 2000, 2001 and 2002, respectively.

       (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 and accumulated amortization was Rmb6,323 at December
       31, 2001. 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.



                                      115
<PAGE>



              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, 2000:

<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31,
                                    -------------------------------------
                                       2000         2001          2002
                                    ---------    ----------    ----------
                                       Rmb          Rmb           Rmb
<S>                                   <C>          <C>           <C>
Net loss:
As reported                           (79,384)     (135,359)     (262,781)
Add back: goodwill amortization         1,034           891            --
                                    ---------    ----------    ----------
As adjusted                           (78,350)     (134,468)     (262,781)
                                    =========    ==========    ==========

Basic and diluted loss per share:
As reported                             (8.75)       (15.01)       (29.14)
Add back: goodwill amortization          0.11          0.10            --
                                    ---------    ----------    ----------
As adjusted                             (8.64)       (14.91)       (29.14)
                                    =========    ==========    ==========
</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 5).

       (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 the PRC Subsidiaries 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 subsidiaries 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 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



                                      116
<PAGE>
       Group other than the PRC Subsidiaries, 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.

              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 Subsidiaries 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 Subsidiaries' 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 Subsidiaries 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, 2002. 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 Subsidiaries
       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
       Subsidiaries will determine on an annual basis the amount of the annual
       appropriations to dedicated capital. In 2000, 2001 and 2002, certain PRC
       Subsidiaries appropriated 5% respectively of the profits after tax as
       reflected in their statutory financial statements to the general reserve
       fund, enterprise expansion fund, and/or staff welfare and incentive bonus
       fund. 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.

       (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 per
       share is computed using the weighted-average number of common shares
       outstanding during the year. Diluted earnings per share is computed using
       the weighted-average number of common shares and common



                                      117
<PAGE>
       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 2000, 2001 and 2002, all outstanding options were
       anti-dilutive (see note 16). The weighted-average number of common shares
       outstanding for 2000, 2001 and 2002 was 9,069,956, 9,017,310 and
       9,017,310, respectively.

       (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 receivable, amounts due from related
       companies and notes receivable. 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
       and amounts due from related companies largely represent amounts due from
       the Group's customers (including related companies) 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 inventory
       deposits and VAT recoverable. 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 two parties and the Group has reviewed
       their credit worthiness and does not expect to incur significant loss for
       uncollected accounts.

              The carrying value of current financial assets and current
       financial liabilities approximates fair value due to the short-term
       nature of these instruments. The fair value of long-term 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 was Rmb89,947 which was determined
       based on the estimated net amount the Company would receive as of
       December 31, 2002 from the note issuer and the interest rates of similar
       instruments from market. The fair value of amounts due from/to Chinese
       joint venture partners and loans from related companies is not
       determinable.

       (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 2000 and 2001 only represents the Company's net
       loss, but for 2002, the amount also includes translation adjustment
       relating to an affiliate. Comprehensive loss has been disclosed within
       the consolidated statements of operations and comprehensive loss.



                                      118
<PAGE>


(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.

(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.

       Had compensation costs for the Company's stock options issued been
determined based on the fair value of the stock options at the grant date,
consistent with the provision of SFAS No. 123, the Company's net loss, and basic
and diluted loss per share for the years ended December 31, 2000, 2001 and 2002
would have been adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                           2000         2001         2002
                                           ----         ----         ----
                                           Rmb           Rmb          Rmb

<S>                                      <C>          <C>           <C>
Net loss:
   As reported                           (79,384)     (135,359)     (262,781)
   Pro forma                             (80,332)     (135,359)     (262,781)

Basic and diluted loss per share:
   As reported                             (8.75)       (15.01)       (29.14)
   Pro forma                               (8.86)       (15.01)       (29.14)
</TABLE>

       For SFAS No. 123 disclosure purposes, the fair value of each option grant
is estimated using the minimum value method of the Black-Scholes option pricing
model. There were no grants made in fiscal 2001 and 2002. The weighted-average
assumptions used for grants made in fiscal 2000 are as follows:

<TABLE>
<S>                                                 <C>
       Risk-free interest rate                       5.68% p.a.
       Expected option life                             5 years
       Expected dividend yield                             0.8%
       Volatility                                        68.72%
</TABLE>




                                      119
<PAGE>


(u) ADVERTISING EXPENSES

       The Company expenses advertising costs as incurred. Advertising expenses
were Rmb5,497, Rmb5,332 and Rmb7,550 for the years ended December 31, 2000, 2001
and 2002, 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 June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations", which must be adopted no later than January 1, 2003.
This statement establishes accounting standards for recognition and measurement
of a liability for an asset retirement obligation and the associated asset
retirement cost. The Company will adopt SFAS No. 143 effective January 1, 2003.
Management does not believe that the adoption of this standard will have a
significant impact on the Company's financial position or results of operations.

       In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". Statements No. 4 and 64 deal with the extinguishment of debt.
Statement No. 44 deals with the accounting for intangible assets of motor
carriers, and Statement No. 13 deals with accounting for leases. The Company
expects the changes to Statements No. 4, 44, 64, and 13 and the Technical
Corrections will not materially impact its consolidated financial position or
results of operations.

       In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires recording
costs associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. The requirements of SFAS No. 146 are
effective prospectively for exit or disposal activities initiated after December
31, 2002; however, early application is encouraged. Management does not expect
the adoption of SFAS No. 146 to have a material effect on the Company's
consolidated financial position or results of operations.

       In November 2002, the FASB issued Interpretation Number 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation requires
certain disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has
issued. It also requires a guarantor to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for
interim and annual periods after December 15, 2002 and the Company has adopted
those requirements for these financial statements. The initial recognition and
initial measurement requirements of FIN 45 are effective prospectively for
guarantees issued or modified after December 31, 2002.

