<PAGE>
      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 2008

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                -----------------

                                    FORM 20-F

     (Mark One)

[ ]  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, 2007

                                       or
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the transition period from                to

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


                         COMMISSION FILE NUMBER: 1-14362

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

                              (CHINESE CHARACTERS)
             (Exact name of Registrant as specified in its charter)

                        GUANGSHEN RAILWAY COMPANY LIMITED
                 (Translation of Registrant's name into English)

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

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

        NO. 1052 HEPING ROAD, SHENZHEN, PEOPLE'S REPUBLIC OF CHINA 518010
                    (Address of Principal Executive Offices)

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

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

<TABLE>
<CAPTION>
TITLE OF EACH CLASS                                           NAME OF EACH  EXCHANGE ON WHICH LISTED
-------------------                                           --------------------------------------
<S>                                                           <C>
American Depositary Shares, each
representing 50 Class H ordinary shares                       New York Stock Exchange, Inc.

Class H ordinary shares, nominal value
RMB1.00 per share                                             The Stock Exchange of Hong Kong Limited
</TABLE>

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None

Indicate the number of outstanding shares of each of the Registrant's classes of
capital or common stock as of December 31, 2007:

<TABLE>
<S>                                                                                                <C>
Domestic shares (A shares), par value RMB1.00 per share............................................5,652,237,000
H shares, par value RMB1.00 per share .............................................................1,431,300,000
</TABLE>

(including 234,794,700 H shares in the form of American Depositary Shares)

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

                                  Yes          No  X
                                      ---         ---

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

                                  Yes          No  X
                                      ---         ---

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

                                  Yes  X       No
                                      ---         ---

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large Accelerated Filer  X    Accelerated Filer       Non-Accelerated Filer
                        ---                     ---                         ---

     Indicate by check mark which financial statement item the registrant has
elected to follow.
                              Item 17          Item 18  X
                                      ---              ---

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

                                  Yes          No  X
                                      ---         ---

<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           Pages
                                                                           -----
<S>      <C>       <C>                                                     <C>
Forward-Looking Statements.....................................................1
Certain Terms and Conventions..................................................1

PART I
         ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.......3
         ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE.....................3
         ITEM 3.   KEY INFORMATION.............................................3
         Item 3A.  Selected Consolidated Financial and Other Data..............3
         Item 3B.  Capitalization and Indebtedness.............................5
         Item 3C.  Reasons for the Offer and Use of Proceeds...................5
         Item 3D.  Risk Factors................................................5
         ITEM 4.   INFORMATION ON THE COMPANY.................................14
         Item 4A.  History and Development of the Company.....................14
         Item 4B.  Business Overview..........................................18
         Item 4C.  Organizational Structure...................................33
         Item 4D.  Property, Plant and Equipment..............................34
         ITEM 4A.  UNRESOLVED STAFF COMMENTS..................................35
         ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS...............36
         Item 5A.  Results of Operations......................................37
         Item 5B.  Liquidity and Capital Resources............................48
         Item 5C.  Research and Development, Patents and Licenses, etc........51
         Item 5D.  Trend Information..........................................51
         Item 5E.  Off-Balance Sheet Arrangements.............................52
         Item 5F.  Tabular Disclosure of Contractual Obligations..............52
         Item 5G.  Safe Harbor................................................53
         ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.................53
         Item 6A.  Directors and Senior Management............................53
         Item 6B.  Board Compensation.........................................59
         Item 6C.  Board Practices............................................60
         Item 6D.  Employees..................................................63
         Item 6E.  Share Ownership............................................65
         ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..........65
         Item 7A.  Major Shareholders.........................................65
         Item 7B.  Related Party Transactions.................................67
         Item 7C.  Interests of Experts and Counsel...........................75
         ITEM 8.   FINANCIAL INFORMATION......................................75
         Item 8A.  Consolidated Statements and Other Financial Information....75
         Item 8B.  Significant Changes........................................77
         ITEM 9.   THE OFFER AND LISTING......................................78
         Item 9A.  Offer and Listing Details..................................78
         Item 9B.  Plan of Distribution.......................................79
         Item 9C.  Markets....................................................79
</TABLE>

<PAGE>
<TABLE>
<S>      <C>       <C>                                                     <C>
         Item 9D.  Selling Shareholders.......................................79
         Item 9E.  Dilution...................................................79
         Item 9F.  Expenses of the Issue......................................79
         ITEM 10.  ADDITIONAL INFORMATION.....................................80
         Item 10A. Share Capital..............................................80
         Item 10B. Memorandum and Articles of Association.....................80
         Item 10C. Material Contracts.........................................91
         Item 10D. Exchange Controls..........................................91
         Item 10E. Taxation...................................................92
         Item 10F. Dividends and Paying Agents...............................100
         Item 10G. Statement by Experts......................................100
         Item 10H. Documents on Display......................................100
         Item 10I. Subsidiary Information....................................101
         ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                    MARKET RISK..............................................102
         ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES....105
PART II
         ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES...........106
         ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
                    HOLDERS AND USE OF PROCEEDS..............................106
         ITEM 15.  CONTROLS AND PROCEDURES...................................106
         ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT..........................108
         ITEM 16B. CODE OF ETHICS............................................108
         ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES....................108
         ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
                    COMMITTEES...............................................108
         ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
                    AFFILIATED PURCHASERS....................................109
PART III
         ITEM 17.  FINANCIAL STATEMENTS......................................110
         ITEM 18.  FINANCIAL STATEMENTS......................................110
         ITEM 19.  EXHIBITS..................................................110
</TABLE>

<PAGE>
                           FORWARD-LOOKING STATEMENTS

     Certain information contained in this annual report are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended.
These forward-looking statements can be identified by the use of words or
phrases such as "is expected to", "will", "is anticipated", "plan to",
"estimate", "believe", "may", "intend", "should" or similar expressions, or the
negative forms of these words, phrases or expressions, or by discussions of
strategy. Such statements are subject to risks, uncertainties and other factors
that could cause our actual results to differ materially from our historical
results and those presently anticipated or projected. You are cautioned not to
place undue reliance on any such forward-looking statements, which speak only as
of the date on which such statements were made. Among the factors that could
cause our actual results in the future to differ materially from any opinions or
statements expressed with respect to future periods include changes in the
economic policies of the PRC government, an economic slowdown in the Pearl River
Delta region and elsewhere in mainland China, increased competition from other
means of transportation, delays in major development projects, a recurrence of
the Severe Acute Respiratory Syndrome, or SARS, epidemic or other similar health
epidemics or outbreaks, such as avian flu, in Hong Kong or China, foreign
currency fluctuations and other factors beyond our control.

     When considering such forward-looking statements, you should keep in mind
the factors described in "Item 3D. Risk Factors" and other cautionary statements
appearing in "ITEM 5. Operating and Financial Review and Prospects" of this
annual report. Such risk factors and statements describe circumstances which
could cause actual results to differ materially from those contained in any
forward-looking statement.

                          CERTAIN TERMS AND CONVENTIONS

     Solely for the convenience of the reader, this annual report contains
translations of amounts from Renminbi into U.S. dollars and vice versa at the
rate of RMB7.29 to US$1.00, which is rounded from 7.2946, which was the noon
buying rate in New York City for cable transfers in Renminbi per U.S. dollar as
certified for customs purposes by the Federal Reserve Bank of New York on
December 31, 2007, except where we specify that a different rate has been used.
You should not construe these translations as representations that the Renminbi
amounts actually represent U.S. dollar amounts or could be converted into U.S.
dollars at that rate or at all. See "Item 3A. Selected Consolidated Financial
and Other Data--Exchange Rate Information" for information regarding the noon
buying rates for U.S. dollar/Renminbi conversions from January 1, 2003 through
June 25, 2008.

     We prepare and publish our consolidated financial statements in Renminbi.

     Various amounts and percentages set out in this document have been rounded
and, accordingly, may account for apparent discrepancies in the tables appearing
herein.

     Unless the context otherwise requires or otherwise specified:

     -    "Acquisition" means our acquisition of the railway transportation
          business

                                       1
<PAGE>
          between Guangzhou and Pingshi and the related assets from Yangcheng
          Railway Company according to the Acquisition Agreement dated November
          15, 2004 between Yangcheng Railway Company and us.

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

     -    "CEPA" means the Closer Economic Partnership Arrangement between Hong
          Kong and Chinese Mainland entered into on October 27, 2004.

     -    "GEDC" means Guangzhou Railway (Group) Guangshen Railway Enterprise
          Development Company, a wholly owned subsidiary of GRGC.

     -    "GRGC" means Guangzhou Railway (Group) Company, our largest
          shareholder.

     -    "Guangshen Railway", "Company", "we", "our" or "us" means Guangshen
          Railway Company Limited, a joint stock limited company incorporated in
          China with limited liability, and its subsidiaries on a consolidated
          basis.

     -    "Hong Kong" means the Hong Kong Special Administrative Region of the
          PRC.

     -    "Macau" means the Macau Special Administrative Region of the PRC.

     -    "MOR" means the Ministry of Railways.

     -    "Pearl River Delta" means the area in and adjacent to the southern
          part of Guangdong Province, PRC, surrounding the mouth of the Pearl
          River and its lower reaches.

     -    "Restructuring" means the restructuring conducted in connection with
          our initial public offering in 1996 during which we succeeded to the
          railroad and certain other businesses of our predecessor company and
          certain assets and liabilities of GRGC.

     -    "tonne" means metric tonne; and one tonne is approximately 2,205
          pounds in weight.

     -    "Yangcheng Railway Company" means Guangzhou Railway Group Yangcheng
          Railway Enterprise Development Company, a wholly owned subsidiary of
          GRGC or its predecessor, Guangzhou Railway Group Yangcheng Railway
          Company.

                                       2


<PAGE>
                                     PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

     Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3. KEY INFORMATION

ITEM 3A. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     The following selected consolidated data relating to our consolidated
balance sheets as of December 31, 2006 and 2007, and our consolidated statements
of income, changes in equity and cash flows for each of the years ended December
31, 2005, 2006 and 2007 are derived from and are qualified by reference to our
audited consolidated financial statements included elsewhere in this annual
report and should be read in conjunction with "ITEM 5. Operating and Financial
Review and Prospects". The following selected consolidated data relating to our
consolidated balance sheets as of December 31, 2003, 2004 and 2005, and our
consolidated statements of income, changes in equity and cash flows for each of
the years ended December 31, 2003 and 2004 are derived from our previously
published audited consolidated financial statements that are not included in
this annual report.

     The audited consolidated financial statements from which the selected
consolidated financial data set forth below have been derived were prepared in
accordance with International Financial Reporting Standards, or IFRS, as issued
by the International Accounting Standards Board, or IASB.

<Table>
<Caption>
                                                                     YEAR ENDED DECEMBER 31,
                                           -----------------------------------------------------------------------------
                                              2003         2004         2005         2006         2007         2007
                                           -----------  -----------  -----------  -----------  -----------  ------------
                                               RMB         RMB           RMB          RMB          RMB        US$(1)
                                                            (IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S>                                        <C>          <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
  Revenues from railroad businesses
    - Passenger (2).....................     1,637,453    2,076,272    2,253,335    2,608,838    5,833,538       800,211
    - Freight (2).......................       526,382      611,807      540,341      565,557    1,326,450       181,955
    - Railway network usage and service
       (2)..............................       152,751      183,399      305,790      291,489    2,659,529       364,819
                                           -----------  -----------  -----------  -----------  -----------  ------------
    Subtotal............................     2,316,586    2,871,478    3,099,466    3,465,884    9,819,517     1,346,984
  Revenues from other businesses........       151,596      166,671      177,462      128,590      688,987        94,511
                                           -----------  -----------  -----------  -----------  -----------  ------------
  Total revenues........................     2,468,182    3,038,149    3,276,928    3,594,474   10,508,504     1,441,496
  Railroad operating expenses...........    (1,717,307)  (2,203,273)  (2,339,384)  (2,527,907)  (8,334,293)   (1,143,250)
  Other businesses operating expenses...      (149,614)    (166,155)    (190,347)    (166,011)    (458,819)      (62,938)
                                           -----------  -----------  -----------  -----------  -----------  ------------
  Other income..........................        47,341       48,193       51,628       64,648       49,816         6,833
                                           -----------  -----------  -----------  -----------  -----------  ------------
  Profit from operations ...............       648,602      716,914      798,825      965,204    1,765,208       242,141
  Profit attributable to shareholders of
   the Company..........................       544,528      600,250      646,960      771,513    1,431,415       196,353
  Profit from operations per share......          0.15         0.17         0.18         0.22         0.25         0.034
  Earnings per share for profit
   attributable to shareholders of the
   Company
    - Basic and diluted.................          0.13         0.14         0.15         0.17         0.20         0.027
  Dividends declared per share..........          0.10        0.105         0.12         0.08         0.08         0.011
  Earnings per ADS for profit                     6.28         6.92         7.46         8.90        10.10         1.385
   attributable to shareholders of the
   Company...............................

BALANCE SHEET DATA (AT YEAR END):
</Table>
                                       3
<PAGE>

<Table>
<Caption>
                                                                     YEAR ENDED DECEMBER 31,
                                           -----------------------------------------------------------------------------
                                              2003         2004         2005         2006         2007          2007
                                           -----------  -----------  -----------  -----------  -----------  ------------
                                               RMB          RMB          RMB          RMB          RMB         US$(1)
                                                            (IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S>                                        <C>          <C>          <C>          <C>          <C>          <C>
  Working capital (3)....................    1,898,749    2,051,590      467,124    4,249,117      433,615        59,481
  Fixed assets...........................    5,830,125    5,889,074    6,346,822    6,738,477   19,995,286     2,742,838
  Leasehold land payments................      652,083      636,379      620,798      625,628      607,971        83,398

  Total assets (3) and (4)...............   10,119,613   10,362,851   11,683,057   24,139,331   26,713,264     3,664,371
  Equity attributable to shareholders of
   the Company...........................    9,368,018    9,499,000    9,796,076   20,169,008   21,125,761     2,897,910
  Share capital, issued and outstanding,
   RMB1.00 per value,
    domestic shares......................    2,904,250    2,904,250    2,904,250    5,652,237    5,652,237       775,341
    H shares.............................    1,431,300    1,431,300    1,431,300    1,431,300    1,431,300       196,337

CASH FLOW STATEMENT DATA:
  Net cash generated from operating
   activities............................      798,449    1,236,579    1,380,147    1,112,004    1,957,645       268,538
  Net cash used in investing activities..     (375,469)  (1,000,639)    (820,915)  (7,833,331)  (5,585,414)     (766,175)
  Net cash (used in)/generated from
   financing activities..................     (433,666)    (469,044)    (491,733)  11,461,030      128,289        17,598
  Purchase of fixed assets and payment
   for construction-in-progress..........     (339,208)    (310,179)  (1,588,374)  (3,202,670)  (1,107,320)     (151,896)
  Dividends paid to shareholders of the
   Company...............................     (433,561)    (455,009)    (476,904)    (520,655)    (566,711)      (77,738)

OTHER DATA:
  Railroad transportation operating income     645,437      715,230      808,613      999,968    1,538,053       210,981
  Other businesses operating income/(loss)       3,165        1,684       (9,788)     (34,764)     277,155        38,019
</Table>

----------
(1)  Translation of amounts from Renminbi, or RMB, into United States dollars,
     or US$, for the convenience of the reader has been made at US$1.00 =
     RMB7.29, which is rounded from 7.2946, the noon buying rate in New York
     City on December 31, 2007. No representation is made that the RMB amounts
     could have been, or could be, converted into US dollars at that rate on
     December 31, 2007 or on any other date.
(2)  Revenue from network usage and services recorded within the "Passenger" and
     "Freight" category of revenue in the prior years has been separately
     disclosed on the income statement in order to conform to the current year
     presentation.
(3)  Amounts due from/to associates which were recorded within "Interest in
     associates" in the prior year have been reclassified to "Due from/to
     related parties" to conform to the presentation of the balance sheet in the
     current year.
(4)  Restricted cash balance, which represents funds set aside by the Company
     for the employee housing fund maintained in designated bank accounts of the
     Company held on behalf of the related employees, has been offset against
     the corresponding payable balance due to the employees in order to conform
     to the current year presentation of the balance sheet.

EXCHANGE RATE INFORMATION

     We derive a majority of our revenue and incur most of our expenses in
Renminbi. In addition, we maintain our books and records in Renminbi and our
financial statements are prepared and expressed in Renminbi. Solely for the
convenience of the reader, this annual report contains translations of certain
Renminbi amounts into U.S. dollars and vice versa at RMB7.29 = US$1.00, which is
rounded from 7.2946, the noon buying rate in New York City on December 31, 2007.
These translations should not be construed as representations that the Renminbi
amounts could have been or could be converted into U.S. dollars at such rate or
at all.

     The noon buying rates for Renminbi in New York City for cable transfers as
certified for customs purposes by the Federal Reserve Bank of New York were
RMB6.8653 = US$1.00 on June 25, 2008.

     The following table sets forth information concerning the noon buying rate
in New York City for cable transfers as certified for customs purposes by the
Federal Reserve Bank of New York for the Renminbi, expressed in Renminbi per
U.S. dollar, for the periods indicated:

                                       4
<PAGE>

<Table>
<Caption>
                                                                         NOON BUYING RATE
                                              --------------------------------------------------------------------
PERIOD                                               AVERAGE (1)             HIGH                     LOW
------                                             --------------        -------------            -----------
                                                                   (RENMINBI PER U.S. DOLLAR)

<S>                                           <C>                        <C>                      <C>
2003.....................................             8.2772                 8.2800                  8.2765
2004.....................................             8.2768                 8.2774                  8.2764
2005.....................................             8.1826                 8.2765                  8.0702
2006.....................................             7.9723                 8.0702                  7.8041
2007.....................................             7.5806                 7.8127                  7.2946
2008
  January................................             7.2405                 7.2946                  7.1818
  February...............................             7.1644                 7.1973                  7.1100
  March..................................             7.0722                 7.1110                  7.0105
  April..................................             6.9997                 7.0185                  6.9840
  May....................................             6,9725                 7.0000                  6.9377
  June (through June 25).................             6.9057                 6.9633                  6.8653
</Table>

----------
(1)  The average rate for a year means the average of the exchange rates on the
     last day of each month during a year. The average rate for a month means
     the average of the daily exchange rates during that month.

DIVIDENDS

     At a meeting of the directors held on April 23, 2008, the directors
proposed a final dividend of RMB0.08 per ordinary share for the year ended
December 31, 2007, which was approved at our annual general meeting of
shareholders held on June 26, 2008. This proposed dividend has not been
reflected as a dividend payable in the financial statements, but instead as
equity attributable to equity holders of the Company.

     In accordance with our Articles of Association, dividends for our domestic
shares will be paid in Renminbi while dividends for our H shares will be
calculated in Renminbi and paid in Hong Kong dollars. The exchange rate was
based on the average of the closing exchange rates for Renminbi to Hong Kong
dollars as announced by the People's Bank of China during the calendar week
preceding the date on which the dividend is to be distributed, which is July 25,
2008.

ITEM 3B. CAPITALIZATION AND INDEBTEDNESS

     Not applicable.

ITEM 3C. REASONS FOR THE OFFER AND USE OF PROCEEDS

     Not applicable.

ITEM 3D. RISK FACTORS

RISKS RELATING TO OUR BUSINESS

     WE FACE COMPETITION, WHICH MAY ADVERSELY AFFECT OUR BUSINESS GROWTH AND
RESULTS OF OPERATIONS.

     Our passenger and freight transportation businesses face competition from
other means of transportation, such as road, air and water transportation. In
our passenger transportation business, we compete with the bus and ferry
services operating within Hong Kong, Guangzhou,

                                       5
<PAGE>
Shenzhen and elsewhere in our service region. We compete for passengers with bus
and ferry services in terms of price, speed, comfort, reliability, convenience,
 service quality, frequency of service and safety. In our freight transportation
business, we primarily compete with water, truck and air transportation services
operating within our service region. We increasingly compete for freight
business with truck operators, shipping companies and airline companies on the
basis of price, reliability, capacity, convenience, service quality, and safety.
In addition, as the PRC government has lifted certain restrictions and control
over foreign investments in China following China's entry into the World Trade
Organization, or the WTO, for example, by allowing foreign participation and
investment in railway freight operations, we may lose our current status of sole
railway service provider we currently enjoy in our service territory.
Furthermore, the completion of the Wuhan-Guangzhou and the Guangzhou-Shenzhen-
Hong Kong express railways, which are both under construction and are expected
to be completed around 2010, may further increase the competition we face.
Increased competition against us may adversely affect our revenues and results
of operations. See "Item 4B. Business Overview--Competition" for additional
information regarding our competition.

     ANY SIGNIFICANT DECREASE IN THE OVERALL LEVELS OF BUSINESS, INDUSTRIAL,
MANUFACTURING AND TOURISM ACTIVITIES WITHIN THE PEARL RIVER DELTA REGION AND
ELSEWHERE IN CHINA MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR REVENUES AND
RESULTS OF OPERATIONS.

     The volume of freight and the number of passengers we transport are
affected by the overall levels of business, industrial, manufacturing and
tourism activities within the Pearl River Delta region, which is our main
service region, and elsewhere in China, which is in turn affected by many
factors beyond our control, such as applicable policies and regulations of the
PRC government, perceptions regarding the attractiveness of investing or
operating a business within our service region, consumer confidence levels and
interest rate levels. Any significant decrease in the overall levels of
passenger travel or freight transportation, whether due to an economic slowdown
or other reasons, such as a natural disaster or a recurrence of the SARS
epidemic or outbreaks of avian flu or other similar health epidemics, may have a
material adverse effect on our revenues and results of operations. Following
China's accession to the WTO, the policy advantages that Shenzhen currently
enjoys due to its status as a special economic zone may be phased out, and its
economic growth rate may not be sustained in the long run. Other coastal regions
and ports in China may develop at a faster pace and become more competitive than
Shenzhen. As a result, part of the freight currently imported or exported
through ports in Hong Kong, Shenzhen or Guangzhou may be shipped through other
ports in China, which may adversely affect our freight transportation business.

     CHANGES IN FREIGHT COMPOSITION IN OUR FREIGHT TRANSPORTATION BUSINESS MAY
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

     Historically, our freight transportation revenue was derived mainly from
the transportation of construction materials, coal, iron ore, oil, steel and
chemicals, in which our railroad transportation services have an advantage over
other means of transportation, such as road transportation services. With the
economic and technological development and the restructuring of the industries'
structure in our service areas, commodities, such as advanced technological
products, which tend to be compact, may be chosen to be shipped by road or air.
We face significant competition in the transportation of such low-volume,
high-value products.

                                       6
<PAGE>
For example, in 2006, the aggregate weight of goods we transported decreased by
3.7% compared with those of 2005. Changes in freight composition may affect the
usage volume and pricing of our freight transportation services and adversely
affect our results of operations.

     OUR RAILROADS CONNECT WITH THE RAILROADS OF OTHER OPERATORS AND ANY
DISRUPTION IN THE OPERATION OF THOSE RAILROADS, OR OUR COOPERATION WITH OTHER
OPERATORS, COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATIONS.

     Our railroads are an integral part of the PRC national railway network. Our
railroads connect with the Beijing-Guangzhou line in the north, the
Shenzhen-Kowloon rail line in the south, the Guangzhou-Maoming rail line in the
west, and the Guangzhou-Meizhou-Shantou rail line in the east, all of which are
owned and operated by other operators. See "Item 4A. History and Development of
the Company -- Service Territory" for additional information. Our train services
use these other railroads to carry passengers and freight to locations outside
of our service territory. The performance of our domestic long distance trains
services and our Hong Kong Through Trains depends on the smooth operation of
these railroads and our cooperation with the operators of these railroads. Any
disruption in the operation of these railroads, or our cooperation with any one
of these railroad operators for any reason, could have a material adverse effect
on our business and results of operations.

     A CHANGE TO OUR PREFERENTIAL INCOME TAX STATUS AS A RESULT OF A CHANGE OF
LAW COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.

     Before January 1, 2008, as a company located in the Shenzhen Special
Economic Zone, we had enjoyed a preferential income tax rate of 15%, rather than
the 33% income tax rate then generally applicable to domestic companies in the
PRC.

     On March 16, 2007, the National People's Congress of the PRC promulgated
the PRC Enterprise Income Tax Law, or the new EIT Law, which has taken effect
from January 1, 2008. According to the new EIT Law, the preferential income tax
rate of 15% that is currently applicable to companies incorporated in Shenzhen
(like us) and other special economic zones will be gradually phased out in five
years beginning from January 1, 2008, and effective from January 1, 2012, the
applicable tax rate applicable to us will become 25%, i.e., the unified income
tax rate applicable to all domestic companies in the PRC with some minor
exceptions. According to the Notice Regarding Implementation of Preferential
Enterprise Income Tax in the Transition Period issued by the State Council,
companies which used to enjoy a preferential tax rate of 15% will be subject to
the following tax rate for the next 5 years from 2008 through 2012:

     -    18% for 2008;

     -    20% for 2009;

     -    22% for 2010;

     -    24% for 2011; and

     -    25% for 2012.

                                       7
<PAGE>

     The increase in our effective tax rate as a result of the above may
adversely affect our operating results.

     ANY CHANGES IN OUR RIGHT TO OWN AND OPERATE OUR BUSINESS AND ASSETS, OUR
RIGHT TO PROFIT AND OUR RIGHT OF ASSET DISPOSAL AS PREVIOUSLY GRANTED BY THE MOR
AND THE STATE COUNCIL OF THE PRC MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS AND RESULTS OF OPERATIONS.

     We have been granted certain rights by the MOR and the State Council of the
PRC, or the State Council, with respect to certain aspects of our railroad
businesses and operations, and also received legal clarification and
confirmation of our asset ownership, corporate powers and relationships with
service providers and other entities in the national railway system, in
connection with our Restructuring. These rights include the right to own and
operate our business and assets, the right to profit and the right of asset
disposal. Although these rights were granted to us indefinitely, we cannot
assure you that these rights will not be affected by future changes in PRC
governmental policies or regulation or that other railway operators will not be
granted similar rights within our service region. If another railway operator is
granted similar rights within our service region, the level of competition we
face will increase significantly.

     GUANGZHOU RAILWAY (GROUP) COMPANY AS OUR LARGEST SHAREHOLDER AND SERVICE
PROVIDER MAY HAVE INTERESTS THAT CONFLICT WITH THE BEST INTERESTS OF OUR OTHER
SHAREHOLDERS AND OUR COMPANY.

     Before the initial public offering of our class A ordinary shares (the "A
shares"), or A Share Offering, in December 2006, Guangzhou Railway (Group)
Company, or GRGC, held 67% of our issued share capital and was our controlling
shareholder. Upon the completion of our A Share Offering, the percentage of
shares held by GRGC was reduced to approximately 41%, but GRGC remained our
largest shareholder. GRGC's ownership percentage enables it to exercise
substantial influence over: (1) our policies, management and affairs; (2) our
determinations on the timing and amount of dividend payments and our adoption of
amendments to certain of the provisions of our Articles of Association; and (3)
the outcome of most corporate actions. Subject to the requirements of the HKSE
Listing Rules, GRGC may also cause us to effect certain corporate transactions.

     GRGC's interests may sometimes conflict with the interests of some or all
of our minority shareholders. We cannot assure you that GRGC, as our largest
shareholder, will always vote its shares in a way that benefits our minority
shareholders. In addition to its relationship with us as our largest
shareholder, GRGC by itself or through its affiliates, such as GEDC and
Guangmeishan Railway Co., Ltd., also provides us with certain services, for
which we have limited alternative sources of supply. The interests of GRGC and
its affiliates as providers of these services may also conflict with our
interests. We have entered into service agreements, and our transactions with
GRGC and its affiliates have been conducted on open, fair and competitive
commercial terms. However, we only have limited leverage in negotiating with
GRGC and its affiliates over the specific terms of the agreements for the
provision of these services as there are no alternate suppliers. See "Item 4B.
Business Overview--Suppliers and Service Providers" and "Item 7B. Related Party
Transactions" for additional information regarding the services provided to us
by GRGC and its subsidiaries.

                                       8
<PAGE>

     WE HAVE VERY LIMITED INSURANCE COVERAGE.

     We do not maintain any insurance coverage against third party liabilities,
except compulsory automobile liability insurance. In addition, we do not
maintain any insurance coverage for most of our property, for business
interruption or for environmental damage arising from accidents that occur in
the course of our operations. As a result, we have to pay for financial and
other losses, damages and liabilities, including those caused by natural
disasters and other events beyond our control, out of our own funds, which could
have a material adverse effect on our results of operations and financial
condition.

     WE COULD INCUR SIGNIFICANT COSTS FOR VIOLATIONS OF APPLICABLE ENVIRONMENTAL
LAWS AND REGULATIONS.

     Our railroad operations and real estate ownership are subject to extensive
national and local environmental laws and regulations concerning, among other
things, gaseous emissions, wastewater discharge, disposal of solid waste and
noise control. Environmental liabilities may arise from claims asserted by
adjacent landowners or other third parties. We may be required to incur
significant expenses to remediate any violation of applicable environmental laws
and regulations. As of December 31, 2007, we had not made any provision for such
liabilities.

     TECHNOLOGICAL PROBLEMS ATTRIBUTABLE TO ACCIDENTS, HUMAN ERROR, SEVERE
WEATHER OR NATURAL DISASTERS COULD AFFECT THE PERFORMANCE OR PERCEPTION OF OUR
RAILWAY AND RESULT IN DECREASES IN CUSTOMERS AND REVENUES, UNEXPECTED EXPENSES
AND LOSS OF MARKET SHARE.

     Our operations may be affected from time to time by equipment failures,
delays, collisions and derailments attributable to accidents, human error or
natural disasters, such as typhoons or floods.

     As our high-speed train service becomes technologically more complex, it
may become more difficult for us to upkeep and repair our equipment and
facilities as well as to maintain our service and safety standards. Furthermore,
as we heavily rely on third parties for technical upgrades and support with
regard to certain equipment and facilities, in case of any problems during our
operation, our own staff may lack the technical expertise to identify and fix
the problems in time. Moreover, the newly upgraded equipment may not be fully
compatible with our existing operation system and may not meet our safety,
security or other standards. The use of such equipment and facilities could
result in malfunctions or defects in our services. In addition to potential
technical complications, natural disasters could interrupt our rail services,
thus leading to decreased revenues, increased maintenance and higher engineering
costs.

     If we experience any equipment failures, delays, temporary cancellations of
schedules, collisions and derailments, or any deterioration in the performance
or quality of any of our services, it could result in personal injuries, damage
of goods, customer claims of damages, customer refunds and loss of goodwill.
These problems may lead to decreases in customers and revenues, damage to our
reputation, unexpected expenses, loss of passengers and freight customers,
incurrence of significant warranty and repair costs, diversion of our attention
from our transportation service efforts or strained customer relations, any one
of which could materially adversely affect our business. In January and February
2008, certain regions in southern China experienced extraordinary harsh winter
weather, which caused equipment

                                       9
<PAGE>

failures and delays and cancellations of some of our scheduled trains. As a
result, during such period of freezing weather, our cost for repair of equipment
increased and our revenues decreased. We cannot assure you that such events will
not happen again in the future.

     EXTENSIVE GOVERNMENT REGULATION OF THE RAILWAY TRANSPORTATION INDUSTRY MAY
LIMIT OUR FLEXIBILITY IN RESPONDING TO MARKET CONDITIONS, COMPETITION OR CHANGES
IN OUR COST STRUCTURE.

     We are subject to extensive PRC laws and regulations relating to the
railway transportation industry. The MOR and other Chinese governmental
authorities regulate pricing, speed, train routes, new railway construction
projects, and foreign investment in the railway transportation industry. Any
significant change in the relevant regulations of the PRC government is likely
to have a material impact on our business and results of operations. In
addition, our ability to respond to changes in our market conditions may be
limited by those regulations set by the MOR and other Chinese governmental
authorities.

     THE REVENUES OR CHARGES SETTLED BY THE MOR FOR CERTAIN LONG DISTANCE
PASSENGER TRAIN AND FREIGHT TRANSPORTATION BUSINESSES ARE FINALLY DETERMINED BY
THE MOR.

     As described in "Item 7B Related Party Transactions" and Note 37 to our
audited consolidated financial statements included elsewhere in this annual
report, due to the fact that the railway business is centrally managed by the
MOR within the PRC, we work in cooperation with the MOR and other railway
companies owned and controlled by the MOR for the operation of certain long
distance passenger train and freight transportation businesses within the PRC.
The revenues generated from these long-distance passenger and freight
transportation businesses are collected and settled by the MOR according to its
settlement systems. The charges for the use of the rail lines and services
provided by other railway companies are also settled by the MOR based on its
systems. Although we can, to certain extent, calculate the revenues and charges
settled by the MOR based on our own data and information, the amount of
settlement is finally determined by the MOR.

     WE MAY ENCOUNTER DIFFICULTIES FOR COMPLIANCE WITH THE SARBANES-OXLEY ACT OF
2002.

     The United States Securities and Exchange Commission, as required by
Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every
public company in the United States to include a management report on such
company's internal control over financial reporting in its annual report, which
contains management's assessment of the effectiveness of the Company's internal
control over financial reporting. In addition, an independent registered public
accounting firm must report on the effectiveness of the Company's internal
control over financial reporting. These requirements first applied partially to
our annual report on Form 20-F for the fiscal year ended December 31, 2006 by
requiring our management to provide a report regarding the assessment of the
effectiveness of our internal control over financial reporting. Our management's
assessment concluded that, as of December 31, 2006, we did not maintain
effective internal control over financial reporting as a result of the two
identified material weaknesses. See "Item 15. Controls and Procedures." Although
we have successfully remediated the two identified material weaknesses
identified in the year ended December 31, 2006 and have concluded that we
maintained effective internal control over financial reporting for the year
ended December 31, 2007, we may not be able to conclude in future years that we

                                       10
<PAGE>

have effective internal control over financial reporting, in accordance with the
Sarbanes-Oxley Act of 2002.

     Moreover, in future years, even if our management concludes that our
internal control over financial reporting is effective, our independent
registered public accounting firm may disagree. If our independent registered
public accounting firm is not satisfied with our internal control over financial
reporting or the level at which our internal control over financial reporting is
designed or operated, or if the independent registered public accounting firm
interprets the requirements, rules or regulations differently than we do, then
they may issue an adverse opinion. Any of these possible outcomes could result
in an adverse reaction in the financial marketplace due to a loss of investor
confidence in the reliability of our reporting processes, which could adversely
impact the market price of our H shares and ADSs. In addition, we will continue
to incur significant costs and use significant management and other resources in
order to comply with Section 404 of the Sarbanes-Oxley Act of 2002.

RISKS RELATING TO OUR ACQUISITION

     On November 15, 2004, we entered into an assets purchase agreement, or the
Acquisition Agreement, with Yangcheng Railway Company to acquire the railway
transportation business between Guangzhou and Pingshi and related assets, or the
Acquisition. In order to finance such Acquisition, on December 13, 2006, we
issued 2,747,987,000 A shares which are now listed for trading on the Shanghai
Stock Exchange and raised approximately RMB10.0 billion from the A Share
Offering. On December 28, 2006, we paid RMB5.27 billion out of the proceeds
raised from the A Share Offering to Yangcheng Railway Company. On January 1,
2007, the railway transportation business of the Guangzhou-Pingshi Railway came
under our control. Accordingly, the Company considers January 1, 2007 as the
effective date of the Acquisition for accounting purposes. We paid the remaining
balance in the amount of RMB4.87 billion on June 29, 2007.

     The amount of the offering represents approximately 63.38% of our existing
issued share capital and approximately 38.79% of our issued share capital as
enlarged by the issuance of A shares. Upon completion of the A Share Offering,
GRGC owned approximately 40.99% of our issued and outstanding common shares, all
of which are A shares, while institutional and public shareholders owned
approximately 59.01% of our issued and outstanding common shares, including A
shares, H shares and ADSs. See "ITEM 5. Operating and Financial Review and
Prospects -- Overview" for additional information.

     WE CANNOT ASSURE YOU THAT THE ACQUISITION WILL BENEFIT OUR BUSINESS AND
RESULTS OF OPERATIONS AS WE EXPECT.

     We cannot assure you that the Acquisition will benefit our business and
results of operations as we expect. As a result of the Acquisition, our railway
has been extended from 152 kilometers to 481.2 kilometers. The Acquisition
therefore results in greater administrative burdens and operating costs. We
cannot assure you that we will be able to manage or integrate the acquired
business successfully. The process of combining railway transportation business
between Guangzhou and Pingshi into our operations may be disruptive to our
business and may

                                       11
<PAGE>

cause an interruption of, or a loss of momentum in, our business as a result of
the following factors, among others:

     -    loss of key employees or customers of the acquired business;

     -    possible inconsistencies in standards, controls, procedures and
          policies between us and the acquired business and the need to
          implement company-wide financial, accounting, information and other
          systems;

     -    failure to maintain the quality of services that we have historically
          provided;

     -    the need to coordinate geographically diverse organizations; and

     -    the diversion of management's attention from our day-to-day business
          as a result of the need to deal with any disruptions and difficulties
          and the need to add management resources to do so.

     In addition, in order to ensure the success of the integration, we have
restructured and adapted our management (including the restructuring of both
management structure and managerial personnel) to reflect the expanded
operations. However, we may fail to realize the cost savings, revenue
enhancement and other benefits that we currently expect to result from the
Acquisition and the integration and may cause material adverse short- and
long-term effects on our operating results and financial conditions.

     The Company has recognized, on a preliminary basis, goodwill associated
with such Acquisition amounting to approximately RMB281.3 million upon the
acquisition date as at January 1, 2007. According to relevant accounting rules
under IFRS, such goodwill is subject to annual impairment loss assessment. In
case any assessment in the future indicates that there is impairment, a loss
will be recognized.

RISKS RELATING TO THE PEOPLE'S REPUBLIC OF CHINA

     Substantially all of our assets are located in China and substantially all
of our revenue is derived from our operations in China. Accordingly, our results
of operations and prospects are subject, to a significant extent, to the
economic, political and legal developments in China.

     CHINA'S ECONOMIC, POLITICAL AND SOCIAL CONDITIONS, AS WELL AS GOVERNMENT
POLICIES, COULD AFFECT OUR BUSINESS.

     As we are established, and operate substantially all of our businesses, in
China, any changes in the political, economic and social conditions of the PRC
or any changes in PRC governmental policies or regulations, including a change
in the PRC government's economic or monetary policies or railway or other
transportation regulations, may have a material adverse effect on our business
and operations and our results of operations. The economic environment in the
PRC differs significantly from the United States and many Western European
countries in terms of its structure, stage of development, capital reinvestment,
growth rate, level of government involvement, resource allocation,
self-sufficiency, rate of inflation and balance of

                                       12
<PAGE>

payments position. The PRC government's economic reform policies since 1978 have
resulted in a gradual reduction in state planning in the allocation of
resources, pricing and management of assets, and a shift towards the utilization
of market forces. The PRC government is expected to continue its reforms, and
many of its economic and monetary policies still need to be developed and
refined. We cannot assure you that future changes in governmental policies or
regulation will not have a material adverse effect on our business, operations
or results of operations.

     GOVERNMENT CONTROL OF CURRENCY CONVERSION MAY ADVERSELY AFFECT OUR
OPERATIONS AND FINANCIAL RESULTS.

     Our books and records are maintained and our financial statements are
prepared and presented in Renminbi, which is not a freely convertible currency.
All foreign exchange transactions involving Renminbi must be transacted through
banks and other institutions authorized by the People's Bank of China, or PBOC.
We receive substantially all of our revenues in Renminbi. We need to convert a
portion of our revenues into other currencies to meet our foreign currency
obligations, such as payment of dividends on our H shares and overseas equipment
purchases. In addition, the existing foreign exchange limitations under PRC law
could affect our ability to obtain foreign currencies through debt financing, or
to obtain foreign currencies for capital expenditures or for distribution of
dividends on our H shares.

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

     The value of the Renminbi fluctuates and is subject to changes in market
conditions as well as China's political and economic conditions. Since 1994, the
conversion of Renminbi into foreign currencies, including Hong Kong and U.S.
dollars, has been based on rates set by the PBOC, which are set daily based on
the previous day's interbank foreign exchange market rates and current exchange
rates on the world financial markets. On July 21, 2005, the PRC government
changed its decade-old policy of pegging the value of the Renminbi to the U.S.
dollar. Under the new policy, the Renminbi is permitted to fluctuate within a
narrow and managed band against a basket of certain foreign currencies. As of
June 2008, this change in policy has resulted in a more than 18% appreciation of
the Renminbi against the U.S. dollar ever since July 2005. While the
international reaction to the Renminbi revaluation has generally been positive,
there remains significant international pressure on the PRC government to adopt
an even more flexible currency policy, which could result in a further and more
significant appreciation of the Renminbi against the U.S. dollar. We have
certain U.S. dollar-denominated and HK dollar-denominated assets and the
appreciation of Renminbi could result in a decrease of the value of these
assets. For further information on our foreign exchange risks and certain
exchange rates, see "Item 3A. Selected Consolidated Financial and Other Data"
and "ITEM 11. Quantitative and Qualitative Disclosures About Market Risk --
Currency Risks." We cannot assure you that any future movements in the exchange
rate of Renminbi against the United States dollar or other foreign currencies
will not adversely affect our results of operations and financial condition.

     THE DIFFERENCES WITH RESPECT TO THE PRC LEGAL SYSTEM COULD LIMIT THE LEGAL
PROTECTIONS AVAILABLE TO YOU.

                                       13
<PAGE>
     As the PRC and the U.S. have different legal systems and the court
decisions in China do not have binding force on subsequent cases, there are
significant differences between the PRC legal system and the U.S. legal system.
In addition, because the PRC Company Law is different in certain important
aspects from company laws in Hong Kong, United States and other common law
countries and regions and because the PRC securities laws are still at a
relatively early stage of development and PRC laws and regulations dealing with
business and economic matters are relatively new and still evolving, you may not
enjoy shareholder protections to which you may be entitled in Hong Kong, the
United States or other jurisdictions.

     WE FACE RISKS RELATED TO HEALTH EPIDEMICS AND OTHER OUTBREAKS.

     Our business could be adversely affected by the effects of avian flu, SARS
or other epidemics or outbreaks. China reported a number of cases of SARS in
April 2004. In 2005 and 2006, there have been reports on the occurrences of
avian flu in various parts of China, including a few confirmed human cases. Any
prolonged recurrence of avian flu, SARS or other adverse public health
developments in China may have a material adverse effect on our business
operations, including our ability to travel or ship products in Southern China,
as well as temporary closure of our business. Such closures or travel or
shipment restrictions would severely disrupt our business operations and
adversely affect our results of operations. We have not adopted any written
preventive measures or contingency plans to combat any future outbreak of avian
flu, SARS or any other epidemic.

ITEM 4. INFORMATION ON THE COMPANY

ITEM 4A. HISTORY AND DEVELOPMENT OF THE COMPANY

OVERVIEW

     We were established as a joint stock limited company under the Company Law
of the PRC on March 6, 1996. Our legal name is (CHINESE CHARACTERS), and its
English translation is Guangshen Railway Company Limited. Our registered office
is located at No. 1052 Heping Road, Shenzhen, Guangdong Province, The People's
Republic of China, 518010. Our telephone number is (86-755) 2558-7920 or
2558-8146 and our fax number is (86-755) 2559-1480.

     Our H shares (share code: 0525) and American Depositary Shares, or ADSs
(ticker symbol: GSH), were listed on the Stock Exchange of Hong Kong Limited, or
the Hong Kong Exchange, and the New York Stock Exchange, Inc., or the NYSE,
respectively, in May 1996. Our A shares (share code: 601333) were listed on the
Shanghai Stock Exchange in December 2006. We are currently the only PRC railway
enterprise with shares listed in Shanghai, Hong Kong and New York.

     We are mainly engaged in passenger and freight transportation businesses on
the Shenzhen-Guangzhou-Pingshi railway, which is 481.2 kilometers long, running
vertically through Guangdong Province. The Guangzhou-Pingshi Railway is the
Southern part of Beijing-Guangzhou Railway, which connects the Northern and
Southern railways of China. The Guangzhou-Shenzhen Railway is strategically
located and links with major railway networks in China, including the
Beijing-Guangzhou, Beijing-Kowloon, Sanshui-Maoming, Pinghu-Nantou,

                                       14
<PAGE>
and Pinghu-Yantian lines, as well as to the Kowloon-Canton Railway in Hong Kong,
which is an important component of the transportation network of southern China,
as well as the only railway channel linking Hong Kong with Mainland China. The
Guangzhou-Shenzhen Railway is currently one of the most modern railways in the
PRC, and with the completion of the Fourth Rail Line in 2007, the
Guangzhou-Shenzhen Railway has become the first wholly fenced railway with four
parallel lines in the PRC that allows passenger trains and freight trains to run
on separate lines.

     Passenger transportation is our principal business. As of December 31,
2007, we operated 195 pairs of passenger trains in accordance with our daily
train schedule, including 80 pairs of inter-city high-speed passenger trains
between Guangzhou and Shenzhen, 13 pairs of Hong Kong Through Trains and 102
pairs of long-distance passenger trains. With our efforts to promote the
development of high-speed passenger trains, our domestically manufactured
electric multiple units trains, or EMUs (also known as "Concords"), with a top
speed of 200 kilometers per hour, transported most of our passengers between
Guangzhou and Shenzhen beginning from 2007. One pair of EMUs between Guangzhou
and Shenzhen is dispatched every 15 minutes on average during peak hours, as
part of our "As-Frequent-As-Buses" Train Project, which we initially launched in
2001.

     Freight transportation is another important segment of our business. Our
railways are closely linked with, and we have developed business partnerships
with, neighbouring ports, logistic bases, building materials markets, large
factories and mines. We are also well-equipped with various freight facilities
and can efficiently transport full load cargo, single load cargo, containers,
bulky and overweight cargo, dangerous cargo, fresh and live cargo and oversized
cargo. Our partnerships and facilities provide us with competitive advantages in
transporting freight for medium to long distances in the PRC.

BACKGROUND, RESTRUCTURING AND ACQUISITION

     The railroad system between Guangzhou and Shenzhen was part of the original
"Canton-Kowloon" railroad, which began operations in 1911. In 1949, following
the establishment of the PRC, the railroad was divided into two sections, with
the first linking Guangzhou and Shenzhen, and the second, across the Hong Kong
border and separately owned, linking Luohu and the Kowloon peninsula in Hong
Kong. The Guangzhou to Shenzhen railroad has been operated since 1949 by a
sub-division of the Guangzhou Railway Administration, a predecessor to GRGC.

     In 1979, the Guangshen Railway Company, our predecessor, in conjunction
with KCR which has been merged into the MTR Corporation, or MTR, was engaged in
the joint operation of Through Train passenger services between Guangzhou and
Hong Kong.

     In 1984, to exploit the rapid growth in the Pearl River Delta, the
Guangshen Railway Company, our predecessor, was formed pursuant to the approval
of the State Council as a state-owned enterprise administered by the Guangzhou
Railway Administration. At that time, Guangshen Railway Company had only a
single-line railroad. Since then, large capital expenditures have been made to
expand and upgrade its facilities and services. In 1987, construction of the
second line was completed. In 1991, Guangshen Railway Company began the
construction of a semi- high-speed rail line and purchased high-speed
locomotives and

                                       15
<PAGE>
passenger coaches, which can provide passenger train services at speeds of more
than 160 kilometers per hour. Our high-speed line was the first of its kind in
China. Commercial operation of the high-speed trains commenced in December 1994.

     We were established as a joint stock limited company on March 6, 1996
following the Restructuring, which was carried out to reorganize the railroad
assets and related businesses of Guangshen Railway Company and certain of its
subsidiaries. As part of the Restructuring, 2,904,250,000 state legal person
shares, par value RMB1.00 per share, of Guangshen Railway were issued to GRGC, a
state-owned enterprise controlled by the MOR of the PRC.

     Since April 1, 1996, we have been able to set our own prices for our
high-speed train services and charge a premium over average national prices for
our other passenger and freight train services. See "Item 4B. Business Overview
-- Regulatory Overview -- Pricing" for a more detailed description of our
pricing scheme.

     We completed our initial public offering of class H ordinary shares, or H
shares, and our American depositary shares, or ADSs, in May 1996. In that
offering, we issued a total of 1,431,300,000 H shares, par value RMB1.00 per
share. Our H shares are listed for trading on the Hong Kong Exchange and our
American depositary shares, or ADSs, each representing 50 H shares, are listed
for trading on the NYSE. Our H shares or ADSs may not be purchased or owned by
domestic investors in the PRC. In December 2006, we completed the initial public
offering of our A shares. Our A shares (stock code: 601333) are listed for
trading on the Shanghai Stock Exchange. After the A Share Offering,
approximately 41% of our issued and outstanding shares were owned by GRGC, while
institutional and public shareholders own approximately 59% of our issued and
outstanding common shares, including A shares, H shares and ADSs.

     GEDC, a state-owned enterprise established in the Restructuring in
connection with the initial public offering of the H shares and ADSs, assumed
the operations and assets of Guangshen Railway Company that were not transferred
to us in the Restructuring, such as employee housing, hospitals, schools and
public security, and has been providing related services to us on a contractual
basis since the Restructuring.

     On January 1, 2007, the railway transportation business of the
Guangzhou-Pingshi Railway came under our control as a result of the Acquisition.
As a result, our operation expanded from a regional railway to a national trunk
line network and our operating railway distance extended from 152 kilometers to
481.2 kilometers, running vertically through the entire Guangdong Province.

     In March 2006 and July 2007, we conducted organizational reforms to
streamline our organization and improve efficiency. Through these reforms, we
restructured, and reallocated the responsibilities of our administrative and
functional departments and made the following departments the functional
departments under the supervision of our general manager: the General
Administrative Department, Finance Department, Human Resources Department,
Transportation Administrative Department, Security Supervisory Department,
Diversified Business Management Department and Audit Department. Our frontline
production and operational departments were generally not affected by this
organizational reform. In October

                                       16
<PAGE>
2007, we adjusted our overall railway transportation business units into 13
units.

SERVICE TERRITORY

     Our rail lines traverse the Pearl River Delta and also run vertically
through Guangdong Province, an area which benefited early from the PRC economic
reform policies that began in the late 1970s. Throughout the 1980s and early
1990s, the economy of the Pearl River Delta, fueled by foreign investments, grew
rapidly. The Pearl River Delta is currently one of the most affluent and fastest
growing areas in China.

     As of December 31, 2007, we had 49 stations situated on our rail lines,
providing passenger and freight transportation services for cities, towns and
ports situated along the Shenzhen-Guangzhou-Pingshi corridors and Hong Kong
(which we serve in conjunction with MTR). In addition to our Hong Kong passenger
Through Train services in conjunction with the MTR, we also allow Hong
Kong-bound freight trains to use our railroad.

     The Shenzhen-Guangzhou-Pingshi railroad is an integral component of the PRC
national railway network, and provides nationwide access to passenger and
freight traffic from southern China to other regions of mainland China as
described below:

     Northbound. At Pingshi, our rail line connects with the Beijing-Guangzhou
line, which is one of the major trunk lines linking southern China with Beijing
and northern China. Another trunk line connecting northern and southern China,
the Beijing-Hong Kong rail line, includes the section of our line from Dongguan
to Shenzhen.

     Southbound. Our line connects at Shenzhen with the rail line owned by the
MTR that runs to Kowloon, Hong Kong.

     Westbound. Our line connects with the Guangzhou-Maoming rail line operated
by Sanmao Railway Company, a company in which GRGC holds a 49.12% equity
interest, that runs through the western part of Guangdong Province, connecting
with other rail lines that continue on into the Guangxi Zhuang Autonomous
Region, which provides access to southwestern China.

