<PAGE>

      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 2007

                                  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, 2006

                                       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, 2006:

<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>


                                       1
<PAGE>

(including 229,976,050 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     Accelerated Filer  X  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
                                     ---    ---


                                       2
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           Pages
                                                                           -----
<S>                                                                        <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.................................     16
   Item 4A.  History and Development of the Company.....................     16
   Item 4B.  Business Overview..........................................     19
   Item 4C.  Organizational Structure...................................     34
   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......................................     38
   Item 5B.  Liquidity and Capital Resources............................     49
   Item 5C.  Research and Development, Patents and Licences, etc........     52
   Item 5D.  Trend Information..........................................     52
   Item 5E.  Off-Balance Sheet Arrangements.............................     53
   Item 5F.  Tabular Disclosure of Contractual Obligations..............     53
   Item 5G.  Additional Information.....................................     54
   ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.................     57
   Item 6A.  Directors and Senior Management............................     57
   Item 6B.  Board Compensation.........................................     61
   Item 6C.  Board Practices............................................     62
   Item 6D.  Employees..................................................     65
   Item 6E.  Share Ownership............................................     67
   ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..........     67
   Item 7A.  Major Shareholders.........................................     67
   Item 7B.  Related Party Transactions.................................     69
   Item 7C.  Interests of Experts and Counsel...........................     77
   ITEM 8.   FINANCIAL INFORMATION......................................     77
   Item 8A.  Consolidated Statements and Other Financial Information....     77
   Item 8B.  Significant Changes........................................     79
   ITEM 9.   THE OFFER AND LISTING......................................     80
   Item 9A.  The Offer and Listing Details..............................     80
   Item 9B.  Plan of Distribution.......................................     81
   Item 9C.  Markets....................................................     81
</TABLE>


                                       3

<PAGE>

<TABLE>
<S>                                                                        <C>
   Item 9D.  Selling Shareholders.......................................     81
   Item 9E.  Dilution...................................................     81
   Item 9F.  Expenses of the Issue......................................     81
   ITEM 10.  ADDITIONAL INFORMATION.....................................     82
   Item 10A. Share Capital..............................................     82
   Item 10B. Memorandum and Articles of Association.....................     82
   Item 10C. Material Contracts.........................................     93
   Item 10D. Exchange Controls..........................................     93
   Item 10E. Taxation...................................................     94
   Item 10F. Dividends and Paying Agents................................    102
   Item 10G. Statement by Experts.......................................    102
   Item 10H. Documents on Display.......................................    102
   Item 10I. Subsidiary Information.....................................    103
   ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
             RISK.......................................................    104
   ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.....    107

PART II
   ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES............    108
   ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
             AND USE OF PROCEEDS........................................    108
   ITEM 15.  CONTROLS AND PROCEDURES....................................    108
   ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT...........................    111
   ITEM 16B. CODE OF ETHICS.............................................    111
   ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.....................    111
   ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
             COMMITTEES.................................................    112
   ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
             PURCHASERS.................................................    112

PART III
   ITEM 17.  FINANCIAL STATEMENTS.......................................    113
   ITEM 18.  FINANCIAL STATEMENTS.......................................    113
   ITEM 19.  EXHIBITS...................................................    113
</TABLE>


                                       4
<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 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 RMB7.80 to US$1.00, which is rounded from 7.8041, 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 29, 2006, 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, 2002 through
June 27, 2007.

     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:

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


                                        1

<PAGE>

     -    "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 ton; 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, 2005 and 2006, and our consolidated statements
of income, changes in equity and cash flows for each of the years ended December
31, 2004, 2005 and 2006 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, 2002, 2003 and 2004, and our
consolidated statements of income, changes in equity and cash flows for each of
the years ended December 31, 2002 and 2003 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, and the
information set forth below under "Certain US GAAP Data" have been reconciled to
generally accepted accounting principles in the United States, or US GAAP as it
relates to the Company, which differ in some material respects from IFRS. For a
discussion of the principal differences between IFRS and US GAAP, see "Item 5G.
Additional Information-Principal Differences between IFRS and US GAAP" and Note
38 to our audited consolidated financial statements included elsewhere in this
annual report. See note (2) below for the explanation on the restatement of
certain figures.

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                           ----------------------------------------------------------------------------------------
                                                2002             2003            2004            2005          2006         2006
                                           --------------   -------------   -------------   -------------   ----------   ----------
                                                RMB              RMB             RMB             RMB            RMB        US$(1)
                                            (RESTATED)(2)   (RESTATED)(2)   (RESTATED)(2)   (RESTATED)(2)
                                                                    (IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S>                                        <C>              <C>             <C>             <C>             <C>          <C>
IFRS INCOME STATEMENT DATA:
   Revenues from railroad businesses
      - Passenger .......................     1,903,782       1,790,204        2,259,671       2,511,156     2,841,045      364,236
      - Freight .........................       530,776         526,382          611,807         588,310       624,839       80,108
                                             ----------      ----------       ----------      ----------     ---------      -------
      Subtotal ..........................     2,434,558       2,316,586        2,871,478       3,099,466     3,465,884      444,344
   Revenues from other businesses .......       166,266         151,596          166,671         177,462       128,590       16,486
                                             ----------      ----------       ----------      ----------     ---------      -------
   Total revenues .......................     2,600,824       2,468,182        3,038,149       3,276,928     3,594,474      460,830
   Railroad operating expenses(2) .......    (1,760,793)     (1,717,307)      (2,203,273)     (2,339,384)   (2,527,907)    (324,091)
   Other businesses operating expenses ..      (169,112)       (149,614)        (166,155)       (190,347)     (166,011)     (21,283)
                                             ----------      ----------       ----------      ----------     ---------      -------
   Other income .........................        43,495          47,341           48,193          51,628        64,648        8,288
                                             ----------      ----------       ----------      ----------     ---------      -------
   Profit from operations (2) ...........       714,414         648,602          716,914         798,825       965,204      123,744
   Profit attributable to shareholders
      of the Company (2) ................       598,242         544,528          600,250         646,960       771,513       98,912
   Profit from operations per
      share (2) .........................          0.16            0.15             0.17            0.18          0.22         0.03
   Earnings per share for profit
      attributable to shareholders
      of the Company
      - Basic and diluted (2) ...........          0.14            0.13             0.14            0.15          0.17         0.02
</TABLE>


                                        3

<PAGE>

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                         ----------------------------------------------------------------------------------------
                                              2002             2003            2004            2005          2006         2006
                                         --------------   -------------   -------------   -------------   ----------   ----------
                                              RMB              RMB             RMB             RMB            RMB        US$(1)
                                          (RESTATED)(2)   (RESTATED)(2)   (RESTATED)(2)   (RESTATED)(2)
                                                                 (IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S>                                      <C>              <C>             <C>             <C>             <C>          <C>
   Dividends declared per share ......           0.10            0.10            0.105            0.12          0.08         0.01
   Earnings per ADS for profit
      attributable to shareholders
      of the Company (2) .............           6.90            6.28             6.92            7.46          8.90         1.14

IFRS BALANCE SHEET DATA (AT YEAR END):
   Working capital (excluding due from
      and due to GRGC) ...............      1,592,040       1,935,979        2,076,207         451,488     4,247,219      544,515
   Due from GRGC .....................         39,374              --               --          15,636        31,584        4,049
   Due to GRGC .......................             --          37,230           24,617              --            --           --
   Fixed assets (2) ..................      5,636,979       5,830,125        5,889,074       6,346,822     6,738,477      863,907
   Leasehold land payments ...........        656,998         652,083          636,379         620,798       625,628       80,209
   Total assets (2) ..................     10,270,488      10,119,613       10,487,477      11,856,470    24,343,119    3,120,913
   Equity attributable to shareholders
      of the Company (2) .............      9,257,045       9,368,018        9,499,000       9,796,076    20,169,008    2,585,770
   Share  capital,  issued and
      outstanding,  RMB1.00 per value,
      domestic shares ................      2,904,250       2,904,250        2,904,250       2,904,250     5,652,237      724,646
      H shares .......................      1,431,300       1,431,300        1,431,300       1,431,300     1,431,300      183,500

IFRS CASH FLOW STATEMENT DATA:
   Net cash provided by operating
      activities .....................      1,157,177         798,449        1,236,579       1,380,147     1,112,004      142,565
   Net cash (used in)/provided by
      investing activities ...........        251,003        (375,469)      (1,000,639)       (820,915)   (7,833,331)  (1,004,273)
   Net cash (used in) financing
      activities .....................       (360,643)       (433,666)        (469,044)       (491,733)   11,461,030    1,469,363
   Purchase of fixed assets and
      payment for
      construction-in-progress .......        553,337         339,208          310,179       1,588,374    (3,202,670)    (410,599)
   Dividends paid to shareholders of
      the Company ....................       (356,490)       (433,561)        (455,009)       (476,904)     (520,655)     (66,751)

OTHER IFRS DATA:
   Railroad transportation operating
      income (2) .....................        711,457         645,437          715,230         808,613       928,177      128,201
   Other businesses operating income/
      (loss) .........................          2,957           3,165            1,684          (9,788)      (34,764)      (4,457)

CERTAIN US GAAP DATA
   Profit from operation .............        670,919         601,261          668,721         750,320       928,177      118,997
   Net income ........................        598,242         544,528          600,250         631,359       768,513       98,527
   Earnings per share-Basic and
      diluted ........................           0.14            0.13             0.14            0.15          0.17         0.02
   Earnings per ADS ..................           6.90            6.28             6.92            7.28          8.70         1.12
   Equity ............................      9,257,045       9,368,018        9,499,000       9,807,482    20,162,707    2,584,962
   Fixed assets ......................      5,636,979       5,830,125        5,889,074       6,346,822     6,738,477      863,907
</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 =
     RMB7.80, which is rounded from 7.8041, the noon buying rate in New York
     City on December 29, 2006. No representation is made that the RMB amounts
     could have been, or could be, converted into US dollars at that rate on
     December 29, 2006 or on any other date.

(2)  As a result of the change in our accounting policy of fixed assets from the
     revaluation basis of accounting to cost model during 2006, as disclosed in
     Note 5 to our audited consolidated financial statements included elsewhere
     in this annual report, the related IFRS financial information for the years
     from 2002 to 2005 had been restated. Due to fact that the fixed assets are
     accounted for under the cost basis under U.S. GAAP, the respective U.S.
     GAAP data for the respective years are not affected.

     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 RMB7.80 = US$1.00, which is
rounded from 7.8041, the noon buying rate in New York City on December 29, 2006.
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
RMB7.6210 = US$1.00 on June 27, 2007.


                                        4

<PAGE>

     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:

<TABLE>
<CAPTION>
                                         NOON BUYING RATE
                                  -----------------------------
PERIOD                            AVERAGE (1)    HIGH     LOW
------                            -----------   ------   ------
                                    (RENMINBI PER U.S. DOLLAR)
<S>                               <C>           <C>      <C>
2002...........................      8.2772     8.2800   8.2700
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
January 2007...................      7.7876     7.8127   7.7705
February 2007..................      7.7502     7.7632   7.7410
March 2007.....................      7.7369     7.7454   7.7232
April 2007.....................      7.7247     7.7296   7.7090
May 2007.......................      7.6773     7.6463   7.7065
June 2007 (through June 27)....      7.6351     7.6680   7.6175
</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 19, 2007, the directors
proposed a final dividend of RMB0.08 per ordinary share for the year ended
December 31, 2006, which was approved at our annual general meeting of
shareholders held on June 28, 2007. 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 27,
2007.

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


                                        5
<PAGE>

     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, Shenzhen and elsewhere in our
service region. We compete for passengers with bus and ferry services in terms
of price, 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 lifts its 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.


                                       6

<PAGE>

     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. 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.

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

     As a company located in the Shenzhen Special Economic Zone, we enjoy a
preferential income tax rate of 15%, rather than the 33% income tax rate
generally applicable to domestic companies in the PRC. Any material adverse
change to our preferential income tax status could have a material adverse
effect on our results of operations.

     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 will take 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 phased out in five years
beginning from January 1, 2008, and after such five-year period, 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 minor exceptions. To this
date, the relevant authorities have not yet issued any detailed rules
implementing the new EIT Law concerning the applicable income tax rates,
computation of taxable income, as well as any phase out of specific preferential
tax treatments, and the related measures for the transitional periods from 2008
and onwards have not been clarified. Consequently, we are not in a position to
reasonably assess the impact, if any, of the carrying values of deferred tax
assets and deferred tax


                                       7

<PAGE>

liabilities resulting from the implementation of the new EIT Law. Any 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.
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, 2006, we had not made any provision for such
liabilities.

     TECHNOLOGICAL PROBLEMS ATTRIBUTABLE TO ACCIDENTS, HUMAN ERROR 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 our 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. As of the date of this
report, we have not experienced any such events except some minor delays, but we
cannot assure you that such events will not happen in the future.


                                       9

<PAGE>

     WE MAY ENCOUNTER DIFFICULTIES IN THE CONSTRUCTION OF THE FOURTH RAIL LINE
OF THE GUANGZHOU-SHENZHEN RAILWAY.

     The construction of large infrastructure projects such as the Fourth Rail
Line involves many potential risks and uncertainties, including land acquisition
problems, work stoppages, interruptions resulting from inclement weather,
unforeseen engineering difficulties, environmental and geological problems and
unanticipated cost increases and claims, any of which could give rise to delays
or cost overruns. There can be no assurance that the construction of the Fourth
Rail Line will be completed within budget and according to the planned
completion schedule.

     In addition, railway projects are capital-intensive infrastructure
projects. In order to finance our construction of the Fourth Rail Line, we have
entered into several loan agreements with certain PRC domestic banks in the year
ended December 31, 2006, pursuant to which we obtained credit extensions in the
aggregate amount of RMB1.86 billion. We expect that we need to obtain additional
financial support for the construction of the Fourth Rail Line in the second
half of 2007. See "Item 5B. Liquidity and Capital Resources" for details.
However, these credit facilities may not be enough and we may still encounter
capital shortages in the construction of the Fourth Rail Line. In addition, we
cannot assure you that we will be able to pay off these loans out of the
revenues we generate from our operation after the completion of the construction
of the Fourth Rail Line.

     The economic viability of these capital-intensive transportation projects
will depend on the achievement of projections for ridership levels and fares,
which in turn may be affected by macro-economic factors such as population
growth and changes in demographic and economic conditions. Our actual passenger
demand may not ultimately meet our projected estimated passenger demand.

     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.

     WE CAN NOT INDEPENDENTLY VALIDATE THE REVENUE OR CHARGES ALLOCATED BY THE
MOR FOR CERTAIN LONG DISTANCE PASSENGER TRAIN AND FREIGHT TRANSPORTATION
BUSINESSES

     As described in "Item 7B Related Party Transactions" and Note 35 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, the Company works 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 businesses are collected by other railway
companies and centrally processed and allocated by the MOR. Certain portions of
the revenues collected are allocated to our Company for the use of our rail


                                       10

<PAGE>

lines or for services rendered by our Company in connection with the provision
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 allocations are determined by the MOR based on its
standard pricing policy applied on a nationwide basis. Our Company is unable to
independently validate these revenues or charges allocated by the MOR Based on
any self generated source data or information. In addition, there is no
established formal channel for us to lodge any query or objection to the amounts
allocated.

     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 attest to and report on management's assessment of the
effectiveness of the Company's internal control over financial reporting. These
requirements first apply 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 formulated plans for remedial
measures to make necessary improvements to address any deficiency found, we
cannot assure you that we will be able to successfully remedy all the identified
deficiencies in time. If we fail to maintain the adequacy of our internal
control over financial reporting and correct the material weaknesses identified
by our management's assessment as of December 31, 2006, we may not be able to
conclude in future years that we have effective internal control over financial
reporting, in accordance with the Sarbanes-Oxley Act of 2002.

     In addition, beginning with the year ended December 31, 2007, Section 404
of the Sarbanes-Oxley Act of 2002 will require our independent registered public
accounting firm to provide an attestation report regarding internal control over
financial reporting with our annual report on Form 20-F. As our independent
registered public accounting firm performs the audit in order to provide the
attestation report required by Section 404 of the Sarbanes-Oxley Act of 2002 for
the year ended December 31, 2007, additional deficiencies, including
deficiencies that may constitute significant deficiencies or material
weaknesses, may be detected in our internal control over financial reporting.
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 documented,
designed, operated or reviewed, or if the independent registered public
accounting firm interprets the requirements, rules or regulations differently
than we do, then they may decline to attest to our management's assessment or
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


                                       11

<PAGE>

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.

     THE PRC NATIONAL AUDIT OFFICE IS AUDITING OUR LARGEST SHAREHOLDER AND OUR
CONSTRUCTION OF THE FOURTH RAIL LINE, AND OTHER GOVERNMENTAL OR THIRD PARTIES
MAY INVESTIGATE US FROM TIME TO TIME. THE OUTCOME OF THESE AUDITS OR OTHER
GOVERNMENTAL OR THIRD PARTY INVESTIGATIONS MAY ADVERSELY AFFECT OUR CORPORATE
IMAGE AND REPUTATION, OUR BUSINESS AND FINANCIAL CONDITION AND THE PRICES OF OUR
H SHARES, A SHARES AND ADSS.

     The PRC National Audit Office, or the NAO, is auditing 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 is also conducting an audit of our Company, which mainly focuses on our
business transactions with GRGC. We cannot predict the timing of completion or
the outcome of these audits. If, as a result of these audits, material
irregularities are found within GRGC or our Company or in the construction of
the Fourth Rail Line or GRGC, or our Company becomes the target of any negative
publicity, there would be a material adverse effect on our corporate image and
reputation, our business and financial condition and the prices of our H Shares,
A Shares and ADSs. In addition, we or our directors and officers may be the
subject of other governmental or third party investigations or similar events
that, depending on their outcome, could have a material adverse effect on our
business and financial condition and the prices of our H Shares, A Shares and
ADSs.

     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, 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 passenger and
freight business of the Guangzhou-Pingshi Railway came under our control.
Accordingly, the Company considers January 1, 2007 as the effective date of
acquisition for accounting purposes.

     The amount of the offering represents approximately 63.38% of our existing
issued share capital and approximately 38.81% of our issued share capital as
enlarged by the issuance of A shares. Upon completion of the A Share Issue, 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--A Share Offering, Very Substantial Acquisition and
Continuing Related Party Transactions" for additional information.


                                       12

<PAGE>

     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 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 acquisition, we will
restructure and adapt our management (including the restructuring of both
management structure and managerial personnel) to reflect the expanded
operations. If we are unable to implement these restructuring and adaptation
efforts on an efficient basis within a short period of time, there may be a
discrepancy between the scope of our operations and our management resources.
These disruptions, difficulties and discrepancies between management and
operations, if they occur, may cause us to 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 an acquisition amounting to approximately RMB307.2 million upon the
acquisition date as at January 1, 2007. According to relevant accounting rules
under U.S. GAAP, 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.

     GRGC HAS LOST ITS CONTROLLING SHAREHOLDER STATUS, WHICH MAY HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS.

     Upon completion of the A Share Offering, GRGC's interests in our issued and
outstanding common shares decreased from approximately 67% to approximately 41%.
As a


                                       13

<PAGE>

result, although GRGC is still the largest shareholder of our Company, GRGC has
lost its controlling shareholder status and may not be able to control our board
of directors. Before the A Share Offering, our executive directors were all
nominated by GRGC and appointed by our shareholders' meetings. Following the A
Share Offering, GRGC may not be able to exercise control over our board of
directors and changes in our board of directors and related changes in our
management which may have a material adverse effect on our business and results
of operations. In addition, as a result of GRGC's lost of its controlling
shareholder status, we may not be able to benefit from our relationship with
GRGC at the same level as we did before.

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 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.


                                       14

<PAGE>

     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. This
change in policy has resulted in an approximately 7.4% appreciation of the
Renminbi against the U.S. dollar. 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 US
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 Sates dollar or
other foreign currencies will not adversely affect our results of operations and
financial condition.

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

     As PRC laws and regulations dealing with business and economic matters are
relatively new and still evolving, and because of the limited volume of
published judicial interpretations and the non-binding nature of prior court
decisions, the interpretation and enforcement of these laws and regulations
involve some uncertainty. 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 an early state of development, 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.


                                       15

<PAGE>

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.

     We are mainly engaged in the railway passenger and freight transportation
business between Guangzhou and Shenzhen and certain long-distance passenger
transportation services. We also cooperate with Kowloon-Canton Railway
Corporation, or the KCR, in Hong Kong in operating the Hong Kong Through Train
passenger service. We provide consolidated services relating to railway
facilities and technology. We also engage in commercial trading and other
businesses that are consistent with the overall business strategy.

     We are a leading provider of passenger and freight transportation services
on the Guangzhou-Shenzhen route. We operate the sole railroad, which is 152
kilometers long, between Guangzhou, the capital city of Guangdong Province, and
Shenzhen, one of the original special economic zones of the PRC. The Guangzhou
to Shenzhen railroad, which includes two high speed rail lines and one regular
speed rail line, is an important component of the transportation infrastructure
of southern China.

     Our railroad is an integral part of the PRC national railroad system, with
links to the other parts of the national railroad system as well as local
railroad systems in southern China, including the Beijing-Guangzhou,
Beijing-Kowloon, Sanshui-Maoming, Pinghu-Nantou, Pinghu-Yantian, and
Kowloon-Canton lines. Moreover, our railroad connects with the Huangpu and
Xinsha ports in Guangzhou, and with the Yantian, Shekou, Chiwan and Mawan ports
in Shenzhen. We are well equipped with various freight facilities and can
effectively satisfy a wide range of different customer needs, including the
transportation of whole and partial carload cargo, containers, and special and
regular cargo.

     On January 1, 2007, the passenger and freight business of the
Guangzhou-Pingshi Railway came under our control. Following this acquisition,
the operating railway distance of our Company expanded to 481.2 kilometers,
running vertically through the whole Guangdong Province. In addition, by April
2007 we had substantially completed the construction of the fourth
Guangzhou-Shenzhen Rail Line, or the Fourth Rail Line. The completion of the
construction of the Fourth Rail Line will make Guangzhou-Shenzhen Railway the
first wholly fenced high-speed railway with four parallel lines in the PRC that
allows the high-speed passenger trains and regular speed passenger and freight
trains to run on separate lines.