       In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation" to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company is choosing to continue with its current
practice of applying the recognition and measurement principles of APB No. 25,
"Accounting for Stock Issued to Employees". The Company has adopted the
disclosure requirements of SFAS No. 148.




                                      120
<PAGE>

(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.

4. 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 is immaterial to the
Group's results from operations and financial position.

5. DISCONTINUED OPERATIONS

       Effective January 1, 2001, the Company adopted SFAS No. 144. This
statement addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. 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 DH, Yantai C.S.I. Rubber Co., Limited ("YT"),
Shandong C.S.I. Synthetic Fiber Co., Limited ("SD") and YC, which have
previously been reported under the operating segments "DH", "Others", "Others"
and "YC", respectively, under SFAS No. 131.

(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, 2001 and 2002, net of
provisions, were approximately Rmb82,365 and Rmb39,886, respectively, 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 is 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 incomplete 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 worsen 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. The Company continues to actively solicit prospective buyers for the
sale of the factory; however, there are no assurances that any sale will be
concluded eventually.


                                      121
<PAGE>

       Interest expense incurred on the outstanding loans used to finance the
construction of the factory, amounting to Rmb1,856, Rmb1,113 and Rmb7,000 for
the years ended December 31, 2000, 2001 and 2002, respectively, has been
included in loss from discontinued operations.

(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 unfavorable 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.

       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 aggregate consideration of Rmb35,000, approximating the carrying value as
of December 31, 2002.



                                      122
<PAGE>

       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
prior years' financial statements 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,
                                                                          -------------------------------------
                                                                            2000          2001           2002
                                                                          ---------     ---------       -------
                                                                             Rmb          Rmb             Rmb

<S>                                                                       <C>           <C>            <C>
Revenues                                                                  1,209,767     1,066,083       621,653
                                                                          =========     =========       =======

Loss from operation of discontinued components before income taxes and
   minority interests (including impairment write-downs for those
   business components of Rmb3,852 in 2000, Rmb54,156 in 2001 and
   Rmb291,648 in 2002, loss on disposition of Rmb28,588 in 2001, and
   gain on disposition of Rmb20,144 in 2002), net of applicable income
   tax of Rmb26 in 2000, RmbNil in 2001 and 2002                            (85,937)     (259,052)     (345,012)
Minority interests                                                           40,356        87,268       145,174
                                                                          ---------     ---------       -------
Loss from discontinued operations                                           (45,581)     (171,784)     (199,838)
                                                                          =========     =========       =======
</TABLE>




                                      123
<PAGE>



       The components of assets and liabilities of the discontinued operations
included in the Company's consolidated balance sheets as of December 31, 2001
and 2002 are summarized below:

<TABLE>
<CAPTION>
                                                         2001       2002
                                                       --------    --------
                                                          Rmb        Rmb
<S>                                                    <C>         <C>
Cash and cash equivalents                                86,055     103,667
Accounts receivable, net                                234,356     234,490
Inventories                                             248,510     210,999
Prepaid expenses, deferred expenses and
  other current assets                                   15,823      12,014
Due from related companies                                  861       3,874
                                                       --------    --------
  Current assets of discontinued operations             585,605     565,044
                                                       --------    --------
Due from Chinese joint venture partners                   7,424          --
Property, plant and equipment, net                      500,828     153,273
Other assets                                                659         551
                                                       --------    --------
  Non-current assets of discontinued operations         508,911     153,824
                                                       --------    --------
Short-term bank loans                                  (205,264)   (207,080)
Long-term bank loans - current portion                  (21,810)    (60,000)
Accounts payable                                       (198,918)   (221,389)
Other payables                                          (54,921)    (38,472)
Accrued liabilities                                     (44,317)    (31,204)
Taxes other than income                                 (24,181)    (25,315)
                                                       --------    --------
  Current liabilities of discontinued operations       (549,411)   (583,460)
                                                       --------    --------

Long-term bank loans, net of current portion            (11,379)     (1,319)
Due to Chinese joint venture partners                   (30,632)    (10,721)
Loans from related companies                               (564)       (631)
                                                       --------    --------
  Non-current liabilities of discontinued operations    (42,575)    (12,671)
                                                       --------    --------
Minority interests of discontinued operations          (242,203)    (79,013)
                                                       --------    --------
                                                        260,327      43,724
                                                       ========     =======
</TABLE>

6. NOTES RECEIVABLE

       The notes, carrying interest at commercial rates, are unsecured,
receivable from unrelated parties and due in July 2003.



                                      124
<PAGE>



7. INVENTORIES

       Inventories by major categories are summarized as follows:

<TABLE>
<CAPTION>
                                                   2001         2002
                                                  --------    --------
                                                    Rmb          Rmb

<S>                                               <C>         <C>
   Raw materials                                   310,960     344,300
   Work-in-progress                                 16,225      21,985
   Finished goods                                  394,120     442,039
                                                  --------    --------

   Total                                           721,305     808,324
   Less: Inventories of discontinued operations   (248,510)   (210,999)
                                                  --------    --------
                                                   472,795     597,325
                                                  ========    ========
</TABLE>

8. MARKETABLE SECURITIES

       As of December 31, 2001 and 2002, trading securities comprised municipal
bonds in the PRC of which Rmb170 each was redeemed at its par value in fiscal
2001 and 2002 resulting in no gain or loss on redemption.

       During fiscal 2000, the Company sold a US treasury bond with a par value
of US$10,000 maturing on August 15, 2029 (the "Bond"), for which the Company had
previously recognized an unrealized loss of approximately Rmb3,200, to a third
party at a price of 98.19% of the par value of the Bond and recorded a gain of
approximately Rmb1,800 in its results of operations for fiscal 2000.