     Eastbound. Our rail line intersects at Dongguan with the
Guangzhou-Meizhou-Shantou rail line operated by Guangmeishan Railway Company, a
company jointly established by GRGC, the Guangdong Provincial Railway Company
and other public investors. A section of this line forms, along with our
Dongguan to Shenzhen segment, a part of the Beijing-Hong Kong rail line, which
terminates in Kowloon, Hong Kong.

     At Pinghu, our rail line connects with two local port lines: one of them,
Pingnan Railway, principally serves three ports located in western
Shenzhen--Shekou, Chiwan and Mawan -- and the other, Pingyan Railway, serves
Yantian port, an international deepwater port located in eastern Shenzhen. At
the Huangpu and Xiayuan stations in Guangzhou, our line connects with Huangpu
port and Xinsha port. Our rail line also connects with certain industrial
districts, commercial districts and the facilities of many of our customers
through spur lines, which are rail lines running off the main line that are used
and typically financed by a freight customer or a group of freight customers and
maintained by us for a fee. We believe that the

                                       17
<PAGE>
customers connected to these spur lines and customers with goods that must be
shipped through these regional ports are likely to use our services on a
long-term basis.

ITEM 4B. BUSINESS OVERVIEW

BUSINESS OPERATIONS

     Our principal businesses are railroad passenger and freight transportation
and railway network usage and service, which collectively generated 93.4% of our
total revenues in 2007.

     On January 1, 2007, we acquired the railway transportation business of
Guangzhou-Pingshi Railway. The Acquisition was financed with the proceeds from
the A Share Offering. The acquired business has contributed approximately RMB
5,993.2 million to our revenues and RMB 900.3 million to our net profit for the
year ended December 31, 2007.

     On April 18, 2007, after the national railway system of China implemented
its sixth large-scale railway speed-up project of the national railway system,
we commenced operation of the Fourth Rail Line between Guangzhou and Shenzhen.
The Guangzhou-Shenzhen Railway is the first wholly fenced four-line railway in
China that enables passenger trains and freight trains to run on separate lines.
The start-up of the Fourth Rail Line has enhanced our transportation capacity.

     In 2007, we also put our domestically manufactured high-speed electric
train sets into operation, which has been popular with our passengers. In
addition, we continued to implement our "As-Frequent-As-Buses" Train Project and
improved our passenger service equipment. We have also focused on improving our
corporate governance and safety procedures.

     In 2007, our total revenues were RMB10,508.5 million, representing an
increase of 192.4% from RMB3,594.5 million in 2006. Our revenues from railroad
passenger transportation service, freight transportation service, railway
network usage and services and other businesses were RMB5,833.5 million,
RMB1,326.5 million, RMB2,659.5 and RMB689.0 million, respectively, accounting
for 55.5%, 12.6%, 25.3% and 6.6%, respectively, of our total revenues in 2007.
Our profit attributable to shareholders was RMB1,431.4 million, representing an
increase of 85.5% from RMB771.5 million in 2006. The revenue from our other
businesses was RMB689.0 million, representing an increase of 435.8% from
RMB128.6 million in 2006.

     The table below summarizes our railroad transportation revenues and traffic
volume in each of the five years ended December 31, 2003, 2004, 2005, 2006 and
2007.

<Table>
<Caption>
                                                                      YEAR ENDED DECEMBER 31,
                                                     --------------------------------------------------------------
                                                         2003         2004          2005         2006          2007
                                                         ----         ----          ----         ----          ----
<S>                                                  <C>          <C>           <C>          <C>           <C>
PASSENGER TRANSPORTATION
Total passenger revenues (RMB millions).....         1,637.45     2,076.27      2,253.34     2,608.84      5,833.54
Total passengers (millions)(1)..............            26.14        31.56         33.00        35.98         73.05
Revenues per passenger (RMB)(2).............            62.64        65.79         68.28        72.51         79.86
Total passenger-kilometers (millions).......         3,295.50     4,200.20      4,539.10      4,842.7      26,278.2
Revenues per passenger-kilometer (RMB)(3)...             0.50         0.49          0.50         0.54          0.22
FREIGHT TRANSPORTATION
Total freight revenues (RMB millions).......           526.38       611.81        540.34       565.56      1,326.45
</TABLE>

                                       18
<PAGE>
<Table>
<Caption>
                                                                      YEAR ENDED DECEMBER 31,
                                                     --------------------------------------------------------------
                                                         2003         2004          2005         2006          2007
                                                         ----         ----          ----         ----          ----
<S>                                                  <C>          <C>           <C>           <C>          <C>
Total freight tonnes (millions).............            27.58        34.20         31.89        30.71         71.01
Revenues per tonne (RMB)(4).................            19.08        17.89         16.94        18.42         18.68
Total tonne-kilometers (millions)...........         1,978.90     2,489.50      2,294.80      2,276.3      15,306.9
Revenues per tonne-kilometer (RMB)(5).......             0.27         0.25          0.24         0.25          0.09
RAILWAY NETWORK USAGE AND SERVICE(RMB                  152.75       183.40        305.79       291.49      2,659.53
millions)(6)...............................
</Table>

----------
(1)  Prior to 2006, we recorded the aggregate of the passengers arriving at and
     departing from our railway stations as total passengers. Beginning from the
     year ended December 31, 2006, we began recording only those passengers
     departing from our railway stations as total passengers. To conform to the
     current year presentation, we have adjusted the numbers of total passengers
     for each of the years ended December 31, 2003, 2004 and 2005 to only
     include passengers departing from our railway stations.
(2)  Revenues per passenger is calculated by dividing total passenger revenue by
     total passengers. Management believes that revenues per passenger is a
     useful measure for assessing the revenue levels of our passenger
     transportation business.
(3)  Revenues per passenger-kilometer is calculated by dividing total passenger
     revenue by total passenger-kilometers. Management believes that revenues
     per passenger-kilometer is a useful measure for assessing the revenue
     levels of our passenger transportation business.
(4)  Revenues per tonne is calculated by dividing total freight revenue by total
     freight tonnes. Management believes that revenues per tonne is a useful
     measure for assessing the revenue levels of our freight transportation
     business.
(5)  Revenues per tonne-kilometer is calculated by dividing total freight
     revenue by total tonne-kilometers. Management believes that revenues per
     tonne-kilometer is a useful measure for assessing the revenue levels of our
     freight transportation business.
(6)  Since our revenue from railway network usage and service was insignificant
     before the acquisition of the railway transportation business of
     Guangzhou-Pingshi Railway in 2007, we recorded such revenues into the
     revenues from passenger and freight transportation in previous years. Upon
     the acquisition of the railway transportation business of Guangzhou-Pingshi
     Railway, our revenues from railway network usage and service have become
     material. Our management decided to record the revenue from railway network
     usage and service separately since the year ended December 31, 2007. To
     conform to the current year presentation, we have adjusted the revenues of
     each of the years ended December 31, 2003, 2004, 2005 and 2006.

PASSENGER TRANSPORTATION

     Passenger transportation is our largest business segment, and accounted for
55.5% of our total revenues, and 59.4% of our railroad transportation revenues,
in 2007. Our passenger train services can be categorized as follows:

     -    intercity high-speed express trains between Guangzhou and Shenzhen;

     -    Hong Kong Through Trains between Hong Kong and Guangzhou; and

     -    domestic long-distance trains.

     As of December 31, 2007, we operated 195 pairs of passenger trains per day
(each pair of trains meaning trains making one round-trip between two points),
representing an increase of 72 pairs from 123 pairs as of December 31, 2006, of
which:

     -    80 pairs were high-speed express passenger trains operating between
          Guangzhou and Shenzhen, representing an increase of 13 pairs;

                                       19
<PAGE>
     -    13 pairs were Hong Kong Through Trains; (including 11 pairs of Hong
          Kong Through Trains, one pair of through train between Zhaoqing and
          Kowloon, and one through train that operates on alternating days
          either on the Beijing-Kowloon line or the Shanghai-Kowloon line); and

     -    102 pairs were domestic long-distance passenger trains (including
          fourteen pairs of long-distance passenger trains operated by us
          between Shenzhen and Yueyang, between Shenzhen and Shanghai, between
          Shenzhen and Shaoguan, between Guangzhou and Chongqing, between
          Guangzhou and Wanzhou, between Guangzhou and Liuzhou, between
          Guangzhou and Wuchang, between Guangzhou and Xi'an, between Guangzhou
          and Changsha, between Guangzhou and Lhasa, between Sanya and Beijing
          and between Sanya and Shanghai, two pairs of long-distance passenger
          trains between Shenzhen and Beijing, and 88 pairs of domestic
          long-distance trains, operated by other operators but originating or
          terminating on, or passing through, our Guangzhou-Shenzhen railroad),
          representing an increase of 61 pairs from 41 pairs as of December 31,
          2006.

     The table below sets out passenger revenues and volumes for our Hong Kong
Through Trains and domestic trains in each of 2005, 2006 and 2007:

<Table>
<Caption>
                                       PASSENGER REVENUES           PASSENGER VOLUME         REVENUE PER PASSENGER
                                    -------------------------     ---------------------     ----------------------
                                       2005     2006     2007     2005     2006    2007     2005     2006     2007
                                       ----     ----     ----     ----     ----    ----     ----     ----     ----
                                           (RMB MILLIONS)               (MILLIONS)              (RMB MILLIONS)
<S>                                 <C>      <C>      <C>         <C>      <C>     <C>     <C>      <C>      <C>
Guangzhou-Shenzhen Trains...........1,219.8  1,341.7  1,494.2     21.5     22.2    24.7     56.7     60.3     60.5
Hong Kong Through Trains............  457.7    454.2    430.5      3.1      3.2     3.2    149.3    141.9    134.5
Long-distance Trains ...............  575.8    812.9  3,908.8     10.0     10.5    45.1     34.1     77.4     86.7
Combined passenger operations.......2,253.3  2,608.8  5,833.5     34.6     35.9    73.0     51.2     72.7     79.9
</Table>

     Guangzhou-Shenzhen Trains. In 2007, our passenger transportation services
on the trains between Guangzhou and Shenzhen contributed most to our railroad
passenger transportation revenues. In 2007, we did not operate any regular speed
inter-city train between Guangzhou and Shenzhen. As of December 31, 2007, we
operated, on average, a total of 80 pairs of EMU high-speed passenger trains
between Guangzhou and Shenzhen daily. Such EMU high-speed trains are capable of
running at about 200 kilometers per hour. The number of passengers traveling on
our Guangzhou-Shenzhen trains increased by 11.2 % from 22.2 million in 2006 to
24.7 million in 2007. The revenues from our Guangzhou-Shenzhen trains increased
by 11.4% from RMB1,341.7 million in 2006 to RMB1,494.2 million in 2007. The
increase in business volume of Guangzhou-Shenzhen trains was primarily due to:
(1) the commencement of mass operation on April 18, 2007 of EMUs in the wake of
the sixth large-scale railway speed-up project of the national railway system
and the completion and commencement of operation of the Fourth Rail Line, which
significantly increased the frequency and transportation capacity, and improved
the efficiency and comfort, of our trains; (2) the overhaul of the Xintang-Shigu
section of the southbound Guangzhou-Shenzhen expressway, which diverted part of
the bus passengers to our trains; (3) the strong economic growth in the Pearl
River Delta, which resulted in the upward flows of business persons, tourists
and workers; (4) the vigorous optimization of transportation organization, the
increase

                                       20
<PAGE>
in the frequency of trains and the introduction of IC Card Ticketing System for
the convenience of passengers; (5) the improvement of the metro systems in
Guangzhou and Shenzhen, which boosted the railway passenger volume and (6) the
promotion of our passenger transportation service, enhancement in service
quality and the improvement of boarding environment for passengers.

     Hong Kong Through Trains. We currently operate jointly with the MTR, 11
pairs of high-speed Hong Kong Through Trains between Hong Kong and Guangzhou. We
provide the trains and personnel for eight pairs of these train services, while
MTR provides for three pairs. The Hong Kong Through Train services beyond
Guangzhou to Foshan, Zhaoqing, Beijing and Shanghai are provided by GRGC and
Shanghai Railway Administration. Revenues from these Hong Kong Through Trains on
the Guangzhou-Hong Kong section are shared between MTR and us, in proportion to
our track mileage for the Through Train services, with 81.2% accruing to us and
18.8% to MTR. In addition, we share all related costs with MTR at the same rate
for the Through Train services.

     Most of the passengers taking our Hong Kong Through Trains are from Hong
Kong, Macau, Taiwan and foreign countries, and many are business travelers. As
the prices for our Hong Kong Through Train services are higher than the prices
we charge for our domestic train services, these Hong Kong Through Train
services produce higher per-passenger revenues than our other passenger train
services.

     In 2007, the volume of passengers who traveled on the Hong Kong Through
Trains decreased by 0.5% from 3.207 million in 2006 to 3.192 million in 2007.
The decrease was mainly due to (1) the construction of the Fourth Rail Line
between January and April 2007, which affected the operation of Hong Kong
Through Trains; and (2) the improvements in the operating efficiency and service
quality of other Guangzhou-Shenzhen trains, which attracted some of our Hong
Kong Through Train passengers.

     Domestic Long-distance Trains. As of December 31, 2007, we operated on a
daily basis 102 pairs of domestic long-distance passenger trains on our rail
lines to cities in Guangdong, Hunan, Hubei, Jiangxi, Anhui, Jiangsu, Liaoning,
Shanxi, Fujian, Heilongjiang, Jilin, Zhejiang, Hebei, Henan, Sichuan, Yunnan,
Shandong provinces, Chongqing, Shanghai, Beijing, Tianjin, Guangxi Autonomous
Region and Tibet Autonomous Region. In 2007, the number of passengers traveling
on our long-distance trains was 45.1 million, representing an increase of 328.8
% from 10.5 million in 2006. The increase in business volume of the
long-distance trains was mainly due to: (1) the incorporation of the
long-distance transportation business of the Guangzhou-Pingshi Railway; and (2)
the continuing increase in the number of business travelers and workers from the
mainland as a result of the continuous and rapid economic growth in the Pearl
River Delta.

     MAJOR STATIONS. The following are the major train stations owned and
operated by us as of December 31, 2007:

     Guangzhou East Station. Our Guangzhou East Station services our train
services between Guangzhou and Shenzhen and between Guangzhou and Hong Kong and
provides a hub for long-distance trains to different locations within China. Our
Guangzhou East Station is

                                       21
<PAGE>
connected to Lines 1 and 3 of the Guangzhou municipal subway. As of December 31,
2007, the Guangzhou East Station handled on a daily basis 12 pairs of Hong Kong
Through Trains, 80 pairs of Guangzhou-Shenzhen trains, 15 pairs of long-distance
passenger trains between the Guangzhou East Station and other locations in
China, including Beijing, Shanghai, Jiujiang, Shantou, Hefei, Taiyuan, Nanchang,
Yingtan, Harbin, Yichang, Hankou, Qingdao, Shenyang, Xiamen and Wuchang, and 5
pairs of passenger trains passing through the Guangzhou East Station. In 2007,
the number of passengers traveling from Guangdong East Station was 15.4 million.

     Dongguan Station. Our intermediate station at Dongguan is the point of
connection between our line and the neighboring Dongguan-Meizhou-Shantou rail
line, and is also the point where our line intersects with the Beijing-Hong Kong
rail line. Dongguan Station, by connecting our rail line to the Beijing-Hong
Kong line, also facilitates passenger service between Kowloon and Zhaoqing. As
of December 31, 2007, this station handled on a daily basis the transfer service
for seven pairs of domestic long-distance passenger trains, 44.5 pairs of
Guangzhou-Shenzhen high-speed passenger trains and 10 pairs of Hong Kong Through
Trains. In 2007, the number of passengers traveling from Dongguan Station was
3.0 million.

     Shenzhen Station. Our Shenzhen Station is located in the Shenzhen Special
Economic Zone, close to the Luohu Station on the Guangzhou-Kowloon rail line and
connected to Line 1 of Shenzhen's subway system. In 2002, we introduced China's
first computerized ticket hall in our Shenzhen Station. As of December 31, 2007,
our Shenzhen Station handled on a daily basis 80 pairs of Guangzhou-Shenzhen
passenger trains (including seven backup pairs) and 20 pairs of domestic
long-distance passenger trains between Shenzhen and other locations in China,
including Beijing, Changsha, Shaoguan, Wuchang, Meizhou, Shantou, Maoming East,
Zhengzhou, Fuzhou, Hankou, Shenyang, Huaihua, Jiujiang, Yueyang, Guilin, Ji'an,
Shanghai and Taizhou. In 2007, the number of passengers traveling from Shenzhen
Station was 16 million.

     Shaoguan Station. Our Shaoguan Station is an important transportation hub
in the north part of Guangdong Province, which handles both passengers and
freight transportation. In the year ended December 31, 2007, our Shaoguan
Station handled on a daily basis 63 pairs of passenger trains, including three
pairs which originally depart from and ultimately arrive at our Shaoguan
Station. In 2007, the number of passengers traveling from Shaoguan Station was
3.4 million.

     Guangzhou Station. Guangzhou Station is the largest passenger station in
South China and is connected with the Beijing-Guangzhou Railway,
Guangzhou-Maoming Railway, Guangzhou-Shenzhen Railway and Guangmeishan Railway.
Our Guangzhou Station is also indirectly connected with the Beijing-Kowloon
Railway via the Guangzhou-Shenzhen Railway. In the year ended December 31, 2007,
our Guangzhou Station handled on a daily basis 108 pairs of passenger trains and
177.5 pairs during the Chinese New Year holiday period. In 2007, the number of
passengers traveling from Guangzhou Station was 28.7 million. During the Chinese
New Year holiday period, the number of daily passengers traveling from our
Guangzhou Station exceeded 190,000.

                                       22

<PAGE>
FREIGHT TRANSPORTATION

     Revenue from our freight transportation accounted for 12.6% of our total
revenues and 13.5% of our railroad transportation revenues in 2007. Our
principal market for freight is domestic long-haul freight, originating and/or
terminating outside the Shenzhen-Guangzhou-Pingshi corridor. We are well
equipped with various freight facilities and can efficiently transport full load
cargo, single load cargo and containers. We have established business
cooperation with ports, logistics bases and specialized building materials
markets in our service region.

     The majority of the freight we transport is high-volume, medium- to
long-distance freight received from and/or transferred to other rail lines. Only
a small percentage of the freight we transport both originates and terminates in
the Guangzhou-Pingshi-Shenzhen corridor. We classify our freight business into
three categories:

     -    inbound freight, which is primarily freight unloaded at freight
          stations and spur lines connected to ports on our rail line or in Hong
          Kong;

     -    outbound freight, which is primarily freight bound for other regions
          in Mainland China as well as foreign countries loaded at our train
          stations and spur lines connected to ports on our rail line or in Hong
          Kong; and

     -    pass-through freight, which refers to freight that travels on our rail
          line, but which does not originate from or terminate at our rail line.

     The total tonnage of freight we transported in 2007 was 71.0 million
tonnes, representing an increase of 131.2% from 30.7 million tonnes in 2006.
Revenues from freight transportation business in 2007 were RMB1,326.5 million,
representing an increase of 134.5% from RMB565.6 million in 2006. This increase
is primarily due to the consolidation of the business of the Guangzhou-Pingshi
Railway. Our outbound freight revenues increased by 7.9 % in 2007 and our
inbound and pass-through freight revenues increased by 223.2% in 2007.

     We serve a broad customer base and ship a wide range of goods in our
freight transportation business. We are not dependent upon any particular
customers or industries.

     Freight Composition. We transport a broad range of goods, which can
generally be classified as follows: construction materials, energy products,
food products, chemicals, manufactured goods, containers and other goods. The
majority of our inbound freight consists of raw materials and essential
production materials for manufacturing, industrial and construction activities,
while the majority of our outbound freight consists of imported mineral ores as
well as coal and goods produced or processed within our service territory, for
customers throughout China and abroad.

     The following table shows the composition of our freight volume by
percentage for the three years ended December 31, 2005, 2006 and 2007 (based on
tonnes transported):

                                       23
<PAGE>
<Table>
<Caption>
                                            OUTBOUND FREIGHT                  INBOUND (AND PASS-THROUGH) FREIGHT
                                    ---------------------------------         ----------------------------------
                                    2005           2006         2007          2005           2006          2007
                                    ----           ----         ----          ----           ----          ----
                                    AS A PERCENTAGE OF TOTAL OUTBOUND          AS A PERCENTAGE OF TOTAL INBOUND
                                                 FREIGHT                          (AND PASS-THROUGH) FREIGHT
<S>                                 <C>            <C>          <C>           <C>            <C>           <C>
Construction materials.......       24.4%          21.8%        44.9%         37.8%          42.8%         36.5%
Energy products..............       50.6%          53.2%        27.3%         10.9%           8.4%         24.7%
Food products................        3.0%           2.8%         2.8%         19.9%          18.7%         14.9%
Chemicals....................        3.5%           4.2%         3.2%          9.9%          12.4%          9.3%
Manufactured goods...........        1.5%           1.2%         2.1%          3.1%           2.8%          1.3%
Containers...................       11.4%          11.9%        13.2%         10.1%          11.1%          9.6%
Other goods..................        5.6%           4.9%         6.5%          8.3%           3.8%          3.7%
                                    ----           ----         ----          ----           ----          ----
Total........................        100%           100%         100%          100%           100%          100%
                                    ====           ====         ====          ====           ====          ====
</Table>

RAILWAY NETWORK USAGE AND SERVICE BUSINESS

     Revenue from our railway network usage and service accounted for 25.3% of
our total revenues and 27.1% of our railroad transportation revenues in 2007.
Railway network usage and services mainly include the locomotive traction, track
usage, electric catenaries (overhead wires used to transmit electrical energy to
trains), vehicle coupling and other services. In 2007, our revenue from railway
network usage and services was RMB2,659.5 million, representing an increase of
812.4% from RMB291.5 million in 2006. The rapid increase was mainly due to the
acquisition of the railway transportation business of Guangzhou-Pingshi Railway
at the beginning of 2007.

     The following table shows the composition of our revenues from railway
network usage and services for the three years ended December 31, 2005, 2006 and
2007:

<Table>
<Caption>
                                        2005                 2006               2007
                                        ----                 ----               ----
                                                        (RMB MILLIONS)
<S>                                    <C>                  <C>              <C>
Locomotive traction........              8.0                  4.0            1,155.3
Track usage ................           150.4                154.8              919.7
Electric catenary...........            16.3                 24.0              211.2
Vehicle coupling ...........            52.2                 46.5              216.6
Other services..............            79.0                 62.2              156.7
                                       -----                -----            -------
  Total.....................           305.8                291.5            2,659.5
                                       =====                =====            =======
</Table>

OTHER BUSINESSES

     We engage in other businesses principally related to our railroad
transportation business. Revenue from our other businesses accounted for 6.6% of
our total revenues in 2007. Our other businesses include:

     -    repair and maintenance services (mainly for repair of locomotives),
          which we began to provide as a result of the acquisition of the
          railway transportation business of the Guangzhou-Pingshi Railway;

     -    sales of food, beverages, newspapers, magazines and other merchandise
          aboard our trains and in our stations;

                                       24
<PAGE>
     -    services in our stations, including operating restaurants, operating a
          travel agency and a hotel in our Shenzhen Station and leasing space
          to independent retailers; and

     -    other businesses, including the services relating to warehousing,
          loading and discharging, providing advertising boards in our stations
          for commercial advertising and railroad-related construction.

     Revenues from our other businesses in 2007 were RMB689.0 million,
representing an increase of 435.8% from RMB128.6 million in 2006. The
substantial increase in revenues from other businesses was due to the
acquisition of the railway transportation business of Guangzhou-Pingshi Railway.

     The table below sets out the revenues for our other businesses, by
categories of activity, in each of 2005, 2006 and 2007:

<Table>
<Caption>
                                                                                 AS A PERCENTAGE OF TOTAL REVENUES
                                                          REVENUES                     FROM OTHER BUSINESSES
                                             -------------------------------     ---------------------------------
                                              2005         2006         2007        2005         2006        2007
                                              ----         ----         ----        ----         ----        ----
                                                      (RMB MILLIONS)
<S>                                          <C>          <C>          <C>       <C>            <C>         <C>
Repair and maintenance service.........         --           --        255.2          --          --        37.0%
On-board and station sales.............       29.2         33.8         65.0        16.5%       26.3%        9.4%
Station services.......................       39.4         29.8          5.3        22.1%       23.2%        0.8%
Other businesses.......................      108.9         64.9        363.5        61.4%       50.5%       52.8%
                                             -----        -----                     ----        ----        ----
  Total................................      177.5        128.6        689.0         100%        100%        100%
                                             =====        =====        =====        ====        ====        ====
</Table>

----------

SEASONALITY OF OUR RAILWAY TRANSPORTATION BUSINESS

     There is some seasonality in our businesses. The first quarter of each year
typically contributes the highest portion of our annual revenues, mainly because
it coincides with the Spring Festival holidays (Chinese New Year holidays) when
Chinese people customarily travel from all over the country back to their
hometowns. In addition, the New Year holidays, the Labor Day holidays, summer
holidays and the National Day holidays in China are also high travel seasons.
During these holidays, we usually operate additional passenger trains to meet
the increased transportation demand.

SALES

PASSENGER TRANSPORTATION

     Our passenger tickets are currently sold primarily at ticket counters
located in our train stations. Additionally, our tickets are sold in Hong Kong
and major cities in the Guangdong Province through ticket agents, travel agents
and hotels, at our usual prices plus nominal commissions. Substantially all of
our tickets are sold in cash.

     Hong Kong Through Train tickets are sold in Guangdong Province through our
own ticket outlets, as well as through various hotels and travel agents. In Hong
Kong, these tickets

                                       25
<PAGE>
are sold exclusively by the MTR. As MTR's sales network for these tickets is
relatively limited, MTR has engaged the China Travel Service (HK) Ltd., or CTS,
as the primary agent for such sales on a non-exclusive basis. In 2003, we
established an online ticket sales system with MTR for the Hong Kong Through
Trains.

     In 2005, we initiated passenger flows connection between long-distance
trains in the Guangzhou area and Guangzhou-Shenzhen trains and in 2006, we
succeeded in introducing the IC Card Ticketing System.

     The current settlement method stipulated by the MOR for passenger
transportation provides that all revenues from passenger train services
(including revenues generated from luggage and parcel services) are considered
passenger transportation revenues and belong to the railway administration that
operates that train. The railway administration in turn pays other railway
administrations the fees for the use of their rail lines, hauling services,
in-station passenger services, water supply, electricity for electric
locomotives and contact wire use fees, etc. Under this settlement method, the
railway administrations operating the long-distance train services are required
to pay us the following fees: (1) the portion of the revenues from the sale of
tickets that are higher than the PRC national railway standards due to our
special pricing standards; and (2) other fees including those for railroad line
usage, in-station passenger service, haulage service, power supply for electric
locomotives, usage fees of contact wires and water supply. This settlement
method does not apply to the settlement of our revenues from the passenger
trains between Guangzhou and Shenzhen, between Beijing and Hong Kong, between
Shanghai and Hong Kong, between Zhaoqing and Hong Kong and the Hong Kong Through
Trains. See "Item 4B. Business Overview -- Regulatory Overview -- Pricing"

FREIGHT TRANSPORTATION

     Generally, we collect payment for our freight service directly from our
customers. For inbound freight, we collect transportation fees incurred on our
line from the receiving party prior to the release of the freight. For outbound
freight, we collect the total transportation fees from the dispatching party,
retain the portion allocated to us and remit the remainder to the other railroad
operators on a monthly basis either directly or through a national settlement
procedure administered by the MOR. These collection procedures also apply to
freight transported to or from Hong Kong. Substantially all payments for inbound
and outbound freight are settled in cash.

     For pass-through freight, payments are collected at the originating
stations, and allocated portions for the use of our rail line are remitted to us
through the national settlement procedure administered by the MOR. We generally
receive such funds within a month after the service is provided.

     Freight customers in the Guangzhou-Shenzhen area either deal directly with
us or use shipping agents. As a practical matter, we have been able to meet
demands for outbound freight transportation services on a shorter notice.

     In January 2005, the MOR modified the settlement method on the income from
railway freight transportation. Pursuant to the new settlement methods, starting
from January 1, 2005, all

                                       26
<PAGE>
freight transportation fees relating to post parcels and luggage, containers and
special goods shall be collected by Zhongtie Parcels Courier Company Limited,
Zhongtie Container Transportation Company Limited and Zhongtie Special Goods
Transportation Company Limited, or collectively the Professional Transportation
Companies. The Professional Transportation Companies shall pay railway usage
fees to relevant railway administration and companies, including us. Prior to
January 1, 2005, we charged freight transportation fees for these post parcels
and luggage based on the categories of goods and distance of transportation;
while after January 1, 2005, we collect railway usage fees from the Professional
Transportation Companies. In order to make itemized revenue from freight match
freight volume, and remain comparable with previous years, these railway usage
fees have been recorded, as appropriate, as revenues generated from freight
dispatch, as well as freight reception and transit, based on the freight
dispatched or received and transited. The modifications in the settlement method
have not had a material effect on our revenues from freight transportation.

COMPETITION

     We are the sole railway service provider on the Shenzhen-Guangzhou-Pingshi
corridor; therefore, we do not face any direct competition from other railway
service providers within our service territory. However, in areas where our
railroad connects with lines of other railway companies, such as in the
Guangzhou area, where our railroad connects with the Beijing-Guangzhou Line, and
in the Dongguan area, where our railroad connects with the Guangzhou-Meizhou-
Shantou Line, we face competition from the railway companies operating in these
areas. We also face competition from the providers of a variety of other means
of transportation within our service territory.

     With respect to passenger transportation, we face competition from bus
services, which are available between Guangzhou and Hong Kong and between
Guangzhou and Shenzhen. Bus fares are lower than the fares for our high-speed
passenger train services. Furthermore, buses can offer added convenience to
passengers by departing from or arriving at locations outside their central
terminals, such as hotels. However, train services generally offer greater
speed, safety and reliability than bus services. In addition, since the
implementation of our "As-Frequent-As-Buses" Train Project in October 2001, our
high-speed train services and Through Train services have enabled us to compete
more effectively with bus operators in terms of speed and frequency. We also
compete to a lesser extent with commercial air passenger transportation services
and ferry services operating between Guangzhou and Hong Kong.

     With respect to freight transportation, we face increasing competition from
truck transportation in the medium- and short-distance freight transportation
market as the expressway and highway networks in our service region and
neighboring areas have increasingly improved. By comparison, in the
long-distance freight transportation market, especially in the areas where water
transportation is not well developed, we offer many advantages compared to truck
transportation due to the higher cost of truck transportation, susceptibility of
truck transportation to traffic conditions and a scarcity of heavy duty trucks.
Our freight transportation also competes with water transportation as the
waterway networks have increasingly improved. Supported by its more extensive
network, railway freight transportation is more competitive in terms of speed
and safety compared to water transportation, especially in those areas that are
far from coasts and main waterways. As air freight is very expensive and
attracts a different group of customers, we

                                       27
<PAGE>
do not consider that our freight transportation services face significant
competition from air freight. In China, a significant portion of the bulky
freight with low added-value is still transported by railroad.

EQUIPMENT, TRACKS AND MAINTENANCE

     As of December 31, 2007, we owned 30 high-speed diesel locomotives, 56
regular-speed passenger diesel locomotives, 55 freight diesel locomotives, 50
shunting locomotives, 113 high-speed electric passenger train, one X-2000
high-speed EMU, 449 high-speed passenger coaches, 953 regular-speed passenger
coaches and seven trial locomotives. In addition, we currently own 13 high-speed
Bombardier EMUs (also known as "Concords").

     The freight cars we use are all leased from the MOR, to which we pay
uniform rental fees and depreciation fees based on the national standards set by
the MOR. The amounts of such usage fees and depreciation charges we paid to the
MOR in 2005, 2006 and 2007 were approximately RMB50.8 million, RMB40.8 million
and RMB156.6 million, respectively.

     From September 2000, we began to lease eight "Blue Arrow" high-speed
electric train-sets from Guangzhou Zhongche to facilitate the development of our
"As-Frequent-As-Buses" Train Project. We paid the lessor RMB99.6 million,
RMB106.6 million and RMB53.3 million, in 2005, 2006 and 2007, respectively,
under the lease. Given that it was anticipated that the EMUs would be delivered
to us at later times in 2007, we renewed the lease agreement for another year
with Guangzhou Zhongche on June 22, 2006. The term of renewal is 12 months and
the rent is settled monthly. All of these lease agreements have expired between
June 2007 and December 2007 and we did not extend the term of these lease
agreements.

     From April 2007, we started the operation of the EMUs. Each EMU has the top
speed of 200 kilometers per hour and we believe that the introduction of EMUs
has strengthened our capability to deliver safety, speed, comfort and quality in
our transport services and increased our efficiency and competitiveness.

     Our repair and maintenance facilities, including our Guangzhou passenger
vehicle maintenance facility, Shipai passenger vehicle maintenance facility and
Guangzhou North vehicle maintenance facility, provide services for general
maintenance and routine repairs on our coaches and locomotives. Major repairs
and overhauls are performed by manufacturers or qualified railway
administrations or plants. The repair and maintenance services for the EMUs are
provided by our Guangzhou East Concord operation department.

     We believe that our existing tracks and equipment meet the needs of our
current business and operations. Most of the rails and ties on our main lines
have been installed within the last nine years, and are maintained and upgraded
on an ongoing basis as required In 2005, we replaced 23,203 pieces of various
types of ties, 2.45 kilometers of high-speed wire rod rail, 566 pieces of
mainline rails and receiving and dispatching rail, 344 sets of receiving and
dispatching center switches and 1.56 kilometers of signal cable. In addition, we
also screened certain ballast beds. In 2006 and early 2007, as part of our
Fourth Rail Line construction, we made improvements to 24.6 kilometers of
railroad.

                                       28


<PAGE>
     On January 1, 2007, the railway transportation business of the
Guangzhou-Pingshi Railway came under our control. As a result of this
Acquisition, our operation has expanded from a regional railway to a national
trunk line network. Our operating railway distance has been extended from 152
kilometers to 481.2 kilometers, running vertically through the entire Guangdong
Province. In addition, the expansion of our operation scale and scope of
passenger and freight services as described above will allow us to benefit from
greater economics of scale in our operations.

     In 2007, we completed the construction of the Fourth Rail Line. The Fourth
Rail Line allows high-speed passenger trains and other passenger and freight
trains to run on separate lines, thus improving the transportation capacity of
high-speed passenger trains, domestic long-distance trains and freight trains.

SUPPLIERS AND SERVICE PROVIDERS

     We purchase our locomotives and coaches, as well as most other railway
equipment and materials, directly from China Northern Locomotive & Rolling Stock
Industry (Group) Corporation, China Southern Locomotive & Rolling Stock Industry
(Group) Corporation and China Railway Materials and Supplies Corporation, all of
which are state-owned enterprises. In addition, we purchased the EMUs from
Bombardier Sifang Power (Qingdao) Transportation Ltd., a sino-foreign equity
joint venture, and Bombardier Sweden Transportation Ltd. We also purchase
equipment from foreign vendors or other domestic suppliers. We are not
materially dependent upon any overseas suppliers.

     We lease a portion of the locomotives and rolling stock that are used in
our transportation operations from GRGC and its subsidiaries, which also provide
services for these locomotives and rolling stock under contracts which stipulate
fees based on a cost plus profit formula. The profit portion is fixed for a
10-year term of the relevant contract at 8% of costs. Costs include all actual
costs related to providing and servicing the locomotives and rolling stock.
Because such costs are affected by inflation, we are subject to inflationary
risks in connection with our payment obligations under these contracts. GRGC and
some of its subsidiaries, such as Guangmeishan Railway Company, have similar
agreements with us to provide services and assistance with respect to our
railroad operations. In addition, GRGC was the project manager of the
construction of the Fourth Rail Line. GEDC provides public security and housing
for our employees and their families under a contract and in exchange for fee
payments. In the second half of 2004, all of the hospitals and schools
originally vested in GEDC were transferred to the local government pursuant to
applicable PRC policies. As a result, GEDC no longer provides any education and
hospital services to us as contemplated under the contractual arrangements made
upon our Restructuring.

     Under the Rules Governing the Listing of Securities on the Hong Kong
Exchange, or the HKSE Listing Rules, transactions between us and our connected
persons constitute connected transactions and such transactions are normally
subject to reporting, announcement and/or shareholders' approval unless
otherwise waived by the Hong Kong Exchange. Our independent non-executive
directors review and certify annually that these contracts are entered into on
normal commercial terms that are fair and reasonable to us. The above
transactions are exempted from the strict compliance of the requirements under
the HKSE Listing Rules in

                                       29
<PAGE>

relation to connected transactions, subject to certain conditions set forth in
the waiver letter issued by the Hong Kong Exchange. On January 13, 2006, we
entered into a provisional comprehensive services agreement with GRGC, or the
GRGC Provisional comprehensive services agreement, and a comprehensive services
agreement with GEDC, or the GEDC comprehensive services agreement, both of which
became effective on March 3, 2006 after being approved at our shareholders'
general meeting. On April 19, 2007, we and GEDC entered into a supplemental
agreement to the GEDC comprehensive services agreement that shortened the term
of the GEDC comprehensive services agreement to December 31, 2007 and increased
the annual cap on related party transactions from RMB76.4 million to RMB139.7
million. On December 27, 2007, the annual cap for the services provided by
Yangcheng Railway Company in the year ended December 31, 2007 was approved by
our independent shareholders at the second extraordinary shareholders' general
meeting to be increased from RMB260 million to RMB389 million.  Meanwhile, the
second extraordinary shareholders' general meeting also approved the new
comprehensive service agreements that we entered with GRGC, GEDC and Yangcheng
Railway Company on November 5, 2007 and the annual caps for the related-party
transactions between us and each of GRGC, GEDC and Yangcheng Railway Company
for the years ended December 31, 2008, 2009 and 2010.

     In 2007, the total amount of the payments we made to GRGC and its
subsidiaries accounted for 12.2% of our railroad business operating costs for
the year. In addition, project management fee of RMB9.3 million was paid to GRGC
for managing the construction of the Fourth Rail Line. See "Item 7B. Related
Party Transactions."

     The electricity we use, including electricity used for our lines, is
supplied through various entities under the jurisdiction of the Guangdong
provincial power bureau on normal commercial terms. In 2006 and 2007, we paid
approximately RMB130.7 million and RMB402.6 million, respectively, in
electricity charges.

     In 2007, the PRC National Audit Office, or the NAO, conducted an audit of
the railway bureaus and railway companies under the control of the MOR,
including GRGC, our largest shareholder, and certain railway construction
projects, including our construction of the Fourth Rail Line. In addition, as
part of its audit of GRGC, the NAO also conducted an audit of our Company, which
mainly focuses on our business transactions with GRGC. The NAO has completed the
audit of GRGC and our construction of the Fourth Rail Line. Such audit did not
result in material adverse effect on the business of our Company.

     Our five largest customers accounted for less than 30% of our revenue and
our five largest suppliers of raw materials accounted for less than 30% of our
purchases in 2007.

REGULATORY OVERVIEW

     As a joint stock limited company with publicly traded shares, we are
subject to regulation by the PRC securities regulatory authorities with respect
to our compliance with PRC securities laws and regulations. We are also subject
to industry regulation by the MOR within the overall framework of the PRC
national railway system.

NATIONAL RAILWAY SYSTEM

     Railroads in the PRC fall largely into three categories: state-owned
railroads, jointly owned railroads and local railroads. State-owned railroads
are invested by the central government of the PRC and are managed directly by
the MOR. The state-owned railway system comprises over 70% of all rail lines,
including all trunk lines. Jointly owned railroads are jointly invested and
operated by the central government of the PRC, the local government and other
foreign or domestic investors. Local railroads consist of regional lines usually
within provincial or municipal boundaries that have been constructed under the
sponsorship of local governments or local enterprises to serve local needs. The
state-owned railway system operates as a

                                       30
<PAGE>

nationwide integrated system under the supervision and management of the MOR.
Although the MOR does not operate other railroads, it provides guidance,
coordination, supervision and assistance with respect to industry matters to
such other railroads. The MOR's responsibilities include the centralized
coordination of train routing and scheduling nationwide, planning of freight
shipments and freight car allocations, overseeing equipment standardization and
maintenance requirements, and financial oversight and revenue clearing
throughout the national railway system.

     Prior to March 18, 2005, the MOR divided the national railway system into
15 regions, each overseen and operated by a separate railway administration, or
group companies. Ten of these 15 administrations were further subdivided on a
geographical basis into 41 railway sub-administrations, or general companies. On
March 18, 2005, the MOR issued a notice, pursuant to which all general companies
were dissolved and three new group companies were established. As a result, the
number of group companies increased to 18. Group companies are directly
responsible for passenger and freight transportation as well as the coordination
and supervision of operations carried out by train stations.

TRANSPORT OPERATIONS

     The transport operations of the PRC national railway system are organized
under the centralized control and management of the MOR. In order to promote
efficient utilization of the railroad network nationwide, the MOR directly
manages and coordinates traffic flow on national trunk lines and through any
connection points, where two rail lines operated by different companies connect
to each other, in the system. Based on route capacity, available equipment and
national priorities, the MOR allocates to the 18 group companies authority to
make routings on trunk lines, allocates numbers and types of freight cars to the
group companies and specifies requirements to dispatch empty freight cars to
designated locations in order to facilitate freight car circulation within the
national railway system. Within the allocations set by the MOR, each group
company and administration manages and coordinates traffic within its own
jurisdiction.

     Our passenger and freight operations that involve long-distance routing
beyond our own lines, such as the routing of freight trains to Shanghai, are
conducted, in general, pursuant to quota allocations from GRGC based on the
quota allocations GRGC receives from the MOR. The plans and schedules for our
passenger and freight services that are conducted solely on our own lines are
determined by ourselves; while our passenger and freight services that run
beyond our own lines are subject to overall planning and scheduling of GRGC
and/or the MOR.

     Since March 1996, the MOR and GRGC have provided us with substantially
greater latitude in our transportation operations. In particular, we were
granted sufficient autonomy over passenger services on our own line, including
autonomy over speed, frequency and train car mix. Pursuant to this authority, we
have implemented a strategy of scheduling more high-speed trains, running
shorter passenger trains more frequently, and adjusting the train schedules on
our line to meet passenger demand. On October 21, 2001, we successfully launched
our "As-Frequent-As-Buses" Train Project, which provides intercity express train
services. As of December 31, 2007, the total number of intercity express trains
running daily between Guangzhou and Shenzhen was 80 pairs. We currently have 102
pairs of long-distance trains and 13 pairs of Hong Kong Through Trains.

                                       31
<PAGE>

     Where our service runs beyond our own line, clearance by and coordination
with GRGC is necessary. To the extent that we operate long-distance services
beyond GRGC's jurisdiction, they are subject to coordination and clearance by
the MOR. In addition, in order to enable GRGC and the MOR to allocate freight
cars and control traffic going through connection points, we are required to
provide GRGC with prior written notice, on a monthly basis, of the number and
types of freight cars we will require, as well as the number of our freight
trains that will go through particular connection points. Furthermore, we must
still carry out special shipping tasks, such as emergency aid and military and
diplomatic transport, as directed by the MOR or GRGC. Revenues from military and
diplomatic transport generally account for less than 1% of our total
transportation revenues. Emergency aid transport is required only during periods
of rare natural disasters declared by the PRC government, and is provided free
of charge.

PRICING

     In general, the MOR is responsible for preparing a proposal for the
baseline pricing standards for the nationwide railway system with respect to
freight and passenger transportation. Such proposed pricing standards will take
effect after being approved by and/or filed with relevant PRC government
authorities.

     Pursuant to relevant approvals from the MOR and other relevant PRC
government authorities, we have some discretion to adjust and determine our
service price. With respect to our freight transportation services within our
own lines, we may set our prices within a range between 50% and 150% of national
price levels. With respect to our passenger transportation services, we may set
the prices for our regular speed Guangzhou-Shenzhen trains within a range
between 25% and 225% of national price levels, and may freely determine the
prices for our high-speed express trains between Guangzhou and Shenzhen. In
addition, we set the prices for our Hong Kong Through Trains in consultation
with MTR, our business partner and the prices for our Hong Kong Through Trains
are higher than the prices we charge for our domestic train services.

ENVIRONMENTAL PROTECTION

     We believe that we are in material compliance with all applicable PRC
national and local environmental protection laws and regulations. We have not
been fined or cited for any activities that have caused environmental damages.
We have six wastewater treatment facilities used for purposes of treating
wastewater generated from cleaning of special cargo freight cars, locomotives,
coaches and from residential use of our employees. We pay regular fees to local
authorities for the discharge of waste substances. In 2007, our environmental
protection-related expenses were approximately RMB3.6 million as compared to
RMB1.1 million in 2006.

INSURANCE

     Pursuant to applicable PRC regulations, we are liable for the compensation
to passengers for bodily injury arising from accidents up to the limit of
RMB150,000/person and RMB2,000 for lost baggage and/or carry-on parcels. With
respect to loss of or damage to baggage, parcels and freight, our customers may
elect to purchase insurance administered by the MOR for up to their declared
value. Passengers who do not elect to purchase insurance in respect of their

                                       32
<PAGE>

baggage and/or parcels may nevertheless recover up to RMB15 for each kilogram of
damaged or lost baggage and/or parcels. Similarly, freight transport customers
who elect not to purchase insurance may recover up to RMB100 for each tonne of
damaged or lost freight if insured by weight or RMB 2,000 for each package if
insured by package.

     We do not currently maintain any insurance coverage with third party
carriers against third party liabilities. Consistent with what we believe to be
the customary practice among railway operators in the PRC, we do not maintain
insurance coverage for our property and facilities (other than for our
automobiles), for business interruption or for environmental damage arising from
accidents on our property or relating to our operations. As a result, in the
event of an accident or other event causing loss, destruction or damage to our
property or facilities, causing interruption to our normal operations or causing
liability for environmental damage or clean-up, we will have to cover losses and
damages out of our own pockets. See "Item 3D. Risk Factor -- Risks Relating to
Our Business -- We have very limited insurance coverage".

     All the full-time employees are entitled to pension payments from a
statutory pension scheme equal to their basic salaries payable upon their
retirement until their death. Pursuant to the applicable PRC laws and
regulations, contributions to the basic life insurance for our local employees
are to be made monthly to a government agency based on 26% of the standard
salary set by the provincial government, of which 18% is paid by us and the
remainder 8% is paid by the employee. The government agency is responsible for
the pension liabilities due to such employee upon their retirement. In addition,
we have taken out work-related personal injury insurance policies and
child-bearing insurance for our employees.

ITEM 4C. ORGANIZATIONAL STRUCTURE

     The following table lists the significant subsidiaries of Guangshen Railway
Company Limited as of December 31, 2007:

<Table>
<Caption>
                                                                   COUNTRY OF       PERCENTAGE OF INTEREST
                           NAME                                   INCORPORATION    HELD BY GUANGSHEN RAILWAY
--------------------------------------------------------------    -------------    -------------------------

<S>                                                               <C>              <C>
DIRECTLY HELD BY THE COMPANY

Guangzhou East Station Dongqun Trade and Commerce Service             PRC                   100%
 Company
Shenzhen Fu Yuan Enterprise Development Company                       PRC                   100%
Shenzhen Guangshen Railway Travel Service Ltd.                        PRC                   100%
Shenzhen Jing Ming Industrial & Commercial Company Limited            PRC                   100%
Shenzhen Longgang Pinghu Qun Yi Railway Store Loading and             PRC                    55%
 Unloading Company
Dongguan Changsheng Enterprise Company                                PRC                    51%
Shenzhen Railway Station Passenger Services Company Limited           PRC                   100%
Guangzhou Tielian Economy Development Company Limited                 PRC                  50.50%

INDIRECTLY HELD BY THE COMPANY(1)

Shenzhen Nantie Construction Supervision Company                      PRC                   100%
Shenzhen Guangshen Railway Economic and Trade Enterprise              PRC                   100%
 Company
Shenzhen Railway Property Management Company Limited                  PRC                   100%
</Table>

----------

(1) In 2007, we liquidated Shenzhen Yuezheng Enterprise Company Limited and
Shenzhen Road Multi-modal Transportation Company Limited, which used to be our
indirect wholly owned subsidiaries, and we recorded a disposal loss of RMB
897,000 and RMB 166,000, respectively.

                                       33
<PAGE>
ITEM 4D. PROPERTY, PLANT AND EQUIPMENT

     We occupy a total area of approximately 39.8 million square meters, among
which, we own the land use right of approximately 11.8 million square meters on
which our buildings and facilities of Guangzhou-Shenzhen railway are located,
and we lease approximately 28.0 million square meters from GRGC for the
Guangzhou-Pingshi Railway.

     With respect to the land for which we hold the land use rights, the terms
range from 36.5 to 50 years, terminating between 2031 and 2055. Pursuant to
relevant PRC regulations currently in effect, these land use rights are
renewable at the end of their terms upon execution of relevant documentation and
payment of applicable fees. With respect to the land leased from GRGC, the term
is 20 years, terminating in 2027.

     As of December 31, 2007, land use right certificates, or Land Certificates,
of certain parcels of land of the Company with an aggregate area of
approximately 1,540,424 square meters had not been obtained. After consultation
made with the Company's legal counsel, the directors consider that there is no
legal obstacle for the Company to apply for and obtain the Land Certificates and
it should not lead to any material adverse impact on the operations of the
Company. The Company is in the process of applying for these certificates.
Accordingly, no provision for impairment was considered necessary.

     In addition, as of December 31, 2007, ownership certificates of certain
buildings, or Building Ownership Certificates, of the Company with an aggregate
area of approximately 305,364 square meters had not been obtained by the
Company. After consultation with the Company's legal counsel, the directors of
the Company consider that there is no legal obstacle for the Company to apply
for and obtain the Building Ownership Certificates and it should not lead to any
material adverse impact on the operations of the Company. The Company is in the
process of applying for these certificates. Accordingly, no provision for fixed
assets impairment was considered necessary.

     Railroad operators typically require substantial land use rights for track,
freight and maintenance yards, stations and related facilities. The availability
of convenient rail transportation generally enhances the value of land along a
rail line. We have not engaged and do not have any current plans to engage in
commercial development of any of our land use rights for use other than in
connection with our existing businesses. We do not at present intend to
contribute capital to engage in any land development projects in the future.
However, we may contribute land use rights not otherwise being fully utilized by
us for equity stakes in these projects if we believe these opportunities are
economically viable. Any development projects will require approval from PRC
government authorities responsible for regulating land development.

     As of December 31, 2007, we had 49 stations situated on our rail line, of
which the Guangzhou East Station is the largest, occupying an area of 402,438
square meters.

     For additional information regarding our property, plant and equipment, see
"Item 4B. Business Overview -- Equipment, Tracks and Maintenance" and Notes 6
and 8 to our audited consolidated financial statements included elsewhere in
this annual report.

                                       34
<PAGE>

ITEM 4A. UNRESOLVED STAFF COMMENTS

     We do not have any unresolved Staff comments that are required to be
disclosed under this item.

                                       35
<PAGE>

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

This discussion and analysis should be read in conjunction with our consolidated
financial statements contained elsewhere in this annual report. Our audited
consolidated financial statements are prepared in accordance with International
Financial Reporting Standards as issued by IASB.

OVERVIEW

     Our principal businesses are railroad passenger and freight transportation
as well as railway network usage and service on the Shenzhen-Guangzhou-Pingshi
railway and certain long-distance passenger transportation services. We also
operate the Hong Kong Through Trains under a cooperative arrangement with MTR in
Hong Kong. Prior to the Acquisition, our key strategic focus in recent years was
to provide high-speed passenger train services in the Guangzhou-Shenzhen
corridor. In addition to our core railroad transportation business, we also
engage in other businesses that complement our core businesses, including
on-board and station sales, restaurant services, as well as advertising and
tourism.