     Our railroad system is currently one of the most modern railroads in the
PRC. It is equipped with state-of-the-art equipment and facilities, including
high-speed electric trains.


                                       16

<PAGE>

Several aspects of our technical performance have reached or are approaching
international standards. Ours is one of the few rail lines in the PRC that
operates high-speed passenger trains with speeds up to 200 kilometers per hour.

BACKGROUND AND RESTRUCTURING

     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 the KCR, 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 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 that 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 under 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 Stock Exchange of Hong Kong
Limited and our American depositary shares, or ADSs, each representing 50 H
shares, are listed for trading on the New York Stock Exchange. 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


                                       17

<PAGE>

41% of our issued and outstanding shares are 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 our initial public offering, assumed the operations and assets
of the 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
1996 Restructuring.

     In March 2006, we conducted an organizational reform to streamline our
organization and improve efficiency. Through this reform, 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,
Business Management Center, Finance Department, Security Supervisory Department,
General Service Center and Diversified Business Management Center. Our frontline
production and operational departments were generally not affected by this
Restructuring.

     On January 1, 2007, the passenger and freight business of the
Guangzhou-Pingshi Railway came under our control. 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 whole Guangdong Province. 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.

SERVICE TERRITORY

     Our rail line traverses the Pearl River Delta, 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. It is currently one of the most
affluent and fastest growing areas in China.

     As of December 31, 2006, we had 18 stations situated on our rail line,
providing passenger and freight transportation services for cities, towns and
ports situated between Guangzhou and Shenzhen in the Guangzhou-Shenzhen corridor
and Hong Kong (which we serve in conjunction with the KCR). In addition to our
Hong Kong passenger through train services in conjunction with the KCR, we also
allow Hong Kong-bound freight trains of KCR to use our Guangzhou-Shenzhen
railroad.

     The Guangzhou-Shenzhen 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. In Guangzhou, 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,


                                       18

<PAGE>

includes the section of our line from Dongguan to Shenzhen.

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

     Westbound. Our line connects with the Guangzhou-Maoming rail line operated
by Sanmao Railway Company, a joint venture railroad company of GRGC, the MOR and
the Guangdong Provincial Railway Company 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 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,
which generated 96.4% of our total revenues and 103.6% of our total operating
income in 2006.

     In 2006, due to continuous and rapid growth in the PRC economy, the
expansion of regional economic cooperation in the Pearl River Delta and its
adjacent areas, the implementation of CEPA and the implementation of the
"Relaxed Individual Travel" program for PRC tourists from the mainland to Hong
Kong and Macau as well as the increasing integration along the
Guangzhou-Shenzhen corridor, demand for passenger and freight transportation
services in our service region continued to increase, which provided us with
excellent development opportunities.

     In 2006, we continued to optimize the operations of the Guangzhou-Shenzhen
High Speed Passenger Trains and the Canton-Kowloon Through Trains and carried
out a passenger flow connection scheme between long-distance trains in the
Guangzhou area and Guangzhou-Shenzhen trains. We succeeded in implementing the
IC Card Ticketing System and refurbished passenger stations for the convenience
of passengers, and enhanced service quality to attract


                                       19

<PAGE>

more passengers. In 2006, our total number of passengers was 51.9 million,
representing an increase of 5.8% from 49.1 million in 2005.

     In 2006, our total revenues were RMB3,594.5 million, representing an
increase of 9.7% from RMB3,276.9 million in 2005. Our revenues from railroad
passenger transportation service, freight transportation service and other
businesses were RMB2,841.0 million, RMB624.8 million and RMB128.6 million,
respectively, accounting for approximately 79.0%, 17.4% and 3.6%, respectively,
of our total revenues in 2006. In 2006, our profit attributable to shareholders
was RMB771.5 million, representing an increase of 19.2% from RMB647.0 million in
2005.

     The table below summarizes our railroad transportation revenues and traffic
volume in each of the five years ended December 31, 2002, 2003, 2004, 2005 and
2006:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                   ---------------------------------------------------
                                                     2002       2003       2004       2005       2006
                                                   --------   --------   --------   --------   -------
<S>                                                <C>        <C>        <C>        <C>        <C>
PASSENGER TRANSPORTATION
Total passenger revenues (RMB millions).........   1,903.78   1,790.20   2,259.67   2,511.16   2,841.0
Total passengers (millions).....................      39.78      37.86      46.01      49.06     51.92
Revenues per passenger (RMB)(1).................      47.86      47.28      49.11      51.19     54.72
Total passenger-kilometers (millions)...........   3,453.20   3,295.50   4,200.20   4,539.10   4,842.7
Revenues per passenger-kilometer (RMB)(2).......       0.55       0.54       0.54       0.55      0.59
FREIGHT TRANSPORTATION
Total freight revenues (RMB millions)...........     530.78     526.38     611.81     588.31    624.84
Total freight tonnes (millions).................      27.58      27.58      34.20      31.89     30.71
Revenues per tonne (RMB)(3).....................      19.25      19.08      17.89      18.45     20.35
Total tonne-kilometers (millions)...............   1,926.00   1,978.90   2,489.50   2,294.80   2,276.3
Revenues per tonne-kilometer (RMB)(4)...........       0.28       0.27       0.25       0.26      0.27
</TABLE>

----------
(1)  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.

(2)  Revenues per passenger-kilometer is calculated by dividing total passenger
     revenue by total passenger-kilometers. Management believes that revenues
     per passenger is a useful measure for assessing the revenue levels of our
     passenger transportation business.

(3)  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.

(4)  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.

     In 2006, we consolidated our businesses other than passenger and freight
transportation and disposed part of these businesses. Revenue from our other
businesses was RMB128.6 million in 2006, representing a decrease of 27.5% from
RMB177.5 million in 2005.

     In December 2006, we completed our initial public offering of A shares. The
proceeds raised from the A Share Offering are intended to be used for the
acquisition of the operating assets of Guangzhou-Pingshi railway from Yangcheng
Railway Company. See "ITEM 5. Operating and Financial Review and
Prospects--Overview--A Share Offering, Very Substantial Acquisition and
Continuing Related Party Transactions" for additional information. In addition,
we succeeded in introducing a new type of domestically manufactured electric
train


                                       20

<PAGE>

sets known as the "Concord". We expect to complete the construction of the
Fourth Rail Line by the end of 2007.

PASSENGER TRANSPORTATION

     Passenger transportation is our largest business segment, and accounted for
79.0% of our total revenues, and 82.0% of our railroad transportation revenues,
in 2006. Our passenger train services can be categorized as follows:

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

     -    through trains between Hong Kong and Guangzhou; and

     -    domestic long-distance trains.

     As of December 31, 2006, we operated 123 pairs of passenger trains per day
(each pair of trains meaning trains making one round-trip between two points) of
which:

     -    67 pairs were high-speed express passenger trains operating between
          Guangzhou and Shenzhen (ten of which are standby, which means that
          such trains will only operate during public holidays and peak
          periods);

     -    two pairs were regular-speed passenger trains operating between
          Guangzhou and Shenzhen;

     -    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

     -    41 pairs were domestic long-distance passenger trains (including four
          pairs of long-distance passenger trains operated by us between
          Shenzhen and Yueyang, between Shenzhen and Beijing, between Shenzhen
          and Shanghai and between Shenzhen and Shaoguan, respectively, and 37
          pairs of domestic long-distance trains, operated by other operators
          but originating or terminating on, or passing through, our
          Guangzhou-Shenzhen railroad).

     The table below sets out passenger revenues and volumes for our Hong Kong
Through Trains and domestic trains in each of 2004, 2005 and 2006:

<TABLE>
<CAPTION>
                                        PASSENGER REVENUES        PASSENGER VOLUME    REVENUE PER PASSENGER
                                   ---------------------------   ------------------   ---------------------
                                     2004      2005      2006    2004   2005   2006    2004    2005    2006
                                   -------   -------   -------   ----   ----   ----   -----   -----   -----
                                          (RMB MILLIONS)             (MILLIONS)           (RMB MILLIONS)
<S>                                <C>       <C>       <C>       <C>    <C>    <C>    <C>     <C>     <C>
Guangzhou-Shenzhen Trains.......   1,152.5   1,219.8   1,341.7   20.3   21.5   22.2    56.9    56.7    60.3
Hong Kong Through Trains........     436.9     457.7     454.2    2.9    3.1    3.2   151.2   149.3   141.6
Long-distance Trains............     670.3     833.7   1,045.2   22.9   24.5   26.5    29.3    34.1    39.5
Combined passenger operations...   2,259.7   2,511.2   2,841.0   46.1   49.1   51.9    49.1    51.2    54.7
</TABLE>


                                       21

<PAGE>

     Guangzhou-Shenzhen Trains. In 2006, our passenger transportation services
on the trains between Guangzhou and Shenzhen contributed most to our railroad
passenger transportation revenues.

     We classify our services on Guangzhou-Shenzhen Trains into high-speed train
services and regular-speed train services based on the speed of the train. Our
train fares are determined on the basis of the types of services and the
transportation distance. As of December 31, 2006, we operated, on average, a
total of 67 pairs of inter-city high-speed passenger trains between Guangzhou
and Shenzhen daily (including 10 standby trains). Our high-speed trains are
capable of running at 160 to 200 kilometers per hour.

     The number of passengers traveling on our Guangzhou-Shenzhen trains
increased by 3.3% from 21.5 million in 2005 to 22.2 million in 2006. The number
of passengers traveling on our high-speed passenger trains between Guangzhou and
Shenzhen increased by 5.4% from 21.1 million in 2005 to 22.2 million in 2006,
while the number of passengers traveling on our regular-speed passenger trains
between Guangzhou and Shenzhen decreased by 96.2% from 0.445 million in 2005 to
0.017 million in 2006. The decrease of the passengers for the regular-speed
passenger trains was primarily due to our strategic shift to more high-speed
passenger trains between Guangzhou and Shenzhen. The revenues from our
Guangzhou-Shenzhen trains increased by 10.0% from RMB1,219.8 million in 2005 to
RMB1,341.7 million in 2006. The increase in business volume of
Guangzhou-Shenzhen trains was mainly due to: (1) the strong economic growth in
the Pearl River Delta, which resulted in the upward flows of business persons,
tourists and workers; (2) the vigorous optimization of transportation
organization, the increase in the frequency of trains and the introduction of IC
Card Ticketing System for the convenience of passengers; (3) the gradual
improvement of the metro systems in Guangzhou and Shenzhen, which boosted the
railway passenger volume and (4) the promotion of our passenger transportation
service, enhancement in service quality and the improvement of boarding
environment for passengers.

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

     In 2006, approximately 3.2 million passengers traveled on the Hong Kong
Through Trains, representing an increase of 4.6% from approximately 3.1 million
in 2005. Despite the increase of passengers, our revenue from the operation of
the Hong Kong Through Trains for


                                       22

<PAGE>

2006 was RMB454.2 million, representing a 0.8% decrease from RMB457.7 million
for 2005. The decrease in revenue of Hong Kong Through Trains was mainly due to
the fact that the ticket price of Hong Kong Through Trains is denominated in HK
dollars and the exchange rate of HK dollars to RMB decreased by 3.6% in 2006.

     Domestic Long-distance Trains. As of December 31, 2006, we operated on a
daily basis 41 pairs of domestic long-distance passenger trains on our rail line
to cities in Guangdong, Hunan, Hubei, Jiangxi, Anhui, Jiangsu, Liaoning, Shanxi,
Fujian, Heilongjiang, Jilin, Zhejiang, Hebei, Henan, Shandong Provinces and
Guangxi Autonomous Region as well as cities to the North, such as Shanghai,
Beijing and Tianjin. In 2006, the number of passengers traveling on our
long-distance trains were 26.5 million, representing an increase of 8.2% from
24.5 million in 2005. Revenues from our long-distance trains increased by 25.4%
from RMB833.7 million in 2005 to RMB1,045.2 million in 2006. The increase in
business volume of the long-distance trains was mainly due to: (1) 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; (2) in addition to the large-scale operation of temporary passenger
trains during the Spring Festival holiday, long-distance trains from Shenzhen to
Shanghai started operations in January 2006 and the operation of
Shenzhen-Shaoguan trains was handed over to us in May 2006 and (3) the
Shenzhen-Ji'an trains and Shenzhen-Taizhou trains that commenced operation in
July 2005 were in full operation throughout 2006.

     MAJOR STATIONS. The following are the major train stations owned and
operated by us as of December 31, 2006:

     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 connected to Lines 1 and 3 of the Guangzhou municipal
subway. As of December 31, 2006, the Guangzhou East Station handled on a daily
basis 12 pairs of Hong Kong Through Trains, 67 pairs of Guangzhou-Shenzhen
trains, 14 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,
Xiamen, Shenyang and Xiamen, and 5 pairs of passenger trains passing through the
Guangzhou East Station. In 2006, the number of passengers traveling from
Guangdong East Station was 13.2 million, while the number of passengers arriving
at Guangdong East Station was 11.5 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, 2006, this station handled on a daily basis the transfer service
for seven pairs of domestic long-distance passenger trains, 30 pairs of
Guangzhou-Shenzhen high-speed passenger trains and 8.5 pairs of through trains.
In 2006, the number of passengers traveling from Dongguan Station was 3.062
million, while the number of passengers arriving at Dongguan Station was 3.426
million.

     Shenzhen Station. Our Shenzhen Station is located in the Shenzhen Special
Economic


                                       23

<PAGE>

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, 2006,
our Shenzhen Station handled on a daily basis 66 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 2006, the number of passengers traveling from Shenzhen
Station was 14.8 million, while the number of passengers arriving at Shenzhen
Station was 15.0 million.

FREIGHT TRANSPORTATION

     Revenue from our freight transportation accounted for 17.4% of our total
revenues and 18.0% of our railroad transportation revenues in 2006. Our
principal market for freight is domestic long-haul freight, originating and/or
terminating outside the Guangzhou-Shenzhen corridor.

     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-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 do not originate from or terminate at our rail line.

     The total tonnage of freight we transported in 2006 was 30.7 million
tonnes, representing a decrease of 3.7% from 31.9 million tonnes in 2005.
Revenues from freight transportation business in 2006 were RMB624.8 million,
representing an increase of 6.2% from RMB588.3 million in 2005. This increase,
despite the decrease of total tonnage transported, is primarily due to the
increase of the tariff for freight transportation initiated by the MOR in 2006
and the subsequent increase of our freight tariff. Our outbound freight revenues
increased by 3.9% in 2006 and our inbound freight revenues increased by 7.6% in
2006.

     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


                                       24

<PAGE>

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, 2004, 2005 and 2006 (based on
tonnes transported):

<TABLE>
<CAPTION>
                                                      INBOUND (AND PASS-
                                 OUTBOUND FREIGHT      THROUGH) FREIGHT
                                ------------------   ---------------------
                                2004   2005   2006    2004   2005   2006
                                ----   ----   ----    ----   ----   ----
                                  AS A PERCENTAGE      AS A PERCENTAGE OF
                                 OF TOTAL OUTBOUND     TOTAL INBOUND (AND
                                      FREIGHT        PASS-THROUGH) FREIGHT
<S>                             <C>    <C>    <C>    <C>     <C>    <C>
Construction materials.......    23%   24.4%  21.8%    44%   37.8%  42.8%
Energy products..............    50%   50.6%  53.2%    12%   10.9%   8.4%
Food products................     5%    3.0%   2.8%    20%   19.9%  18.7%
Chemicals....................     4%    3.5%   4.2%    10%    9.9%  12.4%
Manufactured goods...........     2%    1.5%   1.2%     3%    3.1%   2.8%
Containers...................    12%   11.4%  11.9%     8%   10.1%  11.1%
Other goods..................     4%    5.6%   4.9%     3%    8.3%   3.8%
                                ---    ----           ---    ----
Total........................   100%    100%   100%   100%    100%   100%
                                ===    ====   ====    ===    ====   ====
</TABLE>

     Freight Yards, Container Yards and Warehouses. We own freight yards,
container yards and warehouses, most of which are located at our Shenzhen North,
Xiayuan, Huangpu, Zhangmutou, Dongguan, Shipai, Jishan, Pinghu South and
Guangzhou East Stations. In 2006, of the freight yards that we own and operate,
Xiayuan Station handled freight amounting to approximately 5.5 million tonnes.
In 2006, revenues from the operation of our warehouses (including loading and
unloading charges) and miscellaneous items amounted to RMB148.5 million, which
accounted for 23.8% of our freight revenues in 2006.

OTHER BUSINESSES

     We engage in other businesses principally related to our railroad
transportation business. Revenue from our other businesses accounted for 3.6% of
our total revenues in 2006. Our other businesses include:

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

     -    services in our stations, including operating restaurants, operating a
          travel agency and a hotel in our Shenzhen Station, providing kiosks
          and advertising boards in our stations for commercial advertising and
          leasing space to independent retailers; and

     -    other businesses, principally railroad-related construction.

     Revenues from our 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.

     The table below sets out the revenues for our other businesses, by
categories of activity, in each of 2004, 2005 and 2006:


                                       25

<PAGE>

<TABLE>
<CAPTION>
                                                                AS A PERCENTAGE OF
                                                                  TOTAL REVENUES
                                             REVENUES         FROM OTHER BUSINESSES
                                      ---------------------   ---------------------
                                       2004    2005    2006    2004   2005   2006
                                      -----   -----   -----    ----   ----   ----
                                          (RMB MILLIONS)
<S>                                   <C>     <C>     <C>     <C>     <C>    <C>
On-board and station sales ........    48.5    29.2    33.8     29%   16.5%  26.3%
Station services ..................    45.2    39.4    29.8     27%   22.1%  23.2%
Tourism, advertising and others ...    73.0   108.9    64.9     44%   61.4%  50.5%
                                      -----   -----   -----    ---    ----   ----
    Total .........................   166.7   177.5   128.6    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
the 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 and increase the fares of our passenger
trains.

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 are sold exclusively by the KCR. As KCR's sales network for
these tickets is relatively limited, KCR 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 KCR 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


                                       26

<PAGE>

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 "-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 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 Guangzhou-Shenzhen
corridor; therefore,


                                       27

<PAGE>

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 consider that we do not 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, 2006, we owned 12 diesel high-speed locomotives, five
high-speed electric locomotives, 18 shunting locomotives, one high-speed
electric passenger train, 147 semi-high-speed passenger coaches, 41
regular-speed passenger coaches and 112 long-distance express passenger train
coaches. We also leased eight "Blue Arrow" high-speed electric train-sets from
Guangzhou Zhongche Railway Rolling Stock Sales and Services Company Limited, or
Guangzhou Zhongche.

     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 2004, 2005 and 2006 were approximately RMB65.5 million, RMB50.8 million
and RMB40.8 million, respectively.


                                       28

<PAGE>

     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 RMB103.2 million,
RMB99.6 million and RMB106.6 million in 2004, 2005 and 2006, respectively, under
the lease. We have various lease agreements for different train-sets expired
between June 2006 and December 2006. We entered into an agreement for the
purchase of twenty sets of Electric Multiple Units trains, or the EMUs, on
August 9, 2005 with Bombardier Sifang Power (Qingdao) Transportation Ltd and
Bombardier Sweden Transportation Ltd. These 20 sets of EMUs were originally
scheduled to be delivered to us in the second half of 2007 to be used in the
operation of the Guangzhou-Shenzhen high-speed passenger trains. Ten of them
were delivered to us earlier than expected, which permitted us to start
operations in April 2007, which are known as the "Concord". Each EMU has the
speed of 200 km/h and we believe that the introduction of EMUs will strengthen
our capability to deliver "safety, speed, comfort and quality" in transport
services and increase our efficiency and competitiveness. 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 total rent for the eight Blue Arrows is RMB8.99 million per month. The
term of renewal is 12 months and the rent is settled monthly.

     Our repair and maintenance facility, located near our Shipai passenger
vehicle maintenance facility near Guangzhou East Station, provides services for
the high-speed passenger coaches and locomotives we own or lease. This facility
currently performs general maintenance and routine repairs on our equipment.
Major repairs and overhauls are performed by manufacturers or qualified railway
administrations or plants.

     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 2003, we replaced a whole section of steel
rail amounting to 38 kilometers, 29 sets of wooden moveable center switches with
23 sets of cement moveable center switches, 1,042 meters of separate steel bars
and 1,926 pieces of separate wooden crossties to sustain safety and stability of
our railway. In 2004, we replaced 77 kilometers of worn-out tracks and upgraded
88 kilometers of electrified catenary network. In addition to that, we upgraded
some power projects in the Shenzhen North Station to accommodate changes to our
train routes and speed acceleration projects. 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 improvement to 24.6
kilometers of railroad.

     On January 1, 2007, the passenger and freight 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 whole 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.


                                       29

<PAGE>

     In 2007, we continued the construction of the Fourth Rail Line. By April
18, 2007, we had substantially completed the construction. The completion of the
construction will allow the high-speed passenger trains and regular speed
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, who 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 has been appointed as 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 Stock Exchange of Hong Kong. Under certain waivers
granted by the Stock Exchange of Hong Kong in connection with our original
listing of H shares in May 1996, 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
relation to connected transactions, subject to certain conditions set forth in
the waiver letter issued by the Stock Exchange of Hong Kong. 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 Service Agreements, both
of which became effective on March 3, 2006 after being approved by our
shareholders' general meeting.


                                       30

<PAGE>

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.

     In 2006, the total amount of the payments we made to GRGC and its
subsidiaries accounted for 15% 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 2005 and 2006, we paid
approximately RMB125.5 million and RMB130.7 million, respectively, in
electricity charges.

     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 2006.

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 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 under which all general companies were
dissolved and three new group companies were established.


                                       31

<PAGE>

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, 2006, the total number of intercity express trains
running daily between Guangzhou and Shenzhen was 67 pairs including ten standby
trains. We currently have 41 pairs of long-distance trains and 13 pairs of
through trains.