9. INVESTMENTS IN AND ADVANCES TO AFFILIATES

       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 is
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.

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,
Sincere Ocean advanced further loans aggregating approximately Rmb4,362 to X One
to finance its working capital.

       In April 2002, Million Good subscribed for 4,800,000,000 new ordinary
shares of HK$0.01 each ("Subscription Shares") in Ananda Wing On Travel
(Holdings) Limited ("Ananda"), representing approximately 34.6% of the then
outstanding share capital of Ananda, 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. Ananda is a Hong Kong based travel company which
mainly provides package tours, travel, transportation and other related
services. Its shares are listed on The Stock Exchange of Hong Kong Limited.

       As part of the acquisition of an equity interest in Ananda, the Company
also subscribed for a two-year convertible note (the "Note") issued by Ananda in
the principal amount of HK$120,000 (Rmb127,284). In July 2002, the Company
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 Ananda 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).



                                      125
<PAGE>

       The excess of the equity in the fair value of net assets of Ananda over
Million Good's aggregate investment costs of Rmb150,353 was allocated on a pro
rata basis to Ananda's assets pursuant to the rules specified in SFAS No. 141,
"Business Combinations" and out of which Rmb102,113 was allocated to assets that
are subject to depreciation and amortization.

       Had the outstanding conversion right of the Note as of December 31, 2002
been exercised in full for subscribing shares in Ananda on the date of its
subscription, the equity in losses of affiliates of the Company for fiscal 2002
would have been increased to Rmb123,137.

       From May through September of 2002, several convertible note holders of
Ananda exercised the conversion right of certain of their notes and Ananda also
repurchased certain of its ordinary shares through unsolicited block
transactions. This resulted in a net dilution of the Company's interest in
Ananda and the creation of an "implied sale" of a portion of the Company's
investment. 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 Ananda
deemed to have been sold or acquired. The Company also recorded its share of
unrealized loss of Rmb626 in additional paid-in capital as a result of dilution
of interest in a subsidiary of Ananda during fiscal 2002.

       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>
                              2000          2001         2002
                              ----          ----         ----
                               Rmb           Rmb          Rmb
<S>                          <C>          <C>          <C>
Revenues                      51,449       127,612     1,603,559
Operating loss                (3,794)       (7,148)     (367,217)
Net loss                      (4,298)       (7,583)     (431,433)
Current assets                15,141        31,939       659,583
Non-current assets           477,660       479,557     1,538,092
Current liabilities           74,244       183,369       635,816
Non-current liabilities      179,000        96,153       511,772
Shareholders' equity         239,557       231,974     1,050,088
</TABLE>

       Advances to the affiliates are Rmb13,991 and Rmb49,368 as of December 31,
2001 and 2002, respectively. Such amounts are interest free and are repayable
upon demand; however, the Company will not require repayment prior to January
2004. An allowance relating 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 2000
and 2001.




                                      126
<PAGE>


       Equity ownership percentages for these affiliates as at December 31 are
presented below:

<TABLE>
<CAPTION>
                                PLACE OF
                                INCORPORATION/
AFFILIATE                       REGISTRATION            2001         2002
---------                       ------------            ----         ----
                                                         Rmb          Rmb

<S>                             <C>                    <C>          <C>
Ananda                          Bermuda                    --        32.21%
Hangzhou Sunrise                PRC                     49.20%       49.20%
X One                           Hong Kong               33.33%       33.33%
</TABLE>

10. 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.

       A judgment of the Proceedings (the "Judgment") 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 Judgment, 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 Judgment. 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 Judgment, 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.




                                      127
<PAGE>


11. CONVERTIBLE NOTE RECEIVABLE, NET

       As of December 31, 2002, the Note consisted of Rmb53,339 principal
amount, net of unamortized discount on subscription of the Note. The Note bears
interest at a rate of 2% per annum payable semiannually in arrears. The Company
has a right to convert the Note into ordinary shares of Ananda 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, at approximately
Rmb79,553 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 9), was an expense of approximately
Rmb45,328 and had been recognized in the consolidated statement of operations
for the current year.

12. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                   2001           2002
                                                                 ----------    ----------
                                                                   Rmb            Rmb

<S>                                                              <C>           <C>
Property, plant and equipment consists of the following:
At cost:
Buildings and land use rights                                       414,948       299,166
Machinery and equipment                                             890,065       767,811
Motor vehicles                                                       32,751        24,109
Furniture, fixtures and office equipment                             32,868        32,893
Construction-in-progress                                             88,737       103,047
                                                                 ----------    ----------
Total                                                             1,459,369     1,227,026
Less: Accumulated depreciation and amortization                    (534,690)     (604,059)
                                                                 ----------    ----------

Total net book value                                                924,679       622,967
Less: Property, plant and equipment of discontinued operations     (500,828)     (153,273)
                                                                 ----------    ----------
                                                                    423,851       469,694
                                                                 ==========    ==========
</TABLE>

13. BANK LOANS

       As of December 31, 2001 and 2002, Rmb33,500 and Rmb16,000 of the
long-term bank loans were guaranteed by third parties, respectively, including
amount relating to discontinued operations of Rmb16,000 and Rmb16,000,
respectively. Rmb34,100 and Rmb20,000 of the long-term bank loans as of December
31, 2001 and 2002, respectively, were also guaranteed by related companies.
Long-term bank loans bear fixed interest rates and had average annual interest
rates of approximately 8.0% in 2000, 7.46% in 2001 and 7.86% in 2002.