     For the year ended December 31, 2007, our total revenues were RMB10,508.5
million, profit attributable to shareholders was RMB1,431.4 million, and
earnings per share were RMB 0.20. Railroad business revenues accounted for
94.6%, 96.4% and 93.4% of our total revenues in 2005, 2006 and 2007,
respectively.

     In 2007, we acquired the railway transportation business of Guangzhou-
Pingshi Railway, which was financed with the proceeds from the A Share Offering.
We also commenced operation of our Fourth Rail Line between Guangzhou and
Shenzhen, put into operation our domestically manufactured high-speed electric
train sets and continued to implement our "As-Frequent-As-Buses" Train Project.
In addition, we made improvements to our corporate governance and safety
procedures.

     Passenger transportation is our principal business.

     In 2007, the total number of passengers was 73.1 million, representing an
increase of 103.1% from 2006; passenger transportation revenues were RMB5,833.5
million, representing an increase of 123.6% from 2006.

     We transported a total of 71.0 million tonnes of freight in 2007,
representing an increase of 131.2% from 2006. Freight transportation revenues in
2007 were RMB1,326.5 million, representing an increase of 134.5% compared to
2006.

     Revenues from our other businesses were RMB689.0 million in 2007,
representing an increase of 435.8% from 2006.

     On January 1, 2007, the railway transportation business of the
Guangzhou-Pingshi Railway became under the control of the Company. Accordingly,
the Company considers January 1, 2007 as the effective date of acquisition for
accounting purposes.

                                       36
<PAGE>

     Prior to the A Share Offering, Yangcheng Railway Company and the Company
were both controlled by the MOR, as the MOR indirectly held controlling
interests in both companies. Subsequent to the A Share Offering in December
2006, the equity interest of the MOR in the Company reduced to approximately
41%. On January 1, 2007, Yangcheng Railway Company and the Company were no
longer under common control. As a result, such transaction does not constitute a
business combination under common control, because the Company and Yangcheng
Railway Company are not ultimately controlled by the same party, i.e., the MOR,
both before and after the business combination. Accordingly, the transaction has
been accounted for using the purchase method of accounting with the acquired
identifiable assets, liabilities and contingent liabilities stated at their
respective fair values as at the date of acquisition.

     We have engaged qualified accountants to conduct an audit of the acquired
assets to determine the final consideration for the purpose of determining the
remaining amount to be paid to Yangcheng Railway Company. In addition, we have
also engaged an appraisal company to assess the respective fair values of the
identifiable assets and liabilities acquired as at January 1, 2007. We paid
RMB10.14 billion to Yangcheng Railway Company for the Acquisition, of which
RMB5.27 billion was paid on December 28, 2006 and RMB4.87 billion was paid on
June 29, 2007. We believe that the completion of the Acquisition will have a
material impact on the operating scale, financial position and operating results
of our Company. Details of the Acquisition and its impact on the Company are set
out in Notes 36(b) and 38 to our audited consolidated financial statements
included elsewhere in this annual report.

ITEM 5A. RESULTS OF OPERATIONS

PRINCIPAL FACTORS AFFECTING OUR RESULTS OF OPERATIONS

     Economic Development in the Pearl River Delta Region and the PRC. We are
mainly engaged in railway passenger transportation services on the trains
between Guangzhou and Shenzhen, certain long-distance trains and Hong Kong
Through Trains. Our results of operations relating to passenger transportation
are influenced by the economic development in the Pearl River Delta region. The
level of economic activities in the Pearl River Delta region, including the
economic cooperation among Hong Kong, Macau and mainland China, affects the
number of business people traveling in this region. In addition, the average
income levels of residents in this region and elsewhere in the PRC affects the
number of the tourists departing from or arriving at our train stations. The
majority of the freight we transport is large-volume, medium- to long-distance
freight received from and/or transferred to other railway lines. Economic
development in the PRC, including but not limited to the Pearl River Delta
region, determines the market demand for such goods as coal, iron ore, steel and
therefore indirectly affects the market demand of freight train transportation
service.

     Acquisition of the Guangzhou Pingshi Railway. In 2007, we acquired the
railway transportation business of Guangzhou-Pingshi Railway, which is the
southernmost section of the Beijing-Guangzhou line. As a result, our operations
have expanded from a regional railway to a national trunk line network. Our
revenues have increased significantly as a result of such Acquisition.

                                       37
<PAGE>

     Competitive Pressure from other Means of Transportation. Sales for our
passenger transportation services are also affected by the competitive pressure
from other means of transportation, such as the automobile, bus, ferry and
airplane services. For example, the fast growth in the number of privately owned
vehicles and a higher penetration of bus services affect the number of train
passengers traveling short distances; and any significant decrease in the air
transportation prices affects the number of train passengers traveling long
distances. Our sales of the freight transportation services are also affected by
the competition from other means of transportation, such as water, truck and
freight transportation services.

     PRC Policies. We are allowed to be more flexible in setting the prices of
both passenger transportation and the freight transportation services as
compared to other domestic railroad operators. Material changes in the policies
of the PRC government that affect such preferential treatments will affect our
results of operations.

REVENUES

     In 2007, our total revenues were RMB10,508.5 million, representing an
increase of 192.4% from RMB3,594.5 million in 2006. Our revenues from railroad
passenger transportation service, freight transportation service, railway
network usage and services and other businesses were RMB5,833.5 million,
RMB1,326.5 million, RMB2,659.5 and RMB689.0 million, respectively, accounting
for approximately 55.5%, 12.6%, 25.3% and 6.6%, respectively, of our total
revenues in 2007.

     Passenger transportation service. Passenger transportation remains our most
important business. As of December 31, 2007, we operated 195 pairs of passenger
trains daily, representing an increase of 72 pairs from the number in operation
as of December 31, 2006. There were 80 pairs of high-speed passenger trains
between Guangzhou and Shenzhen, 13 pairs of Hong Kong Through Trains and 102
pairs of long-distance passenger trains, an increase of 61 pairs compared to
2006.

     In 2007, our total number of passengers was 73.1 million, representing an
increase of 103.1% from 36.0 million in 2006. Our revenue from passenger
transportation was RMB5,833.5 million in 2007, representing an increase of
123.6% from RMB 2,608.8 million in 2006.

     The following table sets forth our revenues from passenger transportation
and the number of passengers for the three years ended December 31, 2007:

<Table>
<Caption>
                                                            YEAR ENDED DECEMBER 31,        CHANGE IN 2007 FROM
                                                       ---------------------------------   -------------------
                                                         2005        2006        2007            2006
                                                       --------    --------    --------         -------
<S>                                                    <C>         <C>         <C>         <C>
Revenue from passenger transportation
 (RMB millions) ..............................         2,253.34    2,608.84    5,833.54         123.6%
Total passengers (thousands)..................            33.00       35,98       73,05         103.1%
Revenue per passenger (RMB)...................            68.28       72.51       79.86          10.1%
Total passenger-kilometers (millions).........         4,539.10     4,842.7    26,278.2         442.6%
Revenue per passenger-kilometer (RMB).........             0.50        0.54        0.22         (59.3%)
</Table>

                                       38
<PAGE>

     Effective from April 18, 2007, we have also implemented a fare increase for
our soft-seat train fares on our Guangzhou-Pingshi Railway.

     Freight transportation. Freight transportation is another important
business segment for us. The total tonnage of freight we transported in 2007 was
71.0 million tonnes, representing an increase of 131.2% from 30.7 million tonnes
in 2006. Revenues from freight transportation business in 2007 were RMB1,326.5
million, representing an increase of 134.5% from RMB565.6 million in 2006. This
increase is primarily due to the acquisition of the railway transportation
business of the Guangzhou-Pingshi Railway.

     -    In 2007, our outbound freight tonnage was 19.1 million tonnes,
          representing an increase of 151.3% from 7.6 million tonnes in 2006.
          Our outbound freight revenues were RMB156.3 million, representing an
          increase of 7.9% from RMB144.8 million in 2006.

     -    In 2007, our inbound and pass-through freight tonnages were 51.955
          million tonnes, representing a decrease of 124.7% from 23.125 million
          tonnes in 2006. Our inbound and pass-through freight revenues were
          RMB1,071.2 million in 2007, representing an increase of 223.2% from
          RMB331.4 million in 2006.

     The following table sets forth our revenues from freight transportation and
the volumes of commodities we shipped for the three years ended December 31,
2007:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,           CHANGE IN 2007 FROM
                                                     ----------------------------------      -------------------
                                                      2005        2006          2007              2006
                                                     -------     -------      ---------           ----
<S>                                                  <C>         <C>          <C>            <C>
Revenue from freight transportation
 (RMB thousands)...............................      540,341     565,557      1,326,450          134.5%
- Revenues from outbound freight transportation      139,340     144,848        156,348            7.9%
- Revenues from inbound and pass-through
 transportation................................      307,962     331,477      1,071,205          223.2%
Total freight tonnes (thousands of tonnes).....       31,893      30,708         71,010          131.2%
- Outbound freight tonnage.....................        8,460       7,582         19,056          151.3%
- Inbound and pass-through freight tonnage.....       23,433      23,125         51,955          124.7%
Revenue per tonne (RMB)........................        16.94       18.42          18.68            1.4%
Total tonne-kilometers (millions)..............      2,294.8     2,276.3       15,306.9          527.4%
Revenue per tonne-kilometer (RMB)..............         0.24        0.25           0.09            (64%)
</Table>

     In 2007, we made the following adjustments to the prices of our freight
transportation services: (i) in accordance with the increase in the national
price levels for railway freight transportation initiated by the MOR, we
increased the prices of our freight transportation services accordingly; and
(ii) effective from January 10, 2007, our railway freight price applicable to
Guangzhou-Pingshi Railway became RMB0.087 per tonne-kilometer.

     Railway Network Usage and Service Business. Revenue from our railway
network usage and service accounted for 25.3% of our total revenues and 27.1% of
our railroad transportation revenues in 2007. Railway network usage and services
mainly include the locomotive traction, track usage, electric catenaries,
vehicle coupling and other services. Revenue from network usage and services
recorded within the "Passenger" and "Freight" category of revenue in the prior
years has been separately disclosed on the income statement in order to conform
to the current year presentation. In 2007, our revenue from railway network
usage and services was

                                       39
<PAGE>
RMB2,659.5 million, representing an increase of 812.4% from RMB291.5 million in
2006. The rapid increase was mainly due to the acquisition of the railway
transportation business of Guangzhou-Pingshi Railway at the beginning of 2007.

     Other Businesses. Our other businesses mainly consist of repair and
maintenance services (mainly for repair of locomotives), sales of goods and
food on board and in stations, operation of restaurants and hotels, operation
of warehouses, loading and discharging, providing advertising boards in our
stations and railway-related construction. Revenues from other businesses in
2007 were RMB689.0 million, representing an increase of 435.8% from RMB128.6
million in 2006. The substantial increase in revenues from other businesses
was mainly due to the incorporation of the business of Guangzhou-Pingshi
Railway.

     The table below sets forth a breakdown of our revenues from the different
categories of other businesses for the three years ended December 31, 2007:

<Table>
<Caption>
                                                 YEAR ENDED DECEMBER 31,
                                               --------------------------
                                                2005       2006      2007
                                               -----      -----     -----
                                                      (RMB MILLIONS)
<S>                                            <C>         <C>      <C>
Repair and maintenance service(1).......          --         --     255.2
On-board and station sales..............        29.2       33.8      65.0
Station services........................        39.4       29.8       5.3
Other businesses........................       108.9       64.9     363.5
                                               -----      -----     -----
     Total..............................       177.5      128.6     689.0
                                               =====      =====     =====
</Table>

----------
(1)   We began to provide such services as a result of our acquisition of the
      railway transportation business of Guangzhou-Pingshi Railway.

OPERATING EXPENSES

     In 2007, our total operating expenses were RMB8,793.1 million, representing
an increase of 226.4% from RMB2,693.9 million in 2006. The following table sets
forth, as a percentage of our railroad revenues, the principal operating
expenses associated with our railroad businesses for 2005, 2006 and 2007:



<Table>
<Caption>
                                                YEAR ENDED DECEMBER 31,
                                             -----------------------------
                                               2005       2006       2007
                                             -------    -------    -------
<S>                                          <C>        <C>        <C>
Railroad businesses revenues
 (RMB millions) ..........................   3,099.5    3,465.9    9,819.5
Labor and benefits .......................        19%        21%        20%
Equipment leases and services ............        16%        18%        26%
Materials and supplies ...................         9%         8%        13%
Repair costs, excluding materials and
 supplies ................................         8%         6%         5%
Depreciation (and amortization of
 leasehold land payments) ................         9%         9%        10%
Utility and office expenses ..............         4%         3%         1%
Fee for social services ..................         3%         2%         4%
Others ...................................         4%         2%         3%
Operating expenses ratio(1) ..............        77%        73%        85%
Railroad businesses operating margin .....        23%        27%        15%
</Table>

----------
(1)  Total railroad operating expenses as a percentage of railroad businesses
     revenues.

     Railway Operating Expenses. Our total railway operating expenses increased
by 229.6% from RMB2,527.9 million in 2006 to RMB8,334.3 million in 2007. The
following sets forth a breakdown of major changes by line item:

                                       40
<PAGE>
     -    Business tax. Our business tax in 2007 was RMB221.8 million,
          representing an increase of 125% from RMB98.6 million in 2006. The
          increase was mainly due to the incorporation of the business of
          Guangzhou-Pingshi Railway.

     -    Labor and benefits. In 2007, our labor and benefits expenses amounted
          to RMB1,928.2 million, representing an increase of 168.5% from
          RMB718.0 million in 2006. The increase was mainly due to (i) the
          incorporation of the business of Guangzhou-Pingshi Railway; (ii) the
          implementation of the performance based salary policy and the steady
          improvement of operating results in 2007 which resulted in an overall
          increase in employees' salaries and benefits; (iii) the increase in
          the number of related operation staff and workload as a result of the
          increase in the number of long-distance trains in operation during the
          year; and (iv) pursuant to an early retirement scheme we implemented
          in 2006, certain employees who meet certain criteria were provided
          with an offer to retire early and enjoy certain early retirement
          benefits, such as payments of basic salary and other fringe benefits
          until they reach the statutory retirement age. Under the terms of that
          scheme, all applications are subject to our approval. Expenses
          incurred on such employee early retirement benefits have been
          recognized in the income statement when we approved such applications
          from the employees. We recorded such expenses in the amount of RMB63.3
          million in the year ended December 31, 2007.

     -    Materials and supplies. Our materials and supplies expenses consist
          mainly of materials, fuel, water and electricity expenses. In 2007,
          our materials and supplies expenses were RMB1,240.8 million,
          representing an increase of 362.5% from RMB268.3 million in 2006. The
          increase was mainly due to the incorporation of the business of
          Guangzhou-Pingshi Railway.

     -    Depreciation. Our depreciation expenses of fixed assets increased by
          217.2% from RMB317.4 million in 2006 to RMB1,006.7 million in 2007,
          mainly due to the increase in the fixed assets during the year as a
          result of the Acquisition.

     -    Repair (excluding materials and supplies). Our repair expenses
          increased by 116.6% from RMB212.4 million in 2006 to RMB460.1 million
          in 2007, primarily due to the acquisition of the railway
          transportation business of Guangzhou-Pingshi Railway.

     -    Equipment leases and services. Our expenses on equipment leases and
          services mainly consist of railway line usage fees, train hauling fees
          and train leasing fees paid to other railway administrations. In 2007,
          our expenses relating to equipment leases and services amounted to
          RMB2,595.2 million, representing an increase of 310.0% from RMB633.0
          million in 2006. This was mainly due to (i) the incorporation of the
          business of Guangzhou-Pingshi Railway; (ii) the increase in operation
          of long-distance passenger trains, which led to the corresponding
          increase in railway usage fees; and (iii) the increase in the number
          of temporary passenger trains operated during the Spring Festival
          season in 2007, which led to the increase of related equipment leases
          and services fees.

     -    Social services. Our social services fees in 2007 were RMB396.8
          million, representing an increase of 432.5% from RMB74.5 million in
          2006. The increase

                                       41
<PAGE>
          was primarily due to the incorporation of the business of
          Guangzhou-Pingshi Railway.

     -    Utility and office expense. Our utility and office expense increased
          by 6.6% from RMB102.9 million in 2006 to RMB109.8 million in 2007.
          This was mainly due to the incorporation of the business of
          Guangzhou-Pingshi Railway.

PROFIT FROM OPERATIONS

     Our profit from operations increased by 82.9% from RMB965.2 million in 2006
to RMB1,765.2 million in 2007 due to the increase in our total revenues without
a proportional increase in our related expenses.

TAXATION

     As we are registered and established in the Shenzhen Special Economic Zone,
before January 1, 2008, we were subject to income tax at a rate of 15%.
According to relevant tax regulations, our subsidiaries were subject to income
tax at the rate of either 15% or 33%, depending on the location of
incorporation. Our income tax expense was RMB232.3 million in 2007, representing
an effective tax rate of 13.9% and an increase of RMB83.1 million compared to
RMB149.2 million in 2006.

     On March 16, 2007, the National People's Congress of the PRC promulgated
the PRC Enterprise Income Tax Law, or the new EIT Law, which has taken effect
from January 1, 2008. According to the new EIT Law, the preferential income tax
rate of 15% that was applicable to companies incorporated in Shenzhen (like us)
and other special economic zones will be gradually phased out in five years
beginning from January 1, 2008. During the five years, tax rates will be 18%,
20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011 and 2012, respectively. After
such five-year period and effective from January 1, 2012, the tax rate
applicable to us will be fixed at 25%, i.e., the unified income tax rate
applicable to all domestic companies in the PRC (with limited exceptions).

PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY

     Our consolidated net profit increased by 85.5% from RMB771.5 million in
2006 to RMB1,431.4 million in 2007.

YEAR ENDED DECEMBER 31, 2006 COMPARED WITH YEAR ENDED DECEMBER 31, 2005

REVENUES

     In 2006, our total revenues were RMB3,594.5 million, representing an
increase of 9.7% from RMB3,276.9 million in 2005. Revenues from our passenger
transportation service, our freight transportation service, railway network
usage and service and our other businesses accounted for 68.8%, 16.5%, 9.3% and
5.4%, respectively, of our total revenues in 2006. Revenues from our passenger
transportation service, freight transportation service and our railway network
usage and service accounted for 72.7%, 16.5% and 10.8%, respectively, of our
revenues from our railroad transportation businesses in 2006.

                                       42
<PAGE>
     Since our revenues from railway network usage and service were
insignificant before the acquisition of the railway transportation business of
Guangzhou-Pingshi Railway, we recorded such revenues within the "Passenger" and
"Freight" category of revenue in the years prior to the year ended December 31,
2007. Upon the acquisition of the railway transportation business of
Guangzhou-Pingshi Railway, our revenues from railway network usage and service
have become material. Our management decided to record the revenue from railway
network usage and service separately since the year ended December 31, 2007. In
order to conform to the current year presentation, we have adjusted the revenues
in the year ended December 31, 2005 and 2006 accordingly.

     Passenger transportation service. In 2006, our total number of passengers
was 35.9 million, representing an increase of 8.8% from 33.0 million in 2005.
Our revenue from passenger transportation was RMB2,608.8 million, representing
an increase of 15.8% from RMB2,253.3 million in 2005.

     Freight transportation. The total tonnage of freight transported by us in
2006 was 30.7 million tonnes, representing a decrease of 3.7% from 31.9 million
tonnes in 2005. In 2006, our revenues from freight transportation business were
RMB565.6 million, representing an increase of 4.7% from RMB540.3 million in
2005.

     -    In 2006, our outbound freight tonnage was 7.6 million tonnes,
          representing a decrease of 10.4% from 8.5 million tonnes in 2005. Our
          outbound freight revenues were RMB144.8 million, representing an
          increase of 3.9% from RMB139.3 million in 2005.

     -    In 2006, our inbound and pass-through freight tonnages were 23.125
          million tonnes, representing a decrease of 1.3% from 23.433 million
          tonnes in 2005. Our inbound and pass-through freight revenues were
          RMB331.5 million in 2006, representing an increase of 7.6% from
          RMB308.0 million in 2005.

     -    In 2006, our revenues from storage, loading and unloading and other
          miscellaneous items were RMB89.2 million, representing an increase of
          4.1% from RMB93.0 million in 2005.

     Railway Network Usage and Service. Our Revenues from railway network usage
and service in 2006 were RMB291.5 million, representing a decrease of 4.7% from
RMB 305.8 in 2005.

     Other Businesses. Our other businesses mainly consist of sales of goods and
food, advertising and tourism services on board and in stations. Revenues from
other businesses in 2006 were RMB128.6 million, representing a decrease of 27.5%
from RMB177.5 million in 2005. The substantial decrease in revenues from other
businesses was due to our disposal of some of our other businesses in 2006.

OPERATING EXPENSES

     In 2006, our total operating expenses were RMB2,693.9 million, representing
an increase of 6.5% from RMB2,529.7 million in 2005.

                                       43
<PAGE>
     Railway Operating Expenses. Our total railway operating expenses increased
by 8.1% from RMB2,529.7 million in 2005 to RMB2,693.9 million in 2006. The
following sets forth a breakdown of major changes by line item:

     -    Business tax. Our business tax in 2006 was RMB98.6 million,
          representing an increase of 13.9% from RMB86.6 million in 2005. The
          increase was mainly due to the increase in revenues of the Company.

     -    Labor and benefits. In 2006, our labor and benefits expenses amounted
          to RMB718 million, representing an increase of 20.2% from RMB597.3
          million in 2005. The increase was mainly due to (i) the implementation
          of the performance based salary policy and the steady improvement of
          operating results in 2006 resulting in an overall increase in
          employees' salaries and benefits; (ii) the increase in the number of
          related operation staff and workload as a result of the increase in
          the number of long-distance trains in operation during the year; (iii)
          pursuant to an early retirement scheme we implemented in 2006, certain
          employees who meet certain criteria were provided with an offer to
          retire early and enjoy certain early retirement benefits, such as
          payments of the basic salary and other fringe benefits, offered by the
          Company until they reach the statutory retirement age. Under the terms
          of that scheme, all applications are subject to our approval. Expenses
          incurred on such employee early retirement benefits have been
          recognized in the income statement when we approved such applications
          from the employees. We recorded such expenses in the amount of RMB22.4
          million in the year ended December 31, 2006.

     -    Materials and supplies. Our materials and supplies expenses consist
          mainly of materials, fuel, water and electricity expenses. In 2006,
          our materials and supplies expenses were RMB268.3 million,
          representing a decrease of 5.5% from RMB283.9 million in 2005. The
          decrease was mainly due to the reduction of materials used in repairs.

     -    Depreciation. Our depreciation expenses of fixed assets increased by
          9.8% from RMB289.2 million in 2005 to RMB317.4 million in 2006, mainly
          due to the increase in the fixed assets during the year.

     -    Repair (excluding materials and supplies). Our repair expenses
          decreased by 19.2% from RMB263.0 million in 2005 to RMB212.4 million
          in 2006, primarily due to the decrease in railway repair workload we
          outsourced to other companies during the year.

     -    Equipment leases and services. Our expenses on equipment leases and
          services mainly consist of railway line usage fees, train hauling fees
          and train leasing fees paid to other railway administrations. In 2006,
          our expenses relating to equipment leases and services amounted to
          RMB633 million, representing an increase of 24.7% from RMB507.6
          million in 2005. This was mainly due to (i) the increase in operation
          of long-distance passenger trains, which led to the corresponding
          increase in railway usage fees; and (ii) the increase in the number of
          temporary

                                       44
<PAGE>
          passenger trains operated during the Spring Festival season in 2006,
          which led to the increase of related equipment leases and services
          fees.

     -    Social services. Our social services fees in 2006 were RMB74.5
          million, representing a decrease of 4.7% from RMB78.2 million in 2005.
          The decrease was primarily due to the fact that we made a one-time
          payment of medical insurance expenses to our retired employees in
          2005, while we did not make such payment in 2006.

     -    Utility and office expense. Our utility and office expense decreased
          by 6.2% from RMB109.7 million in 2005 to RMB102.9 million in 2006.
          This was mainly due to the decrease in the provision for impairment in
          2006.

PROFIT FROM OPERATIONS

     Our profit from operations increased by 20.8% from RMB798.8 million in 2005
to RMB965.2 million in 2006 due to the increase in our total revenues without a
proportional increase in our related expenses.

TAXATION

     Our income tax expense was RMB149.2 million in 2006, representing an
effective tax rate of 16.2% and an increase of RMB39.0 million compared to
RMB110.2 million in 2005.

PROFIT ATTRIBUTABLE TO SHAREHOLDERS

     Our consolidated net profit increased by 19.3% from RMB647.0 million in
2005 to RMB771.5 million in 2006.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Our audited consolidated financial statements have been prepared in
accordance with IFRS. Our principal accounting policies are set out in Note 2 to
our audited consolidated financial statements. IFRS also requires us to exercise
our judgment in the process of applying the Company's accounting policies. The
areas involving a higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the financial statements are
disclosed in Note 4 to our audited consolidated financial statements included
elsewhere in this annual report. Although these estimates are based on our best
knowledge of current events and actions, actual results ultimately may differ
from those estimates.

FIXED ASSETS

     The railway industry is capital intensive. Under IFRS, fixed assets are
initially recorded at cost less accumulated depreciation and impairment loss.
Cost represents the purchase price of the asset and other costs incurred to
bring the asset into existing use. Subsequent costs are included in the asset's
carrying amount or recognized as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the asset will flow to
the Company and the cost of the item can be measured reliably. The carrying
amount of the

                                       45
<PAGE>
replaced part is derecognized. All other repairs and maintenance are charged to
the income statement during the financial period in which they are incurred.
Depreciation is calculated using the straight-line method to write off the cost
amount, after taking into account the estimated residual value of not more than
4% of cost, of each asset over its estimated useful life. The estimated useful
lives are as follows:

<TABLE>
<S>                                                    <C>
Buildings                                              25 to 40 years
Leasehold improvements                                 over the lease terms
Track, bridges and service roads (Note a)              55 to 100 years
Locomotives and rolling stock                          20 years
Communications and signaling systems                   8 to 20 years
Other machinery and equipment                          7 to 25 years
</TABLE>

----------
Note a: The estimated useful lives of tracks, bridges and service roads exceed
the initial lease period of the respective land use right lease grants (the
"Lease Term") and land use right operating lease (the "Operating Lease Term") on
which these assets are located. Pursuant to the relevant laws and regulations in
the PRC governing the land use right lease grant, we have the right to renew the
leases up for a period equivalent to the initial Lease Term. This right can be
exercised within one year of the expiry of the initial Lease Term, and can only
be denied if such renewals are considered to be detrimental to the public
interest. We consider the approval process to be perfunctory. In addition, based
on the provision of the land use right lease agreement entered into with our
substantial shareholder, we can renew the lease at the discretion of that
shareholder upon expiration of the Operating Lease Term. Based on these
considerations, we determined the estimated useful lives of these assets to
extend beyond the initial Lease Term as well as the Operating Lease Term.

     The assets' residual values and estimated useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date.

     Where the carrying amount of an asset is greater than its estimated
recoverable amount, it is written down immediately to its recoverable amount.

     Gains and losses on disposals are determined by comparing the sales
proceeds with the carrying amount and are recognized within other gain or loss
in the income statement.

RECEIVABLES

     Receivables are recognized initially at fair value and subsequently
measured at amortized cost using the effective interest method, less provision
made for impairment of these receivables. A provision for impairment of
receivables is established when there is objective evidence that we will not be
able to collect all amounts due according to the original terms of the
receivables. Significant financial difficulties of the debtor, probability that
the debtor will enter bankruptcy or financial re-organization, and default or
delinquency in payments are considered indicators that the receivable is
impaired. The amount of the provision is the difference between the asset's
carrying amount and the present value of estimated future cash flows, discounted
at the original effective interest rate. The carrying amount of the asset is
reduced through the use of an allowance account, and the amount of the loss is
recognized in the income statement as

                                       46
<PAGE>
"operating expenses". When a trade receivable is uncollectible, it is written
off against the allowance account for trade receivables. Subsequent recoveries
of amounts previously written off are credited against operating expenses in the
income statement.

GOODWILL

     Goodwill represents the excess of the cost of an acquisition over the fair
value of share of the net identifiable assets of the acquired
subsidiary/associate at the date of acquisition. Goodwill on acquisitions of
subsidiaries is included in intangible assets. Goodwill on acquisitions of
associates is included in investments in associates and is tested for impairment
as part of the overall balance. Separately recognized goodwill is tested
annually for impairment and carried at cost less accumulated impairment losses.
Impairment losses on goodwill are not reversed. Gains and losses on the disposal
of an entity include the carrying amount of goodwill relating to the entity
sold.

     Goodwill is allocated to cash-generating units for the purpose of
impairment testing. The allocation is made to those cash-generating units or
groups of cash-generating units that are expected to benefit from the business
combination in which the goodwill arose.

IMPAIRMENT OF NON-FINANCIAL ASSETS

     Assets that have an indefinite useful life, for example goodwill, are not
subject to amortization and are tested annually for impairment. Assets that are
subject to amortization are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognized for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset's fair value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash-generating units). Non-financial
assets other than goodwill that suffered impairment are reviewed for possible
reversal of the impairment at each reporting date.

ACCOUNTING TREATMENT REGARDING THE DIFFERENCES BETWEEN THE SELLING PRICES AND
COSTS OF EMPLOYEES' HOUSING (DEFERRED STAFF COSTS)

     We implemented a scheme, or the Scheme, for selling staff quarters to its
employees in 2000. Under the Scheme, we sell certain staff quarters to our
employees at preferential prices in the form of housing benefits provided to
these employees. The total housing benefits, or the Benefits, which represented
the difference between the net book value of the staff quarters to be sold and
the proceeds collected from the employees, are expected to benefit us over 15
years, which is equal to the estimated remaining average service period of the
employees participating in the Scheme. Upon the implementation of the Scheme in
2000, the Benefits were recorded as deferred staff costs and the balance is
amortized over the estimated remaining service period of the employees
participating in the Scheme.

     At each balance sheet date, we assess whether there is any indication of
impairment, considering the remaining service period of the employees and other
qualitative factors. If such indications exist, a detailed analysis will be
performed in order to assess whether the carrying

                                       47
<PAGE>
amount of the deferred staff costs can be recoverable in full. A write-down is
made if the carrying amount exceeds the recoverable amount.

     As of December 31, 2007, unamortized deferred losses, which were recorded
as deferred staff costs on our balance sheet, were RMB105.4 million.

CURRENT AND DEFERRED INCOME TAX

     The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the balance sheet date in the PRC where our
subsidiaries and associates operate and generate taxable income. We periodically
evaluate positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation and establish provisions
where appropriate on the basis of amounts expected to be paid to the tax
authorities.

     Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. However,
the deferred income tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor
taxable profit or loss. Deferred income tax is determined using tax rates (and
laws) that have been enacted or substantially enacted by the balance sheet date
and are expected to apply when the related deferred income tax asset is realized
or the deferred income tax liability is settled.

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

     Deferred income tax is provided on temporary differences arising on
investments in subsidiaries and associates, except where the timing of the
reversal of the temporary difference is controlled by us and it is probable that
the temporary difference will not reverse in the foreseeable future.

ITEM 5B. LIQUIDITY AND CAPITAL RESOURCES

     Our principal source of capital has been cash flow from operations and cash
flow from financing activities, and our principal uses of capital are to fund
capital expenditures, investment and payment of taxes and dividends.

     We generated approximately RMB1,957.6 million of net cash flow from
operating activities in 2007. Substantially all of our revenues were received in
cash, with accounts receivable arising primarily from long-distance passenger
train services provided and pass-through freight transactions originating from
other railway companies whose lines connect to our railroad. Similarly, some
accounts payable arise from payments for railroad transportation services that
we collect on behalf of other railroad companies and should pay to these
companies. Accounts receivable and payable were generally settled either
quarterly or monthly between us and the other railroad companies. Most of our
revenues generated from our other businesses were also received in cash. We also
have accounts payable associated with the purchase of materials and supplies in
our other businesses.

                                       48
<PAGE>
     In 2007, other than operating expenses, our cash outflow mainly related to
the following:

     -    capital expenditures of approximately RMB1,107.3 million, representing
          a decrease of 65.4% from RMB3,202.7 million in 2006;

     -    purchasing the railway transportation business of the
          Guangzhou-Pingshi Railway in the amount of approximately RMB4.87
          billion; and

     -    payment of dividends of approximately RMB566.7 million.

     Our capital expenditures for 2007 consisted primarily of the following
projects:

     -    construction of the Fourth Railway Line and the auxiliary projects;

     -    purchasing additional locomotives;

     -    purchasing EMUs; and

     -    upgrading the facilities of the Guangzhou-Pingshi railway

     Funds not required for immediate use are kept in short and medium-term
investments and bank deposits. We had short term deposits of approximately
RMB2,352.0 million cash and cash equivalents as of December 31, 2007.

     As of December 31, 2007, the Company had an overdue time deposit in the
amount of approximately RMB31.4 million placed with Zengcheng Licheng Urban
Credit Cooperative. The Company had initiated legal proceedings and obtained a
judgment against the debtor in our favor regarding the repayment. However, as
the judgment debtor was undergoing restructuring, the court ordered a stay of
execution of the judgment obtained by the Company. The said overdue time deposit
accounts for approximately 0.2% of the net assets and 1.1% of the total current
assets of the Company and has no material impact on the capital usage and
operations of the Company. The Company had presented the gross outstanding
balance in other receivables and full provision had been made for impairment in
prior years. Except for such overdue time deposit, we have no other overdue time
deposit that has not been repaid. We have not encountered any difficulty in
withdrawing deposits. We have placed most of our deposits with other state-owned
commercial banks in the PRC.

     As of December 31, 2007, we did not have any trust deposits placed with any
financial institutions in the PRC and we did not engage in any trust business.

     As of December 31, 2007, we had unsecured borrowings of RMB 2,850 million,
representing an increase of RMB 990 million from RMB1,860 million in 2006. The
maturity dates of these borrowings are from 2011 to 2012. The effective interest
rates of the bank borrowings were 6.07% as of December 31, 2007. As of December
31, 2007, we had RMB5,450 million unutilized banking facilities. In 2007, we
entered into three major loan agreements with Shenzhen Commercial Bank, China
Construction Bank Shenzhen Branch and China CITIC Bank Guangzhou Branch,
respectively, for loans of RMB 300 million from each bank or RMB 900

                                       49
<PAGE>
million in total. Each loan agreement has a term of five years and the interest
rates are approximately 10% lower than the applicable bench mark interest rates
as published by the People Bank of China from time to time. We will use the
proceeds for the construction of the Fourth Rail Line and the technical
transformation and capacity expansion project relating to the Guangzhou-Shenzhen
line.

CASH FLOW

     Our cash and cash equivalents in 2007 decreased by approximately RMB8,239.2
million over 2006. The table below sets forth certain items in our consolidated
cash flow statements for 2006 and 2007, and the percentage change in these items
from 2006 to 2007.


<Table>
<Caption>
                                           YEAR ENDED DECEMBER 31,
                                          ------------------------    CHANGE
                                             2006          2007      FROM 2007
                                          ----------    ----------   ---------
                                              (RMB thousands)
<S>                                       <C>           <C>          <C>
Net cash generated from operating
 activities ............................   1,112,004     1,957,645        76%
Net cash used in investing
 activities ............................  (7,833,331)   (5,585,414)    (28.7%)
Net cash generated from financing
 activities ............................  11,461,030       128,289     (98.9%)
Net increase/(decrease) of cash and
 cash equivalents ......................   4,739,703    (3,499,480)   (173.8%)
</Table>

     Our principal source of capital was revenues generated from operating
activities and cash flow from financing activities. In 2007, the net cash inflow
from our operations was RMB1,957.6 million, representing an increase of RMB845.6
million from RMB1,112.0 million in 2006. The increase in net cash inflow from
our operating activities was mainly due to the increase of our operating
revenues.

     Our net cash used in investing activities decreased by RMB2,247.9 million
in 2007 to RMB5,585.4 million from RMB7,833.3 million in 2006. The decrease was
primarily due to the decrease in investment in the Fourth Rail Line in 2007
compared to 2006.

     Our net cash from financing activities in 2007 was RMB128.3 million, while
our net cash used in financing activities in 2006 was RMB11,461.0 million. The
decrease in net cash inflow from our financing activities was primarily due to
our A Share Offering, during which we raised proceeds of approximately RMB10.0
billion and funds borrowed from various PRC domestic banks under our credit
facilities in 2006, in the amount of RMB1.86 billion compared to 2007, during
which we did not participate in any share offerings and decreased our borrowings
from commercial banks.

     Our working capital was mainly used for capital expenditures, operating
expenses and payment of taxes and dividends and temporary cash investments. For
the acquisition of the railway transportation business of Guangzhou-Pingshi
Railway, we paid RMB5,265.3 million in 2006 and RMB4,873.3 million in 2007. In
2007, our expenses for the purchase of fixed assets and payments for
construction-in-progress totalled RMB1,107.3 million. In addition, we paid
RMB299.5 million for income taxes and approximately RMB566.7 million for
dividends.

     We have sufficient working capital and have RMB5.45 billion unutilized
banking facilities which we believe to be sufficient to meet our operational and
development requirements in 2008.

                                       50
<PAGE>
ITEM 5C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

     We do not generally conduct our own research and development with respect
to major capital projects. In the past, in connection with our high-speed train
and electrification projects, our predecessor relied upon the engineering and
technical services of various research and design institutes under the MOR. More
recently, we conducted limited research and development activities in connection
with the implementation of automated ticket sales, including the development of
related computer software.

     We do not anticipate a significant need for research and development
services in the foreseeable future, and do not expect to require any such
services in connection with our other businesses. To the extent that these
services are needed, we expect to engage outside service providers to satisfy
this need. In connection with major engineering and construction projects, as
well as major equipment acquisitions, we intend to conduct technical research
and feasibility studies with relevant engineering service organizations, so as
to ensure the cost-effectiveness of our capital expenditures.

ITEM 5D. TREND INFORMATION

     The Pearl River Delta has been one of China's fastest growing economic
regions. We believe that various factors, including the increasing economic
cooperation within the Pearl River Delta region and its adjacent areas, the
"Relaxed Individual Travel" program, the improvement of the subway system in
Shenzhen and Guangzhou, will continue to increase passenger travel and freight
transportation within our service region. We expect the PRC government's current
economic, import and export, foreign investment and infrastructure policies to
generate additional demand for transportation services in our service areas.
These policies and measures may have both positive and negative effects on our
business development. They are expected to promote economic growth and create
new demand for our transportation services.

     At the same time, however, with the improvement of highway and waterway
transportation facilities, we anticipate additional competition. In addition,
the economic measures PRC government implemented to manage the growth of the PRC
economy may have an impact on our business and results of operations in 2008. In
addition, the continuous increase of interest rates by the PRC government and
the implementation of other applicable policies may have an impact on our
business and results of operations in 2008.

     We believe that while the PRC government is in the progress of lessening
restrictions on foreign investment, the opening up of domestic railway
transportation will be gradual and we expect competition from foreign and
domestic railway to be limited in the short term. However, China's entry into
the WTO may increase other Chinese coastal cities' significance in trading. As a
result, part of the freight currently transferred through ports in Hong Kong and
Shenzhen may be diverted to other ports in the PRC, which could adversely affect
our railway freight business. In addition, as the PRC government lifts control
over foreign investments, including allowing foreign participation in railway
construction, our railway monopoly position in our service region may be
challenged by foreign strategic investment. We believe that we are

                                       51
<PAGE>
prepared for the challenges as well as the opportunities that have arisen or
will arise with China's accession to the WTO.

     In 2008, China's economy is expected to experience continuous and steady
growth. The reform and development of the national railway system will be
accelerated. With the strengthening economic cooperation in the Pan Pearl River
Delta, the further implementation of the Mainland and Hong Kong Closer Economic
Partnership Arrangement, or CEPA, and Hong Kong to be hosting part of the
Olympic Games, it is expected that there will be a continuing increase of demand
in the passenger and freight transportation markets in our service territory and
we will embrace favorable business environment and development opportunities. We
believe that the overall transportation business will maintain a positive growth
trend in 2008.

ITEM 5E. OFF-BALANCE SHEET ARRANGEMENTS

     There are no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.

ITEM 5F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

     The following table sets forth our contractual obligations, capital
commitments and operating lease commitments as of December 31, 2007 for the
periods indicated.

                 CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD

<Table>
<Caption>
                                                          PAYMENT DUE BY PERIOD
                                                            (RMB IN THOUSANDS)
                                         ------------------------------------------------------------
                                                     LESS THAN 1                            MORE THAN
      CONTRACTUAL OBLIGATIONS              TOTAL        YEAR         1~3 YEAR    3~5 YEAR    5 YEARS
-------------------------------------    ---------   -----------    ---------   ---------   ---------
<S>                                      <C>         <C>            <C>         <C>         <C>
Long-Term Debt Obligations (1)           3,622,732     199,704        221,288   3,201,740          -
Capital Expenditure Obligation           2,132,634     218,261      1,914,373           -          -
Capital (Finance) Lease Obligations              -           -              -           -          -
Operating Lease Obligations(2)                  (2)         (2)            (2)         (2)        (2)
Other Long-Term Liabilities Reflected      377,409      76,708        124,421     100,215     76,065
 on the Company's Balance Sheet under
 IFRS
Total                                    6,132,775     494,673      2,260,082   3,301,955     76,065
</Table>
----------
     (1) The interest to be paid for the bank borrowings of RMB2,850 million
reflected on the Company's balance sheet under IFRS is calculated using floating
rates.

     (2) In connection with the Acquisition, we signed an agreement on November
15, 2004 with Guangzhou Railway (Group) Company for leasing the land use rights
associated with the land on which the acquired assets are located. The agreement
became effective upon the completion of the Acquisition on January 1, 2007 and
the lease term is 20 years, renewable at our discretion. According to the terms
of the agreement, the rental for such lease will be agreed by both parties every
year with a maximum amount not exceeding RMB74,000,000. During the year ended
December 31, 2007, the related rental cost paid and payable was RMB50,000,000.

                                       52
<PAGE>
     Based on the current progress of our new projects, we estimate that our
capital expenditures for 2008 will amount to approximately RMB5,800 million,
which consists primarily of the following projects:

     -    continuing to construct the auxiliary projects of the Fourth Railway
          Line;

     -    purchasing locomotives;

     -    purchasing the EMUs; and

     -    upgrading and expanding the transportation equipment for the
          Shenzhen-Guangzhou-Pingshi section.

ITEM 5G. SAFE HARBOR

SAFE HARBOR

     See "Forward-Looking Statements."

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

ITEM 6A. DIRECTORS AND SENIOR MANAGEMENT

DIRECTORS

     Our board of directors is composed of six non-independent directors and
three independent directors. All of our current directors were elected or
re-elected at our shareholders' general meeting held on June 26, 2008 by
cumulative voting. The business address of each of our directors is No. 1052
Heping Road, Shenzhen, People's Republic of China 518010.

     The table below sets forth the information relating to our directors as of
June 26, 2008:


<Table>
<Caption>
                                                                        DATE FIRST
                                                                        ELECTED OR
NAME                       AGE   POSITION                               APPOINTED
----                       ---   --------                               ----------
<S>                        <C>   <C>                                    <C>
He Yuhua                   55    Chairman of the Board of Directors        2007
Yang Yiping                58    Director and General Manager              2006
Cao Jianguo                50    Director                                  2006
Wu Houhui                  59    Director                                  1999
Yu Zhiming                 49    Director                                  2008
Liu Hai                    54    Director                                  2008
Dr. Wilton Chau Chi Wai    46    Independent Director                      2004
Dai Qilin                  40    Independent Director                      2008
Li Yuhui                   53    Independent Director                      2008
</Table>

     He Yuhua, age 55, joined the Company in June 2007 and is the Chairman of
the Board of Directors of the Company. Mr. He holds a bachelor's degree and is a
senior economist. Mr. He started working in the railway industry in 1969 and has
more than 30 years of experience in transportation management. He has served
various senior management positions with Tianjin

                                       53
<PAGE>
Railway Sub-bureau, Beijing Railway Bureau and GRGC before joining our Company.
He is currently the chairman of GRGC. Mr. He has not previously held any
position with our Company.

     Yang Yiping, age 58, joined the Company in April 2006 and is a Director and
the General Manager of the Company. Mr. Yang graduated with a research degree in
economics and management. He joined the railway department of the PRC in
December 1970. He has more than 30 years of experience in the operation and
management of railway transportation companies. Mr. Yang has served in various
senior managerial positions in GRGC, the Company's largest shareholder, and its
subsidiaries.

     Cao Jianguo, age 50, joined the Company in June 2006 and is a Director of
the Company. Mr. Cao is a college graduate majoring in railway transportation.
Mr. Cao has been working for many years in the operation and organization of
railway transportation. He once held various managerial positions such as the
deputy general manager of Changsha Railway Company and chief of the
transportation department of GRGC. Mr. Cao is currently the deputy general
manager of the Company.

     Wu Houhui, age 59, joined the Company in March 1999 and is a Director of
the Company. He graduated from Dalian Railway College and is a senior economist.
Mr. Wu served in various managerial positions in GRGC from 1984 to 2003. He is
currently chief economist of GRGC.

     Yu Zhiming, age 49, joined the Company in June 2008 and is a Director of
the Company. He has a university qualification and a master's degree in
engineering. He is a senior accountant with numerous years of experience in
finance. He was a deputy head of the finance sub-division of Wuhan Railway
Sub-bureau of Zhengzhou Railway Bureau. From 2005 to 2006, he was the head of
finance division and director of the funds clearing centre of Wuhan Railway
Bureau. He was a deputy chief of the funds clearing centre of the MOR from
September 2006 to April 2008. Mr. Yu has been the chief accountant of GRGC since
April 2008.

     Liu Hai, age 54, joined the Company in July 2007 and is a Director of the
Company. He graduated from South China Normal University majoring in
administration. He is also an economist. Mr. Liu has over 30 years of experience
in transportation management and he had been the director of the Office of
Guangzhou Railway Sub-bureau, and deputy chief economist and deputy general
manager of Yangcheng Railway Company. Mr. Liu has been the chairman of the labor
union of the Company since July 2007.

     Dr. Wilton Chau Chi Wai, age 46, joined the Company in June 2004 and is an
independent non-executive Director of the Company. Dr. Chau obtained a
bachelor's degree in applied mathematics from the University of Hong Kong, a
Bachelor of Laws degree from the University of Wolverhampton, a Master of
Business Administration degree from the University of Wales and a Doctor of
Business Administration degree from the University of Newcastle in Australia.
Dr. Chau is a fellow member of the Association of Chartered Certified
Accountants and a member of Singapore Institute of Arbitrators. Since 1987, Dr.
Chau has served in senior positions in various financial institutes overseeing
investment and development in railway, road and airport infrastructure projects.
Dr. Chau is currently chairman of QLeap Venture Limited

                                       54
<PAGE>
and managing partner of QLeap Asia Limited. Dr. Chau also serves several
companies as board advisor or director.

     Dai Qilin, age 40, joined the Company in June 2008 and is an independent
non-executive Director of the Company. Mr. Dai holds a master's degree majoring
in accounting. Mr. Dai is a senior PRC certified public accountant and a PRC
certified public appraiser. Mr. Dai has served in various professional positions
in the finance department of the MOR from 1986 to 1997. Mr. Dai is currently the
chief accountant of Beijing Zhonghua Certified Public Accountants Limited. Prior
to his joining Beijing Zhonghua Certified Public Accountants in April 2001, he
was an accountant, senior accountant and deputy head of Beijing Huafeng
Certified Public Accountants Limited from 1997 to 2001.

     Li Yuhui, age 53, joined the Company in June 2008 and is an independent
non-executive Director of the Company. Mr. Li is a postgraduate of the
Department of Finance and Trading of the Chinese Academy of Social Sciences. Mr.
Li is a senior accountant. Mr. Li is currently the deputy general manager of
Beijing Jingtie Beifang Investment Corp. and chief accountant of China Railway
United Logistics Co., Ltd.

SUPERVISORS

     The table below sets forth the information relating to our supervisors as
of June 26, 2008:

<Table>
<Caption>
                                                                DATE FIRST ELECTED
NAME               AGE   POSITION                                  OR APPOINTED
----               ---   --------                               ------------------
<S>                <C>   <C>                                    <C>
Yao Muming         54    Chairman of the Supervisory Committee        1999
Wang Jianping      51    Supervisor                                   2008
Li Zhiming         47    Supervisor                                   2005
Chen Shaohong      41    Supervisor                                   2008
Huang Lika         51    Supervisor                                   2008
Liu Xilin          52    Supervisor                                   2008
</Table>

     Yao Muming, age 54, joined the Company in April 1997 and is the Chairman of
the Supervisory Committee of the Company. Mr. Yao graduated from South China
Normal University and was deputy director of the Guangzhou and Zhuhai Animal and
Plant Quarantine Bureau. From 1997 to 2003, he was a member of the senior
management of the Company. Since July 2003, Mr. Yao has been a member of the
senior management of GRGC.

     Li Zhiming, age 47, joined the Company in May 2005 and is a Supervisor of
the Company. Mr. Li graduated from the Party School of CPC, majoring in
Economics and Management and is an accountant. Since 1981, Mr. Li had served in
various managerial positions in Hengyang Railway Sub-administration and Changsha
Railway Company. Since April 2005, Mr. Li has been the chief of the audit
department of GRGC.

     Wang Jianping, age 51, joined the Company in June 2008 and is a Supervisor
of the Company. Mr. Wang graduated from the Party School of CPC, majoring in
Economics and Management. In 1974, Mr. Wang joined the railway departments and
served in various managerial positions in GRGC since then. Since June 2007, Mr.
Wang has been the director of the human resources department of GRGC.

                                       55
<PAGE>
     Chen Shaohong, age 41, joined the Company in June 2008 and is a Supervisor
of the Company. Mr. Chen graduated from South China Normal University and he is
an economist. From 2001, he was a deputy chief and also chief of the structural
reform division of the corporate management office, and also deputy head of the
corporate management office and deputy chief of the corporate and legal affairs
division of GRGC. Since April 2006, he has served as the chief of the corporate
and legal affairs division of GRGC.

     Huang Lika, age 51, joined the Company in April 2008 and is a Supervisor of
the Company. Mr. Huang graduated from the Party School of the CPC with a
concentration in Economics and Management. Mr. Huang is also an engineer. Mr.
Huang has over 30 years experience in the railway transportation business. Since
April 2008, Mr. Huang was the deputy secretary of the Party and Labor Committee
and the secretary of the Discipline Working Commission of our Company, as well
as a Supervisor from employee representatives of our Company.

     Liu Xilin, age 52, joined the Company in January 2007 and is a Supervisor
of the Company. Mr. Liu graduated from the Party School of the CPC and majored
in Economics and Management. He has served as the deputy station master of
Dalang, director of Enterprise Management Office of Yangcheng Railway Company,
and section chief of Guangzhou North Rolling Stock Section. Mr. Liu has served
as the section chief of Guangzhou Rolling Stock Section since January 2007 and
has been elected as a Supervisor by the employee representatives of our Company
since April 2008.

SENIOR MANAGEMENT

     The table below sets forth information relating to our senior management as
of June 26, 2008:

<Table>
<Caption>
                                                         DATE FIRST
                                                         ELECTED OR
NAME              AGE    POSITION                        APPOINTED
----              ---    --------                        ----------
<S>               <C>    <C>                             <C>
Yang Yiping       58     General Manager                     2006
Wu Weimin         50     Deputy General Manager              2004
Wang Jianping     44     Deputy General Manager              2003
Yao Xiaocong      54     Chief Accountant                    1997
Guo Xiangdong     42     Company Secretary                   2004
Luo Jiancheng     35     General Manager Assistant           2006
</Table>

     Yang Yiping is our Director and General Manager.