     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.


                                       32

<PAGE>

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 broad 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% to 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% to 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 KCR, 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 2006, our environmental
protection-related expenses were approximately RMB1.1 million as compared to
RMB1.7 million in 2005.

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
RMB60,000/person, including transportation business liability compensation
amounting to RMB40,000/person. 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 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 RMB2,000 for each tonne of damaged or lost freight if insured by
weight.

     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


                                       33

<PAGE>

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".

     We maintain retirement insurances and medical insurances for our employees
in accordance with applicable insurance laws and regulations in Guangzhou and
Shenzhen, as applicable. 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, 2006:

<TABLE>
<CAPTION>
                                                                COUNTRY OF    PERCENTAGE OF INTEREST HELD
                            NAME                              INCORPORATION       BY GUANGSHEN RAILWAY
                            ----                              -------------   ---------------------------
<S>                                                           <C>             <C>
DIRECTLY HELD BY THE COMPANY(1) (2)

Guangzhou East Station Dongqun Trade and Commerce Service
   Company                                                         PRC                     100%
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
   Unloading Company                                               PRC                      55%
Dongguan Changsheng Enterprise Company                             PRC                      51%
Shenzhen Railway Station Passenger Services Company Limited        PRC                     100%
Guangzhou Tielian Economy Development Company Limited (3)          PRC                   50.50%

INDIRECTLY HELD BY THE COMPANY

Shenzhen Nantie Construction Supervision Company                   PRC                     100%
Shenzhen Guangshen Railway Economic and Trade Enterprise
   Company                                                         PRC                     100%
Shenzhen Railway Property Management Company Limited               PRC                     100%
Shenzhen Yuezheng Enterprise Company Limited                       PRC                     100%
Shenzhen Road Multi-modal Transportation Company Limited           PRC                      60%
</TABLE>

----------
(1)  Before June 13, 2006, we held 100% equity interest in Shenzhen Guangshen
     Railway Civil Engineering Company, or Shenzhen Civil Engineering. On June
     13, 2006, we entered into a share transfer agreement with Guangzhou Railway
     Economic and Technological Development General Company, a related party
     pursuant to which, we transferred a portion of the equity interest in
     Shenzhen Civil Engineering to Guangzhou Railway Economic and Technological
     Development General Company. Following the completion of such share
     transfer, we hold 49% equity interest in Shenzhen Civil Engineering and
     Shenzhen Civil Engineering is no longer one of our consolidated
     subsidiaries.

(2)  Shenzhen Railway Station Travel Service Company, for which we held 75%
     equity interest, has ceased operations and plans to cancel its registration
     with relevant government authorities in the second half of 2007.

(3)  On January 17, 2006, we acquired an additional 16.5% equity interest in
     Guangzhou Tielian Economy Development Company Limited, or Tielian, from
     another shareholder of Tielian. As a result, the total equity interests
     held by us of Tielian increased from 34% to 50.5%, and Tielian became a
     consolidated subsidiary of us.

ITEM 4D. PROPERTY, PLANT AND EQUIPMENT

     We occupy a total area of approximately 11.81 million square meters.

     We own all of the buildings and facilities on our premises in Guangdong
Province. We


                                       34

<PAGE>

have freely transferable land use rights for terms ranging from 36.5 to 50
years, terminating between 2031 and 2045, in respect of the land upon which our
buildings, facilities and rail line are located. 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.

     As of December 31, 2006, land use right certificates, or Land Certificates,
of certain parcels of land of the Company with an aggregate area of
approximately 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 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, 2006, ownership certificates of certain
buildings, or Building Ownership Certificates, of the Company with an aggregate
area of approximately 252,247 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 restriction 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, 2006, we had 18 stations situated on our rail line, of
which the Guangzhou East Station is the largest, occupying an area of 402,400
square meters.

     For additional information regarding our property, plant and equipment, see
"Item 4B. Business Overview-Equipment and Track Maintenance" and Notes 7 and 9
to our audited consolidated financial statements included elsewhere in this
annual report.

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, which differ in certain material respects from
United States Generally Accepted Accounting Principles. For a discussion of the
differences that affect Guangshen Railway, see Note 38 to our audited
consolidated financial statements included elsewhere in this annual report.
During 2006, we changed the accounting policy relating to fixed assets from the
revaluation basis of accounting to cost basis. Accordingly, the relevant
financial information for the years ended December 31, 2004 and 2005 that is
affected by such a change had been restated.

OVERVIEW

     Our principal businesses are railroad passenger and freight transportation
between Guangzhou and Shenzhen and certain long-distance passenger
transportation services. We also operate the Hong Kong Through Trains under a
cooperative arrangement with the KCR in Hong Kong. Our key strategic focus in
recent years has been the provision of 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, 2006, our total revenues were RMB3,594.5
million, profit attributable to shareholders was RMB771.5 million, and earnings
per share were RMB0.17. Railroad business revenues accounted for 94.5%, 94.6%
and 96.4% of our total revenues in 2004, 2005 and 2006, respectively.

     Passenger transportation business is our most important business. In 2006,
we continued to enhance the operation of the Guangzhou-Shenzhen high speed
passenger trains and the Canton-Kowloon through trains, to improve our
transportation capacity, to increase the operation of standby trains during
holidays, to increase the frequency of stopping at intermediary stations, and to
initiate passenger flows connection between long-distance trains in the
Guangzhou area and Guangzhou-Shenzhen trains and to refurbish our passenger
stations for the convenience of passengers to attract more passengers. In 2006,
the total number of passengers was 51.9 million, representing an increase of
5.8% from 2005; passenger transportation revenues were RMB2,841.0 million,
representing an increase of 13.1% from 2005.

     We transported a total of 30.7 million tonnes of freight in 2006,
representing a decrease of 3.7% from 2005. Freight transportation revenues in
2006 were RMB624.8 million, representing an increase of 6.2% compared to 2005.

     Revenues from our other businesses were RMB128.6 million in 2006,
representing a decrease of 27.5% from 2005.

     In December 2006, we completed our initial public offering of 2.75 billion
shares of A shares, which are listed for trading on Shanghai Stock Exchange and
we raised approximately RMB10.0 billion from the A Share Offering. On January 1,
2007, the passenger


                                       36

<PAGE>

and freight business of the Guangzhou-Pingshi Railway came under our control.
Accordingly, we consider January 1, 2007 as the effective date of acquisition
for accounting purposes.

     In 2006, pursuant to the new PRC Company Law and in consideration of the A
Share offering, we amended certain articles of our Articles of Association. In
addition, we formulated our Rules Governing the Work of Secretary of the Board.
We continued the establishment of an internal control system in accordance with
the requirements of the Sarbanes-Oxley Act of 2002.

A SHARE OFFERING, VERY SUBSTANTIAL ACQUISITION AND CONTINUING RELATED PARTY
TRANSACTIONS

     On November 15, 2004, we entered into the Acquisition Agreement with
Yangcheng Railway Company for the acquisition of the railway transportation
business between Guangzhou and Pingshi, a city on the border between Guangdong
Province and Hunan Province, operated by Yangcheng Railway Company and the
assets and liabilities relating to such business. The consideration of the
Acquisition is approximately RMB10.0 billion. In order to finance the
Acquisition, we issued 2.75 billion A shares and used the proceeds from the A
Share Offering to pay the consideration of the Acquisition. On December 28,
2006, we paid approximately RMB5.27 billion from the proceeds raised from the A
Share Offering to Yangcheng Railway Company.

     On January 1, 2007, the passenger and freight 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.

     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 of
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
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
and 20 to our audited consolidated financial statements included elsewhere in
this annual report.


                                       37

<PAGE>

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.

     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 air transportation services.

     PRC Policies. We enjoy certain preferential policies granted by the PRC
government. For example, as a company located in the Shenzhen Special Economic
Zone, we currently enjoy a preferential income tax rate of 15%, rather than the
33% income tax rate generally applicable to domestic companies in the PRC. In
addition, we are allowed to be more flexible in making the price for both the
passenger transportation and the freight transportation 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.

     See "Item 3D. Risk Factors - Risks Relating to Our Business - Any material
adverse changes to our preferential income tax status could have a material
effect on our results of operations" for additional information, including the
unified enterprise income tax rate that will become effective in 2008.

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 and our other
businesses accounted for 79.0%, 17.4% and 3.6%, respectively, of our total
revenues in 2006. Revenues from our passenger transportation service and our
freight transportation service accounted for 82.0% and 18.0%, respectively, of
our


                                       38

<PAGE>

revenues from our railroad transportation businesses in 2006.

     Passenger transportation service. Passenger transportation remains our most
important business. As of December 31, 2006, we operated 123 pairs of passenger
trains daily, representing an increase of one pair from the number in operation
as of December 31, 2005. There were 67 pairs of high-speed passenger trains
between Guangzhou and Shenzhen; two pairs of regular-speed passenger trains
between Guangzhou and Shenzhen; 13 pairs of Hong Kong Through Trains and 41
pairs of long-distance passenger trains, an increase of one pair compared to
2005.

     In 2006, our total number of passengers was 51.9 million, representing an
increase of 5.8% from 49.1 million in 2005. Our revenue from passenger
transportation was RMB2,841.0 million, representing an increase of 13.1% from
RMB2,511.2 million in 2005.

     The following table sets forth our revenues from passenger transportation
and the number of our passengers for the three years ended December 31, 2006:

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,        CHANGE IN
                                             ---------------------------------   2006 FROM
                                                2004        2005        2006       2005
                                             ---------   ---------   ---------   ---------
<S>                                          <C>         <C>         <C>         <C>
Revenue from passenger
   transportation (RMB thousands) ........   2,259,671   2,511,156   2,841,045     13.1%
Total passengers (thousands) .............      46,012      49,058      51,923      5.8%
Revenue per passenger (RMB) ..............       49.11       51.19       54,72      6.9%
Total passenger-kilometers (millions) ....     4,200.2    4,539.10     4,842.7      6.7%
Revenue per passenger-kilometer (RMB) ....        0.54        0.55        0.59      7.3%
</TABLE>

     In 2006, we made the following adjustments to the prices of our passenger
transportation services: (1) during the Spring Festival, we adjusted the
passenger fares of different classes of our long-distance domestic train
services; and (2) during the New Year holidays, the Spring Festival holidays,
the Labor Day holidays and the National Day holidays, we increased the fares of
our high-speed passenger trains and regular-speed passenger trains between
Guangzhou and Shenzhen by RMB5 per trip journey.

     Freight transportation. Freight transportation is another important
business for us. In 2006, due to the increase of the tariffs for freight
transportation initiated by the MOR, our revenues from freight transportation
business grew despite the decrease in total freight tonnage we shipped. 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, in
order to attract more freight business, we continued to offer price discounts
for freight transportation of steel, coal, corn, beverages, containers, rice and
plastics as in 2005. In 2006, our revenues from freight transportation business
were RMB624.8 million, representing an increase of 6.2% from RMB588.3 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


                                       39

<PAGE>


          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 RMB148.5 million, representing an increase of
          5.3% from RMB141.0 million in 2005.

     The following table sets forth our revenues from freight transportation and
the volumes of commodities we shipped for the three years ended December 31,
2006:

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,     CHANGE IN
                                                     ---------------------------   2006 FROM
                                                       2004      2005      2006      2005
                                                     -------   -------   -------   ---------
<S>                                                  <C>       <C>       <C>       <C>
Revenue from freight transportation
   (RMB thousands) ...............................   611,807   588,310   624,839      6.2%
Total freight tonnes (thousands of tonnes) .......    34,199    31,893    30,708     (3.7%)
--Revenues from outbound freight transportation ..   113,421   139,340   144,848      3.9%
--Revenues from inbound and pass-through
    transportation ...............................   323,108   307,962   331,477      7.6%
--Revenues from storage, loading and unloading
   and other miscellaneous items .................   175,278   141,008   148,514      5.3%
Revenue per tonne (RMB) ..........................     17.89     18.45     20.35     10.3%
--Outbound freight tonnage .......................     8,241     8,460     7,582    (10.4%)
--Inbound and pass-through freight tonnage .......    25,958    23,433    23,125     (1.3%)
Total tonne-kilometers (millions) ................   2,489.5   2,294.8    2,2763     (0.8%)
Revenue per tonne-kilometer (RMB) ................      0.25      0.26      0.27      3.8%
</TABLE>

     In 2006, 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) we offered certain price discounts to some categories of freight to
maintain existing business and attract new freight business.

     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.

     The table below sets forth a breakdown of our revenues from the different
categories of other businesses for the three years ended December 31, 2006:


                                       40

<PAGE>

<TABLE>
<CAPTION>
                                        YEAR  ENDED DECEMBER 31,
                                      ---------------------------
                                        2004      2005      2006
                                      -------   -------   -------
                                            (RMB THOUSANDS)
<S>                                   <C>       <C>       <C>
On-board and station sales ........    48,496    29,172    33,846
Station services ..................    45,206    39,430    29,814
Tourism, advertising and others ...    72,969   108,860    64,930
                                      -------   -------   -------
   Total ..........................   166,671   177,462   128,590
                                      =======   =======   =======
</TABLE>

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. The following table sets
forth, as a percentage of our railroad revenues, the principal operating
expenses associated with our railroad businesses for 2004, 2005 and 2006:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                                 ----------------------------
                                                                   2004      2005       2006
                                                                 -------   -------    -------
<S>                                                              <C>       <C>        <C>
Railroad businesses revenues (RMB millions)...................   2,871.5   3,099.5    3,465.9
Labor and benefits ...........................................        21%       19%        21%
Equipment leases and services ................................        16%       16%        18%
Materials and supplies .......................................         9%        9%         8%
Repair costs, excluding materials and supplies ...............         8%        8%         6%
Depreciation (and amortization of leasehold land payments) ...        10%        9%         9%
Utility and office expenses ..................................         3%        4%         3%
Fee for social services ......................................         3%        3%         2%
Others .......................................................         4%        4%         2%
Operating expenses ratio(1) ..................................        77%       77%        73%
Railroad businesses operating margin .........................        23%       25%        27%
</TABLE>

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

     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; steady improvement of
          operating results in 2006 resulting in the 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 implemented by the Company in
          2006, certain employees who meet certain criteria were provided with
          an offer to early retire and enjoy certain early retirement benefits,
          such as payments of the basic salary and other


                                       41

<PAGE>

          fringe benefits, offered by the Company, until they reach the
          statutory retirement age. Under the terms of that 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. 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 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.


                                       42
<PAGE>

TAXATION

     As we are registered and established in the Shenzhen Special Economic Zone,
our railroad businesses are currently subject to income tax at a rate of 15%.
According to relevant tax regulations, our other businesses and our subsidiaries
are subject to income tax at the rate of either 15% or 33%, depending on the
location of incorporation. 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.

     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 will take 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 phased out in five years
beginning from January 1, 2008, and after such five-year period, 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 minor exceptions. To this
date, the relevant authorities have not yet issued any detailed rules
implementing the new EIT Law concerning the applicable income tax rates,
computation of taxable income, as well as any phase out of specific preferential
tax treatments, and the related measures for the transitional periods from 2008
and onwards have not been clarified. Consequently, we are not in a position to
reasonably assess the impact, if any, of the carrying values of deferred tax
assets and deferred tax liabilities resulting from the implementation of the new
EIT Law. The Company will further evaluate the impact to its operating results
and financial positions of future periods when more detailed measures and other
related regulations are announced.

PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY

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

YEAR ENDED DECEMBER 31, 2005 COMPARED WITH YEAR ENDED DECEMBER 31, 2004

REVENUES

     In 2005, our total revenues were RMB3,276.9 million, representing an
increase of 7.9% from RMB3,038.1 million in 2004. Revenues from our passenger
transportation service, our freight transportation service and our other
businesses accounted for 76.6%, 18.0% and 5.4%, respectively, of our total
revenues in 2005. Revenues from our passenger transportation service and our
freight transportation service accounted for 81.0% and 19.0%, respectively, of
our revenues from our railroad transportation businesses in 2005.

     Passenger transportation service. In 2005, the total number of passengers
was 49.1 million, representing an increase of 6.6% from 2004; passenger
transportation revenues were RMB2,511.2 million, representing an increase of
11.1% from 2004 due to the increase of the number of the passengers.

     Freight transportation. During 2005, we transported a total of 31.9 million
tonnes of freight, representing a decrease of 6.7% from 34.2 million tonnes in
2004. Our freight


                                       43

<PAGE>

transportation revenues in 2005 were RMB588.3 million, representing a decrease
of 3.8% from RMB611.8 million in 2004. The decrease was mainly due to the severe
competition from other means of transportation and the centralized upward
adjustments of railway freight tariffs.

     -    Our outbound freight tonnage in 2005 was 8.46 million tonnes,
          representing an increase of 2.7% from 8.24 million tonnes in 2004. Our
          outbound freight revenues were RMB139.3 million, representing an
          increase of 22.9% from RMB113.4 million in 2004. The increase in
          outbound freight tonnages in 2005 was mainly due to (i) the continuing
          increase in demand for imported raw materials such as coal and ore
          owing to the continuous and rapid economic growth in mainland
          China;(ii) the centralized upward adjustments of railway freight
          tariffs implemented since April 2005 had exerted positive influence on
          the increase in outbound freight revenue; and (iii) in order to
          enhance competitiveness, the Company endeavored to maintain the
          current sources of freight and explore for new freight through
          providing preferential tariffs, improving service quality and
          strengthening relations with consignors.

     -    Our inbound and pass-through freight tonnages in 2005 were 23.43
          million tonnes, representing a decrease of 9.7% from 25.96 million
          tonnes in 2004. Our inbound and pass-through freight revenues were
          RMB308.0 million in 2005, representing a decrease of 4.7% from
          RMB323.1 million in 2004. The decrease in inbound and pass-through
          freight tonnages was mainly due to (i) the progressive improvement of
          road, water and air transportation networks of mainland China,
          bringing fiercer competition to railway freight transportation market
          and (ii) the centralized upward adjustments of railway freight tariffs
          implemented nationwide since April 2005 had led to the transfer of
          part of the freight sources to other means of transport.

     -    Our revenues from storage, loading and unloading and other
          miscellaneous items in 2005 were RMB141.0 million, representing a
          decrease of 19.6% from RMB175.3 million in 2004. The decrease was
          mainly due to the decline in inbound and pass-through freight volume.

     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 2005 were RMB177.5 million, representing an increase of 6.5%
from RMB166.7 million in 2004.

OPERATING EXPENSES

     In 2005, our total operating expenses were RMB2,529.7 million, representing
an increase of 6.8% from RMB2,369.4 million in 2004.

     Railway Operating Expenses. Our total railway operating expenses increased
by 6.2% from RMB2,203.3 million in 2004 to RMB2,339.4 million in 2005. The
following sets forth a breakdown of major changes by line item:

     -    Business tax. Our business tax in 2005 was RMB86.6 million,
          representing an increase of 3.4% from RMB83.7 million in 2004. The
          increase was mainly due to the increase in revenues of the Company.


                                       44

<PAGE>

     -    Labor and benefits. In 2005, our labor and benefits expenses amounted
          to RMB597.3 million, which remained stable from RMB604.8 million in
          2004.

     -    Materials and supplies. Our materials and supplies expenses consist
          mainly of fuel, water and electricity expenses. In 2005, our materials
          and supplies expenses amounted to RMB283.9 million, representing an
          increase of 15.6% from RMB245.5 million in 2004. The increase was
          mainly due to: (i) the increased consumption of materials and supplies
          resulted from the increased number of trains in operation during the
          year; (ii) the increase in the consumption of materials arisen from
          the increased investment in flood-control and maintenance of railway
          line to ensure the safety thereof and (iii) the ongoing increase in
          the prices of oil and electricity because of short supply, which led
          to the increase of related costs of the Company.

     -    Depreciation. Our depreciation expenses of fixed assets decreased by
          2.3% from RMB296 million in 2004 to RMB289.2 million in 2005, mainly
          due to the disposal of some useless assets during the year, some of
          which had come to the end of their service life during the year.

     -    Repair. Our repair expenses increased by 21.6% from RMB216.3 million
          in 2004 to RMB263.0 million in 2005, primarily due to (i) the
          increased number of locomotives and vehicles that underwent overhaul,
          leading to the increase in repair expenses on related equipment; (ii)
          the refurbishment of structures and houses to provide better service
          to passenger and to improve the living and working environment of the
          employees, which caused an increase in the repair expenses and (iii)
          the increase in the expenses on the repair and maintenance of
          facilities such as rail lines and electrical equipment to satisfy the
          requirement for transportation safety as a result of increased
          transportation volume.

     -    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 2005,
          our expenses relating to equipment leases and services amounted to
          RMB507.6 million, representing an increase of 12.3% from RMB452.2
          million in 2004. This was mainly due to (i) the operation of
          Shenzhen-Shaoguan long-distance trains since May 2005, which led to
          the increase in the corresponding railway usage fees; and (ii) the
          relatively large increase in the number of temporary passenger trains
          in operation during the Spring Festival holidays and the Golden Week
          holidays in 2005, which led to the increase of related equipment
          leases and services fees.

     -    Social services. Our social services fees in 2005 were RMB78.2
          million, representing a decrease of 7.6% from RMB84.6 million in 2004.
          The reason for the decrease was mainly due to the segmentation reform
          of principal and subordinate businesses of the railway industry
          implemented in 2004, as a result of which, the hospitals and schools
          that used to provide medical and education services to the Company
          were transferred to local authorities, thus the Company had to pay a


                                       45

<PAGE>

          certain amount of subsidies in accordance with the government
          policies, while in 2005, the Company was not required to pay such
          fees.

     -    Utility and office expense. Our utility and office expense increased
          by 40% from RMB78.1 million in 2004 to RMB109.7 million in 2005. This
          was mainly due to the increase in our revenues and the disappearance
          of SARS epidemic, which has resulted in an increase in our utility and
          office expense.

PROFIT FROM OPERATIONS

     Our profit from operations increased by 11.4% from RMB716.9 million in 2004
to RMB798.8 million in 2005 due to the increase in our total revenues.