                                      128
<PAGE>

     The outstanding balances of long-term bank loans as of December 31, 2002
were repayable as follows:

<TABLE>
<CAPTION>
                                                                                       CONTINUING         DISCONTINUED
                                                                                       OPERATIONS          OPERATIONS
                                                                                       ----------         ------------
                                                                                           Rmb                  Rmb
<S>                                                                                       <C>                  <C>
   2003                                                                                    41,600               60,000
   2004                                                                                    35,000                1,319
   2005                                                                                    40,000                   --
                                                                                          -------               ------

                                                                                          116,600               61,319
                                                                                          =======               ======
</TABLE>


     Short-term bank loans included United States dollar loans of US$3,000
(Rmb24,830) and US$84,743 (Rmb701,672) as of December 31, 2001 and 2002,
respectively.

     As of December 31, 2001 and 2002, Rmb540,460 and Rmb683,106 of the
short-term bank loans were guaranteed by related companies, respectively,
including amount relating to discontinued operations of Rmb41,230 and Rmb93,000,
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 Rmb106,310 and
Rmb127,700 were secured by buildings and equipment of two of the PRC
Subsidiaries as of December 31, 2001 and 2002, respectively, including
Rmb106,310 and Rmb70,700 relating to discontinued operations, respectively. The
short-term bank loans carried fixed interest rates and the average annual
interest rates were approximately 6.5% in 2000, 6.95% in 2001 and 5.11% in 2002.

     In addition to the above loan facilities provided by banks, the Group had
available import credit facilities amounting to Rmb19,553 in 2001 and Rmb124,200
in 2002, of which Rmb18,703 in 2001 and Rmb70,794 in 2002 had been utilized. The
Group also had available letters of credit facilities which were secured by bank
deposits of the Group of Rmb48,301 in 2001 and Rmb16,178 in 2002; no facilitates
were utilized as of December 31, 2001 and 2002. As of December 31, 2001 and
2002, Rmb3,000 and RmbNil of the banking facilities were secured by buildings
and equipment of one of the PRC subsidiaries and Rmb16,555 and RmbNil of the
bank facilities were also secured by a guarantee given by an affiliate,
respectively. Interest rates are generally based on the banks' best lending
rates plus 1% to 2% per annum, subject to fluctuations at the banks' discretion.
The banking facilities are subject to annual review by the banks.

14. PROVISION FOR INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                       ---------------------------------------------
                                                                         2000               2001              2002
                                                                       -------             ------           --------
                                                                         Rmb                Rmb                Rmb
<S>                                                                    <C>                <C>               <C>
   PRC                                                                  11,340             60,471            154,900
   All other jurisdictions                                             (40,222)             7,836           (131,045)
                                                                       -------             ------           --------
                                                                       (28,882)            68,307             23,855
                                                                       =======             ======           ========
</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


                                      129
<PAGE>
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 subsidiaries of the
Company are subject to income taxes calculated at tax rates (ranging from 16% 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.

     In accordance with the relevant income tax laws applicable to Sino-foreign
joint ventures in the PRC, the PRC Subsidiaries, 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 Subsidiaries, other than FCJ, are
also exempt from the PRC local income tax. Accumulated losses brought forward by
the PRC Subsidiaries, 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
Subsidiaries for 2000, 2001 and 2002 is as follows:

<TABLE>
<CAPTION>
                   CHINESE STATE
                      UNIFIED        CHINESE LOCAL           CONCESSION FROM                CONCESSION                 YEAR OF
      PRC            INCOME TAX        INCOME TAX             CHINESE STATE                FROM CHINESE             COMMENCEMENT
 SUBSIDIARIES         RATE (%)          RATE (%)           UNIFIED INCOME TAX            LOCAL INCOME TAX          OF TAX HOLIDAY
-------------      -------------     -------------     ------------------------      ------------------------      --------------
<S>                <C>               <C>               <C>                           <C>                           <C>
HZ                      15.0              1.5          Specifically allowed          Full exemption for            1993
                                                         to adopt a reduced tax        10 years starting from
                                                         rate of 10.0% for 2000        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 2000 and 2001             tax holiday followed
                                                                                       by a 50% reduction
                                                                                       for the next 4 years
                                                                                       thereafter

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

     If the PRC Subsidiaries were neither in the tax holiday period nor had they
been specifically allowed special tax concessions in 2000, 2001 and 2002, they
would have recorded additional income tax expenses of Rmb32, Rmb1,174 and
Rmb1,960, the consolidated net loss would have been increased by Rmb16, 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, and would have remained at Rmb8.75 for the year ended December 31,
2000.

     The Group provides for deferred income taxes in accordance with the
requirements of SFAS No. 109 using the liability method, by which deferred
income taxes are recognized for all significant temporary differences between
the tax and accounting bases of assets and liabilities. The tax consequences of
those differences are classified as current or non-current based upon the
classification of the related assets or liabilities in the financial statements.
A valuation allowance is provided for a portion of deferred tax assets, that is
not currently realizable, since the realization of these benefits depends upon
the ability of the relevant entity to generate income in future years.

     The PRC Subsidiaries 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 Subsidiaries


                                      130
<PAGE>
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 (loss) profit
from continuing operations before income taxes and minority interests stated in
the consolidated statements of operations to the statutory income tax rates in
Hong Kong, the PRC and the United States is as follows:

<TABLE>
<CAPTION>
                                                                          2000               2001               2002
                                                                          ----               ----               ----
                                                                          Rmb                Rmb                Rmb
<S>                                                                       <C>                <C>                <C>
   Weighted average statutory tax rates                                     24%                15%               17%
   Effect of tax holiday                                                    --                 (1%)              (8%)
   Permanent differences relating to
     non-taxable income and non-deductible expenses                        (14%)                1%               74%
   Valuation allowance                                                     (27%)              (11%)              (5%)
   Others                                                                  (1%)                --                (4%)
                                                                           ---                ---               ---
   Effective tax rate                                                      (18%)                4%               74%
                                                                           ===                ===               ===
</TABLE>