     Wu Weimin, age 50, joined the Company in January 2004 and is a Deputy
General Manager of the Company. Mr. Wu graduated from the Guangdong Radio & TV
University and is an engineer. Since 1984, he had served in various managerial
positions in the material and equipment department, the planning and statistic
department and the labor and wage department of Yangcheng Railway Company. He
also served as an engineer of the material and equipment section and director of
the planning and statistic sub-department of Yangcheng Railway Company. Mr. Wu
was the director of the labor and wage sub-department and director of the social
insurance centre of Yangcheng Railway Company before joining the Company.

                                       56
<PAGE>
     Wang Jianping, age 44, joined the Company in July 2003 and is a Deputy
General Manager of the Company. Mr. Wang graduated from the Party School of CPC,
majoring in Economics and Management. In 1983, Mr. Wang joined the railway
departments and had served in various managerial positions in Guangzhou Railway
Administration and GRGC since then. Before joining the Company, Mr. Wang was in
the senior management team of Guangzhou Railway Foreign Trade and Economic
Development Company. Mr. Wang has served in several managerial positions in the
Company since he joined, and has been our Deputy General Manager since April
2008.

     Yao Xiaocong, age 54, is Chief Accountant of the Company. Mr. Yao graduated
from the Party School of the CPC, majoring in economics and management. Since
1975, Mr. Yao has served in the financial accounting department in the railway
departments and has more than 30 years of experience in financial accounting.
Mr. Yao was a member of the senior management of the Company from June 1997 to
January 2004. Mr. Yao was the Director of the accounting department of GRGC
before becoming the Chief Accountant of the Company in August 2004.

     Guo Xiangdong, age 42, is Company Secretary. Mr. Guo graduated from Central
China Normal University with a Bachelor's degree in Laws and a Master's degree
in Business Administration. Mr. Guo is an economist. He joined the Company in
1991 and had served as Deputy Section Chief, Deputy Director and Director of
Secretariat of the Board. Mr. Guo has been Company Secretary of the Company
since January 2004.

     Luo Jiancheng, age 35, joined the Company in January 2006 and is the
General Manager Assistant. Mr. Luo graduated from Changsha Railway Institute,
majoring in transportation management. From 1996 he had served in various
managerial positions in the technical and transportation departments of
Yangcheng Railway Company, GRGC and Sanmao Railway Company Ltd. Before joining
the Company, Mr. Luo served as deputy director of the transportation department
of GRGC.

ADDITIONAL INFORMATION

Members of our board of directors and senior management also hold the following
directorships and senior management positions in other companies as follows:


<Table>
<Caption>
Name           Position
----------     -----------------------------------------------------------------
<S>            <C>
He Yuhua       Chairman of the Board of Directors of:
               -  GRGC
               -  Guangmeishan Railway Company
               -  Sanmao Railway Company
               -  Yuehai Railway Company

Cao Jianguo    Chairman of the Board of Directors of:
               -  Shenzhen Pingnan Railway Company

               Director of:
               -  Sanmao Railway Company
               -  Guangdong Tieqing International Travel Agency Company
</TABLE>

                                       57
<PAGE>
<TABLE>
<S>            <C>
Wu Houhui      Chairman of the Board of Directors of:
               -  Sanmao Railway Enterprise Development Company
               -  Guangdong Tiecheng Company

               Director of:
               -  Guangmeishan Railway Company, Sanmao Railway Company
               -  Shichang Railway Company and Guangdong Tieqing International
                  Travel Agency Company

Yu Zhiming     Chairman of the Supervisory committee of:
               -  Yuehai Railway Company

               director of:
               -  Guangmeishan Railway Company and Hainan Donghuan Railway
                  Company.

Yao Muming     Chairman of the Supervisory committee of:
               -  Guangmeishan Railway Company
               -  Sanmao Railway Company
               -  Shichang Railway Company

Li Zhiming     Supervisor of:
               -  Sanmao Railway Company
               -  Yuehai Railway Company
               -  Shichang Railway Company
               -  Sanmao Railway Enterprise Development Company
               -  Guangdong Tiecheng Company

Chen Shaohong  Director of:
               -  Yuehai Railway Company
               -  Guangdong Tieqing International Travel Agency

               Supervisor of:
               -  Guangmeishan Railway Company,
               -  Sanmao Railway Enterprise Development Company
               -  Shichang Railway Company
               -  Hainan Donghuan Railway Company
</Table>

     In addition, the lines operated by Guangmeishan Railway Company, Sanmao
Railway Company, Shichang Railway Company, Yuehai Railway Company, and Shenzhen
Pingnan Railway Company are all local railroads. Sanmao Railway Enterprise
Development Company and Guangdong Tieqing International Travel Agency Company
are subsidiaries of GRGC. Guangzhou Tiecheng Industrial Company is our joint
venture partner. We are currently involved in certain litigation proceedings
relating to this joint venture. See "Item 8A.7 Legal Proceedings" for additional
information. We have business relationships relating to railroad transportation
with Guangmeishan Railway Company and Sanmao Railway Company.

                                       58
<PAGE>
ITEM 6B. BOARD COMPENSATION

DIRECTORS AND SENIOR MANAGEMENT

     Total remuneration of our directors, supervisors and senior officers during
2007 included wages, bonuses, other schemes and allowances. Directors or
supervisors who are also officers and employees of Guangshen Railway receive
certain other benefits in kind from GRGC, GEDC or us, such as subsidized or
medical insurance, housing and transportation, as customarily provided by
companies in the PRC to their employees.

     The aggregate amount of cash remuneration paid by Guangshen Railway in 2007
to all individuals who are our directors, supervisors and senior officers was
approximately RMB 2.8 million, of which approximately RMB1.1 million was paid to
our non-independent directors and supervisors and approximately HK$0.5 million
was paid to the three independent non-executive directors.

     The aggregate amount of cash remuneration we paid during the year ended
December 31, 2007 for pension and retirement benefits to all individuals who are
currently our directors, supervisors and senior officers was approximately
RMB100,807.

INTERESTS OF OUR DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT IN OUR SHARE
CAPITAL

     As of December 31, 2007, there was no record of interests or short
positions (including the interests or short positions which were taken or deemed
to have under the provisions of the Hong Kong Securities and Futures Ordinance)
held by our directors or supervisors in our shares, debentures or other
securities, or securities of any of our associated corporation (within the
meaning of the Hong Kong Securities and Futures Ordinance) in the register
required to be kept under section 352 of the Hong Kong Securities and Futures
Ordinance. We had not received notification of any interests or short positions
from any of our directors or supervisors required to be made to us and the Hong
Kong Stock Exchange pursuant to the Model Code for Securities Transactions by
Directors of Listed Companies in Appendix 10 to the HKSE Listing Rules. We have
not granted any of our directors or supervisors, or any of their respective
spouses or children under the age of 18, any right to subscribe for any of our
shares or debentures.

SERVICE CONTRACTS OF OUR DIRECTORS AND SUPERVISORS

     Each of our directors and supervisors has entered into a service agreement
with us. Except as disclosed, no other service contract has been entered into
between any of our subsidiaries or us on one hand, and any of our directors or
supervisors on the others, that cannot be terminated by us within one year
without payment of compensation (other than statutory compensation).

CONTRACTS ENTERED INTO BY OUR DIRECTORS AND SUPERVISORS

     None of our directors or supervisors had any direct or indirect material
interests in any contract of significance subsisting during the year ended on
December 31, 2007 or at December 31, 2007 to which we or any of our subsidiaries
was a party.

                                       59
<PAGE>
REMUNERATION OF OUR DIRECTORS AND SUPERVISORS

     The level of remuneration of our directors and supervisors was determined
by reference to various factors, including the going rates of remuneration in
Shenzhen, where we are located, and the job nature of each of our directors and
supervisors. The remuneration and annual incentive of the Directors and the
Supervisors will be considered and recommended by the Remuneration Committee and
will be approved and authorized by the shareholders at shareholders' general
meetings of the Company. No Director or Supervisor is involved in determining
his own remuneration.

ITEM 6C. BOARD PRACTICES

BOARD OF DIRECTORS

     In accordance with our currently valid Articles of Association, our board
of directors comprises nine directors, one of whom is the chairman. Directors
are appointed at our shareholders' general meeting through voting, and serve for
a term of three years. Upon the expiration of the term of their office, they can
serve consecutive terms if re-appointed at the next shareholders' general
meeting. The service contracts that we have entered into with our directors do
not provide for any payment of compensation upon termination.

SUPERVISORY COMMITTEE

     We have a supervisory committee consisting of five to seven supervisors.
Supervisors serve a term of three years. Upon the expiration of their terms of
office, they may be re-appointed to serve consecutive terms. The supervisory
committee is presided over by a chairman who may be elected or removed with the
consent of two-thirds or more of the members of the supervisory committee. The
term of office of the chairman is three years, renewable upon re-election. Our
Supervisory Committee consists of four representatives of the shareholders who
may be elected or removed by our shareholders' general meeting, and two
representatives of our employees who may be elected by our employees at the
employees' congress or employees' general meeting or through any other
democratic means. Members of our supervisory committee may also attend meetings
of the board of directors. The current members of our supervisory committee are:
Yao Muming, Li Zhiming, Wang Jianping, Chen Shaohong, Huang Lika and Liu Xilin.
All of the current members of our Supervisory Committee, who are representatives
of the shareholders were elected or re-elected at the annual shareholders'
general meeting held on June 26, 2008. The term of these supervisors will be 3
years. Our supervisory committee held three meetings during the year ended
December 31, 2007, at which resolutions concerning identified key issues were
passed and notified to our board of directors. Our supervisors attended all
meetings of our board of directors and other important meetings concerning our
operation during the year ended December 31, 2007. Our supervisory committee had
carefully reviewed the report of our directors, the financial report and
proposed profit distribution presented by our board of directors at the annual
general meeting of shareholders held on June 26, 2008.

     Supervisors attend board meetings as non-voting members. The supervisory
committee is accountable to the shareholders' general meeting and has the
following duties and responsibilities:

                                       60
<PAGE>
     -    to examine the Company's financial situation;

     -    to supervise the performance of duties of the directors, general
          manager, deputy general managers and other senior management; to
          propose the dismissal of directors, general manager, deputy general
          managers and other senior management who have violated any law,
          administrative regulations, the Articles of Association or resolutions
          of the shareholders' general meetings;

     -    to demand a director, general manager, deputy general manager or any
          other senior management to rectify such breach when the acts of such
          persons are harmful to the Company's interest;

     -    to propose the convening of shareholders' general meetings, and to
          convene and chair the shareholders' general meetings if the board of
          directors fails to perform this duty as stipulated in the Articles of
          Association;

     -    to propose motions to shareholders' general meetings; and

     -    to initiate legal proceedings against any director, general manager,
          deputy general manager and other senior management in accordance with
          Article 152 of the Company Law.

     Supervisors may attend meetings of the board of directors and question or
give advice on the resolutions of the board of directors.

     The supervisory committee may conduct investigation if they find the
operation of the Company unusual; and may engage professionals such as lawyers,
certified public accountants or practicing auditors to assist if necessary. All
reasonable fees so incurred shall be borne by the Company.

AUDIT COMMITTEE

     We have an audit committee consisting of three independent non-executive
directors. The current members of our audit committee, appointed by the Board of
Directors, are: Dr. Wilton Chau Chi Wai, Mr. Dai Qilin and Mr. Li Yuhui. Dr.
Chau, Mr. Dai and Mr. Li are "independent directors" of our Company as defined
in Section 303A.02 of the New York Stock Exchange's Listed Company Manual. The
audit committee must convene at least four meetings each year, and may invite
the executive directors, persons in charge of the financial and audit
departments and our independent auditors to participate. The audit committee
must have at least two meetings with management and at least two meetings with
the auditors each year without any executive directors present. The duties of
the audit committee include:

     -    reviewing the annual financial statements and interim financial
          statements of the Company, including the disclosures made by the
          Company in this 20-F;

     -    reviewing the financial reports and the reports of the Company
          prepared by the independent auditor and its supporting documents,
          including the review of the

                                       61
<PAGE>
          internal control and disclosure controls and procedures, and to
          discuss with the auditor the annual audit plan and solutions to
          problems in the previous year;

     -    reviewing and approving the selection of and remuneration paid to the
          independent auditor;

     -    pursuant to the resolutions of the annual general meeting, determining
          with the Board of Directors the annual auditing fees paid to our
          independent auditor;

     -    reviewing with the management and the independent auditor the
          performance, adequacy and effectiveness of the internal controls and
          risk management, as well as any material deficiencies and weakness
          existing in the internal controls;

     -    evaluating the Company's performance in complying with industrial
          practices, market rules, and statutory duties, and the safeguarding of
          its own interests and the interests of its shareholders;

     -    considering and determining whether any senior executive officer or
          senior financial personnel is in violation of their code of conduct,
          and the consequences for such a violation; and

     -    overseeing the management of the retirement pension fund of the
          Company.

REMUNERATION COMMITTEE

     We have a remuneration committee consisting of two executive Directors and
three independent non-executive Directors, namely, Mr. He Yuhua (Chairman), Mr.
Yang Yiping, Dr. Wilton Chau Chi Wai, Mr. Dai Qilin and Mr. Li Yuhui. The
remuneration committee will meet from time to time when required to consider
remuneration-related matters of the Company.

     The principal duties of the remuneration committee include reviewing and
making recommendations to the Board for the remuneration packages for the
Directors and the Supervisors of the Company. The remuneration policy of the
Company seeks to provide, in the context of the Company's business strategy,
reasonable remuneration to attract and retain high calibre executives. The
remuneration committee obtains benchmark information from internal and external
sources in relation to market conditions, packages offered in the industry and
the overall performance of the Company when determining the Directors' and the
Supervisors' emoluments.

HOME COUNTRY PRACTICES

     Under the NYSE's corporate governance listing standards, we are required to
disclose any significant ways in which our governance practices differ from
those followed by U.S. domestic companies under the NYSE listing standards.
There are no significant differences in our corporate governance practices
compared to those followed by a U.S. domestic company under the NYSE listing
standards, except for the following:

                                       62
<PAGE>
     -    we do not have the majority of our board of directors comprised of
          independent directors as defined under Section 303A.02 of the NYSE
          Manual;

     -    we do not have a nominating committee or a corporate governance
          committee similar to that required for U.S. domestic companies;

     -    instead of having formal corporate governance guidelines similar to
          those required for U.S. domestic companies, we have, in accordance
          with applicable PRC laws and regulations and the HKSE Listing Rules,
          adopted the Articles of Association, the General Meeting System, the
          Working Ordinance for the Board of Directors, the Working Ordinance
          for the Supervisory Committee, the Working Ordinance for the General
          Manager, the Capital Management Measures, the Investment Management
          Measures, the Code of Ethics for Senior Officers and the Audit
          Committee Charter that contain provisions addressing (1) director
          qualification standards and responsibilities; (2) key board committee
          responsibilities; (3) director access to management and, as necessary
          and appropriate, independent advisors; (4) director compensation; (5)
          management succession; and (6) director orientation and continuing
          education;

     -    as a company listed on the Hong Kong Exchange, we are required to
          comply with applicable corporate governance and other related
          requirements of the HKSE Listing Rules, including the Corporate
          Governance Code, unless an exemption is available; and

     -    we have not adopted a set of formal code of business conduct and
          ethics for our directors, officers and employees similar to that
          required for U.S. domestic companies. We have implemented code of
          business conduct and ethics for senior management, including our
          General Manager, Deputy General Manager, Chief Accountant and Company
          Secretary. In addition, our directors are required to comply with the
          Model Code for Securities Transactions by Directors of Listed
          Companies set out in the HKSE Listing Rules, which sets out standards
          with which directors are required to comply with respect to
          transactions involving our securities.

ITEM 6D. EMPLOYEES

     As of December 31, 2005, 2006 and 2007, we had approximately 8,882, 9,411
and 33,000 employees, respectively. The following chart sets forth the number of
our employees by function as of December 31, 2007:


<Table>
<Caption>
FUNCTION                                            EMPLOYEES
<S>                                                 <C>
Passenger transportation personnel (1).........         6,839
Coordination personnel (2).....................         2,357
Freight transportation personnel (3)...........         4,200
Mechanical personnel (4).......................         4,882
Power and water supply personnel (5)...........         1,694
Vehicle personnel (6)..........................         3,405
</TABLE>

                                       63
<PAGE>
<Table>
<S>                                                   <C>
Maintenance personnel (7)......................        4,313
Power service personnel (8)....................        1,370
Transportation supporting personnel (9)........          531
Diversified businesses and other supporting              891
 personnel (10)................................
Technical and administrative personnel (11)....          338
Other personnel (12)...........................        2,180
Total..........................................       33,000
</Table>

----------
(1)  Passenger transportation personnel mean those people that provide station
     boarding and train services.
(2)  Coordination personnel mean those people responsible for train
     coordination.
(3)  Freight transportation personnel mean those people responsible for
     organization of freight transportation.
(4)  Mechanical personnel mean those people responsible for train operation and
     overhaul.
(5)  Power and water supply personnel mean those people responsible for contact
     network operation and overhaul as well as power and water consumption
     maintenance.
(6)  Vehicle personnel mean those people responsible for vehicle operation and
     overhaul.
(7)  Maintenance personnel mean those people responsible for station track and
     railroad switch maintenance.
(8)  Power service personnel mean those people responsible for signal equipment
     maintenance.
(9)  Transportation supporting personnel means the supporting personnel of
     trains, machinery, works, power and vehicle organizations.
(10) Diversified businesses and other supporting personnel mean all personnel
     involved in diversified businesses.
(11) Technical and administrative personnel mean all managerial personnel other
     than the personnel of diversified businesses.
(12) Other personnel include all personnel who have been sick, studying or
     early-retired.

     All of our employees are located in Guangzhou, Shenzhen, Pingshi and the
area adjacent to our Shenzhen-Guangzhou-Pingshi line. The number of our
employees increased by 23,589 in 2007, which is mainly due to the acquisition of
the railway transportation business of Guangzhou-Pingshi Railway.

     We have established a trade union to protect employees' rights, assist in
the fulfillment of their economic objectives, encourage employee participation
in management decisions and assist in mediating disputes between the management
and union members. Each of our train stations and railway units has a separate
branch of the trade union. Most of our employees belong to the trade union. We
have not experienced any strikes or other labor disturbances that have
interfered with our operations in the past, and we believe that our relations
with our employees are good.

     We have implemented a salary policy which links our employees' salaries
with results of operations, labor efficiency and individual performance.
Employees' salaries distribution is subject to our overall operation results
and is based on their performance records and reviews. We paid approximately
RMB2,100.1 million in salaries and benefits to our employees in 2007.

     Pursuant to applicable government policies and regulations, we set aside
statutory funds for our employees and also maintain various insurance policies
for the benefits of our employees as set forth in the following table:

<Table>
<Caption>
                                                   AS A PERCENTAGE OF THE AGGREGATE SALARIES OF OUR EMPLOYEES IN 2007
                                                   ------------------------------------------------------------------
                                                       EMPLOYEES
                                                   RESIDING ALONG THE        EMPLOYEES RESIDING IN         EMPLOYEES
                                                       GUANGZHOU-         GUANGZHOU AREA OR ALONG THE     RESIDING IN
           EMPLOYEE BENEFITS                          PINGSHI LINE          GUANGZHOU-SHENZHEN LINE        SHENZHEN
-----------------------------------------------    ------------------     ---------------------------     -----------
<S>                                                <C>                    <C>                             <C>
Housing Fund...................................              6%                        7%                       13%
</TABLE>

                                       64
<PAGE>
<Table>
<S>                                                       <C>                        <C>                       <C>
Retirement Insurance ..........................             18%                       18%                       18%
Supplemental Retirement Insurance..............              5%                        5%                        5%
Basic Medical Insurance........................              8%                        8%                        6%
Supplemental Medical Insurance.................              1%                        1%                      0.5%
Child-bearing Medical Insurance................            0.4%                      0.4%                      0.5%
Other Welfare Contributions....................              6%                        6%                        8%
</Table>

     Besides, pursuant to an early retirement scheme implemented by the Company,
certain employees who meet certain specified criteria were provided with an
offer to early retire and enjoy certain early retirement benefits, such as
payments of the basic salary and other fringe benefits, offered by the Company,
until they reach the statutory retirement age. Under the terms of the scheme,
all applications are subject to the approval of the Company. Expenses incurred
on such employee early retirement benefits have been recognized in the income
statement when the Company approved such application from the employees. The
specific terms of these benefits vary among different employees, depending on
their position held, tenure of service and employment location.

     Details of our statutory welfare fund and retirement benefits are set out
in Notes 24 and 27 to our audited consolidated financial statements included
elsewhere in this annual report.

ITEM 6E. SHARE OWNERSHIP

     As of June 25, 2008, none of our directors, supervisors or senior
management owns any interest in any shares or options to purchase our shares.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

ITEM 7A. MAJOR SHAREHOLDERS

     We are a joint stock company organized under the laws of the PRC in March
1996. Before the A Share Offering, GRGC, a state-owned enterprise under the
administration of the MOR owned approximately 66.99% of our outstanding common
shares. GRGC was the sole shareholder of all of our domestic shares in the form
of state legal person shares and was entitled to exercise all rights as our
controlling shareholder according to the relevant laws, rules and regulations.
GRGC had substantial influence over our operations, not only in its capacity as
controlling shareholder, but also because of its role as an administrative agent
of the MOR that controls and coordinates railway operations in Guangdong
Province, Hunan Province and Hainan Province. As an instrumentality of the MOR,
GRGC performs direct regulatory oversight functions with respect to us,
including determining and enforcing technical standards and implementing special
transportation directives. After the completion of our initial public offering
of A shares in December 2006, the equity interests held by GRGC reduced to
approximately 41% but remained as the largest shareholder of our Company, GRGC
can still exercise substantial influence over our Company.

                                       65
<PAGE>
SHAREHOLDING STRUCTURE OF THE COMPANY

     Set out below is the current shareholding structure of the Company:

<Table>
<Caption>
                                       TYPES                                SHAREHOLDING
      NAME OF SHAREHOLDERS           OF SHARES    NUMBER OF SHARES HELD     PERCENTAGE %
-------------------------------      ---------    ---------------------     ------------
<S>                                  <C>          <C>                       <C>
Public Shareholders of H             H shares         1,431,300,000              20.2
 shares(including ADSs)
Guangzhou Railway (Group)            A shares         2,904,250,000              41.0
 Company
Public Shareholders of A shares      A shares         2,747,987,000              38.8

Total                                                 7,083,537,000             100.0
</Table>

     The following table sets forth information regarding ownership of our
issued and outstanding capital stock as of June 25, 2008. Note that it includes
all persons who are known by us to own, either as beneficial owners or holders
of record, five percent or more of our capital stock.

<Table>
<Caption>
                                                                                   PERCENTAGE
                                                                AMOUNT OWNED      OF CLASS OF       PERCENT OF
      TITLE OF CLASS           IDENTITY OF PERSON OR GROUP   (THOUSAND SHARES)       SHARES          CAPITAL
---------------------------    ---------------------------   -----------------    ------------      ----------
<S>                            <C>                           <C>                  <C>               <C>
Common Shares (A shares)(1)    GRGC                              2,904,250            51.38           41.00%
</Table>
----------
(1)  A shares held by GRGC are restricted from sales and redemption within 36
     months starting from December 22, 2006.

     The following table sets forth all persons who are known by us to
beneficially own five percent or more of our issued and outstanding H shares as
of June 18, 2008.

<Table>
<Caption>
                                                              AMOUNT OWNED      PERCENTAGE OF     PERCENT OF TOTAL
TITLE OF CLASS             IDENTITY OF PERSON OR GROUP      (THOUSAND SHARES)   CLASS OF SHARES       CAPITAL
--------------             ---------------------------      -----------------   ---------------   ----------------
<S>                        <C>                              <C>                 <C>               <C>
Common Shares (H shares)   T. Rowe Price Associates, Inc.        203,672         14.23%                 2.88%
                           and Its Affiliates
Common Shares (H shares)   Northern Trust Fiduciary              117,042          8.18%                 1.65%
                           Services (Ireland) Limited
Common Shares (H shares)   Baring Asset Management Limited       115,244          8.05%                 1.63%
Common Shares (H shares)   UBS AG                                104,139          7.28%                 1.47%
                                                                  88,311          6.17%                 1.25%
Common Shares (H shares)   Sumitomo Life Insurance                85,852          6.00%                 1.21%
                           Company (2)
Common Shares (H shares)   Sumitomo Mitsui Asset                  85,852          6.00%                 1.21%
                           Management Company, Limited
Common Shares (H shares)   Barclays Global Investors UK           84,051(L)       5.87%(L)(1)           1.19%
                           Holdings Limited                       93,750(S)       6.55%(S)(1)           1.32%
Common Shares (H shares)   Barclays PLC(3)                        84,051(L)       5.87%(L)(1)           1.19%
                                                                  93,750(S)       6.55%(S)(1)           1.32%
</Table>
----------
(1)  The letter "L" denotes a long position and the letter "S" denotes a short
     position.
(2)  As at June 18, 2008, 2008, Sumitomo Life Insurance Company was deemed to be
     interested in 85,852,000 H shares

                                       66
<PAGE>
     (representing approximately 6.00% of the total H shares of the Company or
     1.21% of the total share capital of the Company) held by Sumitomo Mitsui
     Asset Management Company Limited, a controlled corporation of Sumitomo
     Life Insurance Company.
(3)  As at June 18, 2008, Barclays PLC owned 92.3% shares of Barclays Global
     Investors UK Holdings Limited. According to the Securities and Futures
     Ordinance, Barclays PLC is deemed to hold the share interests of Barclays
     Global Investors UK Holdings Limited.

     As of the date of this report, we are not aware of any arrangement that may
at a subsequent date result in a change of control of our Company.

     In accordance with our Articles of Association, each share of our capital
stock has one vote and the shares of the same class have the same rights. Other
than the restrictions noted in the first sentence of this paragraph, the voting
rights of our major holders of domestic shares are identical to those of any
other holders of our domestic shares, and the voting rights of our major holders
of H shares are identical to those of our other holders of H shares. Holders of
domestic shares and H shares are deemed to be shareholders of different classes
for some matters, which may affect their respective interests. Holders of H
shares and domestic shares are entitled to the same voting rights.

ITEM 7B. RELATED PARTY TRANSACTIONS

     Under IAS 24, parties are considered to be related if one party has the
ability, directly or indirectly, to control the other party or exercise
significant influence over the other party in making financial and operating
decisions. Parties are also considered to be related if they are subject to
common control or common significant influence.

     Prior to the A Share Offering in December 2006, we were controlled by GRGC,
which is a subsidiary of the MOR and is ultimately controlled by the PRC
government. The PRC government also controls a significant portion of the
productive assets and entities in the PRC. Consequently, in accordance with the
requirements of IAS 24, Related Party Disclosures, subsidiaries and associates
of the MOR and GRGC and all other state controlled enterprises and their
subsidiaries, were also related parties of us. As a result of the A Share
Offering on December 22, 2006, we are no longer controlled by GRGC, although it
still exercises significant influence over us by virtue of being our single
largest shareholder. Consequently, under IAS 24, Stated-owned companies other
than GRGC and its subsidiaries were no longer considered as related parties of
the Company. Therefore, as of December 31, 2007, the Company had the following
material related parties:

<Table>
<CAPTION>
Name of related parties                                               Relationship with the Company
<S>                                                                   <C>
PARENT OF MAJOR SHAREHOLDERS, MAJOR SHAREHOLDER AND FELLOW
 SUBSIDIARIES
Ministry of Railways, or MOR                                          Parent of GRGC
MOR's Railroad Deposit-taking Center                                  Branch of the parent of GRGC
Guangzhou Railway (Group) Company, or GRGC                            Major shareholder
Guangzhou Railway Group Yang Cheng Railway Enterprise Development     Subsidiary of GRGC
 Company, or Yangcheng Railway Company
Guangmeishan Railway Company Limited, or Guangmeishan                 Subsidiary of GRGC
Guangzhou Railway (Group) Guangshen Railway Enterprise Development    Subsidiary of GRGC
 Company (the Predecessor as defined in Note 1 to our audited
 consolidated financial statements, or GEDC
Guangzhou Railway Material Supply Company                             Subsidiary of GRGC
Guangzhou Railway Engineer Construction Enterprise Development        Subsidiary of GRGC
 Company, or Engineer Construction Enterprise
</TABLE>

                                       67
<PAGE>
<Table>
<S>                                                                   <C>
Yuehai Railway company Limited                                        Subsidiary of GRGC
Sichuan Railway Company Limited                                       Subsidiary of GRGC
CYTS Guangdong Railway Shenzhen Co., Ltd                              Subsidiary of GRGC
Changsha Railway Construction Company Limited                         Subsidiary of GRGC
Guangdong Pearl River Delta Inter-city Railway Traffic Co., Ltd       Subsidiary of GRGC
Guangdong Sanmao Enterprise Development Company Limited               Subsidiary of GRGC
Guangzhou Qingda Transportation Company Limited                       Subsidiary of GRGC
Shichang Railway Company Limited                                      Subsidiary of GRGC
ASSOCIATES OF THE COMPANY
Guangzhou Tiecheng Enterprise Company Limited                         Associate of the Company
Zengcheng Lihua Stock Company Limited                                 Associate of the Company
Shenzhen Guangshen Railway Civil Engineering Company                  Associate of the Company
</Table>

     As part of the Restructuring carried out in 1996 in preparation for our
initial public offering, we assumed from Guangshen Railway Company, our
predecessor and GRGC, our largest shareholder, assets and liabilities that
relate to the businesses now conducted by us, including the high-speed passenger
train project and equity interests in subsidiaries and joint ventures engaged in
the operation of warehouses or freight yards. We also assumed from Yangcheng
Railway Company certain assets, including 14 shunting locomotives and passenger
coaches that Yangcheng Railway Company had previously leased to us. Our
predecessor company retained the assets, liabilities and businesses not assumed
by us, including units providing staff quarters and social services such as
health care, educational and public security services and other ancillary
services, as well as subsidiaries or joint ventures whose businesses do not
relate to railroad operations and do not compete with our businesses. As part of
our Restructuring, our predecessor was renamed Guangzhou Railway (Group)
Guangshen Railway Enterprise Development Company, or GEDC.

     We have agreed with GRGC and GEDC as to certain mutual indemnities arising
from or in respect of the various assets and liabilities transferred to or
retained by the parties. The purpose of the indemnities is to ensure that none
of Guangshen Railway, GRGC or GEDC will bear liabilities that it has not agreed
to assume, even in cases where third parties have not consented to the division
of liabilities among them and continue to make claims against an entity that has
not assumed the relevant liability. GRGC and GEDC have agreed to indemnify
Guangshen Railway against any claims arising from facts or events prior to the
Restructuring as well as any claims against Guangshen Railway in respect of
assets and liabilities retained by them in the Restructuring.

     After the Restructuring, GEDC, Yangcheng Railway Company and GRGC (together
with some of its subsidiaries) continued to provide social services to Guangshen
Railway on a contractual basis. These services included medical care for our
employees and their family members, kindergarten, elementary and secondary
school education for the children of employees, room and board for our employees
traveling on business, employee housing management and maintenance and public
security in our stations and on-board our trains. GEDC provided most of these
services through its facilities in Shenzhen. GRGC and Yangcheng Railway Company
provide to Guangshen Railway in Guangzhou other services, including health care,
employee training and childcare. For the services rendered, Guangshen Railway
paid GRGC, Yangcheng Railway Company or GEDC, as the case may be, reasonable,
arm's-length fees. In the second half of 2004, all of the hospitals and schools
originally vested in GEDC were transferred to the local government pursuant to
applicable PRC policies. As a result, GEDC no

                                       68
<PAGE>
longer provides any education and hospital services to us under such contractual
arrangements.

     In addition, certain transactions between Guangshen Railway and GRGC and
its subsidiaries have continued after the Restructuring, in the form of a
cross-provision of goods and services. The principal goods and services provided
by GRGC and some of its subsidiaries, including Yangcheng Railway Company and
GEDC, to Guangshen Railway include the following:

     -    locomotives, railcars and operating personnel;
     -    leasing of passenger coaches;
     -    maintenance services for locomotives and passenger coaches;
     -    railroad transportation related services;
     -    fuel for the operation of locomotives;
     -    railway related materials;
     -    overhaul and emergency repair of our track and bridges;
     -    public security; and
     -    employee housing.

     The principal goods and services provided by us to GRGC and its
subsidiaries include railroad transportation related services, sale of duty free
goods on-board of our Hong Kong Through Trains and at Guangzhou station and
advertising space at our Shenzhen station.

     The prices at which these goods and services are provided are different in
each case. In general:

     -    prices for railroad transportation-related services are determined in
          accordance with the actual costs incurred in providing these services
          plus a profit margin of 8% of aggregate chargeable costs (fuel
          expenses, asset depreciation and water utility fees are not counted as
          chargeable costs for purposes of this calculation), which amount,
          Guangshen Railway believes, is consistent with that which would be
          charged in an arm's-length transaction;

     -    the rental amounts for the high-speed passenger coaches leased to
          Guangshen Railway by GRGC equal approximately 6% of GRGC's purchase
          price for the coaches, approximating GRGC's depreciation expenses for
          the coaches; Guangshen Railway also bears all costs of maintenance and
          overhaul of these coaches;

     -    the prices for social and related services provided by Yangcheng
          Railway Company (i.e., educational) and GEDC (i.e., security and
          housing) are determined based on the actual cost of providing these
          services;

     -    the prices for social and related services provided by GRGC are
          determined on the following basis:

          -    child care services:        in accordance with the actual cost
                                           incurred for providing such services;

                                       69
<PAGE>
          -    newspaper supply services:  at an agreed cost of approximately
                                           RMB25 per year per copy of newspaper
                                           supplied, which cost may change based
                                           on cost changes to GRGC;

     -    the prices for the supply of railroad transportation related materials
          are determined in accordance with the relevant regulations issued by
          GRGC (which regulations are applicable to other railroads under the
          jurisdiction of GRGC);

     -    the prices for the provision of overhaul and large scale maintenance
          services for our track and bridges are based on the relevant approved
          estimates plus a profit margin of 8%, and the prices for other
          maintenance services are to be agreed by the parties on a case-by-case
          basis; and

     -    Guangshen Railway is entitled to 45% of the profits derived from the
          advertising businesses at its Shenzhen station.

     In connection with the acquisition of the railway transportation business
of Guangzhou-Pingshi Railway from Yangcheng Railway Company, which would affect
the scope of the above services, the Company, in November 2004, entered into,
inter alia, two conditional comprehensive services agreements with GRGC and
Yangcheng Railway Company in relation to certain continuing connected
transactions. Such agreements could only become effective upon the completion of
the Acquisition. As it was anticipated that the Acquisition would not be
completed before March 2006, the Company, on January 13, 2006, entered into the
GRGC Provisional comprehensive services agreement to govern certain continuing
connected transactions between GRGC and its associates during the period between
March 2006 and completion of the Acquisition. In addition, the Company entered
into the GEDC comprehensive services agreement in January 2006. These two
agreements have been entered into on a continuing and regular basis, in the
ordinary and usual course of business of the Company and its subsidiaries, and
on arm's length basis between the relevant parties. The GEDC comprehensive
services agreement and the GRGC Provisional comprehensive services agreement
replace and supersede all the existing agreements or arrangements that have been
entered into between the Company and GRGC, its subsidiaries and controlled
entities, including Yangcheng Railway Company, to the extent that they covered
the same services including the master agreements entered into by the Company
when the Company was listed on the HKSE in 1996. Each of the GRGC Provisional
comprehensive services agreement and the GEDC comprehensive services agreement
became effective from March 3, 2006 after being approved by our shareholders'
general meeting.

     After the completion of the Acquisition in January 2007, the GRGC
Provisional comprehensive services agreement has ceased to have any effect, and
the conditional GRGC comprehensive services agreement and the Yangcheng
comprehensive services agreement originally entered into in November 2004 have
become effective and unconditional.

     The GEDC comprehensive services agreement has a term of three years ending
on December 31, 2008. According to this agreement, the aggregate annual service
fees payable by the Company to GEDC shall not exceed RMB74.91 million, RMB76.41
million and RMB77.94

                                       70
<PAGE>
million for the three years ending December 31, 2006, 2007 and 2008,
respectively. In anticipation of the completion of the construction of the
Fourth Rail Line and the increase of new EMUs, the Company expects that more
complementary services from GEDC will be required and the annual cap for the
continuing connected transactions under the GEDC comprehensive services
agreement for the financial year ending December 31, 2007 was required to be
increased. Accordingly, the Company and GEDC entered into a supplemental
agreement on April 19, 2007 to adjust the annual cap for the continuing
connected transactions for the financial year ending December 31, 2007 to
RMB139.70 million. In addition, under this supplemental agreement, the term of
the GEDC comprehensive services agreement was shortened to two years ending on
December 31, 2007. Except for the above, all the other terms of the original
GEDC comprehensive services agreement remained unchanged. On June 28, 2007, the
Supplemental Agreement and the adjustment of the annual cap were approved by the
independent shareholders through affirmative votes at the shareholders' general
meeting of the Company, at which GRGC and its subsidiaries abstained from voting
as related parties. Also, due to expansion of our business activities, the
amount of services actually provided by Yangcheng Railway Company under the
Yangcheng comprehensive services agreement has exceeded the annual maximum under
the Yangcheng comprehensive services agreement. Consequently, the annual maximum
for services provided by Yangcheng Railway Company in the year ended December
31, 2007 was increased from RMB260 million to RMB389 million, which increase was
approved by our independent shareholders at the second extraordinary
shareholders' general meeting held on December 27, 2007.

     As the GRGC comprehensive services agreement, the Yangcheng comprehensive
services agreement and the GEDC comprehensive services agreement have all
expired on December 31, 2007, the Company entered into new comprehensive
services agreements on November 5, 2007 with each of GRGC, GEDC and Yangcheng
Railway Company in relation to the continuing connected transactions and the new
agreements were approved by the independent shareholders at the second
extraordinary shareholders' general meeting held on December 27, 2007. Each of
these new master agreements contain arm's length terms and have a term of three
years, beginning on January 1, 2008 and ending on December 31, 2010. The
services provided and the pricing arrangements between the parties under the new
master agreements are largely the same as those under the old master agreements.
Under the new comprehensive service agreements, for the three years ending
December 31, 2008, 2009 and 2010, respectively, the proposed aggregate annual
service fees payable by the Company to GRGC shall not exceed RMB3,943.7 million,
RMB4,339.7 million, and RMB4,779.7 million, respectively; the fees payable to
Yangcheng Railway Company shall not exceed RMB 447.3 million, RMB 514.3 million,
RMB591.5 million, respectively; and the fees payable to GEDC shall not exceed
RMB197.6 million, RMB227.3 million, RMB261.4 million, respectively.

     In addition, the Company entered into three demolition compensation
agreements with GEDC on June 20, 2007 with total consideration of RMB61.1
million. The Company also entered into four demolition compensation agreements
with several enterprises controlled by GEDC for 12 months ending June 20, 2007.
The total consideration under these agreements is RMB4.1 million.

     The chart below sets forth the material transactions the Company undertook
with related parties in 2005, 2006 and 2007:

                                       71
<PAGE>
<TABLE>
<CAPTION>
                                                                                                 2005          2006           2007
                                                                                            ---------     ---------     ----------
RECURRING TRANSACTIONS:                                                                       RMB'000       RMB'000        RMB'000
-----------------------                                                                     ---------     ---------     ----------
<S>                                                                                         <C>           <C>           <C>
TRANSACTIONS WITH MOR AND ITS RELATED ENTITIES

I. INCOME

     Provision of train transportation and related services to other
      railway companies controlled by MOR (1)                                               (304,842)     (315,847)     (2,658,698)

     Revenue received, processed and allocated by MOR ((1) and (5))

     - long distance passenger transportation                                               (575,849)     (800,859)     (5,318,369)

     - cargo forwarding railway usage fees                                                  (123,763)     (124,465)       (906,516)

     Provision of repairing service for cargo truck of GRGC and MOR                           28,799       (32,787)       (175,284)

     Provision of train transportation service to GRGC and its subsidiaries (1)                    -       (22,295)       (316,182)

     Interest income received/receivable from MOR Deposit-taking Centre                       (5,530)       (5,331)              -

II. CHARGES AND PAYMENTS

     Services charges allocated from MOR for train transportation and
      related services offered by other railway companies controlled by
      MOR ((1) and (5))                                                                      290,825       410,353       1,990,297

     Operating lease rentals paid/payable to MOR (1)                                          50,804        40,885         156,628

     Provision of train transportation service provided by GRGC
      and its subsidiaries (1)                                                                 8,449        26,065         213,388

     Social services (employee housing, health care, educational and public
      security services and other ancillary services) provided by the GEDC
      under a service agreement (2)                                                           78,227        74,520         429,655

     Operating lease rental paid to GRGC for the land use right                                    -             -          50,000

     Purchase of materials and supplies from Guangzhou Railway Material
      Supply Company (3)                                                                      73,146        89,731         577,352

     Provision of repair and maintenance services provided by GRGC and
      its
subsidiaries(1)
                                                                                                   -             -          82,478

     Interest expenses paid/payable to GRGC, net (4)                                             721             -               -
                                                                                            --------------------------------------

NON-RECURRING TRANSACTIONS:
---------------------------

I. TRANSACTIONS WITH MOR AND GRGC AND ITS SUBSIDIARIES

     Disposal of an available-for-sale investment                                           (121,854)            -               -

     Partial disposal of part of equity interests in a subsidiary                                  -       (35,224)              -

     Provision of repair and maintenance services by GRGC and its
      subsidiaries(1)                                                                         73,134        21,779          21,633

     Provision of construction management services by GRGC in connection
      with the construction of fixed assets of the Company (4)                                 6,194         9,326           9,288
</TABLE>

                                       72

<PAGE>
<TABLE>
<S>                                                                                        <C>           <C>           <C>
     Provision of supplies and materials by subsidiaries of GRGC (3)                           5,249         4,045             -

     Provision of construction projects(2)                                                         -        70,537        52,662

     Payment of a deposit for the acquisition of net assets of Yangcheng
      Railway Company (7)                                                                          -     5,265,250     4,873,332

     Other service provided with subsidiaries of GRGC (3)                                          -             -        50,569

II. TRANSACTIONS WITH OTHER STATE-OWNED COMPANIES

     Provision of construction project and related service (3)                             1,148,781     3,112,131             -

     Provision of repair and maintenance services (3)                                         75,867       105,641             -

     Provision of supplies and materials (3)                                                   5,977        15,051             -

     Purchase of fixed assets (3)                                                             55,803       207,688             -
                                                                                           -------------------------------------
</TABLE>

----------
(1)  The service charges are determined based on a pricing scheme set by MOR or
     made reference to current market prices with guidance provided by MOR.

(2)  The service charges are levied based on contracted prices determined based
     on cost plus a profit margin.

(3)  The prices are based on mutual negotiation between the contract parties
     with reference to guidance provided by MOR.

(4)  Pursuant to the provisions of a construction management agreement and
     several supplemental agreements, we entered into with GRGC in 2005 and
     2006, GRGC has undertaken to provide project management services to the
     Company for monitoring the construction services provided/to be provided by
     certain contractors and sub-contractors, which are mostly other State-owned
     companies, employed for the construction of certain railway and railway
     stations of the Company, including the Fourth Rail-Line. The management
     service fees are determined based on the pricing scheme set by MOR.

(5)  Due to the fact that the railway business is centrally managed by the MOR
     within the PRC, the Company works in cooperation with MOR and other railway
     companies owned and controlled by MOR in order to operate certain long
     distance passenger train transportation and cargo forwarding services
     within the PRC. The related revenues are collected by other railway
     companies and centrally collected and processed by MOR. Certain portion of
     the revenues so collected are allocated to the Company for the use of its
     rail-lines or for services rendered by the Company in connection with the
     provision of these services. On the other hand, the Company is also
     allocated by MOR certain charges for the use of the rail lines and services
     provided by other railway companies. Such allocations are determined by MOR
     based on its standard charges applied on a nationwide basis. The Company is
     unable to independently validate these revenues and charges allocated by
     MOR based on any self generated source data or information. In addition,
     there is no established formal channel for the Company to lodge any query
     or objection to the amounts allocated.

                                       73
<PAGE>
     As of December 31, 2006 and 2007, we had the following material balances
with our related parties:

<Table>
<Caption>

                                                                    2006          2007
                                                               ---------      --------
                                                                 RMB'000       RMB'000
                                                               ---------      --------
<S>                                                            <C>            <C>
Cash and cash equivalents maintained in MOR Deposit-taking
 Centre (See Note 34(b) to our audited consolidated
 financial statements)                                            25,786             -

Short-term time deposits in MOR Deposit-taking Centre (see
 Note 20 to our audited consolidated financial statements)       169,739             -

Due from/(to) GRGC                                                31,584       (78,262)
  - Trade balance (6)                                             28,234       (96,995)
  - Non-trade balance                                              3,350        18,733

Deposit for acquisition of Yangcheng Railway Company(7)        5,265,250             -

Due from subsidiaries of GRGC                                        173        82,100
  - Trade balance                                                     61        17,843
  - Non-trade balance                                                112        64,257

Due to subsidiaries of GRGC                                     (220,915)     (940,928)
  - Trade balance (8)                                            (39,813)     (157,001)
  - Non-trade balance (9)                                       (181,102)     (783,927)

Due from an associate                                                  -         1,825
  - Trade balance                                                 12,312        14,137
  Less: impairment provision (11)                                (12,312)      (12,312)

Due to an associate                                              (29,686)       (2,935)
  - Non-trade balance (10)                                       (29,686)       (2,935)
</Table>

----------
(6)  The trade balances due from/to GRGC, subsidiaries of GRGC and MOR mainly
     represented service fees and charges payable and receivable balances
     arising from the provision of passenger transportation and cargo forwarding
     businesses jointly with these related parties within the PRC as described
     in note (4) above.
(7)  As of December 31, 2006, the balance represents 51% of the agreed-upon
     consideration paid to GRGC for the acquisition of the net assets of
     Yangcheng Railway Company as a deposit (see Note 38 to our audited
     consolidated financial statements).
(8)  The trade balances due to related parties mainly represented payables
     arising from unsettled fees for purchase of materials and provision of
     other services according to various service agreements entered into between
     the Company together with its subsidiaries and the parties.
(9)  The non-trade balance due to related parties mainly represents the deposits
     received from those related parties.
(10) The non-trade balance due to other state-owned companies as of December 31,
     2007 mainly represents the payable balances arising from unsettled fees for
     construction projects undertaken for the Company.
(11) Full impairment loss provision set up against a receivable balance due from
     Zengcheng Lihua, which was brought forward from prior years.

     As of December 31, 2007, all the balances maintained with related parties
are unsecured, non-interest bearing and are repayable on demand.

     Our related party transactions have been carried out on usual terms
according to the conditions and waiver granted by Hong Kong Exchange and the
contracts entered into between

                                       74
<PAGE>
our related parties and us. Except for the transactions discussed in this
section, no other material related party transactions were entered into in 2007.
Our independent non-executive directors confirmed that, these transactions
(which are "connected transactions" as defined in the Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited) entered into
by us in 2007 were entered into in the ordinary and usual course of our business
on normal commercial terms or on terms that were fair and reasonable so far as
our shareholders were concerned, or in accordance with the terms of an agreement
governing such transactions or, where there was no such agreement, on terms no
less favourable than those offered to (or from) independent third parties.

ITEM 7C. INTERESTS OF EXPERTS AND COUNSEL

     Not applicable

ITEM 8. FINANCIAL INFORMATION

ITEM 8A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

ITEM 8A.1 -- ITEM 8.A.6:

     See pages F-1 to F-58 following ITEM 19.

ITEM 8A.7 LEGAL PROCEEDINGS

     As of December 31, 2007, the Company's investment interest in an associated
company, Guangzhou Tiecheng Enterprise Company Limited, or Tiecheng, amounted to
approximately RMB87.8 million at carrying value.

     In 1996, Tiecheng and a Hong Kong incorporated company jointly established
Guangzhou Guantian Real Estate Company Limited, or Guangzhou Guantian, a
Sino-foreign cooperative joint venture, to develop certain properties near a
railway station operated by the Company.

     On October 27, 2000, Guangzhou Guantian together with Guangzhou Guanhua
Real Estate Company Limited, or Guangzhou Guanhua, and Guangzhou Guanyi Real
Estate Company Limited, or Guangzhou Guanyi, agreed to act as joint guarantors
of certain debts of Guangzhou Guancheng Real Estate Company Limited, or
Guangzhou Guancheng, to an independent third party. Guangzhou Guantian,
Guangzhou Guanhua, Guangzhou Guanyi and Guangzhou Guancheng were related
companies with a common chairman. As Guangzhou Guancheng failed to repay the
debts, according to a court judgment on November 4, 2001, Guangzhou Guantian,
Guangzhou Guanhua and Guangzhou Guanyi were liable to the independent third
party for an amount of approximately RMB257 million together with any accrued
interest. As such, if Guangzhou Guantian was held responsible for the guarantee,
the Company may need to make a provision for impairment on its interest in
Tiecheng.

     On December 15, 2003, the Higher People's Court of Guangdong Province, or
the Court, accepted Guangzhou Guantian's re-trial application for discharging
the aforesaid guarantee. In December 2003, the Court delivered a civil case
judgment in which it was ruled that proceedings

                                       75
<PAGE>
regarding this case shall be terminated. As a necessary procedure for the Court
to decide whether to grant a re-trial, a hearing was held on March 18, 2004. In
this respect, Guangzhou Guantian appointed an independent representing lawyer to
attend the hearing. In December 2005, the Court commenced procedures for
re-trial. The court reheard the case on November 14, 2006 and December 25, 2006,
respectively. Up to the date of this report, the Court has not yet delivered any
judgment as the necessary procedures have not been completed. However, having
consulted an independent lawyer, the Directors are of the opinion that the
guarantee arrangement should be invalid according to the relevant PRC rules and
regulations. Accordingly, the Directors consider that as of the date of this
report, the likelihood of Guangzhou Guantian, a subsidiary of Tiecheng, having
to settle the above claim is remote and no impairment provision for the interest
in Tiecheng was made in the accounts. To avoid the possible loss resulting from
the litigation, the Company has obtained a letter of undertaking issued by GRGC.
The GRGC undertook to resolve the issue or to take up the liabilities so that
the investment interest of the Company in Tiecheng will not be affected by the
litigation.

     Except as disclosed, we are not a party to any material legal proceeding
and no material legal proceeding is known to us to be pending against us or with
respect to our properties.

ITEM 8A.8 DIVIDEND DISTRIBUTIONS

     We make decisions concerning the payment of dividends on an annual basis.
Any dividends are paid at the discretion of our board of directors, which makes
a recommendation in this regard that must be confirmed at our annual general
meeting. Our Articles of Association permit us to distribute dividends from
profits more than once a year. The amount of these interim dividends cannot
exceed 50% of our distributable income as stated in our interim profit
statements. In accordance with our Articles of Association, the amounts
available for the purpose of paying dividends will be deemed to be the lesser
of:

     -    net after-tax income determined in accordance with PRC accounting
          standards and regulations; and

     -    net after-tax income determined in accordance with either
          international accounting standards or the accounting standards of the
          countries in which our shares are listed.

     See "Item 10E. Taxation" for a discussion of the tax consequences related
to the receipt of dividends.