TAXATION

     Our income tax expense was RMB110.2 million in 2005, representing an
effective tax rate of 14.6% and an increase of RMB6 million compared to RMB104.2
million in 2004.

PROFIT ATTRIBUTABLE TO SHAREHOLDERS

     Our consolidated net profit increased by 7.8% from RMB600.3 million in 2004
to RMB647 million in 2005.

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.

     Under IFRS, the Company is allowed to use the revaluation model or
historical cost model to account for its fixed assets. In 2006, the Company
changed its accounting policy in respect of fixed assets from the revaluation
model to the historical cost model. The change was made after taking into
consideration of the following factors:

-    the railway industry is a special industry in the PRC, controlled by the
     PRC government. There is no ready and reliable open market environment. As
     a result, the financial statements prepared under the revaluation basis
     will not provide meaningful and useful


                                       46

<PAGE>

     information to the investors;

-    research conducted by our management reveals that historical cost model is
     more consistent with the local industry practice; and

-    historical cost model would improve comparability of financial condition
     and results of operations of the Company with other operators.

     This change in accounting policy has been accounted for retrospectively,
and the comparative financial statements have also been restated. The effect of
the change is set forth below:

<TABLE>
<CAPTION>
                                               2004         2005         2006
                                              RMB'000      RMB'000      RMB'000
                                            ----------   ----------   ----------
<S>                                         <C>          <C>          <C>
Decrease in fixed assets                    (1,084,205)  (1,044,686)    (982,268)
Increase in deferred tax asset                 162,631      156,703      147,340
Increase in retained earnings, net of tax      346,783      380,374      433,429
Decrease in share premium                   (1,268,357)  (1,268,357)  (1,268,357)
                                            ----------   ----------   ----------
Decrease in depreciation expense                38,548       39,519       62,417
Increase in income tax expense                  (5,782)      (5,927)      (9,362)
                                            ----------   ----------   ----------
Earning per share for profit attributable
   to the equity holders of the Company
   during the year
- Basic (RMB)                                     0.01         0.01         0.01
                                            ----------   ----------   ----------
</TABLE>

     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 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       55 to 100 years (Note a)
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 on
     which these assets are located or the Lease Term. Pursuant to the relevant
     laws and regulations in


                                       47

<PAGE>

     the PRC governing the land use right lease grant, we have 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 the
     public interest. We consider the approval process to be perfunctory, and
     therefore have determined the estimated useful lives of these assets to
     extend beyond the initial 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 "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.

IMPAIRMENT OF NON-FINANCIAL ASSETS

     Non-financial assets that 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)

     The Company implemented a scheme, or the Scheme, for selling staff quarters
to its employees in 2000. Under the Scheme, the Company sells certain staff
quarters to their employees at preferential prices in the form of housing
benefits provided to these employees.


                                       48

<PAGE>

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 the Company 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, the Company assesses 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 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, 2006, unamortized deferred losses, which were recorded
as deferred staff costs on our balance sheet, were RMB120.7 million.

RECLASSIFICATION OF CERTAIN COMPARATIVE FIGURES

     Housing fund payable which was recorded within "Accruals and other
payables" in the prior year has been reclassified to "Housing fund payable" to
conform to the presentation of the balance sheet in the current year.

     Certain employee benefit expenses in the amount of RMB109.7 million, which
were recorded as "utility and office expenses" in the prior year have been
reclassified to be recorded as "labor and benefits" to conform with the
presentation of the income statement for the year ended December 31, 2006.

CHANGES IN ACCOUNTING POLICY

     In 2006, the Company changed its accounting policy in respect of fixed
assets from the revaluation model to the historical cost model. See "-Fixed
Assets".

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 RMB1,112.0 million of net cash flow from
operating activities in 2006. 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.

     In 2006, other than operating expenses, our cash outflow mainly related to
the following:


                                       49

<PAGE>

     -    capital expenditures of approximately RMB3,202.7 million as described
          below, representing an increase of 101.6% from RMB1,588.4 million in
          2005;

     -    purchasing the operating assets of the Guangzhou-Pingshi Railway in
          the amount of approximately RMB5.27 billion; and

     -    payment of dividends of approximately RMB520.7 million.

     Our capital expenditures for 2006 consisted primarily of the following
projects:

          -    construction of the Fourth Rail Line between Guangzhou and
               Shenzhen and the ancillary facilities;

          -    purchasing additional locomotives;

          -    upgrading and expanding Guangzhou East Station;

          -    building the computerized ticketing system for our
               "As-Frequent-As-Buses" Train Project between Guangzhou and
               Shenzhen;

          -    second phase comprehensive upgrading of Shenzhen Station; and

          -    upgrading station rooms at Shilong Station.

     Funds not required for immediate use are kept in short and medium-term
investments and bank deposits. We had short term deposits of approximately
RMB169.7 million and cash equivalents of RMB5,851.8 million as of December 31,
2006.

     As of December 31, 2006, 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 0.3% of the net assets and 1.27% 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 and the Railway Deposit-taking Centre.

     As of December 31, 2006, we did not have any trust deposits placed with any
financial institutions in the PRC and we did not engaged in any trust business.

     In September, 2006, we entered into a fixed assets loan Agreement with each
of the Industrial and Commercial Bank of China Co., Ltd Guangzhou Miaoqian
Zhijie Sub-branch and


                                       50

<PAGE>

Shenzhen Luohu Sub-branch with respect to the provision of a fixed assets loan
of RMB1.2 billion and RMB500 million, respectively, for the construction of the
Fourth Rail Line. The rate of interest is 5.832% for the first year and will be
10% lower than the official interest rate for loans of relevant grade in the
following years. In October, 2006, we entered into a loan agreement with China
Construction Bank Co., Ltd. Shenzhen Branch with respect to the provision of a
fixed assets loan of RMB500 million for the technical transformation and
capacity expansion project of the Guangzhou-Shenzhen line as a part of the
Fourth Rail Line construction project. The rate of interest is 10% lower than
the official rate for the relevant grade of the year. These loans are to be
drawn down from time to time according to the progress of the project. The term
of the borrowing under each of these loan agreements is five years.

     As of December 31, 2006, the details of our bank borrowing are set out in
Note 22 to our audited consolidated financial statements included elsewhere in
this annual report.

CASH FLOW

     Our cash and cash equivalents in 2006 increased by approximately RMB4,740.0
million over 2005. The table below sets forth certain items in our consolidated
cash flow statements for 2005 and 2006, and the percentage change in these items
from 2005 to 2006.

<TABLE>
<CAPTION>
                                                        YEAR ENDED
                                                       DECEMBER 31,
                                                  ----------------------     CHANGE
                                                     2005        2006      FROM 2005
                                                  ---------   ----------   ---------
                                                      (RMB THOUSANDS)
<S>                                               <C>         <C>          <C>
Net cash generated from operating activities...   1,380,147    1,112,004      (19.4%)
Net cash from/(used in) investing activities...    (820,915)  (7,833,331)     854.2%
Net cash from/(used in) financing activities...    (491,733)  11,461,030   (2,430.7%)
                                                  ---------   ----------   ---------
Net increase/(decrease) of cash and
   cash equivalents............................      67,499    4,739,703    6,921.9%
                                                  =========   ==========   =========
</TABLE>

     Our principal source of capital was revenues generated from operating
activities and cash flow from financing activities. In 2006, the net cash inflow
from our operations was RMB1,112.0 million, representing a decrease of RMB268.1
million from RMB1,380.1 million in 2005. The decrease in net cash inflow from
our operating activities was mainly due to the increase of our payment to
certain related parties as a result of our efforts to improve our settlement
process with our related parties.

     Our net cash used in investing activities increased by RMB7,012.4 million
in 2006 to RMB7.8 billion from RMB820.9 million in 2005. The increase was
primarily due to our payment of RMB5.27 billion to Yangcheng Railway Company for
the acquisition of the railway business between Guangzhou and Pingshi in
December 2006.

     Our net cash from financing activities in 2006 was RMB11.46 billion, while
our net cash used in financing activities in 2005 was RMB491.7 million. The
increase in net cash inflow from our financing activities was primarily due to
our A Share offering, which raised approximately RMB10.0 billion, and the cash
we borrowed from various PRC domestic banks under our credit facilities, which
was RMB1.86 billion.


                                       51

<PAGE>

     Our working capital was mainly used for capital expenditures, operating
expenses and payment of taxes and dividends and temporary cash investments. In
2006, our expenses for the purchase of fixed assets and payments for
construction-in-progress were RMB3,202.7 million. In addition, we paid RMB117.2
million for income taxes and approximately RMB520.7 million for dividends.

     We believe that we have sufficient working capital and available credit
facilities to meet our current operational and development REQUIREMENTS.

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 2007. 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 2007.

     We believe that while the PRC government is in the progress of lessening
restrictions on foreign investment following China's entry into the WTO, the
opening up of domestic railway transportation will be gradual and we expect
competition from foreign and domestic railway to


                                       52

<PAGE>

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

     In 2007, the economy of China is expected to experience continuous and
steady growth. With the deepening of railway reform and development, the
strengthening economic cooperation in the Pearl River Delta region, and the
progressive expansion of the implementation of "Relaxed Individual Travel"
program to Hong Kong and Macau, we expect that there will be a continuing
increase of demand in the passenger and freight transportation markets in the
Company's service regions.

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, 2006 for the
periods indicated.

                 CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD

<TABLE>
<CAPTION>
                                                             PAYMENT DUE BY PERIOD
                                                               (RMB IN THOUSANDS)
                                            ---------------------------------------------------------
                                                         LESS THAN                          MORE THAN
CONTRACTUAL OBLIGATIONS                       TOTAL       1 YEAR     1-3 YEAR   3-5 YEAR     5 YEARS
-----------------------                     ----------   ---------   --------   ---------   ---------
<S>                                         <C>          <C>         <C>        <C>         <C>
Long-Term Debt Obligations (1)                577,172     108,475     325,426     83,271        -
Capital Expenditure Obligation               8,167,000   8,028,600    138,400        -          -
Capital (Finance) Lease Obligations              -           -           -                      -
Operating Lease Obligations                    69,673      69,673        -                      -
Other Long-Term Liabilities Reflected
     on the Company's Balance Sheet
     under IFRS                              1,860,000       -           -      1,860,000       -
Total                                       10,613,845   8,206,748    463,826   1,943,271       -

</TABLE>

(1) The interest expenses for the bank borrowings of RMB1.86 billion reflected
on the Company's balance sheet under IFRS, the effective annual interest rate
was 5.832%.


     Based on the current progress of our new projects, we estimate that our
capital expenditures for 2007 will amount to approximately RMB5.4 billion, which
consists primarily of the following projects:


                                       53

<PAGE>

          -    completing the construction of the Fourth Rail Line between
               Guangzhou and Shenzhen and the ancillary facilities;

          -    purchasing additional locomotives;

          -    purchasing the EMUs; and

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

     In addition, as mentioned in "ITEM 5. Operating and Financial Review and
Prospects-- Overview-- A Share Offering, Very Substantial Acquisition
and Continuing Related Party Transactions", we entered into the Acquisition
Agreement with Yangcheng Railway Company for the acquisition of the railway
transportation business between Guangzhou and Pingshi. The consideration of the
Acquisition is approximately RMB10.3 billion, 51% of which was paid by us in
December 2006. We have engaged qualified accountants to conduct an audit of the
acquired assets to determine the final consideration for the purpose of
determining of the remaining amount to be paid to Yangcheng Railway Company.

ITEM 5G. ADDITIONAL INFORMATION

PRINCIPAL DIFFERENCES BETWEEN IFRS AND US GAAP

     Our audited consolidated financial statements conform to IFRS, which differ
in certain respects from those prepared under US GAAP. The differences between
IFRS and US GAAP as it related to the Company, which have a significant effect
on our consolidated net profit and consolidated net assets are set out below:

     The effects on our consolidated net profit resulting from the significant
differences between IFRS and US GAAP are summarized below:

<TABLE>
<CAPTION>
                                                      2004            2005
                                                    RMB'000         RMB'000        2006       2006
                                                 (Restated)(4)   (Restated)(4)   RMB'000   US$000(1)
                                                 -------------   -------------   -------   ---------
<S>                                              <C>             <C>             <C>       <C>
CONSOLIDATED NET PROFIT UNDER IFRS                  599,504         645,962      771,773     98,945
Minority interest                                       746             998         (260)       (33)
                                                    -------         -------      -------   --------
PROFIT FOR SHAREHOLDERS UNDER IFRS                  600,250         646,960      771,513     98,912
   Adjustment to share issuance cost(2)                  --          (9,300)      (3,000)      (385)
   Adjustment to deferred acquisition costs(3)           --          (6,301)          --         --
                                                    =======         =======      =======   ========
CONSOLIDATED NET PROFIT UNDER US GAAP               600,250         631,359      768,513     98,527
                                                    =======         =======      =======   ========
EARNINGS PER SHARE UNDER US GAAP                    RMB0.14         RMB0.15      RMB0.17   US$0.022
                                                    =======         =======      =======   ========
EARNINGS PER EQUIVALENT ADS UNDER US GAAP           RMB6.92         RMB7.28      RMB8.70   US$1.115
                                                    =======         =======      =======   ========
</TABLE>


                                       54

<PAGE>

     The effects on our consolidated net assets resulting from the significant
differences between IFRS and US GAAP are summarized below:

<TABLE>
<CAPTION>
                                                       2005
                                                     RMB'000         2006         2006
                                                  (Restated)(4)     RMB'000    US$000(1)
                                                  -------------   ----------   ---------
<S>                                               <C>             <C>          <C>
CONSOLIDATED SHAREHOLDERS' EQUITY                   9,796,076     20,169,008   2,585,770
   Adjustment to share issuance cost(2)                17,707             --          --
   Adjustment to deferred acquisition costs(3)         (6,301)        (6,301)       (808)
                                                    ---------     ----------   ---------
CONSOLIDATED SHAREHOLDERS' EQUITY UNDER US GAAP     9,807,482     20,162,707   2,584,962
                                                    =========     ==========   =========
</TABLE>

     In addition, reclassifications have been made for presentation of certain
selected financial data in conformity with US GAAP requirements for the
following items:

     PROFIT FROM OPERATIONS

<TABLE>
<CAPTION>
                                            2004            2005
                                          RMB'000         RMB'000        2006       2006
                                       (Restated)(4)   (Restated)(4)   RMB'000   US$000(1)
                                          and (5)         and (5)
                                       -------------   -------------   -------   ---------
<S>                                    <C>             <C>             <C>       <C>
PROFIT FROM OPERATIONS UNDER IFRS         716,914         798,825      965,204    123,744
Less: Other income, net                   (48,193)        (48,505)     (37,027)    (4,747)
      Including: Interest income (5)      (42,384)        (53,409)     (30,735)    (3,940)
      Others                               (5,809)          4,904       (6,292)      (807)
                                          -------         -------      -------    -------
PROFIT FROM OPERATIONS UNDER US GAAP      668,721         750,320      928,177    118,997
                                          =======         =======      =======    =======
</TABLE>

            FINANCE COSTS

<TABLE>
<CAPTION>
                                         2004      2005      2006       2006
                                       RMB'000   RMB'000   RMB'000   US$000(1)
                                       -------   -------   -------   ---------
<S>                                    <C>       <C>       <C>       <C>
FINANCE COSTS UNDER IFRS                 1,136    22,738    15,970     2,047
Less: interest income included in
   other income, net under IFRS(5)     (42,384)  (53,409)  (30,735)   (3,940)
                                       -------   -------   -------    ------
FINANCE INCOME, NET UNDER US GAAP      (41,248)  (30,671)  (14,765)   (1,893)
                                       =======   =======   =======    ======
</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 =
     RMB7.80, which is rounded from 7.8041, the noon buying rate in New York
     City on December 29, 2006. No representation is made that the RMB amounts
     could have been, or could be, converted into US dollars at that rate on
     December 29, 2006 or on any other date.

(2)  In 2005, the Company incurred certain share issuance costs of approximately
     RMB27.0 million which have been recorded as a deduction from reserve under
     IFRS. However, under U.S. GAAP, since the share issuance had not been
     completed by the end of 2005, costs incurred to date have been recorded as
     deferred costs until the transaction is completed, at which time the direct
     costs are charged against the gross proceeds of the offering. In addition,
     under U.S. GAAP, certain accounting and auditing services in the amount of
     RMB9.3 million indirectly associated with the share issuance did not
     qualify for deferral but rather were expensed as incurred in 2005. As a
     result, there was a reconciling item of RMB9.3 million for the net income;
     while there was another reconciling item of RMB17.7 million for the
     shareholders' equity between IFRS and U.S. GAAP for 2005.


                                       55

<PAGE>
     In 2006, additional accounting/auditing expenses of RMB3.0 million relating
     to the A share offering were expensed under U.S. GAAP but recorded as a
     reduction from reserve under IFRS. Due to the fact that the A share
     offering was completed in December 2006, the aggregate share issuance costs
     had been deducted from reserve by the end of year 2006 under both IFRS and
     U.S. GAAP. Accordingly, there is no GAAP difference for the shareholders'
     equity balance between IFRS and U.S. GAAP as at December 31, 2006.

(3)  In 2005, the Company incurred certain acquisition costs of approximately
     RMB6.3 million (accounting and auditing related) associated with the
     acquisition of railway business of Yangcheng Railway Company which had been
     recorded as deferred acquisition costs under IFRS. However, as such costs
     are considered to be indirectly attributable to the acquisition and recur
     periodically due to reporting obligations, these were recorded as expenses
     at the time of incurrence under U.S. GAAP. As at December 31, 2006, the
     acquisition had not yet been completed and therefore such costs continued
     to be deferred under IFRS and led to a GAAP difference in reconciling the
     net assets balance reported under IFRS and U.S. GAAP.

(4)  See "Item 5 - Critical Accounting Policies and Estimates" and Note 5 to our
     audited consolidated financial statements included elsewhere in this annual
     report.

(5)  Under IFRS, interest income is record as other income and included in
     profit from operation. While under US GAAP, this income is reclassified to
     finance cost.

Deferred tax assets and liabilities

     Under IFRS, deferred tax assets and liabilities are classified as
non-current on the balance sheet, whereas under U.S. GAAP, deferred tax assets
and liabilities are either classified based on the classification of the
underlying asset or liability for financial reporting, or if no related asset or
liability exists such deferred tax assets or liabilities are classified based on
when they are expected to be realized.

Due from/to related parties

     Subsequent to the A Share Offering on December 22, 2006, we are no longer
controlled by GRGC, which is a subsidiary of the MOR and ultimately controlled
by the PRC government.  Consequently, State-owned companies other than GRGC were
no longer considered as related parties of the Company as of December 31, 2006
under IFRS. However, under U.S. GAAP, the PRC government still meets the
definition of a principal owner and accordingly, all the State-owned companies
are still considered as our related parties. As of December 31, 2006, the major
balances that the Company had with such State-owned companies are set out as
follows:

<TABLE>
<CAPTION>

                                                                               2006
                                                                            (RMB'000)
                                                                            ---------
<S>                                                                        <C>
Due from State-owned companies                                                 35,223
   -Trade balance                                                              31,580
   -Non-trade balance                                                           3,643

Due to State-owned companies                                               (1,204,529)
   -Trade balance                                                            (138,305)
   -Non-trade balance                                                      (1,066,224)

</TABLE>

     There are no other significant differences between IFRS and U.S. GAAP that
would affect only our classification in the balance sheet and the income
statement but not our net income or shareholders' equity.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income
Taxes", an interpretation of FASB Statement No. 109. This Interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. This Interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective as of the beginning of
fiscal years beginning after December 15, 2006. The Company is in the process of
evaluating of the impact of FIN 48 on our consolidated financial statements.

     In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements", or FAS157, which defines fair
value, establishes guidelines for measuring fair value and expands disclosures
regarding fair value measurements. FAS 157 does not require any new fair value
measurements but rather eliminates inconsistencies in guidance found in various
prior accounting pronouncements. FAS 157 will be effective for fiscal years
beginning after November 15, 2007, and all interim periods within those fiscal
years. Earlier application is permitted if the entity has not issued interim or
annual financial statements for that fiscal year. The Company is in the process
of evaluating the impact of FAS 157 on our consolidated financial statements.


                                       56
<PAGE>

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

ITEM 6A. DIRECTORS AND SENIOR MANAGEMENT

DIRECTORS

     All of the current directors were elected at our shareholders' general
meeting held on May 12, 2005, except Mr. Yang Yiping and Mr. Cao Jianguo, who
were elected at our extraordinary general meeting held on June 27, 2006, and Mr.
He Yuhua, who was elected at our shareholders' general meeting held on June 28,
2007. 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 28, 2007:

<TABLE>
<CAPTION>
                                                                 DATE FIRST
                                                                 ELECTED OR
NAME                  AGE                POSITION                 APPOINTED
----                  ---   ----------------------------------   ----------
<S>                   <C>   <C>                                  <C>
He Yuhua               54   Chairman of the Board of Directors      2007
Yang Yiping            57   Director and General Manager            2006
Cao Jianguo            49   Director                                2006
Wu Houhui              58   Director                                1999
Wen Weiming            45   Director                                2003
Yang Jinzhong          55   Director                                2005
Chang Loong Cheong     61   Independent Director                    1996
Deborah Kong           47   Independent Director                    1996
Wilton Chau Chi Wai    45   Independent Director                    2004
</TABLE>

     He Yuhua, age 54, 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 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 57, joined the Company in April 2006. 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 49, 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.


                                       57

<PAGE>

     Wu Houhui, age 58, 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.

     Wen Weiming, age 45, joined the Company in June 2003 and is a Director of
the Company. Mr. Wen graduated from the Workers University of Guangzhou Railway
Bureau and the Party School of the Chinese Communist Party, or the CPC and is a
senior accountant. He has many years of experience in the financial field. He
had served as the director of the finance sub-section of Yangcheng Railway
Company and the director of the finance department of GRGC. Mr. Wen is currently
deputy chief accountant of GRGC.