     Provision for income taxes consists of:

<TABLE>
<CAPTION>
                                                                           2000               2001               2002
                                                                          ------             ------             ------
                                                                           Rmb                Rmb                Rmb
<S>                                                                      <C>               <C>                <C>
     Current                                                               5,322             10,581             23,847
     Deferred                                                             (7,868)              (889)            (5,071)
     Adjustment of valuation allowance                                     7,868             (7,238)            (1,079)
                                                                          ------            -------            -------
                                                                           5,322              2,454             17,697
                                                                          ======            =======            =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                            2001                 2002
                                                                                           ------               ------
                                                                                            Rmb                  Rmb
<S>                                                                                       <C>                  <C>
     Allowance for doubtful receivables                                                     5,794                9,931
     Allowance for inventory obsolescence                                                     462                  508
     Provision for warranty expenses                                                        2,996                3,911
     Impairment loss provision for long-lived assets                                          180                  297
     Depreciation                                                                           3,260                3,586
     Tax losses carried forward                                                            17,212               16,562
     Others                                                                                   339                  519
     Valuation allowance for deferred tax assets                                          (22,116)             (21,037)
                                                                                           ------               ------
                                                                                            8,127               14,277
                                                                                           ======               ======

</TABLE>

     As of December 31, 2002, 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. The realization of these
benefits depends upon the ability of the Company and its subsidiaries to
generate income in future years. Except to the extent that a valuation allowance
have been established, the Company believes the carry forwards benefits will


                                      131
<PAGE>

be realized.

15. 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 Subsidiaries 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.

     During fiscal 2000, the Company repurchased 82,700 shares of Common Stock
at prices ranging from US$5.00 to US$6.13 per share and the aggregate cash
consideration paid was Rmb3,648. These repurchased shares were cancelled during
fiscal 2000. There were no further movements in share capital of the Company
during fiscal 2001 and 2002.

16. 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.




                                      132
<PAGE>


     A summary of stock options activity during the three years ended December
31, 2000, 2001 and 2002 is as follows:

<TABLE>
<CAPTION>
                                                                                                                     WEIGHTED
                                                                                                                      AVERAGE
                                                                                 NUMBER OF                           EXERCISE
                                                                                  SHARES                              PRICE
                                                                                 ---------                           --------
                                                                                                                        US$
<S>                                                                               <C>                                   <C>
     Outstanding at January 1, 2000                                                660,000                               7.73
     Granted                                                                        20,000                               9.94
     Exercised                                                                         (10)                              5.88
     Lapsed                                                                       (440,000)                              8.36
                                                                                  --------
     Outstanding at December 31, 2000                                              239,990                               6.76
     Lapsed                                                                       (219,990)                              6.47
                                                                                  --------
     Outstanding at December 31, 2001 and 2002                                      20,000                               9.94
                                                                                  ========
</TABLE>

     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.

     The remaining contractual life of the options outstanding at December 31,
2002 was approximately 7.1 years.

17. OBLIGATIONS AND COMMITMENTS

     As of December 31, 2001 and 2002, the Group had outstanding capital
commitments for construction of factory premises and purchases of equipment
amounting to approximately Rmb112,946 and Rmb219,945, respectively, including
commitments of subsidiaries classified as discontinued operations amounting to
Rmb50,720 and Rmb61,913, respectively.

     The Group leases certain of its warehouses under non-cancelable operating
leases expiring at various dates through 2008. Rental expense under operating
leases was Rmb3,147, Rmb5,156 and Rmb4,397 for the years ended December 31,
2000, 2001 and 2002, respectively, including amount relating to discontinued
operations of Rmb1,603, Rmb1,811 and RmbNil, respectively.

     The following is a schedule of future minimum lease payments required under
operating leases relating to continuing operations that have initial or
remaining non-cancelable lease terms in excess of one year as of December 31,
2002:

<TABLE>
<CAPTION>
                                                                                                                          RMB
                                                                                                                        -----
<S>                                                                                                                    <C>
     2003                                                                                                               3,544
     2004                                                                                                               3,558
     2005                                                                                                                 167
     2006                                                                                                                 167
     2007                                                                                                                 167
     2008 and later years                                                                                                 164
                                                                                                                        -----
     Total minimum lease payments                                                                                       7,767
                                                                                                                        =====
</TABLE>


                                      133
<PAGE>

     As of December 31, 2002, 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
                                                 ----------------------------------       ------------------------------------
                                                   2000           2001         2002         2000         2001             2002
                                                 ------         ------       ------       ------       ------           ------
                                                   Rmb            Rmb          Rmb          Rmb          Rmb              Rmb
<S>                                             <C>            <C>          <C>          <C>          <C>              <C>
Balance at beginning of year                         --         13,130       19,972        1,630       14,632           18,000
Warranties paid                                 (22,179)       (45,057)     (56,183)     (33,170)     (37,125)          (9,988)
Warranty provision                               35,309         51,899       59,931       46,172       45,697            5,325
Eliminated on disposition
  of business components                             --             --           --           --       (5,204)              --
                                                -------        -------      -------      -------      -------           ------
Balance at end of year                           13,130         19,972       23,720       14,632       18,000           13,337
                                                =======        =======      =======      =======      =======           ======
</TABLE>

18. DISTRIBUTION OF PROFIT

     Dividends from the PRC Subsidiaries 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, 2001 and
2002, the PRC Subsidiaries had aggregate accumulated deficit of Rmb276,020 and
Rmb137,229, respectively, as reported in their statutory financial statements,
including deficit of Rmb314,042 and Rmb269,972 of the PRC Subsidiaries
classified as discontinued operations, respectively.

     The Company proposed and paid dividends of US$725 (Rmb6,002), US$180
(Rmb1,493) and Nil for the years ended December 31, 2000, 2001 and 2002,
respectively, on the outstanding Supervoting Common Stock and Common Stock.