     Our Articles of Association prohibit us from distributing dividends without
first making up for cumulative losses from prior periods (determined in
accordance with PRC accounting standards) and making all tax and other payments
required by law. Further, prior to the payment of dividends, our profits are
subject to deductions such as allocations to a statutory common reserve fund.
The common reserve fund may be used to make up losses or be converted into share
capital or reinvested.

     Our Articles of Association require that cash dividends in respect of H
shares be declared in Renminbi and paid in Hong Kong dollars at the average of
the People's Bank of China rate for

                                       76
<PAGE>
each day of the calendar week preceding the date of the dividend declaration. To
the extent that we are unable to pay dividends in Hong Kong dollars from our own
foreign exchange resources, we will have to obtain Hong Kong dollars through the
interbank system or by other permitted means. Hong Kong dollar dividend payments
will be converted by the depositary and distributed to holders of ADSs in U.S.
dollars.

     On April 23, 2008, our Board of Directors proposed a final dividend
distribution of RMB0.08 per share to our shareholders for the year ended
December 31, 2007. The final dividend payment was approved by the shareholders
at our 2007 annual general meeting held on June 26, 2008.

ITEM 8B. SIGNIFICANT CHANGES

     Other than events already mentioned in this annual report, there have been
no significant changes since December 31, 2007.

                                       77


<PAGE>
ITEM 9. THE OFFER AND LISTING

ITEM 9A. OFFER AND LISTING DETAILS

PRICE RANGE OF OUR H SHARES AND ADSS

     As of December 31, 2007 and June 18, 2008, there were 1,431.3 million H
shares issued and outstanding. As of December 31, 2007 and June 18, 2008, there
were, respectively, 4,695,894 and 5,096,104 ADSs outstanding held by 177 and 176
registered holders. The depositary for the ADSs is JPMorgan Chase Bank. On April
25, 2008, JPMorgan Chase Bank signed an agreement with Wells Fargo Bank,
pursuant to which Wells Fargo Bank will provide the depositary service for our
ADSs on behalf of JPMorgan Chase Bank.

     The Hong Kong Exchange is the principal non-US trading market for our H
shares. The ADSs, each representing 50 H shares, have been issued by JPMorgan
Chase Bank as depositary and are listed on the NYSE. The following table sets
forth, for the periods indicated, the reported high and low closing sales prices
for our securities on each of these stock exchanges:


<Table>
<Caption>
                                   NEW YORK STOCK EXCHANGE    HONG KONG EXCHANGE
                                   -----------------------    ------------------
        CALENDAR PERIOD             HIGH             LOW       HIGH        LOW
---------------------------------  -----             -----    ------       -----
                                        (US$ PER ADS)          (HK$ PER H SHARE)
<S>                                <C>               <C>      <C>          <C>
2003 ............................. 15.10              8.10      2.25       1.26
2004 ............................. 20.74             11.50      3.35       1.76
2005                               20.50             13.07     3.225       2.00
2006
  January to March ............... 21.25             15.45     3.275       2.30
  April to June .................. 22.72             14.70     3.525      2.275
  July to September .............. 22.79             17.80      3.55       2.75
  October to December ............ 35.24             19.90      5.41       3.08
2007
  January to March ............... 36.84             26.80      5.48       4.30
  April to June .................. 44.13             31.57      7.24       4.90
  July to September .............. 44.50             28.82      6.74       6.68
  October to December ............ 45.59             32.81      6.93       5.15
2008
  January ........................ 37.02             30.79      5.83       4.80
  February ....................... 34.21             30.73      5.34       4.83
  March .......................... 33.00             24.25      5.10       3.70
  April .......................... 30.01             25.08      4.65       3.91
  May ............................ 29.65             24.71      4.59       3.84
  June (through June 18) ......... 25.75             22.42      4.09       3.50
</Table>

     During the year ended December 31, 2007, we did not purchase, sell or
redeem any of our H shares.

     In addition to our H Shares, our A shares have been listed for trading on
the Shanghai Stock Exchange on December 22, 2006.

                                       78
<PAGE>
ITEM 9B. PLAN OF DISTRIBUTION

     Not applicable.

ITEM 9C. MARKETS

     Our H shares are listed on the Stock Exchange of Hong Kong under the stock
code "0525" and American Depositary Shares representing our H shares are listed
on the New York Stock Exchange under the stock code "GSH". Our A shares are
listed for trading on the Shanghai Stock Exchange under the stock code "601333".

ITEM 9D. SELLING SHAREHOLDERS

     Not applicable.

ITEM 9E. DILUTION

     Not applicable.

ITEM 9F. EXPENSES OF THE ISSUE

     Not applicable.

                                       79
<PAGE>
ITEM 10. ADDITIONAL INFORMATION

     We were established as a joint stock limited company under the Company Law
of the PRC on March 6, 1996. Our legal name is (CHINESE CHARACTERS), and its
English translation is Guangshen Railway Company Limited.

ITEM 10A. SHARE CAPITAL

     We issued a total of 2,747,987,000 A shares in our initial public offering
of A shares on the PRC domestic market in December 2006, and raised proceeds of
approximately RMB10.0 billion. Each A share has a par value of RMB1.00 and have
been listed for trading on the Shanghai Stock Exchange.

     The total number of shares of the Company after the A Share Offering is
RMB7,083,537,000.

     As of December 31, 2007, our issued share capital consisted of:

<Table>
<Caption>
                                                           NUMBER    PERCENTAGE
TYPE OF SHARE CAPITAL                                   OF SHARES      OF SHARE
---------------------                                      ('000)           (%)
                                                        ---------    ----------
<S>                                                     <C>          <C>
Domestic tradable shares with restriction
 on sales (A shares)                                    2,904,250          41.0
Domestic tradable shares without restriction
 on sales (A shares)                                    2,747,987          38.8
H shares                                                1,431,300          20.2
                                                        ---------        ------
Total                                                   7,083,537        100.00
</Table>

PUBLIC FLOAT

     As at June 18, 2008, at least 25% of our total issued share capital was
held by the public, as required under the HKSE Listing Rules.

PRE-EMPTIVE RIGHTS

     There is no provision in our Articles of Association or under the laws of
the PRC which provides for pre-emptive rights of our shareholders.

ITEM 10B. MEMORANDUM AND ARTICLES OF ASSOCIATION

     Described below is a summary of the significant provisions of our Articles
of Association as currently in effect. As this is a summary, it does not contain
all the information that may be important to you. A copy of our complete
Articles of Association that took effect on June 26, 2008 and is attached hereto
as Exhibit 1.1.

GENERAL

     We are a joint stock limited company established in accordance with the
Company Law of China, the Rules of the State Council on the Overseas Issuance
and Listings and other relevant

                                       80
<PAGE>
laws and regulations of the PRC. Guangshen Railway was established by way of
promotion with approval evidenced by the document "Ti Gai Sheng" [1995] No. 151
of the PRC's State Commission For Economic Restructuring. We were registered
with and obtained a business license from the Administration for Industry And
Commerce of Shenzhen, Guangdong Province on March 6, 1996. The number of our
business license is Shen Si Zi 4403011022106. Article 12 of our Articles of
Association states that our object is to carry on the business of railway
transportation.

SIGNIFICANT DIFFERENCES BETWEEN H SHARES AND A SHARES

     Holders of H shares and A shares (also referred to as domestic shares),
with minor exceptions, are entitled to the same economic and voting rights.
However, our Articles of Association provide that holders of H shares will
receive dividends in Hong Kong dollars while holders of A shares will receive
dividends in Renminbi. Other differences between the rights of holders of H
shares and A shares relate primarily to ownership and transferability. H shares
may only be subscribed for and owned by legal and natural persons of Taiwan,
Hong Kong, Macau or any country other than the PRC, and must be subscribed for,
transferred and traded in a foreign currency. Other than the limitation on
ownership, H shares are freely transferable in accordance with our Articles of
Association. A shares may only be subscribed for and owned by legal or natural
persons in the PRC, and must be subscribed for and traded in Renminbi. Transfers
of A shares are subject to restrictions set forth under PRC rules and
regulations, which are not applicable to H shares, and also to restrictions on
transfers of shares owned by the PRC government, and by our directors or
employees. A shares and H shares are also distinguished by differences in
administration and procedure, including provisions relating to notices and
financial reports to be sent to shareholders, dispute resolution, registration
of shares on different parts of the register of shareholders, the method of
share transfer and appointment of dividend receiving agents.

RESTRICTIONS ON TRANSFERABILITY

     H shares may be traded only among foreign investors, and may not be sold to
PRC investors (except investors from Hong Kong, Macau and Taiwan). PRC investors
(except investors from Hong Kong, Macau and Taiwan) are not entitled to be
registered as holders of H shares. Under our Articles of Association, we may
refuse to register a transfer of H shares unless:

     -    relevant transfer fees have been paid, if any;

     -    the instrument of transfer only involves H shares;

     -    the stamp duty chargeable on the instrument of transfer has been paid;

     -    the relevant share certificate and, upon the reasonable request of the
          board of directors, any evidence in relation to the right of the
          transferor to transfer the shares have been submitted;

     -    if the shares are being transferred to joint owners, the maximum
          number of joint

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          owners does not exceed four; and

     -    we do not have any lien on the relevant shares.

DIVIDENDS

     Unless otherwise resolved by a shareholders' general meeting, we may
distribute dividends more than once a year, provided that the amount of interim
dividends to be distributed shall not exceed 50% of the distributable profit as
stated in our interim profit statement. In accordance with our Articles of
Association, our net profit for the purpose of profit distribution will be
deemed to be the lesser of the amount determined in accordance with:

     -    PRC accounting standards and regulations; and

     -    international accounting standards or the accounting standards of the
          countries in which our shares are listed.

     The Articles of Association allow for distributions of cash dividends or
shares. Dividends may only be distributed, however, after allowance has been
made in the following sequence:

     -    making up losses;

     -    allocations to the statutory common reserve fund;

     -    allocations to the discretionary common reserve fund upon the approval
          of shareholders at a general meeting; and

     -    payment of dividends in respect of ordinary shares.

     The board of directors shall, in accordance with the laws and
administrative regulations of the State (if any) and the Company's operation and
development requirements, determine the proportions of allocations to the
discretionary common reserve fund and payment of ordinary share dividends
subject to approval of shareholders at the general meeting. The Company may not
distribute any dividend before making up for its losses and allocating funds to
the statutory common reserve fund.

     Our Articles of Association require us to appoint on behalf of the holders
of H shares receiving agents to receive on behalf of these shareholders
dividends declared and all other moneys in respect of the H shares. The
receiving agent appointed shall be a company that is registered as a trust
company under the Trustee Ordinance of Hong Kong. Our Articles of Association
require that cash dividends in respect of H shares be declared in Renminbi and
paid by us in Hong Kong dollars. If we record no profit for the year, we may not
normally distribute dividends for the year.

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VOTING RIGHTS AND SHAREHOLDER MEETINGS

     Shareholders' general meetings can be annual shareholders' general meetings
or extraordinary general meetings. Shareholders' meetings shall be convened by
the board of directors. The board of directors shall convene an annual
shareholders' meeting within six months from the end of the preceding accounting
year. The shareholders provide us with principal authority at general meetings.
We exercise our functions and powers in compliance with our Articles of
Association.

     We are not permitted to enter into any contract with any person other than
a director, supervisor, general manager, deputy general manager, or other senior
officers of the Company whereby the management and administration of the whole
of the Company or any material business of Guangshen Railway is to be handed
over to such person without the prior approval of the shareholders in a general
meeting.

     The board of directors shall convene an extraordinary shareholders meeting
within two months if any one of the following circumstances occurs:

     -    the number of directors falls short of the number stipulated in the
          Company Law of the PRC or our by-laws or is below two-thirds of the
          number required in our Articles of Association;

     -    our unrecovered losses that have not been made up amount to one-third
          of our paid-in share capital;

     -    shareholder(s), severally or jointly, holding 10% or more of our
          issued shares carrying the right to vote make a request in writing to
          convene an extraordinary general meeting;

     -    the board of directors considers it necessary; or

     -    the supervisory committee proposes to convene such a meeting.

     Where we convene a shareholders' general meeting (when we have more than
one shareholder), we shall give not less than 45 days prior written notice to
all shareholders whose names appear in the share register of the items to be
considered and the date and venue of the meeting. Any shareholder intending to
attend the shareholders' general meeting shall give us a written reply stating
his or her intention to attend the meeting 20 days prior to the date of the
meeting.

     Where the Company convenes an annual general meeting, shareholders who
severally or jointly hold more than 3 percent of the Company's shares, may
present an extraordinary proposal for the shareholders' general meeting in
written form to the Company. If the subject of the extraordinary proposal falls
within the functions and powers of a shareholders' general meeting, then it
should be included in the agenda of the meeting.

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     A shareholder extraordinary general meeting shall not resolve any matter
not stated in the notice of such meeting. A notice of meeting of shareholders
shall:

     -    be in writing;

     -    specify the place, date and the time of the meeting;

     -    state the motions to be discussed at the meeting;

     -    provide such information and explanations as are necessary for the
          shareholders to exercise an informed judgment on the proposals before
          them. Without limiting the generality of the foregoing, where a
          proposal is made to amalgamate Guangshen Railway with another entity,
          to repurchase the shares of Guangshen Railway, to reorganize its share
          capital or to restructure Guangshen Railway in any other way, the
          terms of the proposed transaction must be provided in detail, together
          with copies of the proposed agreement, if any, and the cause and
          effect of the proposal must be properly explained;

     -    contain disclosure of the nature and extent, if any, of material
          interests of any director, supervisor, general manager, deputy general
          manager or other senior officers of the Company in the transaction
          proposed and the effect of the proposed transaction on them in their
          capacity as shareholders in so far as it is different from the effect
          on the interests of other shareholders of the same class;

     -    contain the full text of any special resolution proposed to be
          approved at the meeting;

     -    contain conspicuously a statement that a shareholder entitled to
          attend and vote is entitled to appoint one or more proxies to attend
          and vote instead of him or her and that a proxy need not also be a
          shareholder; and

     -    state the time within which and the address to which voting proxies
          for the meeting are to be delivered.

     The Company may send the notice to the domestic shareholders by way of
public notice published in one or more newspapers designated by the securities
regulatory authority within the interval between forty-five (45) days and fifty
(50) days before the date of the meeting. After the publication of such notice,
all holders of domestic shares shall be deemed to have received the notice of
the relevant shareholders' general meeting. The accidental omission to give
notice of a meeting to, or the non-receipt of notice of a meeting by any person
entitled to receive notice shall not invalidate the meeting or the resolutions
adopted therein. Where we convene an annual general meeting, we shall include in
the agenda of the meeting any resolutions submitted by shareholders (including
proxies) who either separately or in aggregate hold more than three percent of
the total number of our shares, provided that these resolutions fall within the
scope of powers of a shareholders' general meeting.

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     The following matters shall be resolved by way of ordinary resolution of
the shareholders' general meeting:

     -    work reports of the board of directors and the supervisory committee;

     -    profit distribution proposals and loss recovery proposals formulated
          by the board of directors;

     -    removal of members of the board of directors and the supervisory
          committee, their remuneration and methods of payment;

     -    our annual financial budget, final accounts, balance sheet, income
          statement and other financial statements; and

     -    matters other than those that are required by laws, administrative
          regulations or our Articles of Association to be adopted by way of
          special resolution.

     The following matters shall be resolved by way of special resolution of the
shareholders' general meeting :

     -    increase or reduction of our share capital and the issuance of shares
          of any class, warrants and other similar securities;

     -    issuance of Company debentures;

     -    division, merger, dissolution and liquidation of the Company;

     -    amendment to our Articles of Association;

     -    alteration to the form of the Company;

     -    acquisition or disposal within one year of material assets exceeding
          30% of the total assets of the Company; and

     -    any other matter that, according to an ordinary resolution of the
          shareholders meeting, may have a significant impact on the Company and
          requires adoption by way of a special resolution.

     Shareholders have the right to attend general meetings of shareholders and
to exercise their voting rights, in person or by proxy, in relation to the
amount of voting shares they represent. Each share carries the right to one
vote. Any share of the Company held by the Company does not carry any voting
right.

     At any meeting of shareholders a resolution shall be decided by a show of
hands unless a poll is demanded before or after any vote by show of hands:

     -    by the chairman of the meeting;

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     -    by at least two shareholders who possess the right to vote, present in
          person or by proxy; or

     -    by one or more shareholders (including proxies) representing either
          separately or in aggregate, not less than one-tenth of all shares
          having the right to vote at the meeting.

     Unless a poll is demanded, a declaration by the chairman of the meeting
that a resolution has on a show of hands been carried and an entry to that
effect in the minutes of the meeting shall be conclusive evidence of the fact,
without proof of the number or proportion of the votes recorded in favor of or
against that resolution, that the resolution has been carried. A demand for a
poll may be withdrawn. A poll demanded on the election of the chairman, or on a
question of suspension of the meeting, shall be taken at the meeting
immediately. A poll demanded on any other questions shall be taken at such time
as the chairman of the meeting directs, and any business other than that on
which the poll has been demanded may be proceeded with. The result of the poll
shall be deemed to be the resolution of the meeting at which the poll was
demanded. On a poll taken at a meeting, a shareholder (including their proxies)
entitled to two or more votes need not cast all his or her votes in the same
way. In the case of a tie, the chairman of the meeting shall be entitled to one
additional vote.

BOARD OF DIRECTORS

     Where a director is interested in any resolution proposed at a board
meeting, the director shall not be present and shall not have a right to vote at
the meeting. That director shall also not be counted in the quorum of the
relevant meeting.

     Our directors' compensation is determined by resolutions approved at
shareholders' general meetings. Our directors have no power to approve their own
compensation.

     Our directors are not required to hold shares of our Company. There is no
age limit requirement with respect to retirement or non-retirement of our
directors.

     At least one-third of our board members shall be independent directors. An
independent director is a director who does not act in other capacities in our
Company other than as a director, and who does not have any relationship with
our Company or our Company's substantial shareholders which may affect the
director in making independent and objective judgment. An independent director
shall have certain special duties, including, among others, to approve a
connected transaction of which the total consideration accounts for more than
five percent of the latest audited net asset value of our Company before
submission to the board of the directors for discussion, to propose the
convening of a board meeting, to engage external auditors or consultants
independently, and to make independent opinion on significant events of our
Company. To ensure that the independent directors can effectively perform their
duties, our Company shall provide them with certain working conditions.

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LIQUIDATION RIGHTS

     In the event of the termination or liquidation of Guangshen Railway,
shareholders of Guangshen Railway shall have the right to participate in the
distribution of surplus assets of Guangshen Railway in accordance with the type
and number of shares held by those shareholders.

LIABILITY OF SHAREHOLDERS

     The liability of holders of our shares for our losses or liabilities is
limited to their capital contributions in Guangshen Railway.

INCREASES IN SHARE CAPITAL AND PREEMPTIVE RIGHTS

     Our Articles of Association require that approval by a special resolution
of the shareholders and by special resolution of holders of domestic shares and
H shares at separate shareholder class meetings be obtained prior to
authorizing, allotting, issuing or granting shares, securities convertible into
shares or options, warrants or similar rights to subscribe for any shares or
convertible securities. No approval is required to be obtained from separate
class meetings if, but only to the extent that, Guangshen Railway issues
domestic shares and H shares, either separately or concurrently, in numbers not
exceeding 20% of the number of domestic shares and H shares then in issue,
respectively, in any 12 month period, as approved by a special resolution of the
shareholders. New issues of shares must also be approved by relevant PRC
authorities.

REDUCTION OF SHARE CAPITAL AND PURCHASE BY US OF OUR SHARES

     We may, following the procedures provided in the Articles of Association
and subject to the approval of the relevant governing authority of the State,
repurchase any of our issued shares under the following circumstances:

     (1)  cancellation of shares for capital reduction;

     (2)  merging with another company that holds our shares;

     (3)  paying shares to our employees as bonus; or

     (4)  repurchasing, upon request, any shares held by any shareholder who is
          opposed to the Company's resolution for merger or spin-off at a
          shareholders' general meeting.

     Any repurchase of shares under items 1 to 3 of the foregoing paragraph
shall be approved by shareholders' general meeting of the Company. After
repurchase of the shares according to the foregoing paragraph by the Company,
the shares repurchased under item 1 shall be cancelled within ten days from the
date of the repurchase; and the shares repurchased under items 2 and 4 shall be
transferred or cancelled within six months.

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     The shares repurchased by the Company under item 3 may not exceed five
percent of the total of the Company's issued shares. Such repurchase shall be
financed by the Company's profit after tax. The shares so repurchased shall be
transferred to the employees within one year.

     We may not accept our shares as the subject of any pledge.

     In the event that the regulatory authorities at the place of listing of our
overseas-listed foreign shares have different requirements, such requirements
shall prevail.

     Subject to approval by PRC securities regulatory authorities and compliance
with applicable law, we may carry out a share repurchase by one of the following
methods:

     -    under a general offer;

     -    open offer on a stock exchange; or

     -    by off-market contract.

     We may, with the prior approval of shareholders in general meeting obtained
in accordance with our Articles of Association, repurchase our shares by an
off-market contract, and we may rescind or vary such a contract or waive any of
our rights under the contract with the prior approval of shareholders obtained
in the same manner. A contract to repurchase shares includes (without
limitation) an agreement to become obliged to repurchase and an agreement to
acquire the right to repurchase our shares. We may not assign a contract to
repurchase our own shares or any rights provided thereunder.

     Shares repurchased by us shall be canceled and the amount of our registered
capital shall be reduced by the par value of those shares. The amount of our
registered capital so reduced to the extent that shares are repurchased out of
an amount deducted from our distributable profits, shall be transferred to our
capital common reserve account.

     Unless we are in the process of liquidation:

     -    where we repurchase our shares at par value, the amount of the total
          par value of shares so repurchased shall be deducted from our book
          balance distributable profits or out of the proceeds of a new issue of
          shares made in respect of the repurchase; and

     -    where we repurchase our shares at a premium, an amount equivalent to
          their total par value shall be deducted from our book balance
          distributable profits or the proceeds of a new issue of shares made in
          respect of the repurchase. Payment of the portion in excess of their
          par value shall be effected as follows:

          -    if the shares being repurchased were issued at par value, payment
               shall be made out of our book balance distributable profits; and

          -    if the shares being repurchased were issued at a premium, payment
               shall

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               be made out of our distributable profits or out of proceeds of a
               new issue of shares made in respect of the repurchase, provided
               that the amount paid out of the proceeds of the new issue may not
               exceed the aggregate of premiums received by us on the issue of
               the shares repurchased or the current balance of our capital
               common reserve account (inclusive of the premiums from the new
               issue of shares).

     -    Payment by us in consideration for:

          -    the acquisition of rights to repurchase our shares;

          -    the variation of any contract to repurchase our shares; or

          -    the release of any of our obligations under any contract to
               repurchase our shares;

     shall be made out of our distributable profits.

RESTRICTIONS ON CONTROLLING SHAREHOLDERS

     In addition to obligations imposed by law or required by the stock
exchanges on which our shares are listed, a controlling shareholder (as defined
below) shall not exercise his or her voting rights in respect of the following
matters in a manner prejudicial to the interests of the shareholders generally
or any part of our shareholders:

     -    to relieve a director or supervisor of his or her duty to act honestly
          in our best interests;

     -    to approve the expropriation, by a director or supervisor (for his or
          her own benefit or for the benefit of another person), in any guise,
          of our assets, including without limitation opportunities advantageous
          to us; or

     -    to approve the expropriation by a director or supervisor (for his or
          her own benefit or for the benefit of another person) of the
          individual rights of other shareholders, including without limitation
          rights to distributions and voting rights, save and except where it
          was done pursuant to a restructuring submitted to and approved by our
          shareholders in accordance with our Articles of Association.

     "Controlling shareholder" means a shareholder whose shareholdings represent
over 50% of the total share capital of the Company, or if less than 50%, whose
entitlement to voting rights is sufficient to materially affect the resolutions
at general meetings of the Company.

CHANGING RIGHTS OF A CLASS OF SHAREHOLDERS

     Rights conferred on any class of shareholders in the capacity of
shareholders may not be varied or abrogated unless approved by a special
resolution of shareholders at a general meeting

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and by holders of shares of that class at a separate class meeting conducted in
accordance with our Articles of Association.

DUTIES OF DIRECTORS, SUPERVISORS AND OTHER SENIOR OFFICERS IN INTERESTED
TRANSACTIONS

     Where any director, supervisor, general manager, deputy general manager or
other senior officers (or an associate thereof) is in any way materially
interested in a contract or transaction or arrangement or proposed contract or
transaction or arrangement with us (other than his or her contract of service
with us), he or she shall declare the nature and extent of his or her interest
to the board of directors at the earliest opportunity, whether or not the
contract, transaction or proposal or arrangement is subject to the approval of
the board of directors.

     Unless the interested director, supervisor, general manager deputy general
manager or other senior officers has disclosed his or her interests and the
contract or transaction is approved by the board of directors at a meeting in
which the interested director, supervisor, general manager, deputy general
manager or other senior officers has not been counted in the quorum and has
refrained from voting, a contract or transaction in which that director,
supervisor, general manager, deputy general manager or other senior officers is
materially interested is voidable except as against a bona fide party to the
contract or transaction acting without notice of the breach of duty by the
interested director, supervisor, general manager, deputy general manager or
other senior officers.

     We shall not directly or indirectly make a loan to or provide any
guarantees in connection with a loan to a director, supervisor, general manager,
deputy general manager or other senior officers of Guangshen Railway or of GRGC
or any of their respective associates. However, the following transactions are
not subject to this prohibition:

     -    the provision by us of a loan or a guarantee of a loan to one of our
          subsidiaries;

     -    the provision by us of a loan or a guarantee in connection with a loan
          or any other funds to any of our directors, supervisors, general
          managers, deputy general managers or other senior officers to pay
          expenditures incurred or to be incurred on our behalf by him or her or
          for the purpose of enabling him or her to perform his or her duties
          properly, in accordance with the terms of a service contract approved
          by the shareholders at a general meeting; and

     -    the provision by us of a loan or a guarantee in connection with a loan
          to any of our directors, supervisors, general managers, deputy general
          managers or other senior officers or their respective associates on
          normal commercial terms, provided that the ordinary course of our
          business includes the lending of money or the giving of guarantees.

RECENT AMENDMENTS TO OUR ARTICLES OF ASSOCIATION

     In May 2005 and May 2006, in anticipation of A Share Offering, we made
conditional amendments to our draft Articles of Association to meet applicable
PRC regulatory requirements, in particular, the Mandatory Provisions for the
Articles of Association of

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Companies to be Listed Outside China and the new Company Law effective from
January 1, 2006. The proposed amendment to our draft Articles of Association was
furnished to the SEC as Exhibit 99.1--Appendix I to the Form 6-K filed on April
18, 2006 (the conditional Articles of Association, as amended, will be referred
to hereinafter as the "Conditional AOA"). In addition, our annual general
meeting of shareholders approved further amendments to our then effective
Articles of Association on May 11, 2006, pursuant to the new Company Law
effective from January 1, 2006. After the completion of the A Share Offering in
December 2006, the Conditional AOA did not take effect until March 2007 after we
made further amendments to it and completed the required filings and
registrations with the relevant government authorities. Upon the completion of
our A Share Offering, Guidelines for the Articles of Associations of Listed
Companies, as amended, in March 2006 issued by the China Securities Regulatory
Commission, or the CSRC Guidelines, became applicable to us. In accordance with
this CSRC Guidelines, we proposed further amendments to our Articles of
Association for consideration of our shareholders' general meeting of 2006. On
June 28, 2007, the amendment was approved at our shareholders' general meeting
of 2006. In 2008, we made some minor amendments to our Articles of Association,
which amendments were approved by shareholders at our annual shareholders'
general meeting held on June 26, 2008. The amendment will not come into effect
until after the completion of required filing and registration with relevant
governmental authorities.

ITEM 10C. MATERIAL CONTRACTS

     Except for the loan agreements, Acquisition Agreement and the connected
transaction agreements we entered into with various banks, Yangcheng Railway
Company, GRGC and other related parties as discussed in "Item 5B. Liquidity and
Capital Resources" and "Item 7. Major Shareholders and Related Party
Transactions", all other material contracts we entered into during the fiscal
years of 2006 and 2007 were made in the ordinary course of business.

ITEM 10D. EXCHANGE CONTROLS

     The PRC government imposes control over its foreign currency reserves in
part through direct regulation of the conversion of Renminbi into foreign
exchange and through restrictions on foreign trade. Effective January 1, 1994,
the dual foreign exchange system in China was abolished in accordance with the
notice of the People's Bank of China concerning future reform of the foreign
currency control system issued December 1993. The conversion of Renminbi into
U.S. dollars in China currently must be based on the People's Bank of China
rate. The People's Bank of China rate is set based on the previous day's Chinese
interbank foreign exchange market rate and with reference to current exchange
rates on the world financial markets. On July 21, 2005, the PRC government
changed its decade-old policy of pegging the value of the Renminbi to the U.S.
dollar. As of June 2008, this change in policy has resulted in a more than 18%
appreciation of the Renminbi against the U.S. dollar ever since July 2005. Under
the new policy, Renminbi is permitted to fluctuate within a narrow and managed
band against a basket of certain foreign currencies.

     Any future fluctuation of the Renminbi against the U.S. dollar (whether due
to a decrease in the foreign currency reserves held by the PRC government or any
other reason) will have an adverse effect upon the U.S. dollar equivalent and
Hong Kong dollar equivalent of our net

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income and increase the effective cost of foreign equipment and the amount of
foreign currency expenses and liabilities. In 2007, due to the continuous
appreciation of RMB against U.S. dollar and Hong Kong dollar, we incurred a
foreign exchange loss of approximately RMB2.5 million. We have no plans to hedge
our currency exposure in the future. No assurance can be given that the Hong
Kong dollar to U.S. dollar exchange rate link will be maintained in the future,
or, therefore, that our Hong Kong dollar revenues will insulate us from changes
in the Renminbi-U.S. dollar and Renminbi-HK dollar exchange rates. Furthermore,
any change in exchange rate that has a negative effect on the market for the H
shares in either the United States or Hong Kong is likely to result in a similar
negative effect on the other market.

     We have been, and will continue to be, affected by changes in exchange
rates in connection with our ability to meet our foreign currency obligations
and will be affected by such changes in connection with our ability to pay
dividends on H shares in Hong Kong dollars and on ADSs in U.S. dollars. As of
December 31, 2007, we maintained the equivalent of approximately RMB12.8 million
in U.S. dollar or Hong Kong dollar-denominated balances for purposes of
satisfying our foreign currency obligations (e.g., to purchase foreign
equipment) and paying dividends to our overseas shareholders. See Note 3.1 (a)
of our audited consolidated financial statements included elsewhere in this
annual report. We believe that we have or will be able to obtain sufficient
foreign exchange to continue to satisfy these obligations. We do not engage in
any financial contract or other arrangement to hedge our currency exposure.

ITEM 10E. TAXATION

PRC TAXATION

TAX BASIS OF ASSETS

     As of June 30, 1995, our assets were valued in conjunction with the
Restructuring. This valuation, which was confirmed by the State Assets
Administration Bureau, establishes the tax basis for these assets.

INCOME TAX

     From January 1, 1994 to December 31, 2007, income tax payable by PRC
domestic enterprises, including state owned enterprises and joint stock
companies, has been governed by the PRC Enterprise Income Tax Provisional
Regulations and its implementation measures, or EIT regulations, which provide
for an income tax rate of 33%, unless a lower rate was provided by law,
administrative regulations or State Council regulations. Guangshen Railway was
generally subject to tax at a rate of 33% pursuant to the EIT Regulations.
However, as a result of our incorporation in the Shenzhen Special Economic Zone,
our corporate income tax rate was reduced to 15%. Pursuant to an approval from
the Shenzhen Local Tax Bureau dated November 12, 1997, Guangshen Railway was
also entitled to a 50% further reduction of income tax arising from our
high-speed train services in 1997, 1998 and 1999. To the extent that Guangshen
Railway engages in other businesses through subsidiaries, those other companies
were subject to corporate income tax rates of either 15% or 33% (applicable to
places other than Shenzhen), depending mainly on their places of incorporation.

     On March 16, 2007, the National People's Congress of the PRC promulgated
the PRC

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Enterprise Income Tax Law, or the new EIT Law, which has taken effect from
January 1, 2008. According to the new EIT Law, the preferential income tax rate
of 15% that was applicable to companies incorporated in Shenzhen and other
special economic zones will be phased out in five-years beginning on January 1,
2008, and after such five-year period, the applicable tax rate will become 25%,
i.e., the unified income tax rate applicable to almost all domestic companies in
the PRC with minor exceptions. Within the five-year transitional period, the tax
rates applicable to those companies which used to enjoy a preferential tax rate
of 15% will become 18%, 20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011 and
2012, respectively.

VALUE ADDED TAX

     Pursuant to the Provisional Regulations of the PRC Concerning Value Added
Tax effective from January 1, 1994 and the related implementing rules, our
passenger and freight transportation businesses are not subject to value added
tax, while our other businesses, such as retail sales of food, beverages and
merchandise aboard our trains and in our stations, and some of the businesses
conducted by our subsidiaries are subject to value added tax at the rate of
either 6% or 17%, depending on the scale and nature of the businesses.

BUSINESS TAX

     Pursuant to the Provisional Regulations of the PRC Concerning Business Tax
effective from January 1, 1994 and its implementing rules, business tax is
imposed on enterprises that provide transportation services in the PRC. Business
tax is levied at a rate of 3% on the transport of passengers and goods in or out
of the PRC.

TAX ON DIVIDENDS

     For an Individual Investor. According to the Provisional Regulations of the
PRC Concerning Questions of Taxation on Enterprises Experimenting with the Share
System promulgated on June 12, 1992, referred to herein as the provisional
regulations, an income tax of 20% shall be withheld in accordance with the
Individual Income Tax Law of the PRC on dividend payments from such enterprises
to an individual. For a foreign individual who is not a resident of the PRC, the
receipt of dividends from a company in the PRC is normally subject to this 20%
PRC withholding tax unless reduced by an applicable double-taxation treaty.
However, on July 21, 1993, the PRC State Tax Bureau issued a Notice Concerning
the Taxation of Gains on Transfers and Dividends from Shares (Equities) Received
by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals,
referred to herein as the Tax Notice, which stipulates that dividends from a PRC
company on shares listed on an overseas stock exchange, or overseas shares, such
as H shares (including H shares represented by ADSs), would not for the time
being be subject to PRC withholding tax. The relevant tax authority has thus far
not collected any withholding tax on dividend payments on overseas shares.

     For an Enterprise. When a foreign enterprise with no establishment or
office in the PRC receives dividends from a company in the PRC, the foreign
enterprise is normally subject to PRC withholding tax of 20% under the new EIT
Law. However, according to the Tax Notice, a foreign enterprise without an
establishment in the PRC receiving a dividend payment on overseas shares, such
as H shares or ADSs, will not be subject to withholding tax on the dividend

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payment.

CAPITAL GAINS TAX

     For An Individual Investor. The Tax Notice provides that gains realized by
holders (both individuals and enterprises) of H shares or ADSs will not be
subject to income tax.

     For An Enterprise. Pursuant to the Tax Notice, a foreign enterprise with no
establishment or office in the PRC is currently exempted from taxes on the
capital gains from the sale of H shares issued by domestic companies.

TAX TREATIES

     Foreign enterprises with no establishment in the PRC and individuals not
resident in the PRC and who are resident in countries that have entered into
double taxation treaties with the PRC may be entitled to a reduction of any
withholding tax imposed on the payment of dividends from a PRC company. The PRC
currently has double taxation treaties with a number of countries, including
Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore,
the United Kingdom and the United States.

     The Agreement Between the Government of the United States of America and
the PRC Government for the Avoidance of Double Taxation and the Prevention of
Tax Evasion with Respect to Taxes on Income, together with related protocols,
referred to herein as the US-PRC tax treaty, currently limit the rate of PRC
withholding tax upon dividends paid by Guangshen Railway to a United States
holder who is a United States resident for purposes of the US-PRC tax treaty to
10%. It is uncertain if the US-PRC tax treaty exempts from PRC tax the capital
gains of a U.S. holder arising from the sale or disposition of H shares or ADSs.
U.S. holders are advised to consult their tax advisors with respect to these
matters.

UNITED STATES FEDERAL INCOME TAXATION

     The following is a general discussion of the material United States federal
income tax consequences of purchasing, owning and disposing of the H shares or
ADSs if you are a U.S. holder, as defined below, and hold the H shares or ADSs
as capital assets within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended, or the Code. This discussion does not address all of
the United States federal income tax consequences relating to the purchase,
ownership and disposition of the H shares or ADSs, and does not take into
account U.S. holders who may be subject to special rules including:

     -    banks, insurance companies and financial institutions;
     -    United States expatriates;
     -    tax-exempt entities;
     -    certain insurance companies;
     -    broker-dealers;
     -    traders in securities that elect to mark to market;
     -    U.S. holders liable for alternative minimum tax;
     -    U.S. holders that own 10% or more of our voting stock;

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<PAGE>

     -    U.S. holders that hold the H shares or ADSs as part of a straddle or a
          hedging or conversion transaction; or
     -    U.S. holders whose functional currency is not the U.S. dollar.

     This discussion is based on the Code, its legislative history, final,
temporary and proposed United States Treasury regulations promulgated
thereunder, published rulings and court decisions as in effect on the date
hereof, all of which are subject to change, or changes in interpretation,
possibly with retroactive effect. In addition, this discussion is based in part
upon representations of the depositary and the assumption that each obligation
in the deposit agreement and any related agreements will be performed according
to its terms.

     You are a "U.S holder" if you are:

     -    a citizen or resident of the United States for United States federal
          income tax purposes;

     -    a corporation, or other entity treated as a corporation for United
          States federal income tax purposes, created or organized under the
          laws of the United States or any political subdivision thereof;

     -    an estate the income of which is subject to United States federal
          income tax without regard to its source; or

     -    a trust:

          --   subject to the primary supervision of a United States court and
               the control of one or more United States persons; or

          --   that has elected to be treated as a United States person under
               applicable United States Treasury regulations.

     If a partnership holds the H shares or ADSs, the tax treatment of a partner
generally will depend on the status of the partner and the activities of the
partnership. If you are a partner of a partnership that holds the H shares or
ADSs, we urge you to consult your tax advisors regarding the consequences of the
purchase, ownership and disposition of the H shares or ADSs.

     This discussion does not address any United States federal estate or gift
tax consequences, or any state, local or non-United States tax consequences of
the purchase, ownership and disposition of the H shares or ADSs.

     WE URGE YOU TO CONSULT YOUR TAX ADVISORS REGARDING THE UNITED STATES
FEDERAL, STATE, LOCAL AND NON-UNITED STATES TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE H SHARES OR ADSS.

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<PAGE>

     In general, if you hold ADRs evidencing ADSs, you will be treated as the
owner of the H shares represented by the ADSs. The following discussion assumes
that we are not a passive foreign investment company, or PFIC, as discussed
under "PFIC Rules" below.

DISTRIBUTIONS ON THE H SHARES OR ADSS

     The gross amount of any distribution (without reduction for any PRC tax
withheld) we make on the H shares or ADSs out of our current or accumulated
earnings and profits (as determined for United States federal income tax
purposes) will be includible in your gross income as dividend income when the
distribution is actually or constructively received by you, in the case of the
H shares, or by the depositary in the case of ADSs. Subject to certain
limitations, dividends paid to non-corporate U.S. holders, including
individuals, may be eligible for a reduced rate of taxation if we are deemed to
be a "qualified foreign corporation" for United States federal income tax
purposes. A qualified foreign corporation includes:

     -    a foreign corporation that is eligible for the benefits of a
          comprehensive income tax treaty with the United States that includes
          an exchange of information program; and

     -    a foreign corporation if its stock with respect to which a dividend is
          paid (or ADSs backed by such stock) is readily tradable on an
          established securities market within the United States,

but does not include an otherwise qualified foreign corporation that is a PFIC
in the taxable year the dividend is paid or the prior taxable year. We believe
that we will be a qualified foreign corporation so long as we are not a PFIC and
we are considered eligible for the benefits of the Agreement between the
Government of the United States of America and the Government of the People's
Republic of China for the Avoidance of Double Taxation and the Prevention of Tax
Evasion with Respect to Taxes on Income, or the Treaty. Our status as a
qualified foreign corporation, however, may change.

     Distributions that exceed our current and accumulated earnings and profits
will be treated as a return of capital to you to the extent of your basis in the
H shares or ADSs and thereafter as capital gain. Any dividend will not be
eligible for the dividends-received deduction generally allowed to United States
corporations in respect of dividends received from United States corporations.
The amount of any distribution of property other than cash will be the fair
market value of such property on the date of such distribution.

     If we make a distribution paid in HK dollars, you will be considered to
receive the U.S. dollar value of the distribution determined at the spot HK
dollar/U.S. dollar rate on the date such distribution is received by you or by
the depositary, regardless of whether you or the depositary convert the
distribution into U.S. dollars on such date. Any gain or loss resulting from
currency exchange fluctuations during the period from the date the dividend
payment is includible in your income to the date you or the depositary convert
the distribution into U.S. dollars will be treated as foreign currency exchange
gain or loss that is United States source ordinary income or loss for foreign
tax credit limitation purposes.

                                       96
<PAGE>

     Subject to various limitations, any PRC tax withheld from distributions in
accordance with PRC law, as limited by the Treaty, may be creditable against
your United States federal income tax liability. For foreign tax credit
limitation purposes, dividends paid on the H shares or ADSs will be foreign
source income, and will be treated as "passive category income" or, in the case
of some U.S. holders, "general category income." You may not be able to claim a
foreign tax credit (and instead may claim a deduction) for non-United States
taxes imposed on dividends paid on the H shares or ADSs if you (i) have held the
H shares or ADSs for less than a specified minimum period during which you are
not protected from risk of loss with respect to such shares, or (ii) are
obligated to make payments related to the dividends (for example, pursuant to a
short sale).

SALE, EXCHANGE OR OTHER DISPOSITION

     Upon a sale, exchange or other disposition of the H shares or ADSs, you
will recognize a capital gain or loss for United States federal income tax
purposes in an amount equal to the difference between the U.S. dollar value of
the amount realized and your tax basis, determined in U.S. dollars, in such H
shares or ADSs. Any gain or loss will generally be United States source gain or
loss for foreign tax credit limitation purposes. Capital gain of certain
non-corporate U.S. holders, including individuals, is generally taxed at a
maximum rate of 15% where the H shares or ADSs have been held more than one
year. Your ability to deduct capital losses is subject to limitations.

     If you are paid in a currency other than U.S. dollars, any gain or loss
resulting from currency exchange fluctuations during the period from the date of
the payment resulting from sale, exchange or other disposition to the date you
convert the payment into U.S. dollars will be treated as foreign currency
exchange gain or loss that is United States source ordinary income or loss for
foreign tax credit limitation purposes.

PFIC RULES

     In general, a foreign corporation is a PFIC for any taxable year in which,
after applying relevant look-through rules with respect to the income and assets
of subsidiaries:

     -    75% or more of its gross income consists of passive income, such as
          dividends, interest, rents and royalties; or

     -    50% or more of the average quarterly value of its assets consists of
          assets that produce, or are held for the production of, passive
          income.

     We believe that we will not meet either of the PFIC tests in the current or
subsequent taxable years and therefore will not be treated as a PFIC for such
periods. However, PFIC status cannot be determined until the close of a taxable
year and, accordingly, there can be no assurance that we will not be a PFIC in
the current or subsequent taxable years.

     If we were a PFIC in any taxable year that you held the H shares or ADSs,
you generally would be subject to special rules with respect to "excess
distributions" made by us on the H shares or ADSs and with respect to gain from
a disposition of the H shares or ADSs. An "excess distribution" generally is
defined as the excess of the distributions you receive with

                                       97
<PAGE>

respect to the H shares or ADSs in any taxable year over 125% of the average
annual distributions you have received from us during the shorter of the three
preceding years or your holding period for the H shares or ADSs. Generally, you
would be required to allocate any excess distribution or gain from the
disposition of the H shares or ADSs ratably over your holding period for the H
shares or ADSs. The portion of the excess distribution or gain allocated to a
prior taxable year, other than a year prior to the first year in which we became
a PFIC, would be taxed at the highest United States federal income tax rate on
ordinary income in effect for such taxable year, and you would be subject to an
interest charge on the resulting tax liability, determined as if the tax
liability had been due with respect to such particular taxable years. The
portion of the excess distribution or gain that is allocated to the current
year, together with the portion allocated to the years prior to the first year
in which we became a PFIC, would be included in your gross income for the
taxable year of the excess distribution or disposition and taxed as ordinary
income.

     The foregoing rules with respect to excess distributions and dispositions
may be avoided or reduced if you are eligible for and timely make a valid
"mark-to-market" election. If your H shares or ADSs were treated as shares
regularly traded on a "qualified exchange" for United States federal income tax
purposes and a valid mark-to-market election was made, in calculating your
taxable income for each taxable year you generally would be required to take
into account as ordinary income or loss the difference, if any, between the fair
market value and the adjusted tax basis of your H shares or ADSs at the end of
your taxable year. However, the amount of loss you would be allowed is limited
to the extent of the net amount of previously included income as a result of the
mark-to-market election. Your basis in the H shares or ADSs will be adjusted to
reflect any such gain or loss. The New York Stock Exchange on which the ADSs are
traded is a qualified exchange for United States federal income tax purposes.

     Alternatively, a timely election to treat us as a qualified electing fund
under Section 1295 of the Code could be made to avoid the foregoing rules with
respect to excess distributions and dispositions. You should be aware, however,
that if we become a PFIC, we do not intend to satisfy record keeping
requirements that would permit you to make a qualified electing fund election.

     If you own the H shares or ADSs during any year that we are a PFIC, you
must file Internal Revenue Service, or IRS, Form 8621. We encourage you to
consult your own tax advisor concerning the United States federal income tax
consequences of holding the H shares or ADSs that would arise if we were
considered a PFIC.

BACKUP WITHHOLDING AND INFORMATION REPORTING

     In general, information reporting requirements will apply to dividends in
respect of the H shares or ADSs or the proceeds of the sale, exchange, or
redemption of the H shares or ADSs paid within the United States, and in some
cases, outside of the United States, other than to various exempt recipients,
including corporations. In addition, you may, under some circumstances, be
subject to "backup withholding" with respect to dividends paid on the H shares
or ADSs or the proceeds of any sale, exchange or transfer of the H shares or
ADSs, unless you

                                       98
<PAGE>

     -    are a corporation or fall within various other exempt categories, and,
          when required, demonstrate this fact; or

     -    provide a correct taxpayer identification number on a properly
          completed IRS Form W-9 or a substitute form, certify that you are
          exempt from backup withholding and otherwise comply with applicable
          requirements of the backup withholding rules.

     Any amount withheld under the backup withholding rules generally will be
creditable against your United States federal income tax liability provided that
you furnish the required information to the IRS in a timely manner. If you do
not provide a correct taxpayer identification number you may be subject to
penalties imposed by the IRS.

HONG KONG TAXATION

     The following discussion summarizes the material Hong Kong tax provisions
relating to the ownership of H shares or ADSs held by you.

DIVIDENDS

     Under current practice, no tax will be payable by you in Hong Kong in
respect of dividends paid by us.

TAXATION OF CAPITAL GAINS

     No capital gain tax is generally imposed in Hong Kong in respect of capital
gains from the sale of shares (such as the H shares). However, if trading gains
from the sale of property by persons as part of profit making are regarded as
carrying on a trade, profession or business in Hong Kong, where such gains are
derived from or arise in Hong Kong from such trade, profession or business, such
trading gains will be chargeable to Hong Kong profits tax, which is currently
imposed at the rate of 17.5% on corporations and at a maximum rate of 16% on
individuals. Gains from sales of the H shares affected on the Hong Kong Stock
Exchange will be considered to be derived from or arise in Hong Kong. Liability
for Hong Kong profits tax would thus arise in respect of trading gains from
sales of H shares realized by persons carrying on a business of trading or
dealing in Hong Kong in securities.

     There will be no liability for Hong Kong profits tax in respect of profits
from the sale of ADSs (i.e., the profits derived abroad), where purchases and
sales of ADSs are effected outside Hong Kong, e.g. on the New York Stock
Exchange.

HONG KONG STAMP DUTY

     Hong Kong stamp duty will be payable by each of the seller and the
purchaser for every sale and purchase, respectively, of the H shares. An ad
valorem duty is charged at the rate of 0.2% of the consideration of the fair
value of the H shares transferred and the relevant contract notes shall be
stamped (the buyer and seller each paying half of such stamp duty). In addition,
a fixed duty of HK$5 is currently payable on an instrument of transfer of
H shares.

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<PAGE>

     The withdrawal of H shares when ADSs are surrendered, and the issuance of
ADSs when H shares are deposited, may be subject to Hong Kong stamp duty at the
rate described above for sale and purchase transactions, if the withdrawal or
deposit results in a change of legal and beneficial ownership under Hong Kong
law. The issuance of ADSs for deposited H shares issued directly to the
depositary or for the account of the depositary should not lead to a Hong Kong
stamp duty liability. You are not liable for the Hong Kong stamp duty payable on
transfers of ADSs outside of Hong Kong.

HONG KONG ESTATE DUTY

     Estate duty is levied on the value of property situated in Hong Kong
passing or deemed passing on the death of a person. H shares are regarded as
property situated in Hong Kong for estate duty purposes. Estate duty was
abolished effective from February 11, 2006 and estates of persons who passed
away on or after February 11, 2006 are therefore not subject to estate duty. The
estate duty chargeable in respect of estates of persons dying on or after July
15, 2005 and before February 11, 2006 with the principal value exceeding HK $7.5
million is reduced to a nominal duty of HK $100.

ITEM 10F. DIVIDENDS AND PAYING AGENTS

     Not applicable.

ITEM 10G. STATEMENT BY EXPERTS

     Not applicable.

ITEM 10H. DOCUMENTS ON DISPLAY

     We filed with SEC in Washington, D.C. a registration statement on Form F-1
(Registration No. 333-3382) under the Securities Act of 1933, as amended, in
connection with our global offering of American depositary shares in May 1996.
The registration statement contains exhibits and schedules. For further
information with respect to our Company and our American depositary shares,
please refer to the registration statement and to the exhibits and schedules
filed with the registration statement.

     Additionally, we are subject to the informational requirements of the
Exchange Act, and, in accordance with the Exchange Act, we file annual reports
on Form 20-F within six months of our fiscal year end, and we will submit other
reports and information under cover of Form 6-K with the SEC. You may review a
copy of the registration statement and other information without charge at the
public reference facilities maintained by the SEC at 100 F Street, N.E., Room
1580, Washington, D.C. 20549. You may also inspect the registration statement
and its exhibits and schedules at the office of the New York Stock Exchange, 11
Wall Street, New York, New York 10005. You may also get copies, upon payment of
a prescribed fee, of all or a portion of the registration statement from the
SEC's public reference room or by calling the SEC on 1-800-SEC-0330 or visiting
the SEC's website at www.sec.gov.

     As a foreign private issuer, we are exempt from the rules under the
Exchange Act prescribing the furnishing and content of proxy statements to
shareholders.

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ITEM 10I. SUBSIDIARY INFORMATION

     Not applicable.

                                      101
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The following paragraphs describe the various market risks to which we were
exposed as of December 31, 2006 and 2007.

CURRENCY RISKS

     The Company mainly operates in the PRC with most of the transactions
settled in RMB. RMB is not freely convertible into other foreign currencies. The
conversion of RMB denominated balances into foreign currencies is subject to the
rates and regulations of foreign exchange control promulgated by the PRC
government. In addition, the Company is required to pay dividends in HKD and USD
in the future when dividends are declared.