     Yang Jinzhong, age 55, joined the Company in August 2000 and is a Director
and the Chairman of the Trade Union of the Company. Mr. Yang graduated from the
Harbin Institute of Electrical Technology and is an engineer. He has more than
30 years of experience in the railway industry. He had served in various
managerial positions in Wuhan Railway Sub-administration. From August 2000 to
April 2005, Mr. Yang served as the stationmaster of the Shenzhen North Railway
Station, the manager of the transportation department of the Company and the
stationmaster of the Shenzhen Railway Station.

     Chang Loong Cheong, age 61, joined the Company in March 1996 and is an
independent non-executive Director of the Company. Mr. Chang holds a management
certificate from the Hong Kong Management Association. He is also a director of
Shanghai Xinhua Iron & Steel Company Limited and Orient International (Shanghai)
Limited. Mr. Chang was a manager of Cathay Hotel in Lagos, Nigeria, a member of
the senior management of Island Navigation Corporation International Limited in
West Africa and Orient Overseas Container Line Limited, and was general manager
and a director of Noble Ascent Company Limited.

     Deborah Kong, age 47, joined the Company in March 1996 and is an
independent non-executive Director of the Company. Ms. Kong is currently an
executive director of Centennial Resources Company Limited. Ms. Kong obtained a
Bachelor of Arts degree from Sydney University and a Master Diploma in Finance
from Macquarie University in Australia. She is a member of the People's
Political Consultative Standing Committee of Shandong Province in the PRC.

     Wilton Chau Chi Wai, age 45, joined the Company in June 2004 and is an
independent non-executive Director of the Company. Mr. 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 and a Master of
Business Administration degree from the University of Wales. Mr. Chau is a
fellow member of the Association of Chartered Certified Accountants, a member of
Singapore Institute of Arbitrators and a council member of Hong Kong
Biotechnology Association. Since 1987, Mr. Chau has served in senior positions
in various financial institutes overseeing investment and development in
railway, road and airport infrastructure projects. Mr. Chau is currently
chairman of Qleap Venture Limited and managing partner of Qleap Asia Limited.
Mr. Chau is also the Board Advisor of China Resources & Investment Vehicle and a
director of Spring Leaf Company Limited and CL Shield Foundation Limited.


                                       58

<PAGE>

SUPERVISORS

     The table below sets forth the information relating to our supervisors as
of June 28, 2007:

<TABLE>
<CAPTION>
                                   DATE FIRST
                                   ELECTED OR
NAME            AGE    POSITION     APPOINTED
----            ---   ----------   ----------
<S>             <C>   <C>          <C>
Yao Muming       53   Supervisor      1999
Chen Ruixing     45   Supervisor      2006
Li Jin           49   Supervisor      2006
Li Zhiming       46   Supervisor      2005
Chen Yunzhong    54   Supervisor      2001
Wang Jianping    43   Supervisor      2005
</TABLE>

     Yao Muming, age 53, 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.

     Chen Ruixing, age 45, joined the Company in June 2006 and is a supervisor
of the Company. Mr. Chen is a college graduate. Mr. Chen has extensive
experience in the development and management of human resources for railway
transportation. He once served as the vice section chief of Guangzhou passenger
transportation section, and the chief of the cadre management department, the
chief of the employment and salary branch department, the chief of the cadre
management branch department of Yangcheng Railway Company. Mr. Chen is currently
the head of the human resources department of GRGC.

     Li Jin, age 49, joined the Company in June 2006 and is a Supervisor of the
Company. Ms. Li is an accountant. Ms. Li started her career in the railway
business in September 1975 and has extensive experience in the financial
accounting management and planning and investment management of railway
transportation enterprises. She once held various managerial positions such as
the general economist of Guangzhou passenger transportation section, and the
head of the financial branch department and the head of the planning and
statistics branch department of Yangcheng Railway Company. Ms. Li was appointed
as the head of the planning department of GRGC in January 2005.

     Li Zhiming, age 46, 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 2005, Mr. Li has been the chief of the audit department
of GRGC.

     Chen Yunzhong, age 54, joined the Company in May 2000 and is a Supervisor
of the Company. Mr. Chen graduated from Guangzhou Railway Driver's School,
Guangdong Jinan University and the Party School of the CPC. He was a member of
the senior management of Hainan Railway Company. Mr. Chen is currently an
employee of the Company.


                                       59

<PAGE>

     Wang Jianping, age 43, joined the Company in July 2003 and is a Supervisor
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 of Guangzhou Railway Foreign Trade and Economic Development Company.
Currently Mr. Wang is an employee of the Company.

SENIOR MANAGEMENT

     The table below sets forth information relating to our senior management as
of June 28, 2007:

<TABLE>
<CAPTION>
                                                  DATE FIRST
                                                  ELECTED OR
NAME            AGE            POSITION            APPOINTED
----            ---   -------------------------   ----------
<S>             <C>   <C>                         <C>
Yang Yiping      57   General Manager                2006
Wu Weimin        49   Deputy General Manager         2004
Han Dong         45   Deputy General Manager         2004
Yao Xiaocong     53   Chief Accountant               1997
Guo Xiangdong    41   Company Secretary              2004
Luo Jiancheng    34   General Manager Assistant      2006
</TABLE>

     Yang Yiping is our Director and General Manager.

     Wu Weimin, age 49, 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.

     Han Dong, age 45, joined the Company in May 2000 and is a Deputy General
Manager of the Company. Mr. Han graduated from the Party School of the CPC,
majoring in Economics and Management and is an engineer. Since 1985, Mr. Han had
served in various managerial positions in the material and equipment department
and the planning and statistic department, passenger and freight transportation
marketing department of the railway department. Mr. Han was also a director of
the passenger and freight management department and the equipment and property
department of the Company.

     Yao Xiaocong, age 53, 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.


                                       60

<PAGE>

     Guo Xiangdong, age 41, is Company Secretary and the Director of Secretariat
of the Board. Mr. Guo graduated from Central China Normal University with a
Bachelor of Laws degree and 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 34, 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

     Mr. Wu Houhui is the chairman of the board of directors of Sanmao Railway
Enterprise Development Company and a director of Guangmeishan Railway Company,
Sanmao Railway Company, and Shichang Railway Company. Mr. Wen Weiming is a
director of Guangmeishan Railway Company and chairman of the supervisory
committee of Guangdong Railway Youth Travel Service Co., Ltd., Yuehai Railway
Company and Guangzhou Tie Cheng Industrial Company. Mr. Yao Muming is the
chairman of the supervisory board of Guangmeishan Railway Company, Sanmao
Railway Company and Shichang Railway Company. Mr. Li Zhiming is a supervisor of
Yuehai Railway Company. 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 is a subsidiary 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.

ITEM 6B. BOARD COMPENSATION

DIRECTORS AND SENIOR MANAGEMENT

     Total remuneration of our directors, supervisors and senior officers during
2006 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 2006
to all individuals who are our directors, supervisors and senior officers was
approximately RMB4.04 million, of which approximately RMB2.41 million was paid
to directors and supervisors and approximately HK$0.43 million was paid to the
three independent non-executive directors.

     The aggregate amount of cash remuneration we paid during the year ended
December 31, 2006 for pension and retirement benefits to all individuals who are
currently our directors,


                                       61

<PAGE>

supervisors and senior officers was approximately RMB5.19 million.

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

     As of December 31, 2006, 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, 2006 or at December 31, 2006 to which we or any of our subsidiaries
was a party.

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


                                       62

<PAGE>

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.
Except for Mr. Chen Ruixing and Ms. Li Jin, who were elected at the
extraordinary general meeting of shareholders on June 27, 2006, all of the other
members of our supervisory committee were appointed at the shareholders' general
meeting held on May 12, 2005 and consists of five representatives of the
shareholders who may be elected or removed by our shareholders' general meeting,
and one representative 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, Chen Ruixing, Li Jin, Li Zhiming, Chen Yunzhong and Wang Jianping.
The term of this supervisory committee will expire in May 2008. Our supervisory
committee held two meetings during the year ended December 31, 2006, 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, 2006. 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 28, 2007.

     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:

     -    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;


                                       63

<PAGE>

     -    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: Mr. Chang Loong Cheong, Ms. Deborah Kong and Mr. Wilton Chau Chi
Wai. Mr. Chang, Ms. Kong and Mr. Chau 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. The audit committee must have at least
two meetings with the 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 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;


                                       64

<PAGE>

     -    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, Mr. Wilton Chau Chi Wai, Mr. Chang Loong Cheong and Ms. Deborah
Kong. 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.

ITEM 6D. EMPLOYEES

     As of December 31, 2004, 2005 and 2006, we had approximately 8,964, 8,882
and 9,411 employees, respectively. The following chart sets forth the number of
our employees by function as of December 31, 2006:

<TABLE>
<CAPTION>
FUNCTION                                                            EMPLOYEES
--------                                                            ---------
<S>                                                                 <C>
Passenger transportation personnel (1)...........................      1854
Coordination personnel (2).......................................       966
Freight transportation personnel (3).............................       361
Mechanical personnel (4).........................................       418
Power and water supply personnel (5).............................       429
Vehicle personnel (6)............................................       706
Maintenance personnel (7)........................................       794
Power service personnel (8)......................................       315
Transportation supporting personnel (9)..........................       264
Diversified businesses and other supporting personnel (10).......      1713
Technical and administrative personnel (11)......................      1381
Other personnel (12).............................................       210
Total                                                                  9411
</TABLE>

----------
(1)  Passenger transportation personnel means those people that provide station
     boarding and train services.

(2)  Coordination personnel means those people responsible for train
     coordination.

(3)  Freight transportation personnel means those people responsible for
     organization of freight transportation.

(4)  Mechanical personnel means those people responsible for train operation and
     overhaul.

(5)  Power and water supply personnel means those people responsible for contact
     network operation and overhaul as

                                       65

<PAGE>

     well as power and water consumption maintenance.

(6)  Vehicle personnel means those people responsible for vehicle operation and
     overhaul.

(7)  Maintenance personnel means those people responsible for station track and
     railroad switch maintenance.

(8)  Power service personnel means 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 means all personnel
     involved in diversified businesses.

(11) Technical and administrative personnel means all managerial personnel other
     than the personnel of diversified businesses.

(12) Other personnel includes all personnel who have been sick, studying or
     early-retired as a result of human resources restructuring.

     All of our employees are located in Guangzhou, Shenzhen and the area
adjacent to our Guangzhou-Shenzhen line. The number of our employees increased
by 529 in 2006, which is mainly due to the increase in our operation of
long-distance trains that required more employees.

     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 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 macro-control and is based on
their performance records and reviews. We paid approximately RMB718.0 million in
salaries and benefits to our employees in 2006.

     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 2006
                                           ------------------------------------------------
                                              EMPLOYEES RESIDING IN
                                           GUANGZHOU AREA OR ALONG THE   EMPLOYEES RESIDING
            EMPLOYEE BENEFITS                GUANGZHOU-SHENZHEN LINE         IN SHENZHEN
            -----------------              ---------------------------   ------------------
<S>                                        <C>                           <C>
Housing Fund............................                 7%                      13%
Retirement Insurance....................                18%                      18%
Supplemental Retirement Insurance.......                 5%                       5%
Basic Medical Insurance.................                 8%                       6%
Supplemental Medical Insurance..........                 1%                     0.5%
Child-bearing Medical Insurance.........               0.4%                     0.5%
Other Welfare Contributions.............                 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


                                       66

<PAGE>

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 23 and 26 to our audited consolidated financial statements included
elsewhere in this annual report.

ITEM 6E. SHARE OWNERSHIP

     As of June 25, 2007, 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% and it lost the status as our controlling shareholder but can
still exercise substantial influence over our Company.

SHAREHOLDING STRUCTURE OF THE COMPANY

     Set out below is the shareholding structure of the Company immediately
before and after the A Share Offering:

<TABLE>
<CAPTION>
                                                     IMMEDIATELY BEFORE         IMMEDIATELY UPON COMPLETION
                                                    THE A SHARE OFFERING          OF THE A SHARE OFFERING
                                                ----------------------------   ----------------------------
                                                  NUMBER OF     SHAREHOLDING     NUMBER OF     SHAREHOLDING
                                      TYPES      SHARES HELD     PERCENTAGE     SHARES HELD     PERCENTAGE
NAME OF SHAREHOLDERS                OF SHARES       Shares            %            Shares            %
--------------------                ---------   -------------   ------------   -------------   ------------
<S>                                 <C>         <C>             <C>            <C>             <C>
Public Shareholders of H Shares      H Shares   1,431,300,000       33.01      1,431,300,000       20.2
Guangzhou Railway (Group) Company    A Shares   2,904,250,000       66.99      2,904,250,000       41.0
Public Shareholders of A Shares      A Shares              --          --      2,747,987,000       38.8
Total                                           4,335,550,000         100      7,083,537,000        100
</TABLE>


                                       67

<PAGE>

     The following table sets forth information regarding ownership of our
issued and outstanding capital stock as of June 20, 2007. 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>
                                IDENTITY OF        AMOUNT OWNED      PERCENTAGE OF    PERCENT OF
TITLE OF CLASS                PERSON OR GROUP   (THOUSAND SHARES)   CLASS OF 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 20, 2007.

<TABLE>
<CAPTION>
                                                                                  AMOUNT OWNED      PERCENTAGE OF      PERCENT OF
TITLE OF CLASS                        IDENTITY OF PERSON OR GROUP              (THOUSAND SHARES)   CLASS OF SHARES   TOTAL CAPITAL
--------------             -------------------------------------------------   -----------------   ---------------   -------------
<S>                        <C>                                                 <C>                 <C>               <C>
Common Shares (H Shares)   Sumitomo Life Insurance Company (1)                       86,838             6.07%            1.23%
Common Shares (H Shares)   Sumitomo Mitsui Asset Management Company, Limited         86,838             6.07%            1.23%
Common Shares (H Shares)   Baring Asset Management Limited                           76,058             5.31%            1.07%
</TABLE>

----------
(1)  As at June 20, 2007, Sumitomo Life Insurance Company was deemed to be
     interested in 86,838,000 H Shares (representing approximately 6.07% of the
     total H Shares of the Company or 1.23% of the total share capital of the
     Company) held by Sumitomo Mitsui Asset Management Company, Limited, a
     controlled corporation of Sumitomo Life Insurance Company.

     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.

     As an owner of at least 30% of our issued and outstanding shares, GRGC is
deemed a controlling shareholder (defined in Item 10 below) under our amended
memorandum and articles of associations, and therefore may not exercise our
voting rights with respect to various matters in a manner prejudicial to the
interests of our other shareholders. See "Item 10B. Memorandum and Articles of
Association--Restrictions on Controlling Shareholders". 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.


                                       68
<PAGE>

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. Subsequent to the A Share
Offering on December 22, 2006, we are no longer controlled by GRGC, although it
still exercises significant influence on us by virtue of being our single
largest shareholder. Consequently, under IAS 24, Stated-owned companies other
than GRGC were no longer considered as related parties of the Company as of
December 31, 2006.

     Under U.S. GAAP, the PRC government still meets the definition of a
principal owner and accordingly all the State-owned companies are still
considered as our related parties. Therefore, as of December 31, 2006, the
Company had the following material related parties:

<TABLE>
<CAPTION>
Name of related parties                      Relationship with the Company
-----------------------                      -----------------------------
<S>                                          <C>
MAJOR SHAREHOLDER AND FELLOW SUBSIDIARIES
Guangzhou Railway (Group) Company ("GRGC")   Major shareholder
Guangzhou Railway Group Yang Cheng Railway   Subsidiary of GRGC
   Enterprise Development Company
   ("Yangcheng Railway Company")
Guangmeishan Railway Company Limited         Subsidiary of GRGC
   ("Guangmeishan")
Guangzhou Railway (Group) Guangshen          Subsidiary of GRGC
   Railway Enterprise Development Company
   (the Predecessor as defined in Note 1
   to our audited consolidated financial
   statements, "GEDC")
Guangzhou Railway Material Supply Company    Subsidiary of GRGC
Guangzhou Railway Engineer Construction      Subsidiary of GRGC
   Enterprise Development Company
   ("Engineer Construction Enterprise")
Guangzhou Guangtie Huake Technology          Subsidiary of GRGC
   Service Company ("Guangtie Huake")

ASSOCIATES OF THE COMPANY
Guangzhou Tiecheng Enterprise Company        Associate of the Company
   Limited
Zengcheng Lihua Stock Company Limited        Associate of the Company
Shenzhen Guangshen Railway Civil             Associate of the Company
   Engineering Company
Guangzhou Huangpu Yuehua Freight             Associate of the Company
   Transportation Company Limited

OTHER STATE-OWNED COMPANIES
Ministry of Railway ("MOR")
MOR's Railroad Deposit-taking Center
Shenyang Train Class Company
Puzhen Train Company
Changchun Tracks and Equipment Company
Sifang Passenger Trains Repair Stock
   Company
Qixuyan Locomotive and Carriages Company
</TABLE>


                                       69

<PAGE>

<TABLE>
<S>                                          <C>
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 Fourth Construction Bureau of China
</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.

     GRGC and GEDC on the one hand and we on the other have agreed 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) continue to provide social services to Guangshen
Railway on a contractual basis. These services include 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 provides 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
pays 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 longer provides any education and
hospital services to us under such contractual arrangements.


                                       70

<PAGE>

     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:

<TABLE>
<S>                                         <C>
          -    child care services:         in accordance with the actual cost
                                            incurred for providing such
                                            services;

          -    newspaper supply services:   at an agreed cost of approximately
</TABLE>


                                       71

<PAGE>

<TABLE>
<S>                                         <C>
                                            RMB25 per year per copy of newspaper
                                            supplied, which cost may change
                                            based on cost changes to GRGC;
</TABLE>

     -    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.

     The master agreements entered into by the Company with GRGC, its
subsidiaries and controlled companies in relation to the continuing connected
transactions when the Company was listed on the HKSE in 1996 and the waiver from
strict compliance with the Listing Rules requirements in relation to those
connected transactions has expired in March 2006.

     In connection with the Acquisition of 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 which 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.


                                       72

<PAGE>

     The GEDC Comprehensive Services Agreement has a term of 3 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 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 from 11 sets to 20 sets by the
end of 2007, 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 will be 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.

     In addition, on December 15, 2005, we entered into management agreements
with Guangshen Railway Project Centre to monitor and supervise the proposed
construction of the Fourth Rail Lines between Guangzhou and Xintang and between
Xintang and Pinghu, respectively. Guangshen Railway Project Centre is the
railway project construction management unit of GRGC that is responsible for the
co-ordination and management of railway construction projects. It has obtained
the relevant qualification on railway construction management required by the
MOR. Pursuant to these management agreements, Guangshen Railway Project Centre
will, among others, be engaged in the organization and implementation of tenders
for construction projects and tenders for project supervision and equipment,
projects management, organization of or participation in the examination of
completed projects, preparation of the final accounts, and carrying out
procedures for the handover of assets in accordance with financial management
requirements.

     The chart below sets forth the material transactions the Company undertook
with related parties in 2004, 2005 and 2006:

<TABLE>
<CAPTION>
                                                   2004        2005        2006
                                                  RMB'000     RMB'000     RMB'000
                                                 --------   ---------   ---------
<S>                                              <C>        <C>         <C>
RECURRING TRANSACTIONS:

TRANSACTIONS WITH MOR AND ITS RELATED ENTITIES

I. INCOME
</TABLE>


                                       73

<PAGE>

<TABLE>
<S>                                              <C>        <C>         <C>
   Provision of train transportation and
      related services to other railway
      companies controlled by MOR (1) and (6)    (183,399)   (304,842)   (315,847)
   Revenue received, processed and allocated
      by MOR ((1) and (6))
      - long distance passenger transportation   (486,825)   (575,849)   (800,859)
      - cargo forwarding railway usage fees      (128,962)   (123,763)   (124,465)
   Interest income received/receivable from
      MOR Deposit-taking Centre                    (6,111)     (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
      (6))                                        209,503     290,825     410,353
   Operating lease rentals paid/payable to
      MOR (1)                                      65,485      50,804      40,885
   Lease of locomotives and related services
      provided from Yangcheng (1)                  48,179       8,449      26,065
   Social services (employee housing, health
      care, educational and public security
      services and other ancillary services)
      provided by the GEDC under a service
      agreement (2)                                94,246      78,227      74,520
   Purchase of materials and supplies from
      Guangzhou Railway Material Supply
      Company (3)                                  65,998      73,146      89,731
   Interest expenses paid/payable to GRGC,
      net (4)                                         553         721          --
                                                 --------   ---------   ---------

NON-RECURRING TRANSACTIONS:

I. TRANSACTIONS WITH MOR AND ITS RELATED
   ENTITIES
   Disposal of an available-for-sale
      investment                                       --    (121,854)         --
   Disposal of part of equity interests in a
      subsidiary (See Note 10 (ii) to our
      audited consolidated financial
      statements)                                      --          --     (35,224)
   Provision of repair and maintenance
      services by subsidiaries held by GRGC
      (1)                                          58,908      73,134      21,779
   Provision of construction management
      services by GRGC in connection with the
      construction of fixed assets of the
      Company (5)                                   5,300       6,194       9,326
   Provision of supplies and materials by
      subsidiaries of GRGC (3)                         --       5,249       4,045
   Provision of construction projects(2)               --          --      70,537
   Payment of a deposit for the acquisition of
      net assets of Yangcheng Railway
      Company (8)                                      --          --   5,265,250

II. TRANSACTIONS WITH OTHER STATE-OWNED COMPANIES
   Provision of construction project and
      related service (3) and (5)                 106,638   1,148,781   3,112,131
   Provision of repair and maintenance
      services (3)                                 55,125      75,867     105,641
   Provision of supplies and materials (3)          5,604       5,977      15,051
   Purchase of fixed assets (3)                        --      55,803     207,688
                                                 --------   ---------   ---------
</TABLE>


                                       74

<PAGE>

----------
(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)  Interest was calculated and levied based on the average balances due
     from/to GRGC on a quarterly basis at the prevailing lending interest rates
     of bank loans borrowed from banks in the PRC.

(5)  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.

(6)  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.