19. 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 has 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.

         The loans from related companies represent funds advanced to the
     Company and are unsecured, non-interest bearing and have no fixed repayment
     terms. As of December 31, 2002, the related companies agreed that no
     repayment would be required before January 1, 2004.

     (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.



                                      134
<PAGE>
     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 Rmb8,297,
     Rmb4,127 and Rmb4,731 for the years ended December 31, 2000, 2001 and 2002,
     respectively, rendered on behalf of the Company on a cost plus 5% basis.

     (d) SALES TO/PURCHASES FROM RELATED PARTIES

         HZ recorded sales to related companies of approximately Rmb330,310,
     Rmb184,202 and Rmb209,112 for the years ended December 31, 2000, 2001 and
     2002, respectively. YC also made sales to related companies of
     approximately Rmb4,180 and Rmb19,862 for the years ended December 31, 2001
     and 2002, respectively.

         HZ paid subcontracting charges to an affiliate of approximately
     Rmb51,580, Rmb127,989 and Rmb199,373 for tire processing for the years
     ended December 31, 2000, 2001 and 2002, respectively. YC also made purchase
     of raw materials from related companies of approximately Rmb10,986 in
     fiscal 2001 and Rmb13,628 in fiscal 2002.

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

     (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, 2001 and 2002, HZ had undertaken to guarantee,
     without charge, certain bank loan facilities of approximately Rmb190,850
     and Rmb160,000, respectively, granted by certain banks to an affiliate in
     the PRC.

         As of December 31, 2001, YT had undertaken to guarantee, without
     charge, certain bank loan facilities of approximately Rmb2,500 granted by a
     bank to a related company in the PRC.

     (g) LOAN GUARANTEES PROVIDED BY RELATED COMPANIES

         Certain parties have guaranteed certain of the Group's bank borrowings
     at no cost to the Company. Details of the borrowings are shown in note 13.




                                      135
<PAGE>


20. DUE FROM/TO CHINESE JOINT VENTURE PARTNERS

     (i) The amounts due from Chinese joint venture partners represent:

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

        (b) payment of various operating expenses by two of the PRC Subsidiaries
            on behalf of their Chinese joint venture partners.

     These amounts are unsecured, non-interest bearing and have no fixed
repayment terms; however, the Company will not require repayment prior to
January 1, 2004.

     (ii) The amounts due to Chinese joint venture partners represent:

        (a) the excess of the book value of the net assets contributed by the
            Chinese joint venture partners upon the formation of the PRC
            Subsidiaries 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 PRC
            Subsidiaries by the Chinese joint venture partners; and

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

     These amounts are unsecured and have no stipulated fixed repayment dates.
The Chinese joint venture partners have agreed that no payment will be required
in fiscal 2003. 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 both the
years ended December 31, 2001 and 2002. The remaining outstanding balances are
non-interest bearing.

21. STAFF RETIREMENT PLANS

     All of the Chinese employees of the PRC Subsidiaries 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 Subsidiaries 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, 2000, 2001 and 2002. The expense reported in the
consolidated statements of operations related to these arrangements were
Rmb29,979, Rmb21,438 and Rmb26,549 for the years ended December 31, 2000, 2001
and 2002, respectively.

     Certain PRC Subsidiaries 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 Subsidiaries. As of December 31, 2001 and 2002, such restricted bank
deposits amounted to Rmb9,478 and Rmb10,005, respectively.

22. SEGMENT INFORMATION

     The Group operates principally in the tire manufacturing industry and has
only one reportable segment for continuing operations based on the Company's
major PRC Subsidiaries operating in Hangzhou: HZ and FCJ (hereinafter
collectively referred to as "HZ Tire"). This reportable segment is a strategic
business unit and is managed separately.


                                      136
<PAGE>
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 include 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>
                                                                                  2000
                                                     --------------------------------------------------------------------
                                                                    CONTINUING OPERATIONS
                                                     ---------------------------------------------------     DISCONTINUED
(RMB)                                                  HZ TIRE       OTHERS     CORPORATE          TOTAL       OPERATIONS
---------------------------------------              ---------      -------     ---------      ---------     ------------
<S>                                                 <C>            <C>           <C>          <C>              <C>
Revenues                                             1,605,842           --            --      1,605,842        1,209,767
Depreciation and amortization                           41,925           --           370         42,295           67,690
Impairment on provision of long--lived
  assets                                                    --           --            --             --            3,852
Operating income (loss)                                 49,115      (13,789)      (27,057)         8,269          (60,925)
Impairment loss on loan receivable                          --           --        14,962         14,962               --
Equity in loss of an affiliate                           1,967           --            --          1,967               --
Capital expenditures                                    38,780           --            --         38,780           37,088
Identifiable assets                                  1,413,825        1,045       213,889      1,628,759        1,698,224
Investment in an affiliate (included in
  identifiable assets above)                           105,437           --            --        105,437               --
</TABLE>


<TABLE>
<CAPTION>
                                                                                     2001
                                                      ---------------------------------------------------------------------
                                                                     CONTINUING OPERATIONS
                                                      ----------------------------------------------------     DISCONTINUED
(RMB)                                                   HZ TIRE       OTHERS      CORPORATE          TOTAL       OPERATIONS
--------------------------------------------          ---------      -------      ---------      ---------     ------------
<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 on provision of long-lived assets                 --           --             --             --           50,133
Impairment loss on 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 receivable                                            --           --          9,800          9,800               --
Equity in loss of an affiliate                            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:
  - Investment in and advances to affiliates            102,022           --             --        102,022               --
  - Deferred income taxes assets                          8,127           --             --          8,127               --
</TABLE>