     The monetary assets held by the Company that are denominated in USD and HKD
as of December 31, 2006 and 2007 are set forth below.

<Table>
<Caption>
                                                               AS OF DECEMBER 31
MONETARY ASSETS                                CURRENCY        2006        2007
                                           DENOMINATION   (RMB'000)   (RMB'000)
                                           ------------   ---------   ---------
<S>                                        <C>            <C>         <C>
Current assets
Cash and cash equivalent                           USD       23,701       3,505
Cash and cash equivalent                           HKD       51,988       9,312
Other receivables                                  HKD          603         562
Trade payables                                     USD           --      (1,005)
</Table>

     The Company may experience a loss as a result of any foreign currency
exchange rate fluctuations in connection with our deposits. The Company has not
used any means to hedge the exposure to foreign exchange risk.

     On July 21, 2005, the PRC government announced that the RMB is to be
floated in line with a basket of certain selected currencies and not to be
pegged with the USD on or after that day. As a result, RMB appreciated by
approximately 2% as compared to USD based on the exchange rate announced on that
day and subsequently continued to appreciate throughout the remainder of 2005
through June 2008. As of June 2008, this change in policy has resulted in a more
than 18% appreciation of the Renminbi against the U.S. dollar ever since July
2005. The Company suffered foreign exchange losses of approximately RMB
2,468,000 in the year ended December 31, 2007. The losses were recorded as
finance costs in the income statement for the year ended December 31, 2007. As
of December 31, 2007, our balances denominated in Hong Kong dollars and U.S.
dollars were translated into Renminbi at the applicable market exchange rates as
of that date and amounted to approximately RMB12.4 million. If the applicable
market exchange rates were to change by 10%, this would result in a change in
fair value of approximately RMB1.2 million in these balances. For the year ended
December 31, 2007, the interest income derived from our cash balances at banks
and temporary cash investments amounted to approximately RMB57.2 million. A 10%
change in interest rates would have resulted in a change in interest income of
approximately RMB5.7 million.

     While our foreign currency deposits are relatively stable, they are
insufficient to pay all dividends and operating expenses, therefore, we bear the
risk of exchange rate fluctuations when we convert Renminbi to pay foreign-
currency denominated dividends and operating expenses. However, our management
believes that these contingent exposures relating to foreign exchange rate
fluctuations have not had and are not likely to have a material effect on our
financial position. As a result, we do not enter into any hedging transactions
with respect to our exposure to foreign currency movements. Furthermore, we are
not aware of any effective financial

                                      102
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hedging products that serve as protection against a possible Renminbi
devaluation or appreciation.

INTEREST RATE RISKS

     As of December 31, 2007, funds that we do not need in the short term are
generally kept as temporary cash deposits in state-owned commercial banks in the
form of demand deposits. We do not hold any market risk-sensitive instruments
for trading purposes. As of December 31, 2007, we had RMB2.85 billion in loans
outstanding.

     As the Company has no significant interest-bearing assets (except for
deposits placed with banks), the Company's income and operating cash flows are
not materially affected by the changes of market interest rates. The Company's
interest rate risk arises mainly from long-term borrowings. Borrowings issued at
floating rates expose the Company to cash flow interest rate risk.

     As of December 31, 2007, if interest rates on bank borrowings had been 10
basis points higher/lower with all other variables held constant, post-tax
profit for the year would have been approximately RMB2.3 million lower/higher,
mainly as a result of higher/lower interest expense.

CREDIT RISKS

     The carrying amount of cash and cash equivalents, trade and other
receivables (excluding prepayments), short-term deposit, and due from related
parties represent the Company's maximum exposure to credit risk in relation to
financial assets.

     Cash and short term liquid investments are placed with reputable banks. See
Notes 34(b) of our audited consolidated financial statements, included
elsewhere in this annual report. No significant credit risk is expected.

     The majority of the Company's accounts receivable balance relate to the
rendering of services or sales of products to third party customers. The
Company's other receivable balances mainly arise from services other than the
main railway transportation services. The Company performs ongoing credit
evaluations of its customers/debtors' financial condition and generally do not
require collateral from the customers/debtors' account on the outstanding
balances. Based on the expected reliability and the timing for collection of the
outstanding balances, the Company maintains a provision for doubtful accounts
and actual losses incurred have been within management's expectation.

     No other financial assets carry a significant exposure to credit risk.

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LIQUIDITY RISKS

     Prudent liquidity risk management includes maintaining sufficient cash and
marketable securities, the availability of funding through an adequate amount of
committed credit facilities and the ability to close out market positions. Due
to the dynamic nature of the underlying businesses, the Company's treasury
function allows flexibility in funding by maintaining committed credit lines.

     We monitor rolling forecasts of our liquidity reserves (comprises undrawn
borrowing facilities and cash and cash equivalents on the basis of expected cash
flows). See Note 3.1 (d) to our audited consolidated financial statements, which
is included elsewhere in this annual report, analyzing the Company's financial
liabilities into relevant maturity groupings based on the remaining period at
the date of the balance sheet to the contractual maturity date. Balances due
within 12 months equal their carrying balances, as the impact of discounting is
not significant.

     Except as described above and in Note 3 to our audited consolidated
financial statements herein, our management believes that as of the end of
December 31, 2007, at present and in our normal course of business, we are not
subject to any other market-related risks.

                                      104
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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.

                                      105
<PAGE>

                                    PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     None.

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

     None.

ITEM 15. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

     Our Chairman of the Board, General Manager, and Chief Accountant, after
evaluating the effectiveness of our disclosure controls and procedures (as
defined in the U.S. Securities Exchange Act Rules 13a-15(e) and 15d-15(e)), have
concluded that, as of the end of the period covered by this Form 20-F, our
disclosure controls and procedures were effective to ensure that material
information required to be disclosed in the reports that we file and furnish
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
regulations.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in U.S. Securities
Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures may deteriorate.

     For the year ended December 31, 2007, under the supervision, and with the
participation, of our Chairman of the Board, General Manager, and Chief
Accountant, we conducted an assessment of the effectiveness of our internal
control over financial reporting based on criteria established in the framework
in Internal Control -- Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
our company's management has concluded that its internal control over financial
reporting was effective as of December 31, 2007. Such assessment does not
include the assessment of the internal control over financial reporting relating
to the railway transportation business of Yangcheng Railway Company, which we
acquired in January 2007. The total assets and revenue of Yangcheng Railway
Company accounted for approximately 36.9% and 57.0%, respectively, of the
related consolidated financial statements amounts as of and for the year ended
December 31, 2007.

                                      106
<PAGE>

     The effectiveness of our company's internal control over financial
reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers
(Certified Public Accountants, Hong Kong), our company's independent registered
public accountants, as stated in its report included elsewhere in this annual
report.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

     We identified the following material weaknesses in our internal control
over financial reporting for the year ended December 31, 2006:

     -    we did not maintain sufficient numbers of financial and accounting
          staff who are knowledgeable of IFRS and U.S. GAAP accounting rules to
          support the size and complexity of our Company's current
          organizational structure and financial reporting requirements. And

     -    we did not establish adequate policies and procedures to evaluate the
          status of our construction-in-progress on a regular basis.

     In 2007, we have implemented the following remediation measures to cure the
weaknesses described above:

     -    we have engaged an independent registered public accounting firm and
          professionals with international auditor's qualification other than
          our auditor that are familiar with IFRS to assist our accounting team
          in the preparation of our financial statements under IFRS. Starting
          from the year ended December 31, 2007, we are only required to include
          our financial statements prepared under IFRS in such annual report on
          Form 20-F to be filed with the SEC;

     -    we have engaged external consultants to provide trainings to our
          accounting team regarding the IFRS and the relevant requirements under
          the Sarbanes-Oxley Act;

     -    we have enhanced our accounting policies and procedures to provide
          additional guidelines and criteria for the evaluation of the status of
          our construction-in-progress in order to ensure that such information
          is communicated on a regular basis from the relevant departments of
          the Company to our accounting team, so that we can accurately reflect
          the construction-in-progress and fixed assets balances in our
          financial statements. We have also designated experienced personnel to
          handle such processes; and

     -    we performed an examination of the status of each of our construction
          projects, on an individual basis, as of December 31, 2007.
          Construction that has been completed and ready for its intended use
          has been recorded as fixed assets in our financial statements and we
          have commenced depreciation of these assets accordingly, while for
          construction that has not yet been completed, we evaluated their
          respective status and applied appropriate accounting treatment in our
          financial statements.

                                      107
<PAGE>

     As of December 31, 2007, our management determined that applicable controls
were effectively designed and operating so as to enable our management to
conclude that the above described material weaknesses have been remediated.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

     Our board of directors has determined that Dr. Wilton Chau Chi Wai is an
"audit committee financial expert" as defined in Item 16A of Form 20-F. Mr. Chau
and each of the other members of the Audit Committee is an "independent
director" as defined in Section 303A.02 of the NYSE Listed Company Manual.

ITEM 16B. CODE OF ETHICS

     We have adopted a code of ethics that applies to our General Manager, Chief
Accountant, and other senior officers on April 20, 2004. On April 23, 2008, we
amended our code of ethics pursuant to Section 404 of the Sarbanes-Oxley Act. A
copy of this amended code of ethics is filed as Exhibit 11.1 hereto.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Resolutions to appoint PricewaterhouseCoopers (certified public accountants
in Hong Kong), or PwC, as our auditor for 2008 have been approved at the annual
general meeting of Guangshen Railway held on June 26, 2008.

     PwC was our auditor for 2007, 2006 and 2005.

     The following table presents the aggregate fees for professional services
and other services rendered by PwC to us in 2006 and 2007.


<Table>
<Caption>
                                2006                 2007
                                ----                 ----
                                     (RMB MILLIONS)
<S>                      <C>                  <C>
Audit Fees                      5.82                 8.0
Audit-related Fees              1.16                   -
Tax Fees                           -                   -
All Other Fees                     -                   -
                         ---------------      ---------------
Total                           6.98                 8.0
                         ===============      ===============
</Table>

----------
Notes:
1.   Traveling expenses and tax fees are included in the audit fees and do not
     require additional payment.
2.   As of December 31, 2007, there did not exist any amount that became payable
     but remained outstanding.
3.   The audit-related fees paid to PwC are related to the services for a
     pre-clearance matter in relation to the audit. The board of directors does
     not believe that such fees have affected the independence of the auditing.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     Not applicable.

                                      108
<PAGE>

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     During the year ended December 31, 2007, there was no purchase, sale or
redemption of our H shares or ADSs by us, or any of our subsidiaries.

                                      109
<PAGE>

PART III

                         ITEM 17. FINANCIAL STATEMENTS

     We have elected to provide the financial statements and related information
specified in ITEM 18 in lieu of ITEM 17.

                          ITEM 18. FINANCIAL STATEMENTS

     See pages F-1 to F-58 following ITEM 19.

                                ITEM 19. EXHIBITS

     (a) See pages F-1 to F-58 following this item.

     (b) Index of Exhibits

     Documents filed as exhibits to this annual report:

<Table>
<Caption>
Exhibit
Number         Description
-------        -----------
<S>            <C>
1.1            Amended and Restated Articles of Association

4.1            Land Lease Agreement dated November 15, 2004 between Guangshen
               Railway Company Limited and Guangzhou Railway (Group) Company*

4.2            Summary of the Conditional Agreement dated August 9, 2005 between
               Guangshen Railway Company Limited, Qingdao BSP and Bombardier
               Sweden and China International Tendering Company**

4.3            Summary of the Forms of the Surveying and Design Services
               Agreements For Railway Construction and the Construction Services
               Agreements, dated May 15, 2006 for the Fourth Line**

4.4            Summary of the Agreement between Guangshen Railway Company
               Limited and Guangzhou Zhongche Railway Rolling Stock Sales and
               Services Company Limited for the lease of electric train-set
               dated June 22, 2006**

4.5            Supplemental agreement to the comprehensive services agreement
               between Guangshen Railway Company Limited and Guangzhou Railway
               (Group) Guangshen Railway Enterprise Development Company, dated
               April 19, 2007***

4.6            Summary of the three loan agreements Guangshen Railway Company
               Limited entered into with three PRC banks in 2006***

4.7            Summary of the three loan agreements Guangshen Railway Company
               Limited entered into with three PRC banks in 2007
</Table>

                                      110
<PAGE>

<Table>
<S>            <C>
4.8            Supplemental agreement to Railway Business Related Assets
               Purchase Agreement dated November 14, 2006 between Guangshen
               Railway Company Limited and Guangzhou Railway Group Yangcheng
               Railway Enterprise Development Company***

4.9            Master comprehensive services agreements dated November 5, 2007
               between Guangshen Railway Company Limited and each of GRGC, GEDC
               and Yangcheng Railway Company

7.1            Statements explaining how certain ratios are calculated in this
               annual report

8.1            List of subsidiaries of Guangshen Railway Company Limited as of
               December 31, 2007

11.1           Code of Ethics as amended on April 23, 2008

12.1           Section 302 principal executive officers' and principal financial
               officer's certifications

13.1           Certifications of principal executive officers and principal
               financial officer pursuant to 18 U.S.C. Section 1350, as enacted
               pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002
</Table>

----------

* Incorporated by reference from the Registrant's annual report on Form 20-F
  filed with the SEC on June 28, 2005

**Incorporated by reference from the Registrant's annual report on Form 20-F
   filed with the SEC on June 29, 2006

***Incorporated by reference from the Registrant's annual report on Form 20-F
  filed with the SEC on June 28, 2007

                                      111
<PAGE>
                                    SIGNATURE

     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.

                                      GUANGSHEN RAILWAY COMPANY LIMITED


Date:  June 26, 2008                      By: /s/ He Yuhua
                                              ---------------------
                                              He Yuhua
                                              Chairman of the Board of Directors


                                      112
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                           -----
<S>                                                                        <C>
GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
   Report of Independent Registered Public Accounting Firm                 F-2,3
   Consolidated Balance Sheets as of December 31, 2007 and 2006              F-4
   Consolidated Income Statements for the years ended December 31, 2007,
      2006 and 2005                                                          F-5
   Consolidated Cash Flow Statements for the years ended December 31,
      2007, 2006 and 2005                                                    F-6
   Consolidated Statements of Changes in Equity for the years ended
      December 31, 2007, 2006 and 2005                                       F-7
   Notes to the Consolidated Financial Statements                            F-8
</TABLE>

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Guangshen Railway Company Limited

In our opinion, the accompanying consolidated balance sheets and the related
consolidated income statements, consolidated cash flow statements and the
consolidated statements of changes in equity present fairly, in all material
respects, the financial position of Guangshen Railway Company Limited (the
"Company") and its subsidiaries ("the Group") at December 31, 2007 and 2006, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2007 in conformity with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
Also in our opinion, the Group maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Group's management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in Management's Report On Internal Control over Financial Reporting in
Item 15 appearing on page 106 of the 2007 Annual Report. Our responsibility is
to express opinions on these financial statements and on the Group's internal
control over financial reporting based on our audits (which was an integrated
audit in 2007). We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.


                                      F-2

<PAGE>
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. As described in Management's
Report on Internal Control Over Financial Reporting in Item 15 appearing on page
106 of the 2007 Annual Report, management has excluded the railway
transportation business of Guangzhou Railway Group Yangcheng Railway Enterprise
Development Company ("Yangcheng Railway") from its assessment of internal
control over financial reporting as of December 31, 2007 because it was acquired
by the Group in a purchase business combination during 2007. We have also
excluded Yangcheng Railway from our audit of internal control over financial
reporting. The total assets and revenue of Yangcheng Railway represent
approximately 36.9% and 57.0%, respectively, of the related consolidated
financial statements amounts as of and for the year ended December 31, 2007.

/s/ PRICEWATERHOUSECOOPERS
Hong Kong, June 26, 2008


                                      F-3
<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2007 AND 2006
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                         December 31,
                                                             -----------------------------------
                                                    Note        2006         2007         2007
                                                    ----     ----------   ----------   ---------
                                                                 RMB          RMB         US$*
                                                             (Note 40)
<S>                                                 <C>      <C>          <C>          <C>
ASSETS
   NON-CURRENT ASSETS
   Fixed assets                                        6      6,738,477   19,995,286   2,742,838
   Construction-in-progress                            7      4,305,157    1,422,635     195,149
   Prepayment for fixed assets and
      construction-in-progress                                  411,476      891,592     122,304
   Leasehold land payments                             8        625,628      607,971      83,398
   Goodwill                                         9,38             --      281,255      38,581
   Prepayment and deferred acquisition costs
      relating to a business combination              38      5,296,593           --          --
   Interests in associates                            11        122,520      124,350      17,058
   Available-for-sale investments                     12         46,108       46,608       6,393
   Long-term receivable                               14             --       48,547       6,659
   Deferred tax assets                                15        190,843      362,256      49,692
   Deferred staff costs                               16        120,730      141,391      19,395
                                                             ----------   ----------   ---------
                                                             17,857,532   23,921,891   3,281,467
                                                             ----------   ----------   ---------
   CURRENT ASSETS
   Materials and supplies                             17         66,967      153,674      21,080
   Trade receivables, net                             18         62,869       59,749       8,196
   Due from related parties                           37(c)      31,757       83,925      11,512
   Prepayments and other receivables, net             19         98,636      141,674      19,434
   Short-term deposits                                20        169,739           --          --
   Cash and cash equivalents                          34(b)   5,851,831    2,352,351     322,682
                                                             ----------   ----------   ---------
                                                              6,281,799    2,791,373     382,904
                                                             ----------   ----------   ---------
TOTAL ASSETS                                                 24,139,331   26,713,264   3,664,371
                                                             ==========   ==========   =========
   EQUITY
   Common stock, par value RMB1.00 per share,
      7,083,537 shares authorised and outstanding     21      7,083,537    7,083,537     971,678
   Reserves                                           22     13,085,471   14,042,224   1,926,231
                                                             ----------   ----------   ---------
                                                             20,169,008   21,125,761   2,897,909
   MINORITY INTERESTS                                            50,922       55,709       7,642
                                                             ----------   ----------   ---------
TOTAL EQUITY                                                 20,219,930   21,181,470   2,905,551
                                                             ----------   ----------   ---------
LIABILITIES
   NON-CURRENT LIABILITIES
   Borrowings                                         23      1,860,000    2,850,000     390,947
   Retirement benefits obligations                    24         16,917      300,701      41,248
   Deferred tax liabilities                           15          9,802       23,335       3,201
                                                             ----------   ----------   ---------
                                                              1,886,719    3,174,036     435,396
                                                             ----------   ----------   ---------
   CURRENT LIABILITIES
   Trade payables                                     25        240,334      291,423      39,976
   Payables for fixed assets and
     construction-in-progress                                 1,004,750      337,213      46,257
   Due to related parties                             37(c)     250,601    1,022,125     140,209
   Dividends payable                                                 74           46           6
   Income tax payable                                           127,282       89,996      12,345
   Accruals and other payables                        26        409,641      616,955      84,631
                                                             ----------   ----------   ---------
                                                              2,032,682    2,357,758     323,424
                                                             ----------   ----------   ---------
TOTAL LIABILITIES                                             3,919,401    5,531,794     758,820
                                                             ----------   ----------   ---------
TOTAL EQUITY AND LIABILITIES                                 24,139,331   26,713,264   3,664,371
                                                             ==========   ==========   =========
</TABLE>

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

----------
*    Translation of amounts from Renminbi ("RMB") into United States dollars
     ("US$") for the convenience of the reader has been made at the Noon Buying
     Rate on December 31, 2007 of US$1.00=RMB7.29 as certified for customs
     purposes by the Federal Reserve Bank of New York. No representation is made
     that the RMB amounts could have been, or could be, converted into US$ at
     that rate on December 31, 2007.


                                       F-4

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                         CONSOLIDATED INCOME STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
            (Amounts in thousands, except per share and per ADS data)

<TABLE>
<CAPTION>
                                                                         Years ended December 31,
                                                           -------------------------------------------------
                                                    Note      2005         2006         2007         2007
                                                    ----   ----------   ----------   ----------   ----------
                                                               RMB          RMB          RMB         US$*
                                                            (Note 40)    (Note 40)
<S>                                                 <C>    <C>          <C>          <C>          <C>
Revenues from railroad businesses
   Passenger                                                2,253,335    2,608,838    5,833,538      800,211
   Freight                                                    540,341      565,557    1,326,450      181,955
   Railway network usage and services                         305,790      291,489    2,659,529      364,819
                                                           ----------   ----------   ----------   ----------
                                                            3,099,466    3,465,884    9,819,517    1,346,985
Revenues from other businesses                                177,462      128,590      688,987       94,511
                                                           ----------   ----------   ----------   ----------
Total revenues                                              3,276,928    3,594,474   10,508,504    1,441,496
Operating expenses
   Railroad businesses
      Business tax                                            (86,565)     (98,567)    (221,820)     (30,428)
      Labour and benefits                           27       (597,254)    (718,035)  (1,928,171)    (264,495)
      Equipment leases and services                          (507,627)    (633,036)  (2,595,181)    (355,992)
      Materials and supplies                                 (283,902)    (268,259)  (1,240,801)    (170,206)
      Repair costs, excluding materials
         and supplies                                        (262,973)    (212,435)    (460,133)     (63,118)
      Depreciation of fixed assets                           (289,185)    (317,358)  (1,006,728)    (138,097)
      Amortisation of leasehold land payments                 (15,416)     (16,776)     (15,002)      (2,058)
      Land use right leases                         36(b)          --           --      (50,000)      (6,859)
      Social services charges                                 (78,227)     (74,520)    (396,789)     (54,429)
      Utility and office expenses                            (109,719)    (102,949)    (109,792)     (15,061)
      Others                                                 (108,516)     (85,972)    (309,876)     (42,507)
                                                           ----------   ----------   ----------   ----------
                                                           (2,339,384)  (2,527,907)  (8,334,293)  (1,143,250)
                                                           ----------   ----------   ----------   ----------
   Other businesses
      Business tax                                            (10,493)      (4,885)     (17,611)      (2,416)
      Labour and benefits                           27        (58,761)     (65,710)    (171,921)     (23,583)
      Materials and supplies                                 (103,249)     (83,072)    (161,719)     (22,183)
      Depreciation of fixed assets                             (2,773)      (2,529)     (10,372)      (1,423)
      Amortisation of leasehold land payments                    (165)          --       (1,019)        (140)
      Utility and office expenses                             (14,906)      (9,815)     (96,177)     (13,193)
                                                           ----------   ----------   ----------   ----------
                                                             (190,347)    (166,011)    (458,819)     (62,938)
                                                           ----------   ----------   ----------   ----------
Total operating expenses                                   (2,529,731)  (2,693,918)  (8,793,112)  (1,206,188)
Other income, net                                   28         51,628       64,648       49,816        6,833
                                                           ----------   ----------   ----------   ----------
PROFIT FROM OPERATIONS                                        798,825      965,204    1,765,208      242,141
Finance costs                                       29        (22,738)     (15,970)     (98,487)     (13,510)
Share of results of associates                      11        (19,949)     (28,306)       1,830          251
                                                           ----------   ----------   ----------   ----------
PROFIT BEFORE INCOME TAX                                      756,138      920,928    1,668,551      228,882
Income tax expense                                  30       (110,176)    (149,155)    (232,349)     (31,872)
                                                           ----------   ----------   ----------   ----------
PROFIT FOR THE YEAR                                           645,962      771,773    1,436,202      197,010
                                                           ==========   ==========   ==========   ==========
ATTRIBUTABLE TO:
Equity holders of the Company                                 646,960      771,513    1,431,415      196,353
Minority interests                                               (998)         260        4,787          657
                                                           ----------   ----------   ----------   ----------
                                                              645,962      771,773    1,436,202      197,010
                                                           ==========   ==========   ==========   ==========
DIVIDENDS                                           33        520,266      566,683      566,683       77,734
EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE TO THE
   EQUITY HOLDERS OF THE COMPANY DURING THE YEAR
   - Basic and diluted                              32        RMB0.15      RMB0.17      RMB0.20     US$0.027
                                                           ==========   ==========   ==========   ==========
EARNINGS PER EQUIVALENT ADS
   - Basic and diluted                                        RMB7.46      RMB8.73     RMB10.10     US$1.385
                                                           ==========   ==========   ==========   ==========
</TABLE>

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

----------
*    Translation of amounts from Renminbi ("RMB") into United States dollars
     ("US$") for the convenience of the reader has been made at the Noon Buying
     Rate on December 31, 2007 of US$1.00=RMB7.29 as certified for customs
     purposes by the Federal Reserve Bank of New York. No representation is made
     that the RMB amounts could have been, or could be, converted into US$ at
     that rate on December 31, 2007.


                                       F-5

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                        CONSOLIDATED CASH FLOW STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                         -----------------------------------------------
                                                  Note      2005         2006         2007        2007
                                                  ----   ----------   ----------   ----------   --------
                                                             RMB          RMB          RMB        US$*
<S>                                               <C>    <C>          <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Cash generated from operations                 34(a)   1,471,525    1,230,958    2,430,689    333,428
   Interest paid                                               (654)      (1,745)    (173,515)   (23,802)
   Income tax paid                                          (90,724)    (117,209)    (299,529)   (41,088)
                                                         ----------   ----------   ----------   --------
Net cash generated from operating activities              1,380,147    1,112,004    1,957,645    268,538
                                                         ----------   ----------   ----------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Payments for acquisition of fixed assets
      and construction-in-progress and
      prepayment for fixed assets, net of
      related parties                                    (1,588,374)  (3,202,670)  (1,107,320)  (151,896)
   Deposits for business combination                             --   (5,265,250)          --         --
   Payment for business combination, net of
      cash acquired                               38             --           --   (4,781,633)  (655,917)
   Disposal of subsidiaries, net of cash
      received                                                   --           --       (7,084)      (972)
   Proceeds from sales of fixed assets                       38,235       42,596       83,701     11,482
   Net cash balance acquired in an acquisition
      of a subsidiary                                            --        1,905           --         --
   Increase / (decrease) in interests in
      associates, net                                        62,700      (42,937)          --         --
   Decrease in short-term deposits with
      maturities more than three months                     613,178      596,392      169,739     23,284
   Interest received                                         53,346       36,633       57,183      7,844
                                                         ----------   ----------   ----------   --------
Net cash used in investing activities                      (820,915)  (7,833,331)  (5,585,414)  (766,175)
                                                         ----------   ----------   ----------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of share capital                       --   10,332,432           --         --
   Share issuance costs                                     (12,972)    (210,747)          --         --
   Proceeds from borrowings                                      --    1,860,000      695,000     95,336
   Dividends paid to the Company's equity
      holders                                              (476,904)    (520,655)    (566,711)   (77,738)
   Dividends paid to minority interests                      (1,857)          --           --         --
                                                         ----------   ----------   ----------   --------
   Net cash (used in) / generated from
      financing activities                                 (491,733)  11,461,030      128,289     17,598
                                                         ----------   ----------   ----------   --------
NET INCREASE / (DECREASE)  IN CASH AND CASH
   EQUIVALENTS                                               67,499    4,739,703   (3,499,480)  (480,039)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR           1,044,629    1,112,128    5,851,831    802,721
                                                         ----------   ----------   ----------   --------
                                                                                                      --
CASH AND CASH EQUIVALENTS, AT END OF YEAR         34(b)   1,112,128    5,851,831    2,352,351    322,682
                                                         ==========   ==========   ==========   ========
</TABLE>

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

----------
*    Translation of amounts from Renminbi ("RMB") into United States dollars
     ("US$") for the convenience of the reader has been made at the Noon Buying
     Rate on December 31, 2007 of US$1.00=RMB7.29 as certified for customs
     purposes by the Federal Reserve Bank of New York. No representation is made
     that the RMB amounts could have been, or could be, converted into US$ at
     that rate on December 31, 2007.


                                       F-6

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                  Attributable to equity holders
                        ----------------------------------------------------------------------------------
                                                                       Statutory
                                                  Shares    Statutory    public   Discretionary
                           Share       Share     issuance    surplus    welfare      surplus     Retained   Minority      Total
                          capital     premium      costs     reserve      fund       reserve     earnings   interest     equity
                        ---------- ------------  --------  ----------  ---------  ------------- ----------  --------  ------------
                            RMB         RMB         RMB        RMB        RMB          RMB          RMB        RMB         RMB
                         (Note 21)                          (Note 22)  (Note 22)    (Note 22)
<S>                     <C>        <C>           <C>       <C>         <C>        <C>           <C>         <C>       <C>
Balance at January 1,
   2005                  4,335,550    2,715,778   (14,035)    605,345    511,294      341,659    1,003,409    51,612     9,550,612
Share issuance costs            --           --   (12,972)         --         --           --           --        --       (12,972)
Profit for the year             --           --        --          --         --           --      646,959      (998)      645,961
Adjustment related to
   carrying value of
   fixed assets at
   Restructuring                --      140,000        --          --         --           --           --        --       140,000
Appropriation from
   retained earnings            --           --        --      61,192     29,834           13      (91,039)   (1,857)       (1,857)
Transfers                       --           --        --      (3,995)    (6,592)       4,321        6,266        --            --
Dividends relating to
   2004                         --           --        --          --         --           --     (476,911)       --      (476,911)
                        ---------- ------------  --------  ----------  ---------    ---------   ----------  --------  ------------
Balance at December 31,
   2005                  4,335,550    2,855,778   (27,007)    662,542    534,536      345,993    1,088,684    48,757     9,844,833
                        ========== ============  ========  ==========  =========    =========   ==========  ========  ============
Balance at January 1,
   2006                  4,335,550    2,855,778   (27,007)    662,542    534,536      345,993    1,088,684    48,757     9,844,833
Class A share issuance   2,747,987    7,584,445        --          --         --           --           --        --    10,332,432
Share issuance costs            --           --  (210,747)         --         --           --           --        --      (210,747)
Profit for the year             --           --        --          --         --           --      771,513       260       771,773
Acquisition of a
   subsidiary                   --           --        --          --         --           --           --     4,229         4,229
Disposal of a
   subsidiary                   --           --        --          --         --           --           --    (2,324)       (2,324)
Appropriation from
   retained earnings            --           --        --      71,605         --           41      (71,646)       --            --
Share issuance cost
   offset against share
   premium                      --     (237,754)  237,754          --         --           --           --        --            --
Transfers                       --           --        --     534,536   (534,536)          --           --        --            --
Dividends relating to
   2005                         --           --        --          --         --           --     (520,266)       --      (520,266)
                        ---------- ------------  --------  ----------  ---------    ---------   ----------  --------  ------------
Balance at December 31,
   2006                  7,083,537   10,202,469        --   1,268,683         --      346,034    1,268,285    50,922    20,219,930
                        ========== ============  ========  ==========  =========    =========   ==========  ========  ============
Balance at January 1,
   2007                  7,083,537   10,202,469        --   1,268,683         --      346,034    1,268,285    50,922    20,219,930
Adjustment to deferred
   tax arising from
   group reorganisation
   brought forward due
   to change of income
   tax rate (Note 15)           --       92,021        --          --         --           --           --        --        92,021
Profit for the year             --           --                    --                      --    1,431,415     4,787     1,436,202
Appropriation from
   retained earnings            --           --        --     139,778         --           --     (139,778)       --            --
Reversal of
   appropriation
   (Note 22)                    --           --        --      (2,766)        --           --        2,766        --            --
Dividends relating to
   2006                         --           --        --          --         --           --     (566,683)               (566,683)
                        ---------- ------------  --------  ----------  ---------    ---------   ----------  --------  ------------
Balance at December 31,
   2007                  7,083,537   10,294,490        --   1,405,695         --      346,034    1,996,005    55,709    21,181,470
                        ========== ============  ========  ==========  =========    =========   ==========  ========  ============
Balance at December 31,
   2007 (*)             US$971,679 US$1,412,139        --  US$192,825         --    US$47,467   US$273,800  US$7,642  US$2,905,552
                        ========== ============  ========  ==========  =========    =========   ==========  ========  ============
</TABLE>

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

----------
*    Translation of amounts from Renminbi ("RMB") into United States dollars
     ("US$") for the convenience of the reader has been made at the Noon Buying
     Rate on December 31, 2007 of US$1.00=RMB7.29 as certified for customs
     purposes by the Federal Reserve Bank of New York. No representation is made
     that the RMB amounts could have been, or could be, converted into US$ at
     that rate on December 31, 2007.


                                       F-7
<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

1    GENERAL INFORMATION

     Guangshen Railway Company Limited (the "Company") was established as a
     joint stock limited company in the People's Republic of China (the "PRC")
     on March 6, 1996. On the same date, the Company assumed the business
     operations of certain railroad and other related businesses (collectively
     the "Businesses") that had been undertaken previously by its predecessor,
     Guangshen Railway Company (the "Predecessor") and certain of its
     subsidiaries; and Guangzhou Railway (Group) Company (the "Guangzhou Railway
     Group") and certain of its subsidiaries prior to the formation of the
     Company.

     The Predecessor is controlled by and is under the administration of the
     Guangzhou Railway Group. Pursuant to a restructuring agreement entered into
     between the Guangzhou Railway Group, the Predecessor and the Company in
     1996 (the "Restructuring Agreement"), the Company issued to the Guangzhou
     Railway Group 100% of its equity interest in the form of 2,904,250,000
     ordinary shares (the "State-owned Domestic Shares") in exchange for the
     assets and liabilities associated with the operations of the Businesses
     (the "Restructuring"). After the Restructuring, the Predecessor changed its
     name to Guangzhou Railway (Group) Guangshen Railway Enterprise Development
     Company.

     In May 1996, the Company issued 1,431,300,000 shares, representing
     217,812,000 H Shares ("H Shares") and 24,269,760 American Depositary Shares
     ("ADSs", one ADS represents 50 H Shares) in a global public offering for
     cash of approximately RMB4,214,000,000 in order to finance the capital
     expenditure and working capital requirements of the Company and its
     subsidiaries (collectively defined as the "Group").

     In December 2006, the Company issued 2,747,987,000 A Shares on the Shanghai
     Stock Exchange through an initial public offering of shares in order to
     finance the acquisition of assets and liabilities associated with the
     railway transportation business of Guangzhou Railway Group Yangcheng
     Railway Enterprise Development Company ("Yangcheng Railway"), a wholly
     owned subsidiary of Guangzhou Railway Group which operate a railway line
     between the cities of Guangzhou and Pingshi in the Southern region of the
     PRC (please see Note 38 for further details).

     The principal activities of the Group are railroad passenger and cargo
     transportation. The Group also operates certain other businesses, which are
     principally services offered in the railway stations and sales of food,
     beverages and merchandises on board the trains as well as in the railway
     stations.

     The registered address of the Company is No. 1052 Heping Road, Shenzhen,
     Guangdong Province, the People's Republic of China.

     As of December 31, 2007, the Company had in total 33,075 employees,
     representing an increase of 23,664 compared to that of December 31, 2006.

     The financial statements have been approved for issuance by the board of
     directors of the Company on April 23, 2008.

     The English names of all companies listed in the financial statements are
     direct translations of their registered names in Chinese.


                                      F-8

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2    PRINCIPAL ACCOUNTING POLICIES

     The principal accounting policies adopted in the preparation of these
     financial statements are set out below. These policies have been
     consistently applied to all the years presented, unless otherwise stated.

(1)  BASIS OF PRESENTATION

     The consolidated financial statements have been prepared in accordance with
     International Financial Reporting Standards as issued by the International
     Accounting Standards Board ("IFRS"). The financial statements have been
     prepared under the historical cost convention.

     The preparation of financial statements in conformity with IFRS requires
     the use of certain critical accounting estimates. It also requires
     management to exercise its judgement in the process of applying the Group's
     accounting policies. The areas involving a higher degree of judgement or
     complexity, or areas where assumptions and estimates are significant to the
     financial statements are disclosed in Note 4.

(a)  Standards, amendments and interpretation effective in 2007:

     -    IFRS 7, 'Financial instruments: Disclosures', and the complementary
          amendment to IAS 1, 'Presentation of financial statements - Capital
          disclosures', introduces new disclosures relating to financial
          instruments and does not have any impact on the classification and
          valuation of the Group's financial instruments.

     -    IFRIC - Int 10, 'Interim financial reporting and impairment',
          prohibits the impairment losses recognised in an interim period on
          goodwill and investments in equity instruments and in financial assets
          carried at cost to be reversed at a subsequent balance sheet date. The
          Group has applied this standard from January 1, 2007.

(b)  Standards, amendments and interpretation effective in 2007 but not relevant
     to the Group's Operations:

     -    IFRS 4, 'Insurance contracts';

     -    IFRIC- Int 7, 'Applying the restatement approach under IAS 29,
          Financial reporting in hyper-inflationary economies';

     -    IFRIC - Int 8, 'Scope of IFRS 2'; and

     -    IFRIC - Int 9, 'Re-assessment of embedded derivatives'.


                                      F-9

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(1)  BASIS OF PRESENTATION (CONTINUED)

(c)  Standards and interpretations to existing standards that are not yet
     effective and have not been early adopted by the Group:

     The following standards, and interpretations to existing standards, have
     been published that are mandatory for the Group's accounting periods
     beginning on or after November 1, 2008 or later periods that the Group had
     not early adopted:

     -    IAS 1 (Revised), 'Presentation of Financial Statements' (effective
          from January 1, 2009). The amendment requires all non-owner changes in
          equity (i.e. comprehensive income) to be presented in one statement of
          comprehensive income or in two statements (a separate income statement
          and a statement of comprehensive income). Management does not expect
          that the application will result in a material impact on the Group's
          accounts.

     -    IFRS 3 (Revised), 'Business Combination' (effective from July 1,
          2009). IFRS 3 requires considerations (including contingent
          consideration), each identifiable asset and liability to be measured
          at its acquisition-date fair value, except leases and insurance
          contracts, reacquired right, indemnification assets as well as some
          assets and liabilities required to be measured in accordance with
          other IFRSs. They are income taxes, employee benefits, share-based
          payment and non current assets held for sale and discontinued
          operations. IFRS 3 also requires any non-controlling interest in an
          acquiree to be measured either at fair value or at the non-controlling
          interest's proportionate share of the acquiree's net identifiable
          assets. Management does not expect that the application will result in
          a material impact on the Group's accounts.

     -    IFRS 8, 'Operating segments ' (effective from January 1, 2009). IFRS 8
          replaces IAS 14 and aligns segment reporting with the requirements of
          the US standard SFAS 131, 'Disclosures about segments of an enterprise
          and related information'. The new standard requires a 'management
          approach', under which segment information is presented on the same
          basis as that used for internal reporting purposes. The Group will
          apply IFRS 8 from January 1, 2009. The expected impact is still being
          assessed in details by management, but management does not anticipate
          that the application will result in any material impact on the Group's
          accounts.

     -    IAS 27 (Revised), 'Consolidated and Separate Financial Statement'
          (effective from July 1, 2009). IAS 27 requires non-controlling
          interests (i.e. minority interest) to be presented in the consolidated
          statement of financial position within equity, separately from the
          equity of the owners of the parent. Total comprehensive income must be
          attributed to the owners of the parent and to the non-controlling
          interests even if this results in the non-controlling interests having
          a deficit balance. Changes in a parent's ownership interest in a
          subsidiary that do not result in the loss of control are accounted for
          within equity. When control of a subsidiary is lost, the assets and
          liabilities and related equity components of the former subsidiary are
          derecognised. Any gains or loss is recognised in profit or loss. Any
          investment retained in the former subsidiary is measured at its fair
          value at the date when control is lost. Management does not expect to
          have any impact on the Group's accounts.


                                      F-10

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(1)  BASIS OF PRESENTATION (CONTINUED)

(c)  Standards and interpretations to existing standards that are not yet
     effective and have not been early adopted by the Group (continued):

     -    IAS 23 (Amendment), 'Borrowing costs' (effective from January 1,
          2009). The amendment requires an entity to capitalise borrowing costs
          directly attributable to the acquisition, construction or production
          of a qualifying asset (one that takes a substantial period of time to
          get ready for use or sale) as part of the cost of that asset. The
          option of immediately expensing those borrowing costs will be removed.
          The existing accounting policy of the Group is the same as that
          revised IAS 23 requirement.

     -    IFRIC - Int 12, 'Service concession arrangements' (effective from
          January 1, 2008). IFRIC - Int 12 applies to contractual arrangements
          whereby a private sector operator participates in the development,
          financing, operation and maintenance of infrastructure for public
          sector services. Management does not expect to have any impact on the
          Group's accounts.

(d)  Interpretations to existing standards that are not yet effective and not
     relevant to the Group's operations:

     The following interpretations to existing standards have been published
     that are mandatory for the Group's accounting periods beginning on or after
     January 1, 2008 or later periods but are not relevant to the Group's
     operations:

     -    IFRS 2 Amendment, 'Share-based Payment Vesting Conditions and
          Cancellations' (effective from January 1, 2009). The amendment
          clarifies the definition of "vesting conditions" and specifies the
          accounting treatment of "cancellations" by the counterparty to a
          share-based payment arrangement. Vesting conditions are service
          conditions (which require a counterparty to complete a specified
          period of service) and performance conditions (which require a
          specified period of service and specified performance targets to be
          met) only. All "non-vesting conditions" and vesting conditions that
          are market conditions shall be taken into account when estimating the
          fair value of the equity instruments granted. All cancellations are
          accounted for as an acceleration of vesting and the amount that would
          otherwise have been recognised over the remainder of the vesting
          period is recognised immediately. This amendment does not have an
          impact on the Group's presentation of financial statements.


                                      F-11

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2     PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(1)   BASIS OF PRESENTATION (CONTINUED)

(d)  Interpretations to existing standards that are not yet effective and not
     relevant to the Group's operations (continued):

     -    IFRS 1 (Amendment), 'First-time Adoption of International Financial
          Reporting Standards' and IAS 27 (Amendment), 'Consolidated and
          Separate Financial Statements' (effective from January 1, 2009). The
          amendment requires that certain additional disclosure should be made
          to entity's first IFRS separate financial statement if an entity uses
          a deemed cost in its opening IFRS statement of financial position for
          an investment in a subsidiary, jointly controlled entity or associate
          in its separate financial statements. This amendment does not have an
          impact on the Group's financial statements.

     -    IAS 32 and IAS 1 (Amendment), 'Puttable Financial Instruments and
          Obligations Arising on Liquidation' (effective from January 1, 2009).
          The amendment requires some puttable financial instruments and some
          financial instruments that impose on the entity an obligation to
          deliver to another party a pro rata share of the net assets of the
          entity only on liquidation to be classified as equity. This amendment
          does not have an impact on the Group's financial statements.

     -    IFRIC - Int 11, 'IFRS 2 - Group and treasury share transactions'
          (effective from annual periods beginning on or after March 1, 2007).
          IFRIC - Int 11 provides guidance on whether share-based transactions
          involving treasury shares or involving Group entities (for example,
          options over a parent's shares) should be accounted for as
          equity-settled or cash-settled share-based payment transactions in the
          stand-alone accounts of the parent and Group companies. This
          interpretation does not have an impact on the Group's financial
          statements.

     -    IFRIC - Int 13, 'Customer loyalty programmes' (effective from July 1,
          2008). IFRIC - Int 13 clarifies that where goods or services are sold
          together with a customer loyalty incentive (for example, loyalty
          points or free products), the arrangement is a multiple-element
          arrangement and the consideration receivable from the customer is
          allocated between the components of the arrangement using fair values.
          IFRIC - Int 13 is not relevant to the Group's operations because none
          of the Group's companies operate any loyalty programmes.

     -    IFRIC - Int 14, "The Limit on a Defined Benefit Asset, Minimum Funding
          Requirements and their Interaction" (effective from January 1, 2008).
          It provides guidance on assessing the limit in IAS 19 on the amount of
          the surplus that can be recognised as an asset. It also explains how
          the pension asset or liability may be affected by a statutory or
          contractual minimum funding requirement. Management does not expect
          this interpretation to have any material impact on the Group's
          financial statements.


                                      F-12

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(2)  CONSOLIDATION

(a)  Subsidiaries

     Subsidiaries are all entities (including special purpose entities) over
     which the Group has the power to govern the financial and operating
     policies generally accompanying a shareholding of more than one half of the
     voting rights. The existence and effect of potential voting rights that are
     currently exercisable or convertible are considered when assessing whether
     the Group controls another entity. Subsidiaries are fully consolidated from
     the date on which control is transferred to the Group. They are
     de-consolidated from the date that control ceases. Details of the Company's
     subsidiaries are shown in Note 10.

     The purchase method of accounting is used to account for the acquisition of
     subsidiaries by the Group. The cost of an acquisition is measured as the
     fair value of the assets given, equity instruments issued and liabilities
     incurred or assumed at the date of exchange, plus costs directly
     attributable to the acquisition. Identifiable assets acquired and
     liabilities and contingent liabilities assumed in a business combination
     are measured initially at their fair values at the acquisition date,
     irrespective of the extent of any minority interest. The excess of the cost
     of acquisition over the fair value of the Group's share of the identifiable
     net assets acquired is recorded as goodwill. If the cost of acquisition is
     less than the fair value of the net assets of the subsidiary acquired, the
     difference is recognised directly in the income statement.

     Inter-company transactions, balances and unrealised gains on transactions
     between group companies are eliminated. Unrealised losses are also
     eliminated but considered an impairment indicator of the asset transferred.
     Accounting policies of subsidiaries have been changed where necessary to
     ensure consistency with the policies adopted by the Group.

     In the Company's stand-alone balance sheet, the investments in subsidiaries
     are stated at cost less provision for impairment losses. The results of
     subsidiaries are accounted by the Company on the basis of dividends
     received and receivable.

(b)  Transactions and minority interests

     The Group applies a policy of treating transactions with minority interests
     as transactions with parties external to the Group. Disposals to minority
     interests result in gains and losses for the Group that are recorded in the
     income statement. Purchases from minority interests result in goodwill,
     being the difference between any consideration paid and the relevant share
     acquired of the carrying value of net assets of the subsidiary.


                                      F-13

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(2)  CONSOLIDATION (CONTINUED)

(c)  Associates

     Associates are all entities over which the Group has significant influence
     but not control, generally accompanying a shareholding of between 20% and
     50% of the voting rights. Investments in associates are accounted for using
     the equity method of accounting and are initially recognised at cost. The
     group's investment in associates includes goodwill identified on
     acquisition, net of any accumulated impairment loss. Details of the Group's
     associates are set out in Note 11.

     The Group's share of its associates' post-acquisition profits or losses is
     recognised in the income statement, and its share of post-acquisition
     movements in reserves is recognised in reserves. The cumulative
     post-acquisition movements are adjusted against the carrying amount of the
     investment. When the Group's share of losses in an associate equals or
     exceeds its interest in the associate, including any other unsecured
     receivables, the Group does not recognise further losses, unless it has
     incurred obligations or made payments on behalf of the associate.

     Unrealised gains on transactions between the Group and its associates are
     eliminated to the extent of the Group's interest in the associates.
     Unrealised losses are also eliminated unless the transaction provides
     evidence of an impairment of the asset transferred. Accounting policies of
     associates have been changed where necessary to ensure consistency with the
     policies adopted by the Group.

     Dilution gains and losses arising in investments in associates are
     recognised in the income statement.

     In the Company's stand-alone balance sheet the investments in associated
     companies are stated at cost less provision for impairment losses. The
     results of associated companies are accounted for by the Company on the
     basis of dividend received and receivable.

(3)  SEGMENT REPORTING

     A business segment is a group of assets and operations engaged in providing
     products or services that are subject to risks and returns that are
     different from those of other business segments. A geographical segment is
     engaged in providing products or services within a particular economic
     environment that is subject to risks and returns that are different from
     those of segments operating in other economic environments.

(4)  FOREIGN CURRENCY TRANSACTIONS

(a)  Functional and presentation currency

     Items included in the financial statements of each of the Group's entities
     are measured using the currency of the primary economic environment in
     which the entity operates ("the functional currency"). The consolidated
     financial statements are presented in Renminbi ("Rmb"), which is the
     company's functional and presentation currency.


                                      F-14

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(4)  FOREIGN CURRENCY TRANSACTIONS (CONTINUED)

(b)  Transactions and balances

     Foreign currency transactions are translated into the functional currency
     using the exchange rates prevailing at the dates of the transactions.
     Foreign exchange gains and losses resulting from the settlement of such
     transactions and from the translation at year-end exchange rates of
     monetary assets and liabilities denominated in foreign currencies are
     recognised in the income statement.

(5)  FIXED ASSETS

     Fixed assets are stated at cost less accumulated depreciation and
     impairment losses. Cost represents the purchase price of the assets and
     other costs incurred to bring the assets into existing use.

     Subsequent costs are included in the asset's carrying amount or recognised
     as a separate asset, as appropriate, only when it is probable that future
     economic benefits associated with the item will flow to the Group and the
     cost of the item can be measured reliably. The carrying amount of the
     replaced part is derecognised. All other repairs and maintenance are
     charged to the income statement during the financial period in which they
     are incurred.

     Depreciation is calculated using the straight-line method to allocate the
     cost amount, after taking into account the estimated residual value of not
     more than 4% of cost, of each asset over its estimated useful life. The
     estimated useful lives are as follows:

<TABLE>
<S>                                         <C>
Buildings                                   25 to 40 years
Leasehold improvements                      over the lease terms
Track, bridges and service roads (Note a)   55 to 100 years
Locomotives and rolling stock               20 years
Communications and signalling systems       8 to 20 years
Other machinery and equipment               7 to 25 years
</TABLE>

Note a:

The estimated useful lives of tracks, bridges and service roads exceed the
initial lease period of the respective land use right lease grants (the "Lease
Term") and land use right operating lease (the "Operating Lease Term") on which
these assets are located (see Notes 2(7) and 36(b)(i)).

Pursuant to the relevant laws and regulations in the PRC governing the land use
right lease grant, the Group has the right to renew the leases up for a period
equivalent to the initial Lease Term. This right can be exercised within one
year of the expiry of the initial Lease Term, and can only be denied if such
renewals are considered to be detrimental to the public interest. Accordingly,
the directors of the Company consider that the approval process to be
perfunctory. In addition, based on the provision of the land use right lease
agreement entered into with the substantial shareholder (details contained in
Note 36(b)(i)), the Company can renew the lease at its own discretion upon
expiration of the Operating Lease Term. Based on these considerations, the
directors have determined the estimated useful lives of these assets to extend
beyond the initial Lease Term as well as the Operating Lease Term.


                                      F-15

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(5)  FIXED ASSETS (CONTINUED)

     The assets' residual values and estimated useful lives are reviewed, and
     adjusted if appropriate, at each balance sheet date.

     An asset's carrying amount is written down immediately to its recoverable
     amount if the asset's carrying amount is greater than its estimated
     recoverable amount (Note 2(9)).

     Gains and losses on disposals are determined by comparing the sales
     proceeds with the carrying amount and are recognised within other gain or
     loss, included in the income statement.

(6)  CONSTRUCTION-IN-PROGRESS

     Construction-in-progress represents buildings, track, bridges and service
     roads, mainly including the construction related costs for the fourth
     railway line of the Group under construction. Construction-in-progress is
     stated at cost which includes all expenditures and other direct costs, site
     restoration costs, prepayments attributable to the construction and
     interest charges arising from borrowings used to finance the construction
     during the construction period. Construction-in-progress is not depreciated
     until such assets are completed and ready for their intended use.

(7)  LEASEHOLD LAND PAYMENTS

     All land in the PRC is state-owned and no individual land ownership right
     exists. The Group acquired the right to use certain parcels of land for its
     rail lines, stations and other businesses. The premium paid for such
     leasehold land payments represents pre-paid lease payments, which are
     amortised over the lease terms of 36.5 to 50 years using the straight-line
     method. Pursuant to the relevant laws and regulations in the PRC governing
     the land use right lease grant, the Group has the right to a renewal period
     that is equivalent to the initial Lease Term. This right can be exercised
     within one year of the expiry of the initial Lease Term, and can only be
     denied if such renewals are considered to be detrimental to public
     interest. The Group considers the approval process to be perfunctory and
     the renewal to be reasonably assured.