     As of December 31, 2006, we had the following material balances with our
related parties:

<TABLE>
<CAPTION>
                                                  2005         2006
                                                 RMB'000      RMB'000
                                               ----------   ----------
<S>                                            <C>          <C>
Cash and cash equivalents maintained in MOR
   Deposit-taking Centre (See Note 32(b) to
   our audited consolidated financial
   statements)                                    628,746       25,786
Short-term time deposits in MOR
   Deposit-taking Centre (see Note 19)            168,000      169,739
Due from/(to) GRGC (6)                             15,636       31,584
                                               ----------   ----------
   - Trade balance (7)                            (43,518)      28,234
   - Non-trade balance                             59,154        3,350
                                               ----------   ----------
Deposit for acquisition of Yangcheng Railway
   Company (8)                                         --    5,265,250
                                               ----------   ----------
Due from Other State-owned companies               55,803       35,223
Due from/(to)an associate                          12,423      (17,374)
                                               ----------   ----------
   - Trade balance                                 12,423       12,312
   - Non-trade balance (12)                            --      (29,686)
                                               ----------   ----------
Due from subsidiaries of GRGC                      64,670          173
                                               ----------   ----------
   - Trade balance                                 25,257           61
   - Non-trade balance (7)                         39,413          112
                                               ----------   ----------
</TABLE>


                                       75

<PAGE>

<TABLE>
<S>                                            <C>          <C>
Due to related parties                         (1,174,101)    (220,915)
   Due to subsidiaries of GRGC                   (276,520)    (220,915)
                                               ----------   ----------
      - Trade balance (9)                        (276,520)     (39,813)
      - Trade balance (10)                             --     (181,102)
                                               ----------   ----------
   Due to Other State-owned companies            (897,581)  (1,204,529)
                                               ----------   ----------
      - Trade balance (7)                         (50,564)    (138,305)
      - Non-trade balance (11)                   (847,017)  (1,066,224)
                                               ----------   ----------
</TABLE>

----------
(7)  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.

(8)  As of December 31, 2006, the non-trade receivable balance represents 51% of
     the agreed purchase consideration paid to GRGC for the acquisition of net
     assets of Yangcheng Railway Company.

(9)  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.

(10) The non-trade balance due to related parties mainly represents the deposits
     received from those related parties.

(11) The non-trade balance due to other state-owned companies as of December 31,
     2005 mainly represents the payable balances arising from unsettled fees for
     construction projects undertaken for the Company.

(12) 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.

     As of December 31, 2006, all the balances maintained with related parties
are unsecured, non-interest bearing and are repayable on demand, except for
those deposits balances maintained with the MOR Deposit-taking Center disclosed
above. These balances resulted from transactions between our related parties and
us in the ordinary course of business. Almost all of the balances with GRGC are
all non-trading in nature. The balances with our related parties, which are
trading in nature, are all due within one year.

     The NAO is auditing 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 is also conducting an audit of
our Company, which mainly focuses on our business transactions with GRGC. See
"Item 3D. Risk Factors-The PRC National Audit Office is auditing our largest
shareholder and our construction of the Fourth Rail Line, and other governmental
or third parties may investigate us from time to time. The outcome of these
audits or other governmental or third party investigations may adversely affect
our corporate image and reputation, our business and financial condition and the
prices of our H shares, A Shares and ADSs."

     Our related party transactions have been carried out on usual terms
according to the conditions and waiver granted by The Stock Exchange of Hong
Kong Limited and the contracts entered into between our related parties and us.
Except for the transactions discussed in this section, no other material related
party transactions were entered into in 2006. 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


                                       76

<PAGE>

Limited) entered into by us in 2006 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 favorable 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-53 following ITEM 19.

ITEM 8A.7 LEGAL PROCEEDINGS

     As of December 31, 2006, the Company's investment interest in an associated
company, Guangzhou Tiecheng Enterprise Company Limited, or Tiecheng, amounted to
approximately RMB140 million (at cost). 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 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


                                       77

<PAGE>

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 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.


                                       78

<PAGE>

     On April 19, 2007, our Board of Directors proposed a final dividend
distribution of RMB0.08 per share to our shareholders for the year ended
December 31, 2006. The final dividend payment was approved by the shareholders
at our 2006 annual general meeting held on June 28, 2007.

ITEM 8B. SIGNIFICANT CHANGES

     Other than events already mentioned in this annual report, there have been
no significant changes since December 31, 2006.


                                       79
<PAGE>

ITEM 9. THE OFFER AND LISTING

ITEM 9A. THE OFFER AND LISTING DETAILS

PRICE RANGE OF OUR H SHARES AND ADSS

     As of December 31, 2006 and June 20, 2007, there were 1,431.3 million H
shares issued and outstanding. As of December 31, 2006 and June 20, 2007, there
were, respectively, 4,599,521 and 4,860,491 ADSs outstanding held by 181 and 180
registered holders. The depositary for the ADSs is JPMorgan Chase Bank.

     The Stock Exchange of Hong Kong 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 New York Stock Exchange.
The following table sets forth, for the periods indicated, the reported high and
low closing sales prices for our securities on each of these two stock
exchanges:

<TABLE>
<CAPTION>
                                    NEW YORK        STOCK EXCHANGE
                                 STOCK EXCHANGE      OF HONG KONG
                                 --------------   -----------------
        CALENDAR PERIOD            HIGH    LOW       HIGH    LOW
        ---------------           -----   -----     -----   -----
                                  (US$ PER ADS)   (HK$ PER H SHARE)
<S>                              <C>      <C>     <C>       <C>
2001 .........................    10.48    6.19      1.76    0.90
2002 .........................    10.24    8.05      1.58    1.27
2003 .........................     15.1     8.1      2.25    1.26
2004 .........................    20.74    11.5      3.35    1.76
2005
   January to March ..........     20.5   17.59     3.225    2.75
   April to June .............    18.69   15.01      2.95    2.35
   July to September .........     18.2   15.48      2.85     2.4
   October to December .......    16.25   13.07     2.525       2
2006
   January to March ..........    21.25   15.45     3.275     2.3
   April to June .............    22.72    14.7     3.525   2.275
   July to September .........    22.79    17.8      3.55    2.75
   October to December .......    35.24    19.9      5.41    3.08
2007
   January ...................    36.84      29      5.48    4.66
   February ..................    33.64    26.8      5.28     4.5
   March .....................    32.25   26.97      5.07     4.3
   April .....................     38.2   31.57      5.95     4.9
   May .......................    44.13   35.75      7.24    5.48
   June (through June 20) ....    41.22   38.46      6.58    6.01
</TABLE>

     During the year ended December 31, 2006, 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.


                                       80

<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". In addition, our A
shares became listed for trading on the Shanghai Stock Exchange under the stock
code "601333" starting from December 22, 2006.

ITEM 9D. SELLING SHAREHOLDERS

     Not applicable.

ITEM 9E. DILUTION

     Not applicable.

ITEM 9F. EXPENSES OF THE ISSUE

     Not applicable.


                                       81

<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

     The Company issued a total of 2,747,987,000 A Shares in its initial public
offering of A shares on the PRC domestic market in December 2006, and raised
proceeds of approximately RMB10.0 billion from the A Share Offering. Each A
share has a par value of RMB1.00. They have been listed for trading on Shanghai
Stock Exchange on December 22, 2006 and March 22, 2007, respectively.

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

     As of December 31, 2006, our share capital consisted of:

<TABLE>
<CAPTION>
                                                                     Number    Percentage
                                                                   of shares    of share
Type of share capital                                                ('000)        (%)
---------------------                                              ---------   ----------
<S>                                                                <C>         <C>
Domestic tradable shares with restriction on sales (A shares)      4,385,194       61.9
Domestic tradable shares without restriction on sales (A shares)   1,267,043       17.9
H Shares                                                           1,431,300       20.2
                                                                   ---------     ------
Total                                                              7,083,537     100.00
</TABLE>

PUBLIC FLOAT

     As at June 28, 2007, 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 in March 2007 after the A Share
Offering is attached hereto as Exhibit 1.1.


                                       82

<PAGE>

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 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 DOMESTIC SHARES

     Holders of H shares and domestic shares, with minor exceptions, are
entitled to the same economic and voting rights. However, our Articles of
Association provide that holders of H shares will receive dividends in Hong Kong
dollars while holders of domestic shares will receive dividends in Renminbi.
Other differences between the rights of holders of H shares and domestic 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.
Domestic 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
domestic 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. Domestic 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


                                       83

<PAGE>

          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 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


                                       84

<PAGE>

by us in Hong Kong dollars. If we record no profit for the year, we may not
normally distribute dividends for the year.

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 shall not 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


                                       85

<PAGE>

extraordinary proposal falls within the functions and powers of a shareholders'
general meeting, then it should be included in the agenda of the meeting.

     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


                                       86

<PAGE>

percent of the total number of our shares, provided that these resolutions fall
within the scope of powers of a shareholders' general meeting.

     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.


                                       87

<PAGE>

     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;

     -    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 the
shareholders' general meeting. Our directors have no power to approve their own
compensations.

     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


                                       88

<PAGE>

our Company. To ensure that the independent directors can effectively perform
their duties, our Company shall provide them with certain working conditions.

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:

     -    cancellation of shares for capital reduction;

     -    merging with another company that holds our shares;

     -    paying shares to our employees as bonus; or

     -    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.


                                       89

<PAGE>

     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


                                       90

<PAGE>

               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 person or a group of persons who
satisfies one or more of the following conditions:

     -    he or she alone or acting in concert with others has the power to
          elect more than half the directors;

     -    he or she alone or acting in concert with others has the power to
          exercise or to control the exercise of 30% or more of our voting
          rights;


                                       91

<PAGE>

     -    he or she alone or acting in concert with others holds 30% or more of
          our issued and outstanding shares; or

     -    he or she alone or acting in concert with others in any other manner
          has de facto control over us.

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 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


                                       92

<PAGE>

          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 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 by our Shareholders'
General Meeting of 2006. 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 5. Operating and
Financial Review and Prospects--Overview-- A Share OfferinG, Very Substantial
Acquisition and Continuing Connected Transactions", "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 2005 and 2006 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


                                       93

<PAGE>

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. 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 income and increase the effective cost of
foreign equipment and the amount of foreign currency expenses and liabilities.
In 2006, due to the continuous appreciation of RMB against U.S. dollar and Hong
Kong dollar, we incurred a foreign exchange loss of approximately RMB13.68
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, 2006, we maintained the equivalent of approximately RMB75.7 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(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

     Since January 1, 1994, 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 is provided by law, administrative regulations or State
Council regulations. Guangshen Railway is 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 is reduced
to 15%. Pursuant to


                                       94

<PAGE>

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 are 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 Enterprise Income Tax Law, or the new EIT Law, which will take 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
and other special economic zones will be phased out in five-years upon January
1, 2008, and after such five-years period, our 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. Up to date, the relevant authorities
have not yet issued any detailed rules of the new EIT Law concerning the
applicable income tax rates, computation of taxable income, as well as specific
preferential tax treatments and the related measures for the transitional
periods from 2008 and onwards have not been clarified. Consequently, we are not
in a position to reasonably assess the impact, if any, of the carrying values of
deferred tax assets and deferred tax liabilities resulting from the
implementation of the new EIT Law.

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


                                       95

<PAGE>

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
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 tax consequences relating to the purchase, ownership and disposition


                                       96

<PAGE>

of the H shares or ADSs, and does not take into account U.S. holders who may be
subject to special rules including:

     -    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;

     -    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.


                                       97
<PAGE>

     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 aspects of United States taxation
other than federal income taxation.

     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.

     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 U.S. 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.
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


                                       98

<PAGE>

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. 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 United States source ordinary
income or loss for foreign tax credit limitation purposes.

     Subject to various limitations, any PRC tax withheld from distributions in
accordance with PRC law, as limited by the Treaty, will be deductible or
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 property has 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 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.


                                       99

<PAGE>

     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, 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
your disposition of the H shares or ADSs. An "excess distribution" generally is
defined as the excess of the distributions you receive with 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 not allocated to prior taxable years, 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. 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.


                                       100

<PAGE>

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

     -    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 effected 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.


                                       101

<PAGE>

     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.

     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.


                                       102

<PAGE>

     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.

ITEM 10I. SUBSIDIARY INFORMATION

     Not applicable.


                                       103

<PAGE>

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.

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, 2005 and 2006 are set forth below.

<TABLE>
<CAPTION>
                                                                As of December 31
                                       Currency        2005            2006
Monetary assets                      denomination   (RMB'000)       (RMB'000)
---------------                      ------------   ---------   -----------------
<S>                                  <C>            <C>         <C>
Current assets
Short-term deposits with original
   maturities of over three months        USD        503,463              --
Cash and cash equivalent                  USD          9,049          23,701
Cash and cash equivalent                  HKD        110,195          51,988
</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
and 2006. The Company suffered foreign exchange losses of approximately RMB13.7
million in the year ended December 31, 2006. The losses were recorded as finance
costs in the income statement for the year ended December 31, 2006.

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


                                       104

<PAGE>

INTEREST RATE RISKS

     Funds that we do not need in the short term are generally kept as temporary
cash deposits in state-owned commercial banks and in the MOR Deposit-Taking
Center in the form of demand or time deposits. We do not hold any market
risk-sensitive instruments for trading purposes. As of December 31, 2006, we had
RMB1.86 billion in loans outstanding.

     As the Company has no significant interest-bearing assets (except for
deposits placed with banks and deposit center of the MOR and the
restricted cash balance), 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.

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 and
deposit taking centers operated by MOR. See Notes 19 and 32(b) of our audited
consolidated financial statements, included else where 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.

     See "ITEM 8A.7 Legal Proceedings" for a discussion of our potential loss in
our interests in Tiecheng resulting from a litigation. See "Item 5B. Liquidity
and Capital Resources" for a discussion of the overdue time deposit held by
Licheng.

     As of December 31, 2006, 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 RMB75.7 million. If the
applicable market exchange rates were to change by 10%, this would result in a
change in fair value of approximately RMB7.6 million in these balances. For the
year ended December 31, 2006, the interest income derived from our cash balances
at banks and temporary cash investments amounted to approximately RMB30.8
million. A 10% change in interest rates would have resulted in a change in
interest income of


                                       105

<PAGE>

approximately RMB3.1 million.

     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, 2006, at present and in our normal course of business, we are not
subject to any other market-related risks.


                                       106

<PAGE>

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.


                                       107

<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, as a
result of the two material weaknesses identified by our management in the
assessment of our internal controls over financial reporting, our disclosure
controls and procedures were not 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.

     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. This
assessment has identified two control deficiencies in our internal control over
financial reporting that constitute material weaknesses, as defined in the
standards established by the U.S. Public Company Accounting Oversight Board,
that could result in more than a remote likelihood that a material misstatement
in our annual or interim financial statements would not be prevented or detected
on a timely basis by our internal controls.


                                       108

<PAGE>
     Our management's assessment of the effectiveness of the Company's internal
control over financial reporting concluded that, as of December 31, 2006, we did
not maintain effective internal control over financial reporting as a result of
the following identified material weaknesses:

     -    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.
          Specifically, certain positions in our accounting and finance
          departments were staffed with individuals who did not have the
          appropriate knowledge, skills and training in IFRS and U.S. GAAP; and

     -    we did not establish adequate policies and procedures to evaluate the
          status of our construction-in-progress on a regular basis.
          Construction-in-progress that is completed and ready for its intended
          use may not have been properly recorded as fixed assets and
          depreciation of such assets may not have been commenced in a timely
          manner. This may result in a misclassification between fixed assets
          and construction-in-progress and a misstatement of depreciation in our
          financial statements.

     This annual report on Form 20-F does not include an attestation report of
our registered independent public accounting firm regarding management's
assessment of the Company's internal control over financial reporting.
Management's report was not subject to audit by our registered independent
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit us to provide only management's report in this
annual report.

     Beginning with the year ended December 31, 2007, Section 404 of the
Sarbanes-Oxley Act will require our independent registered public accounting
firm to provide an attestation report regarding management's assessment of the
Company's internal control over financial reporting as of the end of the
Company's fiscal year ended December 31, 2007 with our annual report on Form
20-F. As our independent registered public accounting firm performs the audit in
order to provide the attestation report required by Section 404 of the U.S.
Sarbanes-Oxley Act of 2002 for the year ended December 31, 2007, additional
deficiencies, including deficiencies that may constitute significant
deficiencies or material weaknesses, may be detected in our internal control
over financial reporting.

REMEDIATION OF MATERIAL WEAKNESSES

     Acting under the supervision and guidance of our audit committee and board
of directors, our management has worked, and will continue to work, to address
these deficiencies in our internal control over financial reporting. The actions
we have taken include the following:

     -    we are in the process of engaging an independent registered public
          accounting firm other than our auditors that are familiar with IFRS
          and U.S. GAAP as our consultant to provide support to our accounting
          and finance teams; and

     -    we are in the process of formulating additional policies and
          procedures to ensure that information regarding the status of our
          construction-in-process is obtained on a regular basis from the
          relevant departments of the Company and accurately reflected in our
          financial statements.


                                       109

<PAGE>

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

     There were no changes in our internal control over financial reporting that
occurred during the year ended December 31, 2006 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

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 US 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:

     -    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.

     -    according to our Audit Committee Charter, the members of our audit
          committee, who are all non-executive independent directors, shall meet
          at least four times a year pursuant to the schedule determined by our
          audit committee.

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

     -    we do not have formal corporate governance guidelines similar to those
          required for U.S. domestic companies. However, in accordance with
          applicable PRC laws and regulations and the HKSE Listing Rules, we
          have 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 HKSE, 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.

     -    we have not adopted a 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


                                       110

<PAGE>

          in the HKSE Listing Rules, which sets out standards with which
          directors are required to comply with respect to transactions
          involving our securities.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

     Our board of directors has determined that Mr. 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 New York Stock Exchange's 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. A copy of this code of
ethics was filed with the SEC as Exhibit 11.1 to the annual report on Form 20-F
for the fiscal year ended December 31, 2003.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Resolutions to appoint PricewaterhouseCoopers (certified public accountants
in Hong Kong), or PwC, as our international auditors for 2007 have been approved
at the annual general meeting of Guangshen Railway held on June 28, 2007.

     PwC was our international auditors for 2006, 2005 and 2004.

     The following table presents the aggregate fees for professional services
and other services rendered by PwC to us in 2005 and 2006.

<TABLE>
<CAPTION>
                     2005    2006
                     ----   -------
                     (RMB MILLIONS)
<S>                  <C>    <C>
Audit Fees            2.0     5.82
Audit-related Fees     --     1.16
Tax Fees               --       --
All Other Fees         --       --
                      ---     ----
Total                 2.0     6.98
                      ===     ====
</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, 2006, 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.

     In 2005, PwC provided certain advisory services in connection with our
preparation for compliance with Section 404 of the U.S. Sarbanes-Oxley Act of
2002. The Audit Committee Charter, which was adopted by our board of directors
on August 12, 2004 and revised on March 17, 2005 based on the applicable
guidelines set forth in the HKSE Listing Rules and U.S. Sarbanes-Oxley Act of
2002, provides that our audit committee is responsible for, among other matters,
supervising the audit of our Company, including the assessment and evaluation of
the nature, quality and scope of work and the fees of our external auditors.
Pursuant to paragraph


                                       111

<PAGE>

(c)(7)(i)(A) of Rule 2-01 of Regulation S-X, the engagement of PwC to perform
these audit and other services were approved by our audit committee and our
board of directors.

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

     Not applicable.

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

     During the year ended December 31, 2006, there was no purchase, sale or
redemption of our H shares or ADSs by us, or any of our subsidiaries.


                                       112

<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-56 following ITEM 19.

                                ITEM 19. EXHIBITS

     (a)  See pages F-1 to F-56 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       Railway Business Related Assets Purchase Agreement dated November 15,
          2004 between Guangshen Railway Company Limited and Guangzhou Railway
          Group Yangcheng Railway Company*

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

4.3       Comprehensive Services Agreement dated November 15, 2004 between
          Guangshen Railway Company Limited and Guangzhou Railway (Group)
          Company*

4.4       Comprehensive Services Agreement dated November 15, 2004 between
          Guangshen Railway Company Limited and Guangzhou Railway Group
          Yangcheng Railway Company*

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

4.6       Summary of the Form of the Railway Construction Management Agreement,
          dated December 15, 2005 for the Fourth Line Construction**

4.7       Comprehensive Services Agreement dated January 13, 2006 between
          Guangshen Railway Company Limited and Guangzhou Railway (Group)
          Company**
</TABLE>


                                       113

<PAGE>

<TABLE>
<S>       <C>
4.8       Comprehensive Services Agreement dated January 13, 2006 between
          Guangshen Railway Company Limited and Guangzhou Railway (Group)
          Guangshen Railway Enterprise Development Company**

4.9       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**

4.10      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-sets**

4.11      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

4.12      Summary of the three loan agreements Guangshen Railway Company Limited
          entered into with three PRC banks

4.13      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

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, 2006

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


                                       114

<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 28, 2007                    By: /s/ He Yuhua
                                            ------------------------------------
                                            He Yuhua
                                            Chairman of the Board of Directors
<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
   Consolidated Balance Sheets as of 31 December 2005 and 2006               F-3
   Consolidated Income Statements for the years ended 31 December 2004,
      2005 and 2006                                                          F-4
   Consolidated Cash Flow Statements for the years ended
      31 December 2004, 2005 and 2006                                        F-5
   Consolidated Statements of Changes in Equity for the years ended 31
      December 2004, 2005 and 2006                                           F-6
   Notes to the Consolidated Financial Statements                            F-7
</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 at December 31, 2005 and 2006, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2006, in conformity with International Financial
Reporting Standards. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 5(a) to the consolidated financial statements, the Company
changed its accounting policy in respect of fixed assets from a revaluation
model to the historical cost model.

International Financial Reporting Standards vary in certain significant respects
from accounting principles generally accepted in the United States of America.
Information relating to the nature and effect of such differences is presented
in Note 38 to the consolidated financial statements.