                                      137
<PAGE>



<TABLE>
<CAPTION>
                                                                                     2002
                                                      ---------------------------------------------------------------------
                                                                     CONTINUING OPERATIONS
                                                      ----------------------------------------------------     DISCONTINUED
(RMB)                                                   HZ TIRE       OTHERS      CORPORATE          TOTAL       OPERATIONS
---------------------------------------               ---------      -------      ---------      ---------     ------------
<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 on provision of 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 (profit) loss of an affiliate                 (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:
  - Investment in and advances to affiliates            137,156       95,826             --        232,982               --
  - Deferred income taxes assets                         14,277           --             --         14,277               --
</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,
                                         ------------------------------------     --------------------------------------
                                            2000          2001         2002          2000         2001            2002
                                         ---------     ---------    ---------     ---------    ---------         -------
                                             Rmb           Rmb          Rmb           Rmb          Rmb             Rmb
<S>                                     <C>           <C>          <C>           <C>          <C>               <C>
PRC                                      1,094,809     1,632,962    2,061,236       933,885      818,269         422,878
Middle East Countries                      225,623       112,540      165,664        15,574       17,783          99,682
US and Canada                               80,790        70,486      137,933        80,493       86,326          67,178
Others                                     204,620       271,897      245,243       179,815      143,705          31,915
                                         ---------     ---------    ---------     ---------    ---------         -------
                                         1,605,842     2,087,885    2,610,076     1,209,767    1,066,083         621,653
                                         =========     =========    =========     =========    =========         =======
</TABLE>

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

23. 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,
                                            ---------------------------------        -----------------------------------
                                             2000          2001         2002          2000         2001            2002
                                            ------        ------       ------        ------       ------          ------
                                              Rmb           Rmb          Rmb           Rmb          Rmb             Rmb
<S>                                        <C>           <C>          <C>           <C>          <C>             <C>
Foreign exchange losses (gain),net           3,866           466         (152)          321          220             153
Interest income                             14,653        11,687       40,413         3,552          466             356
Sales taxes                                 60,685        47,981       40,639        81,296       63,081          33,137
Shipping and handling costs                 50,421        67,942       62,707        43,699       49,970          34,072
</TABLE>

24. LEGAL PROCEEDINGS

    (a)  In December 1999, The Pacific Bank, N.A. (now known as City National
         Bank, "Pacific Bank") filed legal proceedings against Orion Tire for
         violating the rules set forth in a loan agreement relating to a
         non-revolving trade finance facility of approximately US$2,082, and
         made formal demand for payment of the amount drawn down from the
         facility and accrued interest of approximately US$2,085. In connection


                                      138
<PAGE>

         therewith, Pacific Bank also filed legal proceedings against the
         Company in the capacity of the guarantor of such facility.

         During fiscal 2000, an agreed amount of US$1,981 was paid by the
         Company to Pacific Bank as settlement of the amount due to Pacific Bank
         and the above legal case was settled.

    (b)  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. 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.


25. SUBSEQUENT EVENTS

        On June 3, 2003, the Company entered into a contract to dispose of its
remaining interest in DH (including the incomplete radial tire factory) for a
consideration of Rmb10,000 to an independent third party. The completion of the
sale is pending upon certain approvals from the governmental authorities. The
Company transferred control and substantially all its risks and benefits of
ownership of the factory to the buyer on the same date after receiving the total
sale proceeds of Rmb10,000, resulting in a gain on disposal of approximately
such amount.

        On June 15, 2003, the Company entered into another contract for disposal
with an independent third party pursuant to which the Company agreed to sell to
the buyer a 25% interest in HZ for a consideration of approximately Rmb164,660.
The sale is conditional upon the parties receiving approval of the transaction
from the relevant governmental authorities. Details of contribution of HZ to the
revenue and operating results of the Group for the three years ended December
31, 2002 have been set out in note 22.



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<PAGE>



                   CHINA ENTERPRISES LIMITED AND SUBSIDIARIES

                SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS

                             (Renminbi in thousands)

<TABLE>
<CAPTION>
                                                          CONTINUING OPERATIONS                     DISCONTINUED OPERATIONS
                                                  ---------------------------------------- ----------------------------------------
                                                   BALANCE                        BALANCE   BALANCE
                                                     AT                          AT END OF    AT                            BALANCE
                                                  BEGINNING ADDITIONS RECOVERY     YEAR    BEGINNING               SALE OF   AT END
                                                   OF YEAR                                  OF YEAR   ADDITIONS   BUSINESS  OF YEAR
                                                  --------- --------- --------   --------- ---------  ---------   --------  -------
<S>                                                <C>      <C>       <C>        <C>       <C>         <C>        <C>      <C>
Year ended December 31, 2000:-
Allowance for doubtful receivables                  44,183   19,441        --     63,624    103,812     26,864         --   130,676
Valuation allowance for deferred tax assets(1)      21,486    7,868        --     29,354     97,442     20,255         --   117,697
Impairment loss provision on loan receivable        41,804   14,962        --     56,766         --         --         --        --
Provision for an amount due from a related              --       --        --         --         --         --         --        --
   company

Year ended December 31, 2001:-
Allowance for doubtful receivables                  63,624       --   (10,668)    52,956    130,676     42,790    (38,366)  135,100
Valuation allowance for deferred tax assets(1)      29,354       --    (7,238)    22,116    117,697     50,366    (19,040)  149,023
Impairment loss provision (recovery) on loan
   receivable                                       56,766       --    (9,800)    46,966         --         --         --        --
Provision for an amount due from a related              --   27,000        --     27,000         --         --         --        --
   company

Year ended December 31, 2002:-
Allowance for doubtful receivables                  52,956       --    (1,982)    50,974    135,100      4,515     (6,511)  133,104
Valuation allowance for deferred tax assets(1)      22,116       --    (1,079)    21,037    149,023    (19,804)   (70,662)   58,557
Impairment loss provision on loan receivable        46,966       --        --     46,966         --         --         --        --
Provision (recovery) for an amount due from a
   related company                                  27,000       --    (5,016)    21,984         --         --         --        --
</TABLE>

Note (1):  The deferred tax asset related to the allowances for doubtful
           receivables, inventory obsolescence, write-down of inventories to net
           realizable value, provision for warranty expenses, impairment loss
           provision for long-lived assets, accelerated depreciation allowances
           and tax losses carried forward are considered not "more likely than
           not" going to be realized. Accordingly, valuation allowances were set
           up against these deferred tax assets.