(8)  GOODWILL

     Goodwill represents the excess of the cost of an acquisition over the fair
     value of the Group's share of the net identifiable assets of the acquired
     subsidiary/associate at the date of acquisition. Goodwill on acquisitions
     of subsidiaries is included in intangible assets. Goodwill on acquisitions
     of associates is included in investments in associates and is tested for
     impairment as part of the overall balance. Separately recognised goodwill
     is tested annually for impairment and carried at cost less accumulated
     impairment losses. Impairment losses on goodwill are not reversed. Gains
     and losses on the disposal of an entity include the carrying amount of
     goodwill relating to the entity sold.

     Goodwill is allocated to cash-generating units for the purpose of
     impairment testing. The allocation is made to those cash-generating units
     or Groups of cash-generating units that are expected to benefit from the
     business combination in which the goodwill arose.


                                      F-16

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(9)  IMPAIRMENT OF NON-FINANCIAL ASSETS

     Assets that have an indefinite useful life, for example goodwill, are not
     subject to amortisation and are tested annually for impairment. Assets that
     are subject to amortisation are reviewed for impairment whenever events or
     changes in circumstances indicate that the carrying amount may not be
     recoverable. An impairment loss is recognised for the amount by which the
     asset's carrying amount exceeds its recoverable amount. The recoverable
     amount is the higher of an asset's fair value less costs to sell and value
     in use. For the purposes of assessing impairment, assets are grouped at the
     lowest levels for which there are separately identifiable cash flows
     (cash-generating units). Non-financial assets other than goodwill that
     suffered impairment are reviewed for possible reversal of the impairment at
     each reporting date.

(10) FINANCIAL ASSETS

     The Group classifies its financial assets in the following categories:
     financial assets at fair value through profit or loss, loans and
     receivables, held-to-maturity investments, and available-for-sale financial
     assets. The classification depends on the purpose for which the financial
     assets were acquired. Management determines the classification of its
     financial assets at initial recognition and re-evaluates this designation
     at every reporting date. During 2006 and 2007, other than loans and
     receivables and available-for-sale financial assets, the Group did not hold
     any financial assets in other categories.

(a)  Loans and receivables

     Loans and receivables are non-derivative financial assets with fixed or
     determinable payments that are not quoted in an active market. They are
     included in current assets, except for maturities greater than 12 months
     after the balance sheet date. These are classified as non-current assets.
     The Group's loan and receivables comprise 'receivables' and 'cash and cash
     equivalents' in the balance sheet (Note 2(13) and 2(14)).

(b)  Available-for-sale financial assets

     Available-for-sale financial assets are non-derivatives that are either
     designated in this category or not classified in any of the other
     categories. They are included in non-current assets unless management
     intends to dispose of the investment within 12 months of the balance sheet
     date.

     Regular purchases and sales of financial assets are recognised on the
     trade-date - the date on which the Group commits to purchase or sell the
     asset. Investments are initially recognised at fair value plus transaction
     costs for all financial assets not carried at fair value through profit or
     loss. Financial assets are derecognised when the rights to receive cash
     flows from the investments have expired or have been transferred and the
     Group has transferred substantially all risks and rewards of ownership.
     Available-for-sale financial assets are subsequently carried at fair value
     except for no quoted market price in an active market is available for such
     investments or fair value cannot be reliably measured by alternative
     valuation methods. They are carried at costs subject to impairment review.
     Loans and receivables are carried at amortised cost using the effective
     interest method.


                                      F-17

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(10) FINANCIAL ASSETS (CONTINUED)

     Changes in the fair value of monetary and non-monetary securities
     classified as available-for-sale are recognised in equity. When securities
     classified as available-for-sale are sold or impaired, the accumulated fair
     value adjustments recognised in equity are included in the income statement
     as 'gains and losses from investment securities'.

     The Group assesses at each balance sheet date whether there is objective
     evidence that a financial asset or a group of financial assets is impaired.
     In the case of equity securities classified as available for sale, a
     significant or prolonged decline in the fair value of the security below
     its cost is considered as an indicator that the securities are impaired. If
     any such evidence exists for available-for-sale financial assets, the
     cumulative loss - measured as the difference between the acquisition cost
     and the current fair value, less any impairment loss on that financial
     asset previously recognised in profit or loss - is removed from equity and
     recognised in the income statement. Impairment testing of receivables is
     described in Note 2(13).

(11) DEFERRED STAFF COSTS

     The Group implemented a scheme (the "Scheme") for selling staff quarters to
     its employees in 2000. Under the Scheme, the Group sold certain staff
     quarters to their employees at preferential prices in the form of housing
     benefits provided to these employees. The total housing benefits (the
     "Benefits"), which represent the difference between the net book value of
     the staff quarters sold and the proceeds collected from the employees, are
     expected to benefit the Group over 15 years, which determined according to
     the contractual service period of the employees participating in the
     Scheme. Upon the implementation of the Scheme in 2000, the Benefits were
     recorded as deferred staff costs and the balance is then amortised over the
     contractual period of the employees participating in the Scheme.

     At each balance sheet date, the Group assesses whether there is any
     indication of impairment, considering the remaining service period of the
     employees and other qualitative factors. If such indication exists, a
     detailed analysis will be performed in order to assess whether the carrying
     amount of the deferred staff costs can be recoverable in full. A write-down
     is made if the carrying amount exceeds the recoverable amount.

(12) MATERIALS AND SUPPLIES

     Materials and supplies consist mainly of items for repair and maintenance
     of rail-line tracks, and are stated at lower of cost and net realisable
     value. Cost is determined using the weighted average method. Materials and
     supplies are expensed when used. Net realizable value is the estimated
     selling price in the ordinary course of business, less selling expenses.


                                      F-18

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(13) RECEIVABLES

     Receivables are recognised initially at fair value and subsequently
     measured at amortised cost using the effective interest method, less
     provision for impairment. A provision for impairment of receivables is
     established when there is objective evidence that the Group will not be
     able to collect all amounts due according to the original terms of the
     receivables. Significant financial difficulties of the debtor, probability
     that the debtor will enter bankruptcy or financial reorganisation, and
     default or delinquency in payments are considered indicators that the
     receivable is impaired. The amount of the provision is the difference
     between the asset's carrying amount and the present value of estimated
     future cash flows, discounted at the original effective interest rate. The
     carrying amount of the provision asset is reduced through the use of an
     allowance account, and the amount of the loss is recognised in the income
     statement within 'Operating expenses'. When a trade receivable is
     uncollectible, it is written off against the allowance account for trade
     receivables. Subsequent recoveries of amounts previously written off are
     credited against 'Operating expenses' in the income statement.

(14) CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include cash in hand, deposits held at call with
     banks, deposits placed with the deposit centre operated by the MOR which is
     licensed to undertake deposits by the PRC financial authorities, and other
     short-term highly liquid investments with original maturities of three
     months or less.

(15) TRADE PAYABLES

     Trade payables are recognized initially at fair value and subsequently
     measured at amortised cost using the effective interest method.

(16) BORROWINGS

     Borrowings are recognised initially at fair value, net of transaction costs
     incurred. Borrowings are subsequently stated at amortised cost; any
     difference between the proceeds (net of transaction costs) and the
     redemption value is recognised in the income statement over the period of
     the borrowings using the effective interest method.

     Borrowings are classified as current liabilities unless the Group has an
     unconditional right to defer settlement of the liability for at least 12
     months after the balance sheet date.


                                      F-19

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(17) CURRENT AND DEFERRED INCOME TAX

     The current income tax charge is calculated on the basis of the tax laws
     enacted or substantively enacted at the balance sheet date in the PRC where
     the company's subsidiaries and associates operate and generate taxable
     income. Management periodically evaluates positions taken in tax returns
     with respect to situations in which applicable tax regulation is subject to
     interpretation and establishes provisions where appropriate on the basis of
     amounts expected to be paid to the tax authorities.

     Deferred income tax is provided in full, using the liability method, on
     temporary differences arising between the tax bases of assets and
     liabilities and their carrying amounts in the consolidated financial
     statements. However, the deferred income tax is not accounted for if it
     arises from initial recognition of an asset or liability in a transaction
     other than a business combination that at the time of the transaction
     affects neither accounting nor taxable profit or loss. Deferred income tax
     is determined using tax rates (and laws) that have been enacted or
     substantially enacted by the balance sheet date and are expected to apply
     when the related deferred income tax asset is realised or the deferred
     income tax liability is settled.

     Deferred income 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.

     Deferred income tax is provided on temporary differences arising on
     investments in subsidiaries and associates, except where the timing of the
     reversal of the temporary difference is controlled by the Group and it is
     probable that the temporary difference will not reverse in the foreseeable
     future.

(18) EMPLOYEE BENEFITS

(a)  Short term employee benefits and contributions to defined contribution
     retirement plans

     Salaries, annual bonuses, contributions to defined contribution retirement
     plans and the cost of non-monetary benefits are accrued in the year in
     which the associated services are rendered by employees.

     See also Note 2 (11) above.

(b)  Termination benefits

     Termination benefits are payable when selected employees who meet certain
     criteria accept voluntary redundancy in exchange for these benefits. The
     Group recognises retirement benefits when it is demonstrably committed to
     either terminate the employment of current employees according to a
     detailed formal plan without possibility of withdrawal or to provide
     retirement benefits as a result of an offer made to encourage voluntary
     redundancy. Benefits falling due more than 12 months after balance sheet
     date are discounted to present value.


                                      F-20

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

2    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(19) REVENUE RECOGNITION

     The Group recognizes revenue on the following basis, provided it is
     probable that the economic benefits associated with a transaction will flow
     to the Group and the revenues and costs, if applicable, can be measured
     reliably:

(a)  Passenger and freight services

     Revenue is recognised when the services are provided.

(b)  Revenue from railway network usage and services and revenue from other
     businesses

     Revenue from railway network usage and services and revenue form other
     business are recognised once the related services or goods are delivered
     and the related risks and rewards of ownership have been transferred.

(c)  Interest income

     Interest income is recognised on a time-proportion basis using the
     effective interest method. When a receivable is impaired, the Group reduces
     the carrying amount to its recoverable amount, being the estimated future
     cash flow discounted at original effective interest rate of the instrument,
     and continues unwinding the discount as interest income. Interest income on
     impaired loans is recognised using the original effective interest rate.

(d)  Dividend income

     Dividend income is recognised when the right to receive payment is
     established.

(20) GOVERNMENT GRANTS

     Grants from the government are recognised at their fair value where there
     is a reasonable assurance that the grant will be received and the Group
     will comply with all attached conditions. Government grants relating to the
     purchase of fixed assets are deducted against the carrying amount of the
     fixed assets.

(21) OPERATING LEASES

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

(22) DIVIDEND DISTRIBUTION

     Dividend distribution to the Company's shareholders is recognised as a
     liability in the Group's financial statements in the period in which the
     dividends are approved by the Company's shareholders.


                                      F-21

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

3    FINANCIAL RISK MANAGEMENT

3.1  FINANCIAL RISK FACTOR

     The Group's activities expose it to a variety of financial risks: foreign
     currency risk, cash flow and fair value interest rate risk, credit risk,
     and liquidity risk. The Group's overall risk management strategy seeks to
     minimise the potential adverse effects on the financial performance of the
     Group.

(a)  Foreign currency risk

     The Group mainly operates in the PRC with most of the transactions settled
     in RMB. RMB is not freely convertible into other foreign currencies. The
     conversion of RMB denominated balances into foreign currencies is subject
     to the rates and regulations of foreign exchange control promulgated by the
     PRC government. In addition, the Group is required to pay dividends in HKD
     and USD in the future when dividends are declared.

     The Group's objective of managing the foreign currency risk is to minimise
     potential adverse effects arising from foreign transaction movements.
     Depending on volatility of specific foreign currency exposed, measures are
     taken by management to manage the foreign currency positions.

     The following table shows the Group's exposures to foreign currency rate
     fluctuation arising from foreign denominated monetary assets and
     liabilities:

<TABLE>
<CAPTION>
                                                   As of December 31,
                                    Currency     ---------------------
Monetary assets and liabilities   denomination      2007        2006
-------------------------------   ------------   ---------   ---------
                                                 (RMB'000)   (RMB'000)
<S>                               <C>            <C>         <C>
Cash and cash equivalents              USD         3,505       23,701
Cash and cash equivalents              HKD         9,312       51,988
Other receivables                      HKD           562          603
Trade payables                         USD        (1,005)          --
</TABLE>

     The Group may experience a loss as a result of any foreign currency
     exchange rate fluctuations in connection with our deposits and other
     monetary assets and liabilities shown above. The Group has not used any
     means to hedge the exposure to foreign exchange risk. Nevertheless, given
     the recent continuous appreciation of RMB against HKD and USD, the
     directors consider that the risk is not high.


                                      F-22

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

3    FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1  FINANCIAL RISK FACTOR (CONTINUED)

(b)  Cash flow and fair value interest rate risk

     Other than deposits held in banks, the Group does not have significant
     interest-bearing assets. The average interest rate of deposits held in
     banks in the PRC throughout the year was approximately 0.72%. Any change in
     the interest rate promulgated by the People's Bank of China from time to
     time is not considered to have significant impact to the Group.

     The Group's interest rate risk which affects its income and operating cash
     flows mainly arises from bank borrowings. All the Group's bank borrowings
     were at floating rates (Note 23). Bank borrowings at floating rates expose
     the Group to cash flow interest rate risk.

     As of December 31, 2007, if interest rates on bank borrowings had been 10
     basis points higher/lower with all other variables held constant, post-tax
     profit for the year would have been approximately Rmb2,292,000
     lower/higher, mainly as a result of higher/lower interest expense.

(c)  Credit risk

     Credit risk is managed on a group basis. Credit risk arises from cash and
     cash equivalents, trade and other receivables (excluding prepayments),
     short-term deposit, long-term receivable, and amounts due from related
     parties.

     Cash and short term liquid investments are placed with reputable banks and
     clearing house operated by MOR (which is a government authority of the
     PRC). There was no recent history of default of cash and cash equivalents
     and short-term deposits from such financial institutions/authority. The
     majority of the Group's trade receivable balances are due from third party
     customers as a result of rendering of services or sales of merchandises.
     The Group's other receivable balances mainly arise from services rendered
     other than the main railway transportation operations. The Group performs
     ongoing credit evaluations of its customers/debtors' financial condition
     and generally does not require collateral from the customers/debtors'
     account on the outstanding balances. Based on the expected realisability
     and timing for collection of the outstanding balances, the Group maintains
     a provision for doubtful accounts and actual losses incurred have been
     within management's expectation. In view of our history of cooperation with
     the customers and the sound collection history of the receivables due from
     them, management believes that there is no material credit risk inherent in
     the Group's outstanding receivable balances.

     No other financial assets carry a significant exposure to credit risk.

     With the consideration of the above and the fact that majority of the
     Group's revenue from railroad businesses is derived from cash transactions,
     management believes that there is no significant credit risk inherent in
     the Group's business during the reporting period.


                                      F-23
<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

3    FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1  FINANCIAL RISK FACTOR (CONTINUED)

(d)  Liquidity risk

     Prudent liquidity risk management includes maintaining sufficient cash and
     marketable securities, the availability of funding through an adequate
     amount of committed credit facilities and the ability to close out market
     positions. Due to the dynamic nature of the underlying businesses, the
     Group treasury function allows flexibility in funding by maintaining
     committed credit lines.

     Management monitors rolling forecasts of the Group's liquidity reserves
     (comprises undrawn borrowing facilities (Note 23) and cash and cash
     equivalents (Note 34) on the basis of expected cash flows).

     The table below analyses the Group's financial liabilities into relevant
     maturity groupings based on the remaining period at the balance sheet to
     the contractual maturity date. The amounts disclosed in the table are the
     contractual undiscounted cash flows. Balances due within 12 months equal
     their carrying balances, as the impact of discounting is not significant.

<TABLE>
<CAPTION>
                                             BETWEEN    BETWEEN
                                 LESS THAN    1 AND      2 AND
                                   1 YEAR    2 YEARS    5 YEARS    OVER 5 YEARS
                                 ---------   -------   ---------   ------------
                                  RMB'000    RMB'000    RMB'000       RMB'000
<S>                              <C>         <C>       <C>         <C>
AT DECEMBER 31, 2007
Bank borrowings                         --        --   2,850,000        --
Interest payable on borrowings     199,704   201,288     371,740        --
Due to related parties           1,022,125        --          --        --
Trade and other payables           908,378        --          --        --
                                 =========   =======   =========       ===
AT DECEMBER 31, 2006
Borrowings                              --        --   1,860,000        --
Interest payable on borrowings     113,949   130,545     364,356        --
Due to related parties             250,601        --          --        --
Trade and other payables           649,975        --          --        --
                                 =========   =======   =========       ===
</TABLE>


                                      F-24

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

3    FINANCIAL RISK MANAGEMENT (CONTINUED)

3.2  CAPITAL RISK MANAGEMENT

     The Group's objectives of managing capital are to safeguard the Group's
     ability to continue as a going concern in order to provide returns for
     shareholders and benefits for other stakeholders; as well as to maintain an
     optimal capital structure to reduce the cost of capital.

     In order to maintain or adjust the capital structure, the Group may adjust
     the amount of dividends paid to shareholders, return capital to
     shareholders, issue new shares or sell assets to reduce debt.

     The Group monitors capital by regularly reviewing the gearing ratio. The
     gearing ratio is calculated as total debt divided by total equity, as shown
     in the consolidated balance sheet.

     The gearing ratios as at December 31, 2007 and 2006 were as follows:

<TABLE>
<CAPTION>
                   2007         2006
                ----------   ----------
                  RMB'000      RMB'000
<S>             <C>          <C>
Total debt       2,850,000    1,860,000
Equity          21,181,470   20,219,930
                ----------   ----------
Gearing ratio           13%           9%
                ==========   ==========
</TABLE>

     The increase in the gearing ratio during 2007 resulted primarily from the
     increase in borrowings of RMB990,000,000 (see Note 23). The directors of
     the Company, having considered such gearing ratio, are of the view that
     current capital structure is appropriate.

3.3  FAIR VALUE ESTIMATION

     The carrying amounts of the Group's cash and cash equivalents, short-term
     deposits, trade and other receivables, amounts due from related parties,
     and financial liabilities including trade and other payables, and amounts
     due to related parties, approximate their fair values due to their short
     maturities.

     The fair values of long-term receivable and long-term bank borrowings for
     disclosure purposes are estimated by discounting the future contractual
     cash flows at the current market interest rate that is available to the
     Group for similar financial instruments.


                                      F-25

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

4    CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

     Estimates and judgements are continually evaluated and are based on
     historical experience and other factors, including expectations of future
     events that are believed to be reasonable under the circumstances.

4.1  CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

     The Group makes estimates and assumptions concerning the future. The
     resulting accounting estimates will, by definition, seldom equal the
     related actual results. The estimates and assumptions that have a
     significant risk of causing a material adjustment to the carrying amounts
     of assets and liabilities within the next financial year are outlined
     below.

(a)  The estimates of the depreciable lives of fixed assets

     The estimate of depreciable lives of fixed assets was made by the directors
     with reference to the results of technical assessment on the expected usage
     of the assets; their expected physical wear and tear; results of recent
     durability assessment performed; technical or commercial obsolescence
     arising from changes or improvements in production of similar fixed assets,
     the right of the Group to renew the land use right grants and the land use
     right lease on which these assets are located (see Notes 2(7) and
     36(b)(i)), and the changes in market demand for, or legal or comparable
     limits imposed on, the use of such fixed assets.

     The current estimated useful lives are stated in Note 2(5). If the
     estimated depreciable lives of fixed assets had been increased/decreased by
     10%, the depreciation of fixed assets would be decreased/increased by
     approximately RMB98,306,000 and RMB109,971,000 respectively.

(b)  Estimated impairment of goodwill

     The group tests annually whether goodwill has suffered any impairment, in
     accordance with the accounting policy stated in Note 2(8). The recoverable
     amounts of cash-generating units have been determined based on value-in-use
     calculations. These calculations require the use of estimates (see Note 9).


                                      F-26

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

4    CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

(c)  Estimated impairment of non-financial assets (other than goodwill)

     In determining whether an asset is impaired or the event previously causing
     the impairment no longer exists, management has to exercise judgement,
     particularly in assessing: (1) whether an event has occurred that may
     affect the asset value or such event affecting the asset value has not been
     in existence; (2) whether the carrying value of an asset can be supported
     by the net present value of future cash flows which are estimated based
     upon the continued use of the asset or derecognition; and (3) the
     appropriate key assumptions to be applied in preparing cash flow
     projections including whether these cash flow projections are discounted
     using an appropriate rate. Changing the assumptions selected by management
     to determine the level of impairment, including the discount rates or the
     growth rate assumptions in the cash flow projections, could materially
     affect the net present value used in the impairment test.

     For the impairment assessment made on the recoverable amount of the
     carrying value of the Company's investment in an associate, Guangzhou
     Tiecheng Enterprise Company, please refer to details of the estimate made
     described in Note 11.

5    SEGMENT INFORMATION

(a)  Primary reporting format - business segments

     As of December 31, 2007, the Group conducts the majority of its business
     activities in railway transportation ("Railroad Businesses") and other
     related business operations. These segments are so determined primarily due
     to the fact that senior management make key operating decisions and assess
     performance of the segments separately. The accounting policies of the
     Group's segments are described in the principal accounting policies section
     in Note 2(3). The Group evaluates performance based on profit from
     operations.

     Segment assets consist primarily of fixed assets, construction-in-progress,
     leasehold land payments, prepayments for fixed assets and
     construction-in-progress, goodwill, investments in subsidiaries/associates,
     long-term receivable, deferred staff costs, materials and supplies, trade
     receivables, amounts due from related parties, prepayments and other
     receivables and cash and cash equivalents, excluding deferred tax assets.
     Segment liabilities primarily consist of borrowings, retirement benefit
     obligations, trade payables, payables for fixed assets and
     construction-in-progress, amounts due to related parties and accruals and
     other payables, excluding income tax payable and deferred tax liabilities.
     Capital expenditure comprises addition from acquisition of a business (see
     Note 38), additions to fixed assets (see Note 6), construction-in-progress
     (see Note 7) and prepayments for fixed assets and construction-in-progress.


                                      F-27
<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

5    SEGMENT INFORMATION (CONT'D)

(a)  Primary reporting format - business segments (Cont'd)

     An analysis by business segment is as follows:

<TABLE>
<CAPTION>
                                             Railroad businesses              Other businesses               Unallocated
                                     ----------------------------------  -------------------------  ----------------------------
                                         2005       2006        2007       2005     2006     2007     2005      2006      2007
                                     ----------  ----------  ----------  -------  -------  -------  --------  --------  --------
                                        RMB'000   RMB'000    RMB'000     RMB'000  RMB'000  RMB'000   RMB'000   RMB'000   RMB'000
<S>                                  <C>         <C>         <C>         <C>      <C>      <C>      <C>       <C>       <C>
Revenues
- External                            3,099,466   3,465,884   9,819,517  177,462  128,590  688,987        --        --        --
- Inter-segment                              --          --          --  159,503   29,661       --        --        --        --
                                     ----------  ----------  ----------  -------  -------  -------  --------  --------  --------
                                      3,099,466   3,465,884   9,819,517  336,965  158,251  688,987        --        --        --
                                     ==========  ==========  ==========  =======  =======  =======  ========  ========  ========
Other income                             48,531      61,991      52,829    3,097    2,657   (3,013)       --        --        --
SEGMENT RESULT                          808,613     999,968   1,538,053   (9,788) (34,764) 227,155        --        --        --
Finance costs                                --          --          --       --       --       --   (22,738)  (15,970)  (98,487)
Share of results of associates               30          --          --  (19,979) (28,306)   1,830        --        --        --
Income tax expense                           --          --          --       --       --       --  (110,176) (149,155) (232,349)
                                     ----------  ----------  ----------  -------  -------  -------  --------  --------  --------
PROFIT FOR THE YEAR                     808,643     999,968   1,538,053  (29,767) (63,070) 228,985  (132,914) (165,125) (330,836)
                                     ==========  ==========  ==========  =======  =======  =======  ========  ========  ========
OTHER INFORMATION
Segment assets                       11,271,820  23,879,189  26,209,676  218,545   69,299  141,332        --        --        --
Deferred tax assets                          --          --          --       --       --            192,692   190,843   362,256

TOTAL ASSETS

Segment liabilities                   1,615,851   3,759,032   5,341,957  115,388   23,285   76,506        --
Taxes payable                                --          --          --       --       --       --   102,155   127,282    89,996
Deferred tax liability                       --          --          --       --       --       --     4,830     9,802    23,335

TOTAL LIABILITIES

CAPITAL EXPENDITURE
Acquisition of a business (Note 38)          --   5,296,593   4,873,332       --       --       --        --        --        --
Other additions                       2,248,976   3,584,388     931,117    9,335    1,048   16,846        --        --        --
NON-CASH EXPENSES
   - Depreciation                       289,185     317,358   1,006,728   2,773.    2,529   10,372        --        --        --
   - Amortisation of leasehold land
      payments                           15,416      16,776      15,002      165       --    1,019        --        --        --
   - Amortisation of deferred staff
       costs                             15,090      15,091      24,339       --       --       --        --        --        --
   - Recognition of early
       retirement benefit                    --      22,420      63,268       --       --       --        --        --        --
   - Impairment for fixed assets             --          --       6,359       --       --       --        --        --        --
   - Reversal of provision for
      doubtful accounts                   8,550      (4,331)     (8,260)   1,190       16       --        --        --        --

<CAPTION>
                                             Elimination                        Total
                                     --------------------------  ----------------------------------
                                       2005      2006     2007      2005        2006        2007
                                     --------  -------  -------  ----------  ----------  ----------
                                      RMB'000  RMB'000  RMB'000    RMB'000     RMB'000     RMB'000
<S>                                  <C>       <C>      <C>      <C>         <C>         <C>
Revenues
- External                                 --       --     --     3,276,928   3,594,474  10,508,504
- Inter-segment                      (159,503) (29,661)    --            --          --          --
                                     --------  -------    ---    ----------  ----------  ----------
                                     (159,503) (29,661)    --     3,276,928   3,594,474  10,508,504
                                     ========  =======    ===    ==========  ==========  ==========
Other income                               --       --     --        51,628      64,648      49,816
SEGMENT RESULT                             --       --     --       798,825     965,204   1,765,208
Finance costs                              --       --     --       (22,738)    (15,970)    (98,487)
Share of results of associates             --       --     --       (19,949)    (28,306)      1,830
Income tax expense                         --       --     --      (110,176)   (149,155)   (232,349)
                                     --------  -------    ---    ----------  ----------  ----------
PROFIT FOR THE YEAR                        --       --     --       645,962     771,773   1,436,202
                                     ========  =======    ===    ==========  ==========  ==========
OTHER INFORMATION
Segment assets                             --       --     --    11,490,365  23,948,488  26,351,008
Deferred tax assets                        --       --     --       192,692     190,843     362,256
                                                                 ----------  ----------  ----------
TOTAL ASSETS                                                     11,683,057  24,139,331  26,713,264
                                                                 ==========  ==========  ==========
Segment liabilities                        --       --     --     1,731,239   3,782,317   5,418,463
Taxes payable                              --       --     --       102,155     127,282      89,996
Deferred tax liability                     --       --     --         4,830       9,802      23,335
                                                                 ----------  ----------  ----------
TOTAL LIABILITIES                                                 1,838,224   3,919,401   5,531,794
                                                                 ==========  ==========  ==========
CAPITAL EXPENDITURE
Acquisition of a business (Note 38)        --       --     --            --   5,296,593   4,873,332
Other additions                            --       --     --     2,258,311   3,585,436     947,963
NON-CASH EXPENSES
   - Depreciation                          --       --     --       291,958     319,887   1,017,100
   - Amortisation of leasehold land
      payments                             --       --     --        15,581      16,776      16,021
   - Amortisation of deferred staff
       costs                               --       --     --        15,090      15,091      24,339
   - Recognition of early
       retirement benefit                  --       --     --            --      22,420      63,268
   - Impairment for fixed assets           --       --     --            --          --       6,359
   - Reversal of provision for
      doubtful accounts                    --       --     --         9,740      (4,315)     (8,260)
                                                                 ==========  ==========  ==========
</TABLE>


                                      F-28

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (All amounts express in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

5    SEGMENT INFORMATION (CONTINUED)

(b)  Secondary reporting format - geographical segments

     For the year ended December 31, 2007 (2006 and 2005 - same), all of the
     Group's business operations are conducted within the PRC. Accordingly, no
     analysis of geographical segment information is presented.

6    FIXED ASSETS

<TABLE>
<CAPTION>
                                                                                                                Other
                                                                    Tracks,     Locomotives  Communications   machinery
                                                     Leasehold    bridges and   and rolling  and signalling     and
                                        Buildings  improvements  service roads     stock         systems      equipment     Total
                                        ---------  ------------  -------------  -----------  --------------  ----------  ----------
                                         RMB'000      RMB'000       RMB'000       RMB'000        RMB'000      RMB'000      RMB'000
<S>                                     <C>        <C>           <C>            <C>            <C>           <C>         <C>
AT JANUARY 1, 2006
Cost                                    1,864,120     38,500       3,720,018     1,083,845       339,403      1,730,730   8,776,616
Accumulated depreciation                 (266,778)   (36,575)       (867,004)     (385,258)     (259,429)      (599,503) (2,414,547)
Impairment                                     --         --              --       (14,284)           --           (963)    (15,247)
                                        ---------    -------      ----------     ---------     ---------     ----------  ----------
Net book amount                         1,597,342      1,925       2,853,014       684,303        79,974      1,130,264   6,346,822
                                        =========    =======      ==========     =========     =========     ==========  ==========
YEAR ENDED DECEMBER 31, 2006
Opening net book amount                 1,597,342      1,925       2,853,014       684,303        79,974      1,130,264   6,346,822
Additions                                   5,563         --              --       306,757         3,812         36,389     352,521
Transfer from construction-in-progress
   (Note 7)                               371,501         --              --           527        35,012         40,629     447,669
Assets acquired as a result of
   business combinations                    6,007         --              --            --            --            179       6,186
Reclassifications                          55,199         --         (57,964)         (611)      (16,987)        20,363          --
Disposals                                 (33,560)        --              --            --            --        (17,448)    (51,008)
Government grants received                (34,957)        --              --            --            --         (8,869)    (43,826)
Depreciation charges                      (75,029)    (1,925)        (81,135)      (60,189)       (8,595)       (93,014)   (319,887)
                                        ---------    -------      ----------     ---------     ---------     ----------  ----------
Closing net book amount                 1,892,066         --       2,713,915       930,787        93,216      1,108,493   6,738,477
                                        =========    =======      ==========     =========     =========     ==========  ==========
AT DECEMBER 31, 2006
Cost                                    2,245,311     38,500       3,644,108     1,392,654       349,980      1,751,185   9,421,738
Accumulated depreciation                 (353,245)   (38,500)       (930,193)     (447,583)     (256,764)      (642,338) (2,668,623)
Impairment                                     --         --              --       (14,284)           --           (354)    (14,638)
                                        ---------    -------      ----------     ---------     ---------     ----------  ----------
Net book amount                         1,892,066         --       2,713,915       930,787        93,216      1,108,493   6,738,477
                                        =========    =======      ==========     =========     =========     ==========  ==========
YEAR ENDED DECEMBER 31, 2007
Opening net book amount                 1,892,066         --       2,713,915       930,787        93,216      1,108,493   6,738,477
Acquisition of a business (Note 38)     1,131,855         --       5,540,127     2,456,408       430,728      1,268,626  10,827,744
Additions                                     741         --              --        23,964         1,815         27,961      54,481
Transfer from construction-in-progress
   (Note 7)                                41,638         --       2,705,401         7,778       401,257        355,205   3,511,279
Reclassifications                          (1,885)        --              --          (936)         (121)         2,942          --
Disposals                                 (85,107)        --              --       (26,200)          (92)        (1,837)   (113,236)
Depreciation charges                     (111,609)        --        (139,178)     (259,938)     (128,881)      (377,494) (1,017,100)
Impairment charges                         (6,359)        --              --            --            --           --        (6,359)
                                        ---------    -------      ----------     ---------     ---------     ----------  ----------
Closing net book amount                 2,861,340         --      10,820,265     3,131,863       797,922      2,383,896  19,995,286
                                        =========    =======      ==========     =========     =========     ==========  ==========
AT DECEMBER 31, 2007
Cost                                    3,363,597     38,500      11,929,430     3,859,566     1,194,756      3,515,465  23,901,314
Accumulated depreciation                 (495,898)   (38,500)     (1,109,165)     (727,703)     (396,834)    (1,131,215) (3,899,315)
Impairment                                 (6,359)        --              --            --            --           (354)     (6,713)
                                        ---------    -------      ----------     ---------     ---------     ----------  ----------
Net book amount                         2,861,340         --      10,820,265     3,131,863       797,922      2,383,896  19,995,286
                                        =========    =======      ==========     =========     =========     ==========  ==========
</TABLE>


                                      F-29
<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

6    FIXED ASSETS (CONTINUED)

     As of December 31, 2007, the ownership certificates of certain buildings
     ("Building Ownership Certificates") of the Group with an aggregate carrying
     value of approximately RMB1,746,537,000 (2006: RMB1,298,350,000) had not
     been obtained by the Group. After consultation made with the Company's
     legal counsel, the directors of the Company consider that there is no legal
     restriction for the Group to apply for and obtain the Building Ownership
     Certificates and it should not lead to any significant adverse impact on
     the operations of the Group.

7    CONSTRUCTION-IN-PROGRESS

<TABLE>
<CAPTION>
                                         2006        2007
                                      ---------   ----------
                                       RMB'000      RMB'000
<S>                                   <C>         <C>
At January 1                          1,449,358    4,305,157
Acquisition of a business (Note 38)          --      215,391
Additions                             3,304,379      413,366
Transfer to fixed assets (Note 6)      (447,669)  (3,511,279)
Disposal of a subsidiary                   (911)          --
                                      ---------   ----------
At December 31                        4,305,157    1,422,635
                                      =========   ==========
</TABLE>

     The construction-in-progress of the Group represents plant and facilities,
     mainly including the construction related costs for a portion of the fourth
     railway line of the Group. For the year ended December 31, 2007,
     approximately RMB79,438,000 (2006: approximately RMB24,903,000) of interest
     expenses were capitalised in the construction-in-progress balance. A
     capitalisation rate of 5.86% (2006: 5.83%) per annum was used to determine
     the amount of borrowing costs eligible for capitalisation.


                                      F-30

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

8    LEASEHOLD LAND PAYMENTS

<TABLE>
<CAPTION>
                                RMB'000
                               --------
<S>                            <C>
AT JANUARY 1, 2006
Cost                            770,774
Accumulated amortization       (149,976)
                               --------
Net book amount                 620,798
                               ========
YEAR ENDED DECEMBER 31, 2006
Opening net book amount         620,798
Additions                        21,879
Amortisation charges            (16,776)
Disposal of a subsidiary           (273)
                               --------
Closing net book amount         625,628
                               ========
AT DECEMBER 31, 2006
Cost                            792,654
Accumulated amortization       (167,026)
                               --------
Net book amount                 625,628
                               ========
YEAR ENDED DECEMBER 31, 2007
Opening net book amount         625,628
Amortisation charges            (16,021)
Disposal                         (1,636)
                               --------
Closing net book amount         607,971
                               ========
AT DECEMBER 31, 2007
Cost                            791,018
Accumulated amortization       (183,047)
                               --------
Net book amount                 607,971
                               ========
</TABLE>

     As of December 31, 2007, land use right certificates ("Land Certificates")
     of certain parcels of land of the Group with an aggregate area of
     approximately 1,712,846 square meters (2006: 1,733,987 square meters) had
     not been obtained. After consultation made with the Company's legal
     counsel, the directors consider that there is no legal restriction for the
     Group to apply for and obtain the Land Certificates and it should not lead
     to any significant adverse impact on the operations of the Group.


                                      F-31

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

9    GOODWILL

<TABLE>
<CAPTION>
                                      RMB'000
                                      -------
<S>                                   <C>
YEAR ENDED DECEMBER 31, 2007
Opening net book amount                    --
Acquisition of a business (Note 38)   281,255
                                      -------
Closing net book amount               281,255
                                      =======
AT DECEMBER 31, 2007
Cost                                  281,255
Accumulated impairment                     --
                                      -------
Net book amount                       281,255
                                      =======
</TABLE>

     As explained in more details in Note 38, goodwill arose from the excess of
     purchase consideration paid by the Company over the aggregate fair values
     of the identifiable assets, liabilities and contingent liabilities of the
     railway business acquired from the Yangcheng Railway.

     Goodwill is allocated to the cash-generating units ("CGU") identified
     according to business segment. A segment-level summary of the goodwill
     allocation is presented below:

<TABLE>
<CAPTION>
                                          2007
                                        -------
                                        RMB'000
<S>                                     <C>
Railroad business - Yangcheng Railway   281,255
                                        =======
</TABLE>

     The recoverable amount of the CGU is determined based on value-in-use
     calculations. These calculations use pre-tax cash flow projections based on
     financial budgets approved by management covering a five-year period. Cash
     flows beyond the five-year period are extrapolated using the estimated
     growth rates stated below. The growth rate does not exceed the long-term
     average growth rate for the railroad business in which the CGU operates.

     The key assumptions used for value-in-use calculations are as follows:

<TABLE>
<CAPTION>
                Railroad
                business
                --------
<S>             <C>
Gross margin      25.8%
Growth rate        3.4%
Discount rate     10.9%
                  ====
</TABLE>

     Management estimated the gross margin based on past performance and its
     expectations for the market development. The weighted average growth rate
     used is consistent with the forecasts included in industry reports. The
     discount rate used is pre-tax and reflect specific risks relating to the
     railroad business segment.

     If the budgeted growth rate used in the value-in-use calculation for the
     CGU in railroad business had been 10% lower than management's estimates at
     December 31, 2007, the Group would have recognised an impairment of
     goodwill by RMB77,832,000.


                                      F-32

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

9    GOODWILL (CONTINUED)

     If the estimated pre-tax discount rate applied to the discounted cash flows
     for the CGU in railroad business had been 1% higher than management's
     estimates, the Group would have recognised an impairment against goodwill
     by RMB5,270,000.

10   INVESTMENTS IN SUBSIDIARIES

(i)  As of December 31, 2007, the Company had direct or indirect interests in
     the following principal subsidiaries which were incorporated/established
     and are operating in the PRC:

<TABLE>
<CAPTION>
                                                              Percentage
                                                               of equity
                                                               interest
                                              Date of        attributable
                                          incorporation/        to the         Paid-in
Name of the entity                         establishment        Company        capital        Principal activities
------------------                      ------------------   ------------   -------------   ------------------------
<S>                                     <C>                  <C>            <C>             <C>
DIRECTLY HELD BY THE COMPANY
Shenzhen Railway Station Passenger      December 18, 1986         100%      RMB 1,500,000   Catering services and
   Services Company                                                                            sales of merchandise
Shenzhen Fu Yuan Enterprise             November 1, 1991          100%      RMB18,500,000   Hotel management
   Development Company ("Fu Yuan")
Dongguan Changsheng Enterprise          May 22, 1992               51%      RMB38,000,000   Warehousing
   Company
Guangzhou East Station Dongqun          November 23, 1992         100%      RMB 1,020,000   Sales of merchandise
   Trade and Commerce Service Company
Shenzhen Longgang Pinghu Qun Yi         September 11, 1993         55%      RMB10,000,000   Cargo loading and
   Railway Store Loading and                                                                   unloading,
   Unloading Company                                                                           warehousing, freight
                                                                                               transportation
Shenzhen Jing Ming Industrial &         January 18, 1994          100%      RMB 2,110,000   Maintenance of water and
   Commercial Company Limited                                                                  electrical equipment
Guangzhou Tielian Economy               December 27, 1994       50.50%      RMB 1,000,000   Warehousing and freight
   Development Company Limited                                                                 transport agency
   ("Tielian")                                                                                 services
Shenzhen Guangshen Railway Travel       August 16, 1995           100%      RMB 2,400,000   Travel agency
  Service Ltd.

INDIRECTLY HELD BY THE COMPANY
Shenzhen Nantie Construction            May 8, 1995               100%      RMB 2,000,000   Supervision of
   Supervision Company                                                                         construction projects
Shenzhen Railway Property               November 13, 2001         100%      RMB 3,000,000   Property management
   Management Company Limited
Shenzhen Guangshen Railway Economic     March 7, 2002             100%      RMB 2,000,000   Catering management
   and Trade Enterprise Company
</TABLE>

     All the above subsidiaries are limited liability companies.

(ii) Subsidiaries disposed

     In 2007, the Company put Shenzhen Road Multi-modal Transportation Company
     Limited and Shenzhen Yuezheng Enterprise Company Limited into liquidation
     and recorded disposal losses of RMB166,000 and RMB897,000, respectively.


                                      F-33

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

11   INVESTMENTS IN ASSOCIATES

<TABLE>
<CAPTION>
                                                2006      2007
                                              -------   -------
                                              RMB'000   RMB'000
<S>                                           <C>       <C>
Unlisted shares, at cost                           --        --
Share of net assets                           152,209   154,039
Less: provision for impairment in value (a)   (29,689)  (29,689)
                                              -------   -------
                                              122,520   124,350
                                              =======   =======
</TABLE>

     Note a: The impairment provision at the Group level as of December 31, 2007
     represents provision for full impairment losses in investment in Zengcheng
     Lihua Stock Company Limited at approximately RMB29,689,000 ("Zengcheng
     Lihua Provision").

     The movement of investments in associates of the Group during the year is
     as follows:

<TABLE>
<CAPTION>
                               2006      2007
                             -------   -------
                             RMB'000   RMB'000
<S>                          <C>       <C>
Beginning of the year        107,889   122,520
Additions - cost              45,891        --
Share of results after tax   (28,306)    1,830
Disposal                      (2,954)       --
                             -------   -------
End of the year              122,520   124,350
                             =======   =======
</TABLE>

     As of December 31, 2007, the Group had direct or indirect interests in the
     following companies which were incorporated / established and are operating
     in the PRC:

<TABLE>
<CAPTION>
                                                     Percentage
                                                      of equity      Registered
                                                      interest         capital
                                      Date of       attributable       amount
                                   incorporation/      to the          of the
Name of the entity                  establishment      Company       associate              Principal activities
------------------                 --------------   ------------   --------------   -----------------------------------
<S>                                <C>              <C>            <C>              <C>
DIRECTLY HELD BY THE COMPANY
SZ Civil Engineer                  March 1, 1984          49%      RMB 55,000,000   Construction of railroad properties
Zengcheng Lihua                    July 30, 1992          27%      RMB100,000,000   Real estate construction, provision
                                                                                       of warehousing, cargo uploading
                                                                                       and unloading services
Tiecheng                           May 2, 1995            49%      RMB245,000,000   Properties management and trading
                                                                                    of merchandise

INDIRECTLY HELD BY THE COMPANY
Guangzhou Huangpu Yuehua Freight   July 20, 1990        33.3%      RMB  6,610,000   Cargo loading and unloading,
   Transportation Joint Venture                                                        warehousing, freight transport
   Company Limited                                                                     agency services
</TABLE>

     All the above associates are limited liability companies.


                                      F-34
<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

11   INVESTMENTS IN ASSOCIATES (CONTINUED)

     The Group's share of the results with its percentage ownership of its
     principal associates, and its share of the related assets and liabilities,
     net of applicable impairment provision are as follows:

<TABLE>
<CAPTION>
                                                      Profit/   % interest
                    Assets   Liabilities   Revenues    (Loss)      held
                   -------   -----------   --------   -------   ----------
                   RMB'000     RMB'000      RMB'000   RMB'000
<S>                <C>       <C>           <C>        <C>       <C>
2006
Tiecheng (b)       184,428      93,560        2,899   (26,973)        49%
Other associates   207,434     175,782       94,974    (1,333)    27%~49%
                   -------     -------      -------   -------
                   391,862     269,342       97,873   (28,306)
                   =======     =======      =======   =======
2007
Tiecheng (b)       198,149     110,399        4,486    (3,118)        49%
Other associates   178,419     141,819      109,783     4,948     27%~49%
                   -------     -------      -------   -------
                   376,568     252,218      114,269     1,830
                   =======     =======      =======   =======
</TABLE>

     Note b: As indicated above, the carrying amount of the Company's investment
     in Tiecheng as of December 31, 2007 was approximately RMB87,750,000.

     In 1996, Tiecheng and a third party company jointly established a
     sino-foreign contractual joint venture, Guangzhou Guantian Real Estate
     Company ("Guangzhou Guantian"), in Guangzhou of PRC for developing certain
     properties near a railway station operated by the Group. In 2000, Guangzhou
     Guantian together with two other parties namely Guangzhou Guanhua Real
     Estate Company Limited ("Guangzhou Guanhua") and Guangzhou Guanyi Real
     Estate Company Limited ("Guangzhou Guanyi"), agreed to act as joint
     guarantors (collectively the "Guarantors") for certain payable balances
     (the "Payables") due from Guangdong Guancheng Real Estate Company Limited
     ("Guangdong Guancheng") to a third party creditor (the "Creditor").

     Guangzhou Guantian, Guangzhou Guanhua, Guangzhou Guanyi and Guangdong
     Guancheng are related companies to the extent that they have one common
     chairman. Due to the fact that Guangdong Guancheng has failed to settle the
     Payables, as a result, the Guarantors were found to be jointly liable to
     the Creditor an amount of approximately RMB257,000,000 plus accrued
     interest (collectively the "Damages") according to a court verdict made in
     2001 (the "Verdict"). In the case that Guangzhou Guantian had to honour its
     joint obligation to settle the Damages, the carrying value of the Company's
     investment in Tiecheng would have been impaired.

     In 2003, Guantian applied to the People's High Court of Guangdong Province
     (the "High Court") for a re-trial to discharge its obligation under the
     aforesaid guarantee. In 2005, the People's Supreme Court of Guangdong
     Province granted an order for the High Court to launch such a re-trial and
     certain preparatory procedures were undertaken by the High Court. Two
     trials were held by the High Court on November 14, 2006 and December 25,
     2006 respectively, but no judgement had been made as at the date of
     approval of these financial statements. After consultation made with its
     PRC legal counsel, the directors are of the opinion that there is a high
     possibility that the above guarantee arrangement would be determined to be
     invalid according to the relevant rules and regulations of the PRC.
     Accordingly, no provision for impairment in its investment in Tiecheng was
     considered necessary in the consolidated financial statements as at
     December 31, 2007.

     In addition, in order to avoid any monetary losses that the Company might
     suffer arising from this outstanding legal proceeding, the Company has also
     obtained a letter of undertaking issued by the Guangzhou Railway Group
     dated December 14, 2004, whereby the Guangzhou Railway Group has undertaken
     to adopt relevant procedures and actions to ensure that the investment
     interests of the Company in Tiecheng would not be adversely affected by
     this outstanding proceeding.


                                      F-35

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

12   AVAILABLE-FOR-SALE INVESTMENTS

<TABLE>
<CAPTION>
                                      2006      2007
                                    -------   -------
                                    RMB'000   RMB'000
<S>                                 <C>       <C>
Beginning of the year                46,108    46,108
Addition arising from acquisition
   of a business (Note 38)               --       500
                                     ------    ------
End of the year                      46,108    46,608
                                     ======    ======
</TABLE>

     The Group's ownership in the equity interests in each of these investments
     is less than 10%. The directors of the Company are of the opinion that no
     quoted market price in an active market is available for these investments
     and their fair values cannot be reliably measured by alternative valuation
     methods. In accordance with the provisions under IFRS, the above
     non-current available-for-sale investments were carried at cost subject to
     review for impairment loss. As of December 31, 2007 and 2006, no impairment
     provision was considered necessary by the directors to write down the
     carrying amounts of these investments.

13   FINANCIAL INSTRUMENTS BY CATEGORY

     The accounting policies for financial instruments have been applied to the
     items tabulated below:

<TABLE>
<CAPTION>
                                                 LOANS AND    AVAILABLE-
                                                RECEIVABLES    FOR-SALE      TOTAL
                                                -----------   ----------   ---------
<S>                                             <C>           <C>          <C>
ASSET ITEMS REPORTED IN THE CONSOLIDATED
   BALANCE SHEET
As at December 31, 2007:
Available-for-sale investments (Note 12)                --      46,608        46,608
Long-term receivable (Note 14)                      48,547          --        48,547
Trade and other receivables (Notes 18 and 19)      174,386          --       174,386
Due from related parties (Note 37(c))               83,925          --        83,925
Cash and cash equivalents (Note 34(b))           2,352,351          --     2,352,351
                                                 ---------      ------     ---------
Total                                            2,659,209      46,608     2,705,817
                                                 =========      ======     =========
As at December 31, 2006:
Available-for-sale investments (Note 12)                --      46,108        46,108
Trade and other receivables (Notes 18 and 19)      158,500          --       158,500
Due from related parties (Note 37(c))               31,757          --        31,757
Short-term deposits (Note 20)                      169,739                   169,739
Cash and cash equivalents (Note 34(b))           5,851,831          --     5,851,831
                                                 ---------      ------     ---------
Total                                            6,211,827      46,108     6,257,935
                                                 =========      ======     =========
</TABLE>


                                      F-36

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

13   FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED)

<TABLE>
<CAPTION>
                                                            OTHER
                                                          FINANCIAL
                                                         LIABILITIES
                                                         -----------
<S>                                                      <C>
LIABILITY ITEMS REPORTED IN CONSOLIDATED BALANCE SHEET
As at December 31, 2007:
Borrowings (Note 23)                                      2,850,000
Trade and other payables (Notes 25 and 26)                  908,378
Payables for fixed assets and construction-in-progress      337,213
Due to related parties (Note 37(c))                       1,022,125
                                                          ---------
Total                                                     5,117,716
                                                          =========
As at December 31, 2006:
Borrowings (Note 23)                                      1,860,000
Trade and other payables  (Notes 25 and 26))                649,975
Payables for fixed assets and construction-in-progress    1,004,750
Due to related parties (Note 37(c))                         250,601
                                                          ---------
Total                                                     3,765,326
                                                          =========
</TABLE>

14   LONG-TERM RECEIVABLE

<TABLE>
<CAPTION>
                                        2007
                                      -------
                                      RMB'000
<S>                                   <C>
Opening net book amount                   --
Acquisition of a business (Note 38)   54,547
Payment received                      (5,740)
Unwind interest                         (260)
                                      ------
Closing net book amount               48,547
                                      ======
</TABLE>

     The long-term receivable represents freight service fee receivable from a
     third party customer acquired from Yangcheng Railway (Note 38). The
     original carrying amount of the receivable is RMB140,000,000. On the
     acquisition date of Yangcheng Railway, it was remeasured at its fair value,
     which was assessed by the discounted cash flow method with reference made
     to the payment schedule agreed by both parties.

     As of December 31, 2007, the carrying amount of the above receivable
     approximated to its fair value.


                                      F-37

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

15   DEFERRED TAX ASSETS/LIABILITIES

     Deferred income taxes are calculated in full on temporary differences under
     the liability method using the applicable tax rates for the respective
     companies affected.