PRICEWATERHOUSECOOPERS

Hong Kong
28 June 2007


                                       F-2

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                         AS OF 31 DECEMBER 2005 AND 2006
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                31 December
                                                                    -----------------------------------
                                                           Note        2005         2006         2006
                                                        ---------   ----------   ----------   ---------
                                                                        RMB         RMB         US$*
                                                                     Restated
                                                                     (Note 5)
<S>                                                     <C>         <C>          <C>          <C>
ASSETS
NON-CURRENT ASSETS
   Fixed assets                                             7        6,346,822    6,738,477     863,907
   Construction-in-progress                                 8        1,449,358    4,305,157     551,943
   Prepayment for fixed assets                            35(c)        482,940      411,476      52,753
   Leasehold land payments                                  9          620,798      625,628      80,209
   Prepayment and deferred acquisition costs relating
      to a business combination                         35(c), 36           --    5,296,593     679,050
   Interests in associates                              11, 35(c)      108,000       92,834      11,902
   Available-for-sale investments                           12          46,108       46,108       5,911
   Deferred tax assets                                      13         192,692      190,843      24,467
   Deferred staff costs                                     14         135,821      120,730      15,479
                                                                    ----------   ----------   ---------
                                                                     9,382,539   17,827,846   2,285,621
                                                                    ----------   ----------   ---------
CURRENT ASSETS
   Materials and supplies                                   15          64,953       66,967       8,586
   Trade receivables, net                                   16         106,393       62,869       8,060
   Due from related parties                               35(c)         80,306       31,757       4,071
   Prepayments and other receivables, net                   17         170,607       98,636      12,646
   Restricted cash                                          18         173,413      233,474      29,933
   Short-term deposits                                      19         766,131      169,739      21,761
   Cash and cash equivalents                              32(b)      1,112,128    5,851,831     750,235
                                                                    ----------   ----------   ---------
                                                                     2,473,931    6,515,273     835,292
                                                                    ----------   ----------   ---------
      TOTAL ASSETS                                                  11,856,470   24,343,119   3,120,913
                                                                    ==========   ==========   =========
EQUITY
   Common stock, par value RMB1.00 per share,
      4,335,550,000 shares authorised and outstanding       20       4,335,550    7,083,537     908,146
   Reserves                                                 21       5,460,526   13,085,471   1,677,624
                                                                    ----------   ----------   ---------
                                                                     9,796,076   20,169,008   2,585,770
MINORITY INTERESTS                                                      48,757       50,922       6,529
                                                                    ----------   ----------   ---------
      TOTAL EQUITY                                                   9,844,833   20,219,930   2,592,299
                                                                    ----------   ----------   ---------
LIABILITIES
NON-CURRENT LIABILITIES
   Borrowings                                               22              --    1,860,000     238,461
   Early retirement obligations                             23              --       16,917       2,169
   Deferred tax liabilities                                 13           4,830        9,802       1,257
                                                                    ----------   ----------   ---------
                                                                         4,830    1,886,719     241,887
                                                                    ----------   ----------   ---------
CURRENT LIABILITIES
   Trade payables                                           24         118,707      240,334      30,812
   Payables for construction-in-progress                                99,462    1,004,750     128,814
   Due to related parties                                 35(c)      1,174,101      220,915      28,323
   Dividends payable                                                       462           74           9
   Taxes payable                                                       102,155      127,282      16,318
   Housing fund payable                                     18         173,413      233,474      29,933
   Accruals and other payables                            23, 25       338,507      409,641      52,518
                                                                    ----------   ----------   ---------
                                                                     2,006,807    2,236,470     286,727
                                                                    ----------   ----------   ---------
      TOTAL LIABILITIES                                              2,011,637    4,123,189     528,614
                                                                    ----------   ----------   ---------
      TOTAL EQUITY AND LIABILITIES                                  11,856,470   24,343,119   3,120,913
                                                                    ==========   ==========   =========
</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 29 December 2006 of US$1.00=RMB7.8 as certified for customs
     purposes by the Federal Reserve Bank of New York. No representation is made
     that the RMB amounts could have been, or could be, converted into US$ at
     that rate on 29 December 2006.


                                       F-3

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                         CONSOLIDATED INCOME STATEMENTS
               FOR THE YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
            (Amounts in thousands, except per share and per ADS data)

<TABLE>
<CAPTION>
                                                                                   Years ended 31 December
                                                                ------------------------------------------------------------
                                                         Note        2004           2005              2006        2006
                                                         ----   -------------   -------------    -------------   -----------
                                                                      RMB            RMB              RMB            US$*
                                                                   (Note 5)        (Note 5)
                                                                   Restated        Restated
<S>                                                      <C>    <C>             <C>              <C>             <C>
Revenues from railroad businesses
   Passenger                                                        2,259,671       2,511,156        2,841,045       364,236
   Freight                                                            611,807         588,310          624,839        80,108
                                                                -------------   -------------    -------------   -----------
                                                                    2,871,478       3,099,466        3,465,884       444,344
Revenues from other businesses                                        166,671         177,462          128,590        16,486
                                                                -------------   -------------    -------------   -----------
Total revenues                                                      3,038,149       3,276,928        3,594,474       460,830
Operating expenses
   Railroad businesses
      Business tax                                                    (83,732)        (86,565)         (98,567)      (12,637)
      Labour and benefits                                 26         (604,816)       (597,254))       (718,035)      (92,056)
      Equipment leases and services                                  (452,204)       (507,627)        (633,036)      (81,158)
      Materials and supplies                                         (245,534)       (283,902)        (268,259)      (34,392)
      Repair costs, excluding materials and supplies                 (216,294)       (262,973)        (212,435)      (27,235)
      Depreciation of fixed assets                                   (295,953)       (289,185)        (317,358)      (40,687)
      Amortisation of leasehold land payments                         (15,704)        (15,416)         (16,776)       (2,151)
      Social services charges                                         (84,643)        (78,227)         (74,520)       (9,554)
      Utility and office expenses                                     (78,055)       (109,719)        (102,949)      (13,199)
      Others                                                         (126,338)       (108,516)         (85,972)      (11,022)
                                                                -------------   -------------    -------------   -----------
                                                                   (2,203,273)     (2,339,384)      (2,527,907)     (324,091)
                                                                -------------   -------------    -------------   -----------
   Other businesses
      Business tax                                                     (7,840)        (10,493)          (4,885)         (626)
      Labour and benefits                                 26          (49,559)        (58,761)         (65,710)       (8,424)
      Materials and supplies                                          (95,637)       (103,249)         (83,072)      (10,650)
      Depreciation of fixed assets                                     (1,588)         (2,773)          (2,529)         (324)
      Amortisation of leasehold land payments                              --            (165)               -             -
      Utility and office expenses                                     (11,531)        (14,906)          (9,815)       (1,259)
                                                                -------------   -------------    -------------   -----------
                                                                     (166,155)       (190,347)        (166,011)      (21,283)
                                                                -------------   -------------    -------------   -----------
Total operating expenses                                           (2,369,428)     (2,529,731)      (2,693,918)     (345,374)
Other income, net                                                      48,193          51,628           64,648         8,288
                                                                -------------   -------------    -------------   -----------
PROFIT FROM OPERATIONS                                                716,914         798,825          965,204       123,744
Finance costs                                             27           (1,136)        (22,738)         (15,970)       (2,047)
Share of results of associates after tax                  11          (12,119)        (19,949)         (28,306)       (3,629)
                                                                -------------   -------------    -------------   -----------
PROFIT BEFORE INCOME TAX                                              703,659         756,138          920,928       118,068
Income tax expense                                        28         (104,155)       (110,176)        (149,155)      (19,123)
                                                                -------------   -------------    -------------   -----------
PROFIT FOR THE YEAR                                                   599,504         645,962          771,773        98,945
                                                                =============   =============    =============   ===========
ATTRIBUTABLE TO:
Equity holders of the Company                                         600,250         646,960          771,513        98,912
Minority interests                                                       (746)           (998)             260            33
                                                                -------------   -------------    -------------   -----------
                                                                      599,504         645,962          771,773        98,945
                                                                =============   =============    =============   ===========
DIVIDENDS                                                 31          476,911         520,266          566,683        72,652

EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE TO THE
   EQUITY HOLDERS OF THE COMPANY DURING THE YEAR
   - Basic and diluted                                    30    RMB      0.14   RMB      0.15    RMB      0.17   US$   0.022

EARNINGS PER EQUIVALENT ADS
   - Basic and diluted                                          RMB      6.91   RMB      7.07    RMB      8.73   US$    1.12
                                                                =============   =============    =============   ===========
</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 29 December 2006 of US$1.00=RMB7.8 as certified for customs
     purposes by the Federal Reserve Bank of New York. No representation is made
     that the RMB amounts could have been, or could be, converted into US$ at
     that rate on 29 December 2006.


                                       F-4
<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                        CONSOLIDATED CASH FLOW STATEMENTS
               FOR THE YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                  Year ended 31 December
                                                                    -------------------------------------------------
                                                           Note        2004         2005         2006         2006
                                                           ----     ----------   ----------   ----------   ----------
                                                                        RMB          RMB          RMB         US$*
<S>                                                        <C>      <C>          <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Cash generated from operations                            32(a)   1,321,850    1,471,525    1,230,958      157,816
   Interest paid                                                        (1,030)        (654)      (1,745)        (224)
   Income tax paid                                                     (84,241)     (90,724)    (117,209)     (15,027)
                                                                    ----------   ----------   ----------   ----------
   Net cash generated from operating activities                      1,236,579    1,380,147    1,112,004      142,565
                                                                    ----------   ----------   ----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of fixed assets and payments for
      construction-in-progress, net of related payables               (310,179)  (1,588,374)  (3,202,670)    (410,599)
   Deposits for business combination                                        --           --   (5,265,250)    (675,032)
   Proceeds from sale of fixed assets                                    4,041       38,235       42,596        5,461
   Proceeds from acquisition of a subsidiary                                --           --        1,905          244
   Increase / (decrease) in interests in associates, net     11             --       62,700      (42,937)      (5,505)
   (Increase) / decrease in short-term deposits with
      maturities more than three months                               (751,869)     613,178      596,392       76,461
   Interest received                                                    57,368       53,346       36,633        4,697
                                                                    ----------   ----------   ----------   ----------
   Net cash used in investing activities                            (1,000,639)    (820,915)  (7,833,331)  (1,004,273)
                                                                    ----------   ----------   ----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of share capital                   20             --           --   10,332,432    1,324,671
   Share issuance costs                                      20        (14,035)     (12,972)    (210,747)     (27,019)
   Proceeds from borrowings                                                 --           --    1,860,000      238,462
   Dividends paid to the Company's shareholders                       (455,009)    (476,904)    (520,655)     (66,751)
   Dividends paid to minority interests                                     --       (1,857)          --           --
                                                                    ----------   ----------   ----------   ----------
   Net cash (used in) / generated from financing
      activities                                                      (469,044)    (491,733)  11,461,030    1,469,363
                                                                    ----------   ----------   ----------   ----------
NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS                 (233,104)      67,499    4,739,703      607,654
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR                      1,277,733    1,044,629    1,112,128      142,581
                                                                    ----------   ----------   ----------   ----------
CASH AND CASH EQUIVALENTS, AT END OF YEAR                    32(b)   1,044,629    1,112,128    5,851,831      750,235
                                                                    ==========   ==========   ==========   ==========
</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 29 December 2006 of US$1.00=RMB7.8 as certified for customs
     purposes by the Federal Reserve Bank of New York. No representation is made
     that the RMB amounts could have been, or could be, converted into US$ at
     that rate on 29 December 2006.


                                       F-5

<PAGE>

               GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
               FOR THE YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                  Attributable to equity holders
                                --------------------------------------------------------------------------------------------------
                                                                                          Statutory
                                                                 Shares      Statutory      public    Discretionary
                                    Share          Share        issuance      surplus      welfare       surplus        Retained
                                   capital        premium        costs        reserve        fund        reserve        earnings
                                  (Note 20)      (Restated)    (Note 20)     (Note 21)    (Note 21)     (Note 21)      (Restated)
                                     RMB            RMB           RMB           RMB          RMB           RMB             RMB
                                ------------   -------------   ---------   ------------   ---------   -------------   ------------
<S>                             <C>            <C>             <C>         <C>            <C>         <C>             <C>
Balance at 1 January 2004,
   restated                        4,335,550       2,715,778         --         545,574    481,394         341,659         948,063
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Originally reported                4,335,550       3,984,135         --         545,574    481,394         341,659         634,046
Effects of changes in
   accounting policy (Note 5)                     (1,268,357)                                                              314,017
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Share issuance costs                      --              --    (14,035)             --         --              --              --
Profit for the year, restated             --              --         --              --         --              --         600,250
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Originally reported                       --              --         --              --         --              --         567,484
Effects of changes in
   accounting policy (Note 5)                                                                                               32,766
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Appropriation from retained
   earnings                               --              --         --          59,771     29,900              --         (89,671)
Dividends                                 --              --         --              --         --              --        (455,233)
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Balance at 31 December 2004,
   restated                        4,335,550       2,715,778    (14,035)        605,345    511,294         341,659       1,003,409
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Originally reported                4,335,550       3,984,135    (14,035)        605,345    511,294         341,659         656,626
Effects of changes in
   accounting policy (Note 5)             --      (1,268,357)        --              --         --              --         346,783
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Balance at 1 January 2005,
   restated                        4,335,550       2,715,778    (14,035)        605,345    511,294         341,659       1,003,409
Share issuance costs                      --              --    (12,972)             --         --              --              --
Profit for the year, restated             --              --         --              --         --              --         646,960
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Originally reported                       --              --         --              --         --              --         613,368
Effects of changes in
   accounting policy (Note 5)             --              --         --              --         --              --          33,592
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Adjustment related to
   carrying value of fixed
   assets at Restructuring
   (Note a)                               --         140,000         --              --         --              --              --
Appropriation from retained
   earnings                               --              --         --          61,192     29,834              13         (91,039)
Transfers                                 --              --         --          (3,995)    (6,592)          4,321           6,266
Dividends                                 --              --         --              --         --              --        (476,911)
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Balance at 31 December 2005,
   restated                        4,335,550       2,855,778    (27,007)        662,542    534,536         345,993       1,088,684
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Originally reported                4,335,550       4,124,135    (27,007)        662,542    534,536         345,993         708,310
Effects of changes in
   accounting policy (Note 5)             --      (1,268,357)        --              --         --              --         380,374
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Balance at 1 January 2006,
   restated                        4,335,550       2,855,778    (27,007)        662,542    534,536         345,993       1,088,684
Class A share issuance             2,747,987       7,584,445         --              --         --              --              --
Share issuance costs                      --              --   (210,747)             --         --              --              --
Profit for the year                       --              --         --              --         --              --         771,513
Acquisition of a subsidiary               --              --         --              --         --              --              --
Disposal of a subsidiary                  --              --         --              --         --              --              --
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                                 --              --         --              --         --              --        (520,266)
                                ------------   -------------   --------    ------------   --------      ----------    ------------
Balance at 31 December 2006        7,083,537      10,202,469         --       1,268,683         --         346,034       1,268,285
                                ============   =============   ========    ============   ========      ==========    ============
Balance at 31 December
   2006 (*)                     US$  908,146   US$ 1,308,009         --    US$  162,652         --      US$ 44,363    US$  162,601
                                ============   =============   ========    ============   ========      ==========    ============

<CAPTION>




                                 Minority        Total
                                 interest        equity
                                    RMB           RMB
                                ----------   -------------
<S>                             <C>          <C>
Balance at 1 January 2004,
   restated                         52,358       9,420,376
                                ----------   -------------
Originally reported                 52,358      10,374,716
Effects of changes in
   accounting policy (Note 5)                     (954,340)
                                ----------   -------------
Share issuance costs                    --         (14,035)
Profit for the year, restated         (746)        599,504
                                ----------   -------------
Originally reported                   (746)        566,738
Effects of changes in
   accounting policy (Note 5)                       32,766
                                ----------   -------------
Appropriation from retained
   earnings                             --              --
Dividends                               --        (455,233)
                                ----------   -------------
Balance at 31 December 2004,
   restated                         51,612       9,550,612
                                ----------   -------------
Originally reported                 51,612      10,472,186
Effects of changes in
   accounting policy (Note 5)           --        (921,574)
                                ----------   -------------
Balance at 1 January 2005,
   restated                         51,612       9,550,612
Share issuance costs                    --         (12,972)
Profit for the year, restated         (998)        645,962
                                ----------   -------------
Originally reported                   (998)        612,370
Effects of changes in
   accounting policy (Note 5)           --          33,592
                                ----------   -------------
Adjustment related to
   carrying value of fixed
   assets at Restructuring
   (Note a)                             --         140,000
Appropriation from retained
   earnings                         (1,857)         (1,857)
Transfers                               --              --
Dividends                               --        (476,911)
                                ----------   -------------
Balance at 31 December 2005,
   restated                         48,757       9,844,833
                                ----------   -------------
Originally reported                 48,757      10,732,816
Effects of changes in
   accounting policy (Note 5)           --         887,983
                                ----------   -------------
Balance at 1 January 2006,
   restated                         48,757       9,844,833
Class A share issuance                  --      10,332,432
Share issuance costs                    --        (210,747)
Profit for the year                    260         771,773
Acquisition of a subsidiary          4,229           4,229
Disposal of a subsidiary            (2,324)         (2,324)
Appropriation from retained
   earnings                             --              --
Share issuance cost offset
   against share premium                --              --
Transfers                               --              --
Dividends                               --        (520,266)
                                ----------   -------------
Balance at 31 December 2006         50,922      20,219,930
                                ==========   =============
Balance at 31 December
   2006 (*)                     US$  6,528   US$ 2,592,299
                                ==========   =============
</TABLE>

Note a: During the year ended 31 December 2005, the Company recorded an
        adjustment, which should have been reflected in connection with the
        transfer of assets made by the Predecessor to the Company at
        Restructuring (see Note 1) to the carrying value of fixed assets and
        related reserve account (share premium). The amount was determined to be
        immaterial to previously reported financial statements.

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 29 December 2006 of US$1.00=RMB7.8 as certified for customs
     purposes by the Federal Reserve Bank of New York. No representation is made
     that the RMB amounts could have been, or could be, converted into US$ at
     that rate on 29 December 2006.


                                       F-6
<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 6 March 1996. With effect from that date, the Company assumed the
     business operation of certain railroad and other related businesses
     (collectively the "Businesses") that were undertaken previously by its
     predecessor, Guangshen Railway Company (the "Predecessor") together with
     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 in 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 Company ("Yangcheng Railway", a wholly owned subsidiary of
     Guangzhou Railway Group) running on its railway line between the cities of
     Guangzhou and Pingshi in Southern China. Prior to the A share issuance, the
     Company was controlled by Guangzhou Railway Group which is a subsidiary of
     the MOR and is ultimately controlled by the PRC government. Subsequent to
     the A share issuance, the Company is no longer controlled by Guangzhou
     Railway Group (please see Notes 20, 35 and 36 for further details).

     The principal activities of the Group are railroad passenger and freight
     transportation. The Group also operates certain other businesses, which are
     principally services offered and sales of food, beverages and merchandises
     on board the trains as well as in the stations operated by the Group
     between Guangzhou and Shenzhen.

     The registered address of the Company is No. 1052 Heping Road, Shenzhen,
     Guangdong Province, the People's Republic of China.

     As of 31 December 2006, the Company had in total 9,411 employees,
     representing an increase of 529 compared to that of 31 December 2005.

     The English names of all companies listed in the financial statements are
     direct translations of their registered names in Chinese.


                                       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)

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 financial statements have been prepared in accordance with
     International Financial Reporting Standards ("IFRS") and the disclosure
     requirements of the Hong Kong Companies Ordinance (the "Financial
     Statements"). This basis of accounting differs in certain material respects
     from that used in the preparation of the statutory financial statements of
     the Group (the "Statutory Financial Statements") in accordance with the
     generally accepted accounting principles and relevant financial regulations
     applicable in the PRC ("PRC GAAP"). In preparing the Financial Statements,
     appropriate adjustments have been made to the Statutory Financial
     Statements to conform to IFRS, but such adjustments have not been
     incorporated into the Statutory Financial Statements.

     The principal adjustments made to conform to IFRS include the following:

     -    Additional depreciation charges on fixed assets, in particular the
          rail-line track assets;

     -    Capitalisation of replacement costs of components of rail-line track
          assets and de-recognition of items being replaced;

     -    Differences in the recognition policy on housing benefits provided to
          employees;

     -    Recognition of government grants through deduction against the
          carrying amount of fixed assets;

     -    Reversal of the revaluation surplus of fixed assets (see Note 5);

     -    Difference in recognition policy on early retirement benefit;

     -    Recognition of other income arising from the waiver of payables;

     -    Difference in the recognition policy on interest expense
          capitalization.

     The Financial Statements have been prepared under the historical cost
     convention except for the application of the fair value model to financial
     assets and liabilities and available-for-sale financial assets (see Note
     2(9) for details).

     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. Although these estimates are
     based on management's best knowledge of current events and actions, actual
     results ultimately may differ from those estimates.


                                       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 (CONT'D)

(1)  BASIS OF PRESENTATION (CONTINUED)

(a)  Standards, amendments and interpretations effective in 2006 but not
     relevant to the Group's operations:

     The following standards, amendments and interpretations are mandatory for
     the Group's accounting periods beginning on or after 1 January 2006 or
     later periods but are not relevant to the Group's operations:

     -    IAS 21 (Amendment), Net Investment in a Foreign Operation;

     -    IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast Intragroup
          Transactions;

     -    IAS 39 (Amendment), The Fair Value Option;

     -    IAS 39 and IFRS 4 (Amendment), Financial Guarantee Contracts;

     -    IFRS 1 (Amendment), First-time Adoption of International Financial
          Reporting Standards and IFRS 6 (Amendment), Exploration for and
          Evaluation of Mineral Resources;

     -    IFRS 6, Exploration for and Evaluation of Mineral Resources;

     -    IFRIC-Int 5, Rights to Interests arising from Decommissioning,
          Restoration and Environmental Rehabilitation Funds; and

     -    IFRIC-Int 6, Liabilities arising from Participating in a Specific
          Market - Waste Electrical and Electronic Equipment.