                                      140
<PAGE>




                                ITEM 19. EXHIBITS

The following exhibits are filed as part of this annual report:

EXHIBIT
NUMBER                DESCRIPTION
-------               -----------
1                     Memorandum and Articles of Association (incorporated by
                      reference to Exhibit 1 to the Company's Form 20-F for
                      the fiscal year ended December 31, 2001, filed with the
                      Commission on July 12, 2002, Document Control Number:
                      02048962)

4(a)1                 Contract between Taiyuan Municipal Economic Commission as
                      buyer and the Company as seller for the sale of seller's
                      interest in the bias tire factory of Taiyuan Plant of
                      Double Happiness (incorporated by reference to Exhibit 1
                      to the Company's Form 20-F for the fiscal year ended
                      December 31, 2001, filed with the Commission on July 12,
                      2002, Document Control Number: 02048962)

4(a)2                 Contract dated January 8, 2003 between Ningxia Yinchuan
                      Rubber Manufacturing, the Chinese joint venture partner of
                      Yinchuan CSI, as buyer and the Company as seller for the
                      sale of seller's interest in Yinchuan CSI (English
                      language translation of Chinese language agreement)

4(a)3                 Contract dated June 15, 2003 between Hangzhou Industrial
                      & Commercial Trust & Investment Co. Ltd. as buyer and
                      the Company as seller for the sale of 25% interests in
                      Hangzhou Zhongce (English language translation of
                      Chinese language agreement)

4(a)4                 Executive Share Option Scheme (incorporated by reference
                      to Exhibit 4(c) to the Company's Form 20-F for the fiscal
                      year ended December 31, 2001, filed with the Commission on
                      July 12, 2002, Document Control Number: 02048962)

8                     Subsidiaries of the Company

10(b)1                Report of Independent Public Accountant for the year ended
                      December 31, 2000

12(a)1                Certification of the CEO of the Company pursuant to Rule
                      13a-14(a) of the Securities Exchange Act of 1934, as
                      amended.

12(a)2                Certification of the CFO of the Company pursuant to Rule
                      13a-14(a) of the Securities Exchange Act of 1934, as
                      amended.

13(a)1                Certification of the CEO of the Company pursuant to
                      Section 906 of the Sarbanes-Oxley Act of 2002

13(a)2                Certification of the CFO of the Company pursuant to
                      Section 906 of the Sarbanes-Oxley Act of 2002




                                      141
<PAGE>



                                   SIGNATURES

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





                                                       CHINA ENTERPRISES LIMITED
                                                             (REGISTRANT)






                                                          /s/ Lien Kait Long
                                                       -------------------------
                                                             LIEN KAIT LONG
                                                         Chief Financial Officer


Date: July 31, 2003




                                      142
<PAGE>




                                 EXHIBITS INDEX

EXHIBIT
NUMBER                DESCRIPTION
-------               -----------

1                     Memorandum and Articles of Association (incorporated by
                      reference to Exhibit 1 to the Company's Form 20-F for
                      the fiscal year ended December 31, 2001, filed with the
                      Commission on July 12, 2002, Document Control Number:
                      02048962)

4(a)1                 Contract between Taiyuan Municipal Economic Commission as
                      buyer and the Company as seller for the sale of seller's
                      interest in the bias tire factory of Taiyuan Plant of
                      Double Happiness (incorporated by reference to Exhibit 1
                      to the Company's Form 20-F for the fiscal year ended
                      December 31, 2001, filed with the Commission on July 12,
                      2002, Document Control Number: 02048962)

4(a)2                 Contract dated January 8, 2003 between Ningxia Yinchuan
                      Rubber Manufacturing, the Chinese joint venture partner of
                      Yinchuan CSI, as buyer and the Company as seller for the
                      sale of seller's interest in Yinchuan CSI (English
                      language translation of Chinese language agreement)

4(a)3                 Contract dated June 15, 2003 between Hangzhou Industrial
                      & Commercial Trust & Investment Co. Ltd. as buyer and
                      the Company as seller for the sale of 25% interests in
                      Hangzhou Zhongce (English language translation of
                      Chinese language agreement)

4(a)4                 Executive Share Option Scheme (incorporated by reference
                      to Exhibit 4(c) to the Company's Form 20-F for the fiscal
                      year ended December 31, 2001, filed with the Commission on
                      July 12, 2002, Document Control Number: 02048962)

8                     Subsidiaries of the Company

10(b)1                Report of Independent Public Accountant for the year ended
                      December 31, 2000

12(a)1                Certification of the CEO of the Company pursuant to Rule
                      13a-14(a) of the Securities Exchange Act of 1934, as
                      amended.

12(a)2                Certification of the CFO of the Company pursuant to Rule
                      13a-14(a) of the Securities Exchange Act of 1934, as
                      amended.

13(a)1                Certification of the CEO of the Company pursuant to
                      Section 906 of the Sarbanes-Oxley Act of 2002

13(a)2                Certification of the CFO of the Company pursuant to
                      Section 906 of the Sarbanes-Oxley Act of 2002




                                      143