<TABLE>
<CAPTION>
                                                                        2006      2007
                                                                      -------   -------
                                                                      RMB'000   RMB'000
<S>                                                                   <C>       <C>
DEFERRED TAX ASSETS:
- Deferred tax assets to be recovered after more than 12 months       175,700   343,389
- Deferred tax assets to be recovered within 12 months                 15,143    18,867
                                                                      -------   -------
                                                                      190,843   362,256
                                                                      =======   =======
DEFERRED TAX LIABILITIES:
- Deferred tax liabilities to crystallise after more than 12 months        --   (23,155)
- Deferred tax liabilities to crystallise within 12 months             (9,802)     (180)
                                                                      -------   -------
                                                                       (9,802)  (23,335)
                                                                      =======   =======
</TABLE>

     The movement in deferred tax assets and liabilities during the year,
     without taking into consideration the offsetting of balances within the
     same tax jurisdiction, is as follows:

<TABLE>
<CAPTION>
                                                         Credit/
                                                        (Charged)                                Credit/
                                                          to the        At       Acquisition  (Charged) to   Charged        At
                                         At January 1,    income   December 31,      of a      the income   directly   December 31,
                                              2006      statement      2006        business     statement   to equity      2007
                                         -------------  ---------  ------------  -----------  ------------  ---------  ------------
                                            RMB'000      RMB'000      RMB'000      RMB'000       RMB'000     RMB'000      RMB'000
                                                                                  (Note 38)
<S>                                      <C>            <C>        <C>           <C>          <C>           <C>        <C>
DEFERRED TAX ASSETS:
Provision for impairment of receivables      14,090         185       14,275            --        6,088           --       20,363
Impairment provision for fixed assets         2,946        (750)       2,196            --         (268)          --        1,928
Impairment provision for interests in
   associates                                 4,453          --        4,453            --        2,969           --        7,422
Adjustments made to carrying value of
   fixed assets                             167,859         572      168,431            --       (3,068)      92,021      257,384
Retirement benefit obligations                   --       3,363        3,363        54,750       17,046           --       75,159
Others                                        3,344      (5,219)      (1,875)           --        1,875           --           --
                                            -------      ------      -------        ------       ------       ------      -------
                                            192,692      (1,849)     190,843        54,750       24,642       92,021      362,256
                                            =======      ======      =======        ======       ======       ======      =======
</TABLE>

<TABLE>
<CAPTION>
                                                         Credit/
                                                        (Charged)                                Credit/
                                                          to the        At       Acquisition  (Charged) to       At
                                         At January 1,    income   December 31,      of a      the income   December 31,
                                              2006      statement      2006        business     statement       2007
                                         -------------  ---------  ------------  -----------  ------------  ------------
                                            RMB'000      RMB'000      RMB'000      RMB'000       RMB'000       RMB'000
                                                                                  (Note 38)
<S>                                      <C>            <C>        <C>           <C>          <C>           <C>
DEFERRED TAX LIABILITIES:
Capitalisation of replacement costs of
   rail-line track assets                    4,830          (66)       4,764            --       (4,764)          --
Difference on deferral of acquisition
   cost                                         --        3,082        3,082            --       (3,082)          --
Difference on capitalisation of
   interest expense                             --        1,956        1,956            --        1,305        3,261
Adjustment made to carrying value of
   fixed assets                                 --           --           --        12,291        7,783       20,074
                                             -----        -----        -----        ------       ------       ------
                                             4,830        4,972        9,802        12,291        1,242       23,335
                                             =====        =====        =====        ======       ======       ======
</TABLE>


                                      F-38

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

15   DEFERRED TAX ASSETS/LIABILITIES (CONTINUED)

     Pursuant to a circular jointly issued by the State Tax Bureau and the
     Ministry of Finance (Caishui [2008]12) in March 2008, the appraised values
     of the acquired assets and liabilities arising from the acquisition of
     operating net assets of Yangcheng Railway (Note 38) should be used as tax
     bases and the related depreciation/amortization is tax deductible.
     Accordingly, no temporary differences originated from this
     assets/liabilities appraisal.

     On March 16, 2007, the National People's Congress approved the Corporate
     Income Tax Law of the People's Republic of China (the "new CIT Law"). The
     new CIT Law reduces (increases) the corporate income tax rate for domestic
     enterprises from 33% (15% or 24%) to 25% with effect from January 1, 2008.
     As a result of change in tax rate under the new CIT Law, additional
     deferred tax assets/liabilities recognized by the Group in the income
     statement for the year ended December 31, 2007 amounted to approximately
     RMB39,650,000 (benefit) and RMB9,237,000 (charge), respectively (Note 30).
     In addition, additional deferred tax asset at approximately RMB92,021,000
     arising from the change in enacted tax rate was recognized in equity by the
     Group for temporary differences arising from fixed assets contributed by
     GEDC into the Group during the Restructuring of the Group.

16   DEFERRED STAFF COSTS

<TABLE>
<CAPTION>
                                        2006       2007
                                      --------   --------
                                       RMB'000    RMB'000
<S>                                   <C>        <C>
AT JANUARY 1
Cost                                   226,369    226,369
Accumulated amortization               (90,548)  (105,639)
                                      --------   --------
Net book amount                        135,821    120,730
                                      --------   --------
YEAR ENDED DECEMBER 31
Opening net book amount                135,821    120,730
Acquisition of a business (Note 38)         --     45,000
Amortization                           (15,091)   (24,339)
                                      --------   --------
Closing net book amount                120,730    141,391
                                      ========   ========
AT DECEMBER 31
Cost                                   226,369    271,369
Accumulated amortization              (105,639)  (129,978)
                                      --------   --------
Net book amount                        120,730    141,391
                                      ========   ========
</TABLE>


                                      F-39
<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

17   MATERIALS AND SUPPLIES

<TABLE>
<CAPTION>
                                               2006      2007
                                             -------   -------
                                             RMB'000   RMB'000
<S>                                          <C>       <C>
Train compartment materials                   34,331    61,855
Locomotive materials                           5,949    33,310
Track and track diversion joints materials     6,849    27,016
Reusable rail-line track materials             8,532     9,129
Retailing materials and uniform                3,135     8,396
Electrical materials                           2,770     6,821
Others                                         5,401     7,147
                                             -------   -------
                                              66,967   153,674
                                             =======   =======
</TABLE>

     The costs of materials and supplies consumed by the Group were recognised
     as 'operating expenses' during the year in the amount of approximately
     RMB1,402,520,000 (2006: RMB351,331,000). As of December 31, 2007 and 2006,
     there were no inventories stated at net realisable value.

18   TRADE RECEIVABLES

<TABLE>
<CAPTION>
                                                  2006      2007
                                                -------   -------
                                                RMB'000   RMB'000
<S>                                             <C>       <C>
Trade receivables                                71,614    66,516
Less: Provision for impairment of receivables    (8,745)   (6,767)
                                                -------   -------
                                                 62,869    59,749
                                                =======   =======
</TABLE>

     The Group's trade receivables are all denominated in RMB (2006: RMB).

     The credit period of trade receivables is generally within one year. As of
     December 31, 2007 and 2006, the aging analysis of trade receivables was as
     follows:

<TABLE>
<CAPTION>
                                    2006      2007
                                  -------   -------
                                  RMB'000   RMB'000
<S>                               <C>       <C>
Within 1 year                      62,769   55,936
Over 1 year but within 2 years        100    2,162
Over 2 years but within 3 years        --    1,068
Over 3 years                           --      583
                                   ------   ------
                                   62,869   59,749
                                   ======   ======
</TABLE>

     Trade receivables that are less than three months past due are not
     considered impaired. As of December 31, 2007, trade receivables of
     approximately RMB1,306,000 (2006: Nil) were past due but not impaired. The
     ageing analysis of these trade receivables is as follows:

<TABLE>
<CAPTION>
                                   2006      2007
                                 -------   -------
                                 RMB'000   RMB'000
<S>                              <C>       <C>
Over 1 year but within 2 years        --     1,306
                                 =======   =======
</TABLE>


                                      F-40

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

18   TRADE RECEIVABLES (CONTINUED)

     As of December 31, 2007, trade receivables of approximately RMB9,274,000
     (2006: RMB8,845,000) were impaired. The amount of the provision was
     approximately RMB6,767,000 as of December 31, 2007 (2006: RMB8,745,000).
     The individually impaired receivables mainly relate to freight
     transportation, which are in unexpected difficult economic situations. It
     was assessed that a portion of the receivables is expected to be recovered.
     The ageing of these receivables is as follows:

<TABLE>
<CAPTION>
                                    2006      2007
                                  -------   -------
                                  RMB'000   RMB'000
<S>                               <C>       <C>
Over 1 year but within 2 years       231       857
Over 2 years but within 3 years    1,306     1,068
Over 3 years                       7,308     7,349
                                   -----     -----
                                   8,845     9,274
                                   =====     =====
</TABLE>

     Movements on the provision for impairment of trade receivables are as
     follows:

<TABLE>
<CAPTION>
                                                             2006      2007
                                                           -------   -------
                                                           RMB'000   RMB'000
<S>                                                        <C>       <C>
AT JANUARY 1                                                10,485     8,745
Provision for impairment loss                                  340        86
Receivables written off during the year as uncollectible        --      (224)
Reversal of impairment loss provision                       (2,080)   (1,840)
                                                           -------   -------
AT DECEMBER 31                                               8,745     6,767
                                                           =======   =======
</TABLE>

     The creation and release of provision for impaired receivables have been
     included in utility and office expenses in the income statement. Amounts
     charged to the allowance account are generally written off when there is no
     expectation of recovering additional cash.

     Concentration of credit risk with respect to trade receivables is low due
     to the fact that the Group has a large number of customers, which are
     widely dispersed. Accordingly, management believes that there is no
     additional credit risk beyond the amount already provided for expected
     collectibility losses.

     As of December 31, 2007 and 2006, the carrying amounts of the above trade
     receivables approximated to their fair values.


                                      F-41

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

19   PREPAYMENTS AND OTHER RECEIVABLES

<TABLE>
<CAPTION>
                                                 2006      2007
                                               -------   -------
                                               RMB'000   RMB'000
<S>                                            <C>       <C>
Other receivables                              156,072   168,572
Less: Provision for impairment loss (Note a)   (60,441)  (53,935)
                                               -------   -------
Other receivables, net                          95,631   114,637
Prepayments                                      3,005    27,037
                                               -------   -------
                                                98,636   141,674
                                               =======   =======
</TABLE>

     Note a:

     Included in the balance was a doubtful debt provision of approximately
     RMB31,365,000 set up by the Company in prior years in order to provide for
     potential recoverability losses associated with a deposit with a principal
     balance of the same amount ("the Deposit"). The Deposit was placed with a
     deposit-taking agency, Zeng Cheng City Li Cheng Credit Cooperative ("Li
     Cheng") and the Company has been unable to recover it from Li Cheng upon
     maturity. The Company has initiated several legal proceedings to enforce
     the recovery but without success. Accordingly, a full doubtful debt
     provision had been made.

     As of December 31, 2007 and 2006, there were no significant other
     receivables past due but not impaired. A reversal of provision for
     impairment loss of approximately RMB6,506,000 (2006: RMB2,575,000) had been
     included in the income statement.

     Other receivables mainly represent miscellaneous deposits and receivables
     arising during the course of the provision of non railway transportation
     services by the Group. Prepayments mainly represent amounts paid in advance
     to the suppliers for utilities and other operating expenses of the Group.

20   SHORT-TERM DEPOSITS

     Short-term deposits with original maturities ranging from three months to
     one year are held for investment purposes and are stated at amortised cost.

<TABLE>
<CAPTION>
                                                            2006      2007
                                                          -------   -------
                                                          RMB'000   RMB'000
<S>                                                       <C>       <C>
Time deposits with maturities over three months in the
   deposit-taking centre of MOR ("MOR Depositing-taking
   Centre")                                               169,739        --
                                                          =======   =======
</TABLE>

     Time deposits with maturities over three months were maintained in the MOR
     Deposit-taking Centre, which has been licensed by the People's Bank of
     China to engage in deposit taking activities in the PRC for railway
     companies. The balances of 2006 consist of short-term deposits denominated
     in RMB with original maturities of six months. The annual interest rate is
     2.07% in 2006. Total interest income derived from these deposits amounted
     to approximately RMB3,496,000 for the year ended December 31, 2006.


                                      F-42

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

21   SHARE CAPITAL

     As of December 31, 2007, the total authorised number of ordinary shares is
     7,083,537,000 shares (2006: 7,083,537,000 shares) with a par value of RMB
     1.00 per share (2006: RMB 1.00 per share).

<TABLE>
<CAPTION>
                                                 Opening                    Closing
                                               balance at                 balance at
                                               January 1,                December 31,
                                                  2007       Transfers       2007
                                               ----------   ----------   ------------
                                                 RMB'000      RMB'000       RMB'000
<S>                                            <C>          <C>          <C>
Authorised, issued and fully paid:
A shares subject to sale restrictions
   - shares held by state-owned legal person    2,904,250           --   2,904,250
   - shares held by legal persons               1,480,944   (1,480,944)         --
                                               ----------   ----------   ---------
                                                4,385,194   (1,480,944)  2,904,250
                                               ----------   ----------   ---------
Listed shares
   - H shares                                   1,431,300           --   1,431,300
   - A shares                                   1,267,043    1,480,944   2,747,987
                                               ----------   ----------   ---------
                                                2,698,343    1,480,944   4,179,287
                                               ----------   ----------   ---------
Total                                           7,083,537           --   7,083,537
                                               ==========   ==========   =========
</TABLE>

     In December 2006, the Company issued 2,747,987,000 A shares on the Shanghai
     Stock Exchange through an initial public offering, among which
     1,480,944,000 A shares held by legal person are subject to one-year
     restriction in their sales. During the year, these shares became marketable
     without any restrictions.

22   RESERVES

     According to the provisions of the articles of association of the Company,
     the Company shall first set aside 10% of its profit attributable to
     shareholders after tax as indicated in the Company's statutory financial
     statements for the statutory surplus reserve (except where the reserve has
     reached 50% of the Company's registered share capital) in each year. The
     Company may also make appropriations from its profit attributable to
     shareholders to a discretionary surplus reserve provided it is approved by
     a resolution passed in a shareholders' general meeting. These reserves
     cannot be used for purposes other than those for which they are created and
     are not distributable as cash dividends without the prior approval obtained
     from the shareholders in a shareholders' general meeting under specific
     circumstances.

     When the statutory surplus reserve is not sufficient to make good for any
     losses of the Company from previous years, the current year profit
     attributable to shareholders shall be used to make good the losses before
     any allocations are set aside for the statutory surplus reserve.

     The statutory surplus reserve, the discretionary surplus reserve and the
     share premium account may be converted into share capital of the Company
     provided it is approved by a resolution passed in a shareholders' general
     meeting with the provision that the ending balance of the statutory surplus
     reserve does not fall below 25% of the registered share capital amount. The
     Company may either allot newly created shares to the shareholders at the
     same proportion of the existing number of shares held by these
     shareholders, or it may increase the par value of each share.


                                      F-43

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

22   RESERVES (CONTINUED)

     For the years ended December 31, 2007, 2006 and 2005, the directors of the
     Company proposed the following appropriations to reserves of the Company:

<TABLE>
<CAPTION>
                          2005                   2006                   2007
                  --------------------   --------------------   --------------------
                  Percentage   RMB'000   Percentage   RMB'000   Percentage   RMB'000
<S>               <C>          <C>       <C>          <C>       <C>          <C>
Surplus reserve       15%       91,590       10%       71,469       10%      139,778
                     ===        ======      ===        ======      ===       =======
</TABLE>

     In addition, with the first-time adoption of the new accounting standards
     in the PRC ("New PRC GAAP") effective from January 1, 2007, the Group
     retrospectively adjusted the retained earnings of prior years in the
     financial statements prepared in accordance with New PRC GAAP ("statutory
     financial statements"). As a result, the amounts of statutory surplus
     reserve appropriated from the profits of prior years in the statutory
     financial statements were changed accordingly. Such adjustment amounting to
     RMB2,766,000 was reflected as 'reversal of appropriations' in the statement
     of changes in equity of 2007.

     In accordance with the provisions of the articles of association of the
     Company, the profit after appropriation to reserves and available for
     distribution to shareholders shall be the lower of the retained earnings
     determined under (a) PRC GAAP, (b) IFRS and (c) the accounting standards of
     the countries in which its shares are listed. Due to the fact that the
     statutory financial statements of the Company have been prepared in
     accordance with PRC GAAP, the retained earnings so reported may be
     different from those reported in the statement of changes in shareholders'
     equity prepared under IFRS contained in these financial statements.

23   BORROWINGS

<TABLE>
<CAPTION>
                 2006        2007
              ---------   ---------
               Rmb'000     Rmb'000
<S>           <C>         <C>
Borrowings
- Unsecured   1,860,000   2,850,000
              =========   =========
</TABLE>

     The borrowings are mainly obtained for the construction of a fourth
     rail-line of the Group. The carrying amounts of the Group's borrowings are
     all denominated in RMB.

     The maturity of these borrowings is as follows:

<TABLE>
<CAPTION>
                          2006        2007
                       ---------   ---------
                        Rmb'000     Rmb'000
<S>                    <C>         <C>
Within 2 to 5 years*   1,860,000   2,850,000
                       =========   =========
</TABLE>

*    The maturity dates of all the borrowings are from 2011 to 2012.


                                      F-44
<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      (All amounts expressed in Renminbi, except number of shares and ADSs,
             per share and per ADS data and unless otherwise stated)

23   BORROWINGS (CONTINUED)

     The interest rate exposure of the borrowings of the Group is as follows:

<TABLE>
<CAPTION>
                                                                   2006        2007
                                                                ---------   ---------
                                                                 Rmb'000     Rmb'000
<S>                                                             <C>         <C>
At floating rates (relevant prevailing interest rates minus a
   maximum range of 10%)                                        1,860,000   2,850,000
                                                                =========   =========
</TABLE>

     The effective interest rates of the bank borrowings as of December 31, 2007
     were 6.07% (2006: 5.83%). The carrying amounts of the Group's borrowings
     approximate their fair values.

     As of December 31, 2007, the Group had RMB5,450,000,000 unutilized banking
     facilities granted by financial institutions (2006: RMB4,900,000,000).

24   RETIREMENT BENEFITS OBLIGATIONS

<TABLE>
<CAPTION>
                                        2006      2007
                                      -------   --------
                                      RMB'000    RMB'000
<S>                                   <C>       <C>
At January 1                               --     22,420
Acquisition of a business (Note 38)        --    410,000
Additions                              22,420     65,256
Interest unwound                           --     (1,988)
Payment                                    --   (118,279)
                                       ------   --------
At December 31                         22,420    377,409
                                       ======   ========
</TABLE>

<TABLE>
<CAPTION>
                                                                  2006      2007
                                                                -------   -------
                                                                RMB'000   RMB'000
<S>                                                             <C>       <C>
Retirement benefits obligations                                 22,420    377,409
Less: current portion included in accruals and other payables   (5,503)   (76,708)
                                                                ------    -------
                                                                16,917    300,701
                                                                ======    =======
</TABLE>

     Pursuant to an early retirement scheme implemented by the Group in 2006,
     selected employees who meet certain specified criteria were provided with
     an offer for early retirement. The employees may apply to enjoy such early
     retirement benefits, such as payments of the basic salary and other fringe
     benefits, until they reach the statutory retirement age. Under the terms of
     the scheme, all applications are subject to the approval of the Group.
     Expenses incurred on such employee early retirement benefits have been
     recognised in the income statement when such employee benefits are expected
     to be accepted by the related employees. The specific terms of these
     benefits vary among different employees, depending on their position held,
     tenure of service and employment location.


                                      F-45

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      (All amounts expressed in Renminbi, except number of shares and ADSs,
             per share and per ADS data and unless otherwise stated)

24   RETIREMENT BENEFITS OBLIGATIONS (CONTINUED)

     With the acquisition of the net assets and liabilities from Yangcheng
     Railway (see Note 38), the Group has also assumed certain retirement
     benefits obligations associated with the operations of Yangcheng Railway at
     approximately RMB410,000,000. The amount mainly includes early retirement
     obligation, to which the eligible employees are entitled, assumed by the
     Company from Yangcheng Railway (described above) and the obligation for
     funding the post-retirement medical insurance premiums.

     Where the obligation does not fall due within twelve months, the obligation
     payable has been discounted using a pre-tax rate that reflects management's
     current market assessment of the time value of money and risk specific to
     the obligation (the discount rate was determined with reference to market
     yields at the balance sheet date on high quality investments in the PRC).

25   TRADE PAYABLES

     The aging analysis of trade payables was as follows:

<TABLE>
<CAPTION>
                                    2006      2007
                                  -------   -------
                                  RMB'000   RMB'000
<S>                               <C>       <C>
Within 1 year                     238,381   288,763
Over 1 year but within 2 years      1,875     1,064
Over 2 years but within 3 years        78        83
Over 3 years                           --     1,513
                                  -------   -------
                                  240,334   291,423
                                  =======   =======
</TABLE>

26   ACCRUALS AND OTHER PAYABLES

<TABLE>
<CAPTION>
                                                2006      2007
                                              -------   -------
                                              RMB'000   RMB'000
<S>                                           <C>       <C>
Deposits received for construction projects   188,600   197,561
Deposits received from ticketing agencies      13,831    64,748
Retirement benefits obligations (Note 24)       5,503    76,708
Salary and welfare payables                    28,075    55,217
Other taxes payable                            11,507    42,644
Advance received from customers                38,484    42,274
Housing maintenance fund                       18,377    17,212
Other deposits received                        10,776    14,556
Fund for employee injury insurance              5,207     7,564
Accrued expenses                               21,541     2,771
Other payables                                 67,740    95,700
                                              -------   -------
                                              409,641   616,955
                                              =======   =======
</TABLE>


                                      F-46

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      (All amounts expressed in Renminbi, except number of shares and ADSs,
             per share and per ADS data and unless otherwise stated)

27   LABOUR AND BENEFITS

<TABLE>
<CAPTION>
                                                               2005      2006       2007
                                                             -------   -------   ---------
                                                             RMB'000   Rmb'000    Rmb'000
<S>                                                          <C>       <C>       <C>
Wages and salaries                                           477,799   570,049   1,388,342
Provision for staff welfare and bonus                         71,391    71,451     290,281
Contributions to a defined contribution pension scheme (a)    52,949    62,274     220,856
Contributions to the housing scheme (b)                       23,941    29,142      75,861
Medical and other employee benefits                           14,845    13,318      35,157
Amortisation of deferred staff cost (Note 16)                 15,090    15,091      24,339
Retirement benefit obligations (Note 24)                          --    22,420      65,256
                                                             -------   -------   ---------
                                                             656,015   783,745   2,100,092
                                                             =======   =======   =========
</TABLE>

(a)  Pension scheme

     All the full-time employees of the Group are entitled to pension payments
     from a statutory pension scheme equal to their basic salaries payable upon
     their retirement up to their death. Pursuant to the PRC laws and
     regulations, contributions to the basic old age insurance for the Group's
     local staff are to be made monthly to a government agency based on 26% of
     the standard salary set by the provincial government, of which 18% is borne
     by the Company or its subsidiaries and the remainder 8% is borne by the
     staff. The government agency is responsible for the pension liabilities due
     to such staff upon their retirement. The Group accounts for these
     contributions on an accrual basis and charges the related contributions to
     income in the year to which the contributions relate.

(b)  Housing scheme

     In accordance with the PRC housing reform regulations, the Group is
     required to make contributions to the State-sponsored Housing Fund at 7% or
     13% of the specific salaries of the employees. At the same time, the
     employees are also required to make a contribution at 7% or 13% of the
     specific salaries out of their payroll. The employees are entitled to claim
     the entire sum of the fund under certain specified withdrawal
     circumstances. The Group have no further legal or constructive obligation
     for housing benefits beyond the above contributions made.

     The Company is responsible for administering the fund on behalf of
     employees. The funds collected have been deposited in designated bank
     accounts set up by and under the name of the Company for the respective
     employees. The Company does not have any right to use the funds for any
     other purposes except for making housing welfare related payments upon
     requests made by the respective employees.


                                      F-47

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      (All amounts expressed in Renminbi, except number of shares and ADSs,
             per share and per ADS data and unless otherwise stated)

28   OTHER INCOME, NET

<TABLE>
<CAPTION>
                                            2005      2006      2007
                                          -------   -------   -------
                                          RMB'000   RMB'000   RMB'000
<S>                                       <C>       <C>       <C>
Interest income                            53,409   30,735     61,063
Income from waiver of payables                 --   30,441         --
Loss on disposal of fixed assets          (20,262)  (8,414)    (3,335)
Gain/(loss) on disposal of subsidiaries        --    1,161     (1,063)
Others                                     18,481   10,725     (6,849)
                                          -------   ------    -------
                                           51,628   64,648     49,816
                                          =======   ======    =======
</TABLE>

29   FINANCE COSTS

<TABLE>
<CAPTION>
                                                                    2005      2006      2007
                                                                  -------   -------   -------
                                                                  RMB'000   RMB'000   RMB'000
<S>                                                               <C>       <C>       <C>
Interest expenses on borrowings                                        --    24,903   169,511
Less: interest capitalized as construction-in-progress (Note 7)        --   (24,903)  (79,438)
Interest expenses paid by Deposit-taking Centre of the
   Company to related parties                                         654     1,745     4,004
Bank charges                                                          323       546     1,942
Net foreign exchange losses                                        21,761    13,679     2,468
                                                                   ------   -------   -------
                                                                   22,738    15,970    98,487
                                                                   ======   =======   =======
</TABLE>

30   INCOME TAX EXPENSE

     Enterprises established in the Shenzhen Special Economic Zone of the PRC
     are subject to income tax at a reduced preferential rate of 15% as compared
     with the standard income tax rate for PRC companies of 33%. The Company and
     the subsidiaries located in Shenzhen are subject to income tax rate of 15%,
     while those subsidiaries located outside Shenzhen are subject to income tax
     rate of 33%.

     An analysis of the current year taxation charges is as follows:

<TABLE>
<CAPTION>
                                  2005      2006      2007
                                -------   -------   -------
                                RMB'000   RMB'000   RMB'000
<S>                             <C>       <C>       <C>
Current income tax              117,002   142,334   255,749
Deferred income tax (Note 15)    (6,826)    6,821   (23,400)
                                -------   -------   -------
                                110,176   149,155   232,349
                                =======   =======   =======
</TABLE>

     The tax on the Group's profit before tax differs from the theoretical
     amount that would arise using the tax rate of the home country of the
     Company as follows:


                                      F-48

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      (All amounts expressed in Renminbi, except number of shares and ADSs,
             per share and per ADS data and unless otherwise stated)

30   INCOME TAX EXPENSE (CONTINUED)

<TABLE>
<CAPTION>
                                                                     2005      2006       2007
                                                                   -------   -------   ---------
                                                                   RMB'000   RMB'000    RMB'000
<S>                                                                <C>       <C>       <C>
Profit before tax                                                  756,138   920,928   1,668,551
                                                                   =======   =======   =========
Tax calculated at the statutory rate of 15% (2006 and 2005: 15%)   113,421   138,139     250,283
Tax effect of expenses that are not deductible in determining
   taxable profit:
   Effect of different tax rates of certain subsidiaries             1,111     1,495       1,137
   Effect of share of results of associates                          2,992     4,246        (275)
   Tax losses for which no deferred tax asset was recognised            --        38         380
   Expenses not deductible for tax purposes                          4,944     5,237       5,462
   Effect of change of income tax rate on deferred taxes
      previously recognised (Note 15)                                   --        --     (30,413)
   Provision of deferred tax for adjustments made to carrying
      values of fixed assets                                       (12,292)       --          --
   Reversal of deferred tax assets due to the changes in tax
      law                                                               --        --       5,775
                                                                   -------   -------   ---------
Income tax expense                                                 110,176   149,155     232,349
                                                                   =======   =======   =========
</TABLE>

     The weighted average applicable tax rate was 13.9% (2006 and 2005: 16.2%
     and 14.6%).

31   PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

     The profit attributable to equity holders of the Company for the year was
     approximately RMB1,433,377,000 (2006 and 2005: RMB763,556,000 and
     RMB633,161,000).

32   EARNINGS PER SHARE

     The calculation of basic earnings per share is based on the net profit for
     the year attributable to ordinary shareholders of approximately
     RMB1,431,415,000 (2006 and 2005: RMB771,513,000 and RMB646,960,000),
     divided by the weighted average number of ordinary shares outstanding
     during the year of 7,083,537,000 shares (2006 and 2005: 4,418,427,000
     shares and 4,335,550,000 shares). There were no dilutive potential ordinary
     shares as at year end.

33   DIVIDENDS

<TABLE>
<CAPTION>
                                                   2005      2006      2007
                                                 -------   -------   -------
                                                 RMB'000   RMB'000   RMB'000
<S>                                              <C>       <C>       <C>
Final, proposed, of RMB0.08 (2006: RMB0.08 and
   2005: RMB0.12) per ordinary share             520,266   566,683   566,683
                                                 =======   =======   =======
</TABLE>

     At a meeting of the directors held on April 23, 2008, the directors
     proposed a final dividend of RMB0.08 per ordinary share for the year ended
     December 31, 2007. This proposed dividend has not been reflected as a
     dividend payable in the financial statements, but will be reflected as an
     appropriation of retained earnings for the year ending December 31, 2008.


                                      F-49
<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

34   CASH FLOW GENERATED FROM OPERATIONS

(a)  Reconciliation from profit attributable to shareholders to cash generated
     from operations:

<TABLE>
<CAPTION>
                                                                    2005        2006        2007
                                                                 ---------   ---------   ---------
                                                                  RMB'000     RMB'000     RMB'000
<S>                                                              <C>         <C>         <C>
Profit before income tax:                                          756,138     920,928   1,668,551
Adjustments for:
   Depreciation of fixed assets (Note 6)                           291,958     319,887   1,017,100
   Impairment of fixed assets (Note 6)                                  --          --       6,359
   Amortisation of leasehold land payments (Note 8)                 15,581      16,776      16,021
   Loss on disposal of fixed assets (Note 28)                       23,385       8,414       3,335
   Amortisation of deferred staff costs (Note 16)                   15,090      15,091      24,339
   Provision for retirement benefits obligations (Note 24)              --          --      65,256
   Amortisation of retirement benefits obligations (Note 24)            --          --      (1,988)
   Share of results of associates (Note 11)                         19,949      28,306      (1,830)
   Loss on disposal of subsidiaries                                     --          --       1,063
   Provision/(reversal) for doubtful accounts (Notes 18, 19)         9,740      (4,315)     (8,260)
   Interest expenses                                                   654       1,745     173,515
   Interest income (Note 28)                                       (53,409)    (30,735)    (61,063)
                                                                 ---------   ---------   ---------
Operating profit before working capital changes                  1,079,086   1,276,097   2,902,398
   Decrease in trade receivables                                     5,198      45,263      46,839
   Increase in materials and supplies                               (4,351)     (2,014)    (31,637)
   Decrease/(increase) in prepayments and other current assets      31,286       5,963     (14,260)
   Decrease in other long-term receivables                              --          --       6,000
   Decrease/(increase) in due from related parties                  55,190     (46,445)     36,653
   Increase/(decrease) in trade payables                            81,571     121,627    (145,774)
   Increase/(decrease) in retirement benefits obligations               --      22,420    (112,526)
   Increase/(decrease) in due to related parties                   199,838    (257,585)    206,744
   Increase/(decrease) in accrued expenses and other payables       23,707      65,632    (463,748)
                                                                 ---------   ---------   ---------
   Cash generated from operations                                1,471,525   1,230,958   2,430,689
                                                                 =========   =========   =========
</TABLE>

(b)  Analysis of the balance of cash and cash equivalents:

<TABLE>
<CAPTION>
                                                               2005        2006        2007
                                                            ---------   ---------   ---------
                                                             RMB'000     RMB'000     RMB'000
<S>                                                         <C>         <C>         <C>
Cash at the MOR Deposit-taking Centre (Note i)                628,746      25,786          --
Cash at bank and in hand                                      113,382   5,406,045   1,109,241
Short-term deposits with original maturities no more than
   three months (Note ii)                                     370,000     420,000   1,243,110
                                                            ---------   ---------   ---------
                                                            1,112,128   5,851,831   2,352,351
                                                            =========   =========   =========
</TABLE>

     Note i:  The interest rate of cash deposited with the MOR Deposit-taking
              Centre as of December 31, 2006 was 0.72% (2005: 0.72%), which is
              commensurate with the prevailing interest rates offered by banks
              in the PRC.


                                      F-50

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

34   CASH FLOW GENERATED FROM OPERATIONS (CONTINUED)

     Note ii: Short term time deposits with maturities of no more than three
              months consist of deposits denominated in RMB. The original
              effective interest rate of RMB deposits is 1.71% (2006 and 2005:
              1.665% and 1.71%).

35   CONTINGENCY

     There were no significant contingent liabilities as at the date of approval
     of these financial statements.

36   COMMITMENTS

(a)  Capital commitments

     As of December 31, 2007, the Group had the following capital commitments
     which are authorized but not contracted for, and contracted but not
     provided for:

<TABLE>
<CAPTION>
                                       2006        2007
                                    ---------   ---------
                                     RMB'000     RMB'000
<S>                                 <C>         <C>
Authorised but not contracted for   1,384,287   3,674,095
                                    =========   =========
Contracted but not provided for     3,137,581   2,132,634
                                    =========   =========
</TABLE>

     A substantial amount of these commitments is related to the remaining
     construction works of a portion of the fourth rail-line of the Company,
     improvement of the existing operation equipment and purchase of new
     locomotives for its expanded operations.

(b)  Operating lease commitments

(i)  In connection with the acquisition of Yangcheng Railway mentioned in Note
     38, the Company signed an agreement on November 15, 2004 with Guangzhou
     Railway (Group) Company for leasing the land use rights associated with the
     land on which the acquired assets of Yangcheng Railway are located. The
     agreement became effective upon the completion of the acquisition on
     January 1, 2007 and the lease term is 20 years, renewable at the discretion
     of the Company. According to the terms of the agreement, the rental for
     such lease would be agreed by both parties every year with a maximum amount
     not exceeding RMB74,000,000. During the year ended December 31, 2007, the
     related lease rental paid and payable was RMB50,000,000.

(ii) Apart from the above land use right operating lease commitment mentioned in
     (i) above, the Group did not have other material operating lease
     commitments as at December 31, 2007. The total future minimum lease
     payments under other non-cancellable operating leases for machinery and
     equipment as at December 31, 2006 were as follows:

<TABLE>
<CAPTION>
                             2006      2007
                           -------   -------
                           RMB'000   RMB'000
<S>                        <C>       <C>
Machinery and equipment
- not more than one year    69,673        --
                           =======   =======
</TABLE>


                                      F-51

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

37   RELATED PARTY TRANSACTIONS

     Parties are considered to be related if one party has the ability, directly
     or indirectly, to control the other party or exercise significant influence
     over the other party in making financial and operating decisions.

(a)  The Group has the following material related parties:

<TABLE>
<CAPTION>
NAME OF RELATED PARTIES                                                       RELATIONSHIP WITH THE COMPANY
-----------------------                                                 -----------------------------------------
<S>                                                                     <C>
PARENT OF SUBSTANTIAL SHAREHOLDER, SUBSTANTIAL SHAREHOLDER AND FELLOW
   SUBSIDIARIES
Ministry of Railways ("MOR") of the PRC                                 Parent of substantial shareholder
MOR's Railroad Deposit-taking Centre                                    Branch of substantial shareholder's parent
Guangzhou Railway (Group) Company                                       Substantial shareholder
Guangzhou Railway Group YangCheng Railway Enterprise Development
   Company ("Yangcheng Railway")                                        Subsidiary of the substantial shareholder
Guangmeishan Railway Company Limited ("Guangmeishan")                   Subsidiary of the substantial shareholder
Guangzhou Railway (Group) Guangshen Railway Enterprise Development
   Company (the Predecessor as defined in Note 1, "GEDC")               Subsidiary of the substantial shareholder
Guangzhou Railway Material Supply Company                               Subsidiary of the substantial shareholder
Guangzhou Railway Engineer Construction Enterprise Development
   Company ("Engineer Construction Enterprise")                         Subsidiary of the substantial shareholder
Yuehai Railway Company Limited                                          Subsidiary of the substantial shareholder
Shichang Railway Company Limited                                        Subsidiary of the substantial shareholder
CYTS Guangdong Railway Shenzhen Co., Ltd.                               Subsidiary of the substantial shareholder
Changsha Railway Construction Company Limited                           Subsidiary of the substantial shareholder
Guangdong Pearl River Delta Inter-city Railway Traffic Co., Ltd.        Subsidiary of the substantial shareholder
Guangdong Sanmao Enterprise Development Company Limited                 Subsidiary of the substantial shareholder
Guangzhou Qingda Transportation Company Limited                         Subsidiary of the substantial shareholder

ASSOCIATES OF THE GROUP
Guangzhou Tiecheng Enterprise Company Limited                           Associate of the Company
Zengcheng Lihua Stock Company Limited                                   Associate of the Company
Shenzhen Guangshen Railway Civil Engineering Company                    Associate of the Company

OTHER STATE-CONTROLLED COMPANIES ("OTHER STATE-CONTROLLED COMPANIES")
   (NOTE I)
Shenyang Train Class Company
Puzhen Train Company
Changchun Tracks and Equipment Company
Sifang Passenger Trains Repair Stock Company
Qixuyan Locomotive and Carriages Company
Dalian Locomotives and Carriages Company
Chengdu Materials Company
Liuzhou Wood Company
Hengyang Mechanism Company
Construction Technique Company of China
Nanfang Railway Repair Center
The Fourth Railway Reconnaissance Design House
Railway construction bureaus (including Third bureau, Seventh bureau,
   Eleventh bureau, Thirteenth bureau and others)
The Forth Construction Bureau of China
</TABLE>

(i)  Subsequent to the A share issuance on December 22, 2006, the Company is no
     longer controlled by Guangzhou Railway Group and MOR (but they still remain
     as related parties of the Group). As a result, Other State-controlled
     Companies in the PRC were no longer considered as related parties of the
     Group from December 22, 2006 onwards.


                                      F-52

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

37   RELATED PARTY TRANSACTIONS (CONTINUED)

(b)  Save as disclosed in other notes to the Financial Statements, during the
     year, the Group had the following material transactions undertaken with
     related parties:

<TABLE>
<CAPTION>
                                                                              2005        2006        2007
                                                                           ---------   ---------   ----------
                                                                            RMB'000     RMB'000      RMB'000
<S>                                                                        <C>         <C>         <C>
RECURRING TRANSACTIONS:
I. TRANSACTIONS WITH THE MOR AND GUANGZHOU RAILWAY (GROUP) COMPANY
   AND ITS SUBSIDIARIES

(A) INCOME
Provision of train transportation and related services to other
   railway companies controlled by the MOR (i)                              (304,842)   (315,847)  (2,658,698)
Revenue received, processed and allocated by the MOR ((i) and (v))
- long distance passenger transportation                                    (575,849)   (800,859)  (5,318,369)
- cargo forwarding railway usage fees                                       (123,763)   (124,465)    (906,516)
Provision of repairing service for cargo truck of Guangzhou Railway
   Group and MOR (i)                                                         (28,799)    (32,787)    (175,284)
Provision of train transportation service to Guangzhou Railway Group
   and its subsidiaries (i)                                                       --     (22,295)    (316,182)
Interest income received/receivable from the MOR Deposit-taking Centre        (5,530)     (5,331)          --

(B) CHARGES AND PAYMENTS
Services charges allocated from the MOR for train transportation and
   related services offered by other railway companies controlled by
   the MOR ((i) and (v))                                                     290,825     410,353    1,990,297
Operating lease rentals paid/payable to the MOR (i)                           50,804      40,885      156,628
Provision of train transportation service provided by Guangzhou
   Railway Group and its subsidiaries (i)                                      8,449      26,065      213,388
Social services (employee housing, health care, educational and
   public security services and other ancillary services) provided by
   the GEDC and Yangcheng Railway under the service agreements (ii)           78,227      74,520      429,655
Operating lease rental paid to Guangzhou Railway Group for the
   leasing of land use rights (Note 36(b)(i))                                     --          --       50,000
Purchase of materials and supplies from Guangzhou Railway Group and
   its subsidiaries (iii)                                                     73,146      89,731      577,352
Provision of repair and maintenance services provided by Guangzhou
   Railway Group and its subsidiaries (i)                                         --          --       82,478
Interest expenses paid/payable to Guangzhou Railway Group, net (iv)              721          --           --
                                                                           =========   =========   ==========
NON-RECURRING TRANSACTIONS:

I. TRANSACTIONS WITH THE MOR AND GUANGZHOU RAILWAY (GROUP) COMPANY
   AND ITS SUBSIDIARIES
Disposal of an available-for-sale investment                                (121,854)         --           --
Partial disposal of equity interests in a subsidiary                              --     (35,224)          --
Provision of repair and maintenance services by Guangzhou Railway
   Group and its subsidiaries (i)                                             73,134      21,779       21,633
Provision of construction management services by Guangzhou Railway
   Group in connection with the construction of fixed assets of the
   Company (iv)                                                                6,194       9,326        9,288
Provision of supplies and materials by subsidiaries of Guangzhou
   Railway Group (iii)                                                         5,249       4,045           --
Provision of construction projects (ii)                                           --      70,537       52,662
Payment for the acquisition of net assets of Yangcheng Railway (c) (vii)          --   5,265,250    4,873,332
Other service provided with subsidiary of Guangzhou Railway Group (iii)           --          --       50,569

II. TRANSACTIONS WITH OTHER STATE-CONTROLLED COMPANIES
Provision of construction project and related services (iii)               1,148,781   3,112,131           --
Provision of repair and maintenance services (iii)                            75,867     105,641           --
Provision of supplies and materials (iii)                                      5,977      15,051           --
Purchase of fixed assets (iii)                                                55,803     207,688           --
                                                                           =========   =========   ==========
</TABLE>


                                      F-53
<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

37   RELATED PARTY TRANSACTIONS (CONTINUED)

     (i)  The service charges are determined based on a pricing scheme set by
          the MOR or by reference to current market prices with guidance
          provided by the MOR.

     (ii) The service charges are levied based on contract prices determined
          based on cost plus a profit margin.

     (iii) The prices are determined based on mutual negotiation between the
          contracting parties with reference to guidance provided by the MOR.

     (iv) Pursuant to the provisions of a construction management agreement and
          several supplementary agreements (collectively, the "Management
          Agreements") entered into with the Guangzhou Railway Group in 2005 and
          2006, Guangzhou Railway Group has undertaken to provide project
          management services to the Company on monitoring the construction
          services provided/to be provided by certain contractors and
          sub-contractors, which are substantially State-Owned Companies,
          employed for the construction of certain railway assets and railway
          stations of the Company, including the fourth rail-line. The
          management service fees are determined based on the pricing scheme set
          by the MOR.

     (v)  Due to the fact that the railway business is centrally managed by the
          MOR within the PRC, the Company works in co-operation with the MOR and
          other railway companies owned and controlled by the MOR in order to
          operate certain long distance passenger train transportation and cargo
          forwarding services within the PRC. The related revenues are collected
          by other railway companies, which are then remitted to the MOR, and
          centrally processed. A certain portion of the revenues so collected
          are allocated to the Company for the use of its rail-lines or for
          services rendered by the Company in conjunction with the delivery of
          these services. On the other hand, the Company is also allocated by
          the MOR certain charges for the use of the rail lines and services
          provided by other railway companies. Such allocation is determined by
          the MOR based on its standard charges applied on a nationwide basis.


                                      F-54

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

37   RELATED PARTY TRANSACTIONS (CONTINUED)

(c)  As of December 31, 2007 and 2006, the Group had the following material
     balances maintained with related parties:

<TABLE>
<CAPTION>
                                                        2006       2007
                                                     ---------   --------
                                                      RMB'000     RMB'000
<S>                                                  <C>         <C>
Cash and cash equivalents maintained in the MOR
   Deposit-taking Centre (Note 34(b))                   25,786         --
Short-term time deposits in the MOR Deposit-taking
   Centre (Note 20)                                    169,739         --
Due (to)/from Guangzhou Railway Group                   31,584    (78,262)
   - Trade balance (vi)                                 28,234    (96,995)
   - Non-trade balance                                   3,350     18,733
Deposit for acquisition of Yangcheng Railway (vii)   5,265,250         --
Due from subsidiaries of Guangzhou Railway Group           173     82,100
   - Trade balance                                          61     17,843
   - Non-trade balance                                     112     64,257
Due to subsidiaries of Guangzhou Railway Group        (220,915)  (940,928)
   - Trade balance (viii)                              (39,813)  (157,001)
   - Non-trade balance (ix)                           (181,102)  (783,927)
Due from an associate                                       --      1,825
   - Trade balance                                      12,312     14,137
   Less: impairment provision (xi)                     (12,312)   (12,312)
Due to an associate                                    (29,686)    (2,935)
   - Non-trade balance (x)                             (29,686)    (2,935)
</TABLE>

     (vi) The trade balances due from/to Guangzhou Railway Group, subsidiaries
          of Guangzhou Railway Group and the MOR mainly represented service fees
          and charges payable and receivable balances arising from the provision
          of passenger transportation and cargo forwarding businesses jointly
          with these related parties within the PRC as described in (iv).

     (vii) As of December 31, 2006, the balance represents 51% of the agreed
          purchase consideration paid to Guangzhou Railway Group for the
          acquisition of net assets of Yangcheng Railway as a deposit (Note 38).

     (viii) The trade balances due to related parties mainly represent payables
          arising from unsettled fees for purchase of materials and provision of
          other services according to various service agreements entered into
          between the Group and the parties (see Note (b) above).

     (ix) The non-trade balances due to related parties mainly represent the
          deposits of related parties maintained in the Deposit-taking Centre of
          the Company.

     (x)  The non-trade balance due to associate mainly represents the payable
          balance arising from unsettled balance for the construction project
          services undertaken by an associate.

     (xi) Full impairment loss provision set up against a receivable balance due
          from Zengcheng Lihua, which was brought forward from prior years.

     As of December 31, 2007, all the balances maintained with related parties
     are unsecured, non-interest bearing and are repayable on demand.


                                      F-55

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

38   THE ACQUISITION OF NET ASSETS OF YANGCHENG RAILWAY

     On November 15, 2004, the Company entered into an agreement to acquire the
     railway transportation business of Yangcheng Railway which consists of all
     of its assets and liabilities related to its railway transportation
     business ("Yangcheng") on the rail line running between the cities of
     Guangzhou and Pingshi in Southern China.

     The purchase consideration of approximately RMB10,181,037,000 was
     determined based on an appraisal of Yangcheng performed by an independent
     appraisal firm as of March 31, 2006. As outlined below, the purchase
     consideration is subject to certain adjustments in accordance with the
     agreement based on the finalization of the completion audit. The primary
     source of funding (at least 65%) for the acquisition was derived from the
     issuance of A shares of the Company, as discussed in Note 21. The
     acquisition received the approval of more than 50% of the then H share
     shareholders attending a special shareholders' meeting for the transaction
     on December 30, 2004.

     As disclosed in Note 21, the offering of A shares of the Company was
     completed in December 2006. On December 28, 2006, the Company paid 51% of
     the purchase consideration (approximately RMB5.3 billion) as a deposit to
     Yangcheng Railway in accordance with the provisions of the agreement.
     Pursuant to the agreement, the remaining 49% of the purchase consideration
     (approximately RMB5 billion) was paid to Yangcheng Railway within 2 months
     after the completion of a closing audit of Yangcheng in 2007.

     Costs incurred by the Company that are directly attributable to the
     acquisition of Yangcheng including professional fees paid to appraisal
     firms, law firms and accounting firms, with an amount of approximately
     RMB31,343,000, have been included in the total purchase consideration .

     On January 1, 2007, control of the assets and operations of Yangcheng was
     transferred to the Company. Accordingly, for accounting purposes, January
     1, 2007 is considered by the directors of the Company to be the effective
     date of acquisition. The results of operations of Yangcheng have been
     included in the Group's consolidated income statement from that date
     onwards. The acquired business contributed revenue of approximately
     RMB5,993,189,000 and net profit of approximately RMB900,332,000 to the
     Group for the period from January 1, 2007 to December 31, 2007.

     Prior to the A share issuance, Yangcheng Railway and the Group were both
     controlled by the MOR, as it indirectly held controlling interests in both
     the companies. Subsequent to the A share issuance in December 2006, the
     equity interest of the MOR in the Group was diluted to 41%. As a result, as
     on the acquisition date of January 1, 2007, Yangcheng Railway and the Group
     were no longer under common control. Under IFRS 3 "Business Combination",
     the transaction does not constitute a business combination under common
     control as the Group and Yangcheng Railway are not ultimately controlled by
     the same party (the MOR) both before and after the business combination.
     Accordingly, the transaction has been accounted for using the purchase
     method of accounting with the acquired identifiable assets, liabilities and
     contingent liabilities stated at their respective fair values as at the
     date of acquisition.


                                      F-56

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

38   THE ACQUISITION OF NET ASSETS OF YANGCHENG RAILWAY (CONTINUED)

     The Group performed purchase price allocation with the assistance of an
     independent appraisal firm. Details of net assets acquired and goodwill are
     as follows:

<TABLE>
<CAPTION>
                                                  RMB'000
                                                ----------
<S>                                             <C>
Purchase consideration:
   - Cash paid                                  10,138,582
   - Direct costs relating to the acquisition       31,343
                                                ----------
Total purchase consideration                    10,169,925
Fair value of assets acquired (see below)       (9,888,670)
                                                ----------
Goodwill                                           281,255
                                                ==========
</TABLE>

     Goodwill is mainly attributable to the profitability of Yangcheng Railway's
     derived from its monopolised operations in the region where the acquired
     business is located.

     The assets and liabilities arising from the acquisition are as follows:

<TABLE>
<CAPTION>
                                                   Acquiree's
                                                    Carrying
                                     Fair value      amount
                                     ----------   -----------
                                       RMB'000      RMB'000
<S>                                  <C>          <C>
Cash and cash equivalents                91,699       91,699
Trade and other receivables              58,720       57,733
Materials and supplies                   55,070       55,070
Fixed assets                         10,827,744    7,291,022
Construction-in-progress                215,391      215,391
Long-term receivable                     54,547      140,000
Available-for-sale investment               500          500
Deferred staff cost                      45,000           --
Deferred tax assets                      54,750           --
Trade and other payables               (797,460)    (797,460)
Deferred tax liability                  (12,291)          --
Retirement benefit obligations         (410,000)          --
Borrowings                             (295,000)    (295,000)
                                     ----------   ----------
Net assets acquired                   9,888,670    6,758,955
                                     ==========   ==========
Outflow of cash to acquire
   business, net of cash acquired:
- Cash consideration paid in 2006
   and 2005 (as a deposit and
   acquisition cost)                               5,296,593
- Cash consideration paid in 2007                  4,873,332
- Cash and cash equivalents
   balance acquired                                  (91,699)
                                                  ----------
Net cash outflow on acquisition                   10,078,226
                                                  ==========
</TABLE>


                                      F-57

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in Renminbi, except number of shares and ADSs, per share
                  and per ADS data and unless otherwise stated)

39   SUBSEQUENT EVENTS

     Save as disclosed in other notes to the financial statements, the Group
     does not have other significant subsequent events.

40   COMPARATIVE FIGURES

     Certain 2006 and 2005 comparative figures have been reclassified as
     follows:

     i.   Revenue from network usage and services was recorded within the
          "Passenger" and "Freight" category of revenue in the prior year has
          been separately disclosed on the income statement in order to conform
          with the current year presentation.

     ii.  Amounts due from/to associates which were recorded within "Interest in
          associates" in the prior year have been reclassified to "Due from/to
          related parties" to conform with the presentation of the balance sheet
          in the current year.

     iii. Restricted cash balance, which represents funds set aside by the Group
          for the employee housing fund maintained in designated bank accounts
          of the Company held on behalf of the related employees, has been
          offset against the corresponding payable balance due to the employees
          in order to conform with the current year presentation of the balance
          sheet.


                                      F-58