(b)  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 an existing standards, have
     been published that are mandatory for the Group's accounting periods
     beginning on or after 1 November 2006 or later periods that the Group has
     not early adopted:

     -    IFRS 7, Financial Instruments (effective for annual periods beginning
          on or after 1 January 2007). IFRS 7 introduces new disclosures
          relating to financial instruments. This standard does not have any
          significant impact on the classification and valuation of the Group's
          financial instruments;

     -    IFRIC-Int 10, Interim Financial Reporting and Impairment (effective
          for annual periods beginning on or after 1 November 2006). IFRIC-Int
          10 prohibits the impairment losses recognised in an interim period on
          goodwill, investments in equity instruments and investments in
          financial assets carried at cost to be reversed at a subsequent
          balance sheet date. The Group will apply IFRIC-Int 10 from 1 January
          2007, but it is not expected to have any significant impact on the
          Group's financial statements.

     -    IFRS 8, Operating Segments (effective for annual periods beginning on
          or after 1 January 2009). IFRS 8 requires the reporting of financial
          and descriptive information about an entity's reportable segments on
          the basis of internal reports that are regularly reviewed by its
          management. The group will apply IFRS 8 from 1 January 2009.

     -    IAS 23 (Amendment), Borrowing costs (effective for annual periods
          beginning on or after 1 January 2009). The revised IAS 23 requires
          management to capitalize borrowing costs attributable to qualifying
          assets. The Group will apply the revised IAS 23 from 1 January 2009.


                                       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 (CONT'D)

(1)  BASIS OF PRESENTATION (CONTINUED)

(c)  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
     1 March 2006 or later periods but are not relevant to the Group's
     operations:

     -    IFRIC-Int 7, Applying the Restatement Approach under IAS 29, Financial
          Reporting in Hyperinflationary Economies (effective for annual periods
          beginning on or after 1 March 2006). IFRIC-Int 7 provides guidance on
          how to apply requirements of IAS 29 in a reporting period in which an
          entity identifies the existence of hyperinflation in the economy of
          its functional currency, when the economy was not hyperinflationary in
          the prior period. As none of the group entities have a currency of a
          hyperinflationary economy as its functional currency, IFRIC-Int 7 is
          not relevant to the Group's operations.

     -    IFRIC-Int 8, Scope of IFRS 2 (effective for annual periods beginning
          on or after 1 May 2006). IFRIC-Int 8 requires consideration of
          transactions involving the issuance of equity instruments - where the
          identifiable consideration received is less than the fair value of the
          equity instruments issued - to establish whether or not they fall
          within the scope of IFRS 2. As none of the group entities have such
          transactions, IFRIC-Int 8 is not relevant to the Group's operations.

     -    IFRIC-Int 9, Reassessment of embedded derivatives (effective for
          annual periods beginning on or after 1 June 2006). IFRIC-Int 9
          requires an entity to assess whether an embedded derivative is
          required to be separated from the host contract and accounted for as a
          derivative when the entity first becomes a party to the contract.
          Subsequent reassessment is prohibited unless there is a change in the
          terms of the contract that significantly modifies the cash flows that
          otherwise would be required under the contract, in which case
          reassessment is required. As none of the group entities have made the
          aforementioned changes in its contracts in 2006, IFRIC-Int 9 is not
          relevant to the Group's operations.


                                      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 (CONT'D)

(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.

(c)  Associates

     Associates are all entities over which the Group has the ability to exert
     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. Details of the Group's associates are set out
     in Note 11.


                                      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 (CONT'D)

(2)  CONSOLIDATION (CONT'D)

(c)  Associates (Cont'd)

     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 in associates are recognised in the income
     statement.

(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
     functional currency of the Company and all its subsidiaries and it is also
     the presentation currency of the Group.


                                      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 (CONT'D)

(4)  FOREIGN CURRENCY TRANSACTIONS (CONT'D)

(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. The Group
     changed its accounting policy for fixed assets from the revaluation model
     to historical cost model, effective from 1 January 2006 (please see Note 5
     for details).

     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 asset 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 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        55 to 100 years (Note a)
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 on which
     these assets are located ("the Lease Term") (see Note 2(7)). 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 the public interest. The Group
     considers the approval process to be perfunctory, and therefore has
     determined the estimated useful lives of these assets to extend beyond the
     initial Lease Term.


                                      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 (CONT'D)

(5)  FIXED ASSETS (CONT'D)

     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 (Note 2(8)).

     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 and deposits 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)  IMPAIRMENT OF NON-FINANCIAL ASSETS

     Non-financial assets that 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.


                                      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 (CONT'D)

(9)  FINANCIAL ASSETS

     The Group classifies its financial assets in the following categories:
     loans and receivables, and available for sale. The classification depends
     on the purpose for which the financial assets were acquired. Management
     determines the classification of its financial assets at initial
     recognition.

(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.

(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 and financial assets at fair value
     through profit or loss are subsequently carried at fair value. Loans and
     receivables are carried at amortised cost using the effective interest
     method.

     A gain or loss on an available-for-sale financial assets is recognized
     directly in equity, through the statement of changes in equity, until the
     financial asset is derecognised, at which time the cumulative gain or loss
     previously recognised in equity shall be recognized in profit or loss.

     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(12).


                                      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 (CONT'D)

(10) DEFERRED STAFF COSTS

     The Group implemented a scheme (the "Scheme") for selling staff quarters to
     its employees in 2000. Under the Scheme, the Group sells 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 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 the Group 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
     amortised over the estimated remaining service 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 indications exist, 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.

(11) 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, or capitalized as fixed assets when
     installed, as appropriate. Net realizable value is the estimated selling
     price in the ordinary course of business, less selling expenses.

(12) 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 re-organisation, 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 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.


                                      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 (CONT'D)

(13) CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include cash in hand, deposits held at call with
     banks, and deposits placed with 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.

(14) TRADE PAYABLES

     Trade payables are recognized initially at fair value and subsequently
     measured at amortised cost using the effective interest method.

(15) 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.

(16) DEFERRED INCOME TAX

     Deferred income tax is provided in full, using the liability method, on
     temporary differences arising between the tax bases of assets and
     liabilities and their carrying 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.


                                      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 (CONT'D)

(17) EMPLOYEE BENEFITS

(a)  Defined contribution plan

     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.

     See also Note 2 (10) above.

(b)  Early retirement benefits

     Early retirement benefits are payable whenever an employee's employment is
     terminated before his/her normal retirement age or whenever an employee
     accepts voluntary redundancy in exchange for these benefits. The Group
     recognises early 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 early
     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.

(18) 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)  Rendering of services and sales of goods

     Railroad passenger revenues are recognised when the services are performed
     and railroad freight revenues are recognized after the freight has been
     moved from origin to destination.

     Revenues from other businesses are mainly derived from the sales of food,
     beverages and other merchandise on board the trains and in the railway
     stations and revenues derived from operating restaurants in major railway
     stations operated by the Group. Sales on board the trains and in the
     railway stations operated by the Group are recognised upon delivery of the
     food items and merchandises, when the significant risks and rewards of
     ownership of these goods have been transferred to the buyers. Revenues
     derived from the operations of restaurants are recognised when services are
     rendered.


                                      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 (CONT'D)

(18) REVENUE RECOGNITION (CONTINUED)

(b)  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.

(c)  Dividend income

     Dividend income is recognised when the right to receive payment is
     established.

(19) 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.

(20) 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.

(21) 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-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)

3    FINANCIAL RISK MANAGEMENT

     The Group's activities expose it to a variety of financial risks: Currency
     risk, price risk, credit risk and interest rate risk. The Group's overall
     risk management strategy seeks to minimise the potential adverse effects on
     the financial performance of the Group.

(a)  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 had USD and HKD monetary assets as of 31 December 2006 and 2005
     as stated below.

<TABLE>
<CAPTION>
                                                      As of 31 December
                                       Currency     ---------------------
          Monetary assets            denomination      2006        2005
          ---------------            ------------   ---------   ---------
                                                    (RMB'000)   (RMB'000)
<S>                                  <C>            <C>         <C>
Current assets
Short-term deposits with original
   maturities of over three months        USD             --     503,463
Cash and cash equivalents                 USD         23,701       9,049
Cash and cash equivalents                 HKD         51,988     110,195
</TABLE>

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

(b)  Price risk

     The Group is exposed to equity securities price risk because of investments
     held by the Group and classified on the consolidated balance sheet as
     available-for-sale. However, the amounts of such investments are not
     significant and management of the Company believes that the exposure is not
     significant.


                                      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)

3    FINANCIAL RISK MANAGEMENT (CONT'D)

(c)  Credit risk

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

     Cash and short term liquid investments are placed with reputable banks and
     deposit taking centres operated by the MOR (see Notes 19 and 32(b) for
     details). No significant credit risk is expected.

     The majority of the Group's accounts receivable balances are due from the
     MOR and other third party customers as a result of rendering services or
     sales of products. The Group's other receivable balances mainly arise from
     services other than the main railway transportation services. 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.

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

(d)  Liquidity risk

     Prudent liquidity risk management includes maintaining sufficient cash and
     cash equivalents to meet its current use in operations. Management aims to
     maintain flexibility in funding by keeping committed credit lines
     available. In addition, during the year, the Company issued 2,747,987,000 A
     Shares in the Shanghai Stock Exchange and collected net proceeds of
     approximately RMB10 billion in order to finance the acquisition of the net
     assets of Yangcheng Railway (please see Note 36).

(e)  Cash flow and fair value interest rate risk

     As the Group has no significant interest-bearing assets (except for short
     term deposits placed with banks and deposit centre of the MOR and the
     restricted cash balance), the Group's income and operating cash flows are
     not materially affected by the changes of market interest rates.

     The Group's interest rate risk arises mainly from long-term borrowings.
     Borrowings issued at floating rates expose the Group to cash flow interest
     rate risk. The interest rates and terms of repayment of borrowings of the
     Group are disclosed in Note 22.


                                      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)

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.

(a)  Critical accounting estimates and assumptions

     The Group makes estimates and assumptions concerning the future. The
     resulting accounting estimates will, by definition, rarely 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.

     The critical accounting estimates and assumptions involved in the
     preparation of the Financial Statements include the estimates of the
     depreciable lives of fixed assets and the expected service period of
     employees for the amortisation of deferred employee benefit costs mentioned
     in Note 2(10).

     The estimate of depreciable lives of fixed assets was made by the directors
     with reference to a technical assessment of the expected usage of such
     assets; their expected physical wear and tear; results of recent durability
     assessment performed by industry experts; technical or commercial
     obsolescence arising from changes or improvements in production of similar
     fixed assets; the Group's right to renewal of the land use right lease
     grants on which these assets are located (please see Note 2 (5)). The
     estimate of expected service period of employees entitled to the deferred
     housing benefits was made by the directors based on the average age of
     employees who have joined the Scheme and the historical attrition rate of
     employees.

(b)  Estimated impairment of non-financial assets

     The Group tests annually, or when there is any triggering event, whether
     non-financial assets, mainly including fixed assets, leasehold land
     payments and investment in associates have 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.

     For the impairment assessment made on the realisability of its investment
     made in an associate, Guangzhou Tiecheng Enterprise Company, the Group
     estimates the impairment based on the relevant factors including court
     verdict, consultation made with its PRC legal counsel and support obtained
     from Guangzhou Railway Group. Details of the estimate are described in Note
     11.

(c)  Fair value of financial instruments

     The Group uses its judgement to select a variety of methods and make
     assumptions that are mainly based on market conditions existing at each
     balance sheet date. The Group has used discounted cash flow analysis for
     various available-for-sale financial assets that were not traded in active
     markets.


                                      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)

5    COMPARATIVE FIGURES

(a)  Change in accounting policy

     Under IFRS, the Company is allowed to use the revaluation model or
     historical cost model to account for its fixed assets. During the current
     year, the Company changed its accounting policy in respect of fixed assets
     from the revaluation model to the historical cost model. The change has
     been made after consideration of the following factors:

     -    the railway industry is a specialised industry in the PRC which is
          controlled by the State government. There is no ready and reliable
          open market environment. As a result, the Financial Statements
          prepared under the revaluation basis will not provide relevant and
          useful information to readers and users of the Financial Statements;

     -    based on management's research performed on the industry practice, the
          new policy is more consistent with the local industry practice; and

     -    historical cost model would improve comparability of the state of
          affairs and operating results of the Group with other operators.

     This change in accounting policy has been accounted for retrospectively,
     and the comparative financial statements have also been restated. The
     effect of the change is tabulated below:

<TABLE>
<CAPTION>
                                               2004         2005         2006
                                              RMB'000      RMB'000      RMB'000
                                            ----------   ----------   ----------
<S>                                         <C>          <C>          <C>
Decrease in fixed assets                    (1,084,205)  (1,044,686)    (982,268)
Increase in deferred tax asset                 162,631      156,703      147,340
Increase in retained earnings, net of tax      346,783      380,374      433,429
Decrease in share premium                   (1,268,357)  (1,268,357)  (1,268,357)
                                            ----------   ----------   ----------
Decrease in depreciation expense                38,548       39,519       62,417
Increase in income tax expense                  (5,782)      (5,927)      (9,362)
                                            ----------   ----------   ----------
Earning per share for profit
   - Basic (RMB)                                  0.01         0.01         0.01
                                            ----------   ----------   ----------
</TABLE>

(b)  Certain employee benefit expenses amounting to RMB 109,719,000, which were
     recorded within "Utility and office expenses" in the prior year have been
     reclassified within "Labour and benefits" to conform to the presentation of
     the income statement in the current year.

(c)  Housing fund payable amounting to RMB 173,413,000, which was recorded
     within "Accruals and other payables" in the prior year has been
     reclassified to "Housing fund payable" to conform to the presentation of
     the balance sheet in the current year.


                                      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)

6    SEGMENT INFORMATION

(a)  Primary reporting format - business segments

     As of 31 December 2006, the Group conducts the majority of its business
     activities in railway transportation ("Railroad Businesses") and other
     related business operations (see Note 1). These segments are so determined
     primarily due to the fact that the senior management makes key operating
     decisions and assesses 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, interests in
     subsidiaries/associates, deferred staff costs, prepayments and other
     receivables, short-term deposits and cash and cash equivalents, excluding
     deferred tax assets. Segment liabilities primarily consist of borrowings,
     trade payables, payables for construction-in-progress, amounts due to
     related parties and accruals and other payables, excluding taxes payable
     and deferred tax liabilities. Capital expenditure comprises additions to
     fixed assets (see Note 7), construction-in-progress (see Note 8) and
     prepayments for fixed assets.


                                      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)

6    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
                                              ---------------------------------  -------------------------
                                                 2006        2005        2004      2006     2005     2004
                                              ----------  ----------  ---------  -------  -------  -------
                                                RMB'000     RMB'000    RMB'000   RMB'000  RMB'000  RMB'000
                                                           Restated    Restated
                                                           (Note 5)    (Note 5)
<S>                                           <C>         <C>         <C>        <C>      <C>      <C>
Revenues
- External                                     3,465,884   3,099,466  2,871,478  128,590  177,462  166,671
- Inter-segment                                       --          --         --   29,661  159,503   58,727
                                              ----------  ----------  ---------  -------  -------  -------
                                               3,465,884   3,099,466  2,871,478  158,251  336,965  225,398
                                              ==========  ==========  =========  =======  =======  =======
Other income                                      61,991      48,531     47,025    2,657    3,097    1,168
SEGMENT RESULT                                   999,968     808,613    715,230  (34,764)  (9,788)   1,684
Finance costs                                         --          --         --       --       --       --
Share of results of associates                        --          30         46  (28,306) (19,979) (12,165)
Income tax expense                                    --          --         --       --       --       --
                                              ----------  ----------  ---------  -------  -------  -------
PROFIT FOR THE YEAR                              999,968     808,643    715,276  (63,070) (29,767) (10,481)
                                              ==========  ==========  =========  =======  =======  =======
OTHER INFORMATION
Segment assets                                23,990,143  11,337,233  9,962,517   69,299  218,545  215,577
Interest in associates                            92,834     108,000    128,346       --       --       --
Deferred tax assets                                   --          --         --       --       --       --

TOTAL ASSETS

Segment liabilities                            3,962,820   1,789,264    757,510   23,285  115,388  103,477
Taxes payable                                         --          --         --       --       --       --
Deferred tax liability                                --

TOTAL LIABILITIES

CAPITAL EXPENDITURE                            3,584,388   2,248,976    315,035    1,048    9,335   11,477

NON-CASH EXPENSES
   - Depreciation                                317,358     289,185    295,953    2,529    2,773.   1,588
   - Amortisation of leasehold land payments      16,776      15,416     15,704       --      165       --
   - Provision for doubtful accounts              (4,331)      8,550     18,668       16    1,190       82
   - Amortisation of deferred staff costs         15,091      15,090     15,092       --       --       --
   - Recognition of early retirement benefit      22,420          --         --       --       --       --


<CAPTION>
                                                       Unallocated                  Elimination
                                              ----------------------------  --------------------------
                                                2006      2005      2004      2006     2005      2004
                                              --------  --------  --------  -------  --------  -------
                                               RMB'000   RMB'000   RMB'000  RMB'000   RMB'000  RMB'000


<S>                                           <C>       <C>       <C>       <C>      <C>       <C>
Revenues
- External                                          --        --        --       --        --       --
- Inter-segment                                     --        --        --  (29,661) (159,503) (58,727)
                                              --------  --------  --------  -------  --------  -------
                                                    --        --        --  (29,661) (159,503) (58,727)
                                              ========  ========  ========  =======  ========  =======
Other income                                        --        --        --       --        --       --
SEGMENT RESULT                                      --        --        --       --        --       --
Finance costs                                  (15,970)  (22,738)   (1,136)      --        --       --
Share of results of associates                      --        --        --       --        --       --
Income tax expense                            (149,155) (110,176) (104,155)      --        --       --
                                              --------  --------  --------  -------  --------  -------
PROFIT FOR THE YEAR                           (165,125) (132,914) (105,291)      --        --       --
                                              ========  ========  ========  =======  ========  =======
OTHER INFORMATION
Segment assets                                      --        --        --                 --       --
Interest in associates                              --        --        --                 --       --
Deferred tax assets                            190,843   192,692   181,037                 --       --

TOTAL ASSETS

Segment liabilities                                           --        --                 --       --
Taxes payable                                  127,282   102,155    75,878                 --       --
Deferred tax liability                           9,802     4,830        --                 --       --

TOTAL LIABILITIES

CAPITAL EXPENDITURE                                           --        --                 --       --

NON-CASH EXPENSES
   - Depreciation                                             --        --                 --       --
   - Amortisation of leasehold land payments                  --        --                 --       --
   - Provision for doubtful accounts                          --        --                 --       --
   - Amortisation of deferred staff costs                     --        --                 --       --
   - Recognition of early retirement benefit        --        --        --       --        --       --


<CAPTION>
                                                             Total
                                              ----------------------------------
                                                 2006        2005        2004
                                              ----------  ----------  ----------
                                                RMB'000     RMB'000     RMB'000
                                                           Restated    Restated
                                                           (Note 5)    (Note 5)
<S>                                           <C>         <C>         <C>
Revenues
- External                                     3,594,474   3,276,928   3,038,149
- Inter-segment                                       --          --          --
                                              ----------  ----------  ----------
                                               3,594,474   3,276,928   3,038,149
                                              ==========  ==========  ==========
Other income                                      64,648      51,628      48,193
SEGMENT RESULT                                   965,204     798,825     716,914
Finance costs                                    (15,970)    (22,738)     (1,136)
Share of results of associates                   (28,306)    (19,949)    (12,119)
Income tax expense                              (149,155)   (110,176)   (104,155)
                                              ----------  ----------  ----------
PROFIT FOR THE YEAR                              771,773     645,962     599,504
                                              ==========  ==========  ==========
OTHER INFORMATION
Segment assets                                24,059,442  11,555,778  10,178,094
Interest in associates                            92,834     108,000     128,346
Deferred tax assets                              190,843     192,692     181,037
                                              ----------  ----------  ----------
TOTAL ASSETS                                  24,343,119  11,856,470  10,487,477
                                              ==========  ==========  ==========
Segment liabilities                            3,986,105   1,904,652     860,987
Taxes payable                                    127,282     102,155      75,878
Deferred tax liability                             9,802       4,830          --
                                              ----------  ----------  ----------
TOTAL LIABILITIES                              4,123,189   2,011,637     936,865
                                              ==========  ==========  ==========
CAPITAL EXPENDITURE                            3,585,436   2,258,311     326,512
                                              ==========  ==========  ==========
NON-CASH EXPENSES
   - Depreciation                                319,887     291,958     297,541
   - Amortisation of leasehold land payments      16,776      15,581      15,704
   - Provision for doubtful accounts              (4,315)      9,740      18,750
   - Amortisation of deferred staff costs         15,091      15,090      15,092
   - Recognition of early retirement benefit      22,420          --          --
                                              ==========  ==========  ==========
</TABLE>


                                      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)

6    SEGMENT INFORMATION (CONT'D)

(b)  Secondary reporting format - geographical segments

     For the year ended 31 December 2006 (2005 and 2004 - same), all of the
     Group's business operations are conducted within the PRC. Accordingly, no
     analysis of geographical segment information is presented.

     Inter-segment transfers or transactions are entered into under the normal
     commercial terms and conditions that would also be available to unrelated
     third parties.

7    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
                                         (Note 5)    (Note 5)       (Note 5)      (Note 5)      (Note 5)      (Note 5)    (Note 5)
<S>                                     <C>        <C>           <C>            <C>          <C>             <C>        <C>
AT 1 JANUARY 2005
Cost, restated                          1,454,071     38,500       3,600,161     1,051,648       326,129     1,612,792   8,083,301
Accumulated depreciation, restated       (250,555)   (28,875)       (783,294)     (339,400)     (246,265)     (530,543) (2,178,932)
Impairment                                     --         --              --       (14,284)           --        (1,011)    (15,295)
                                        ---------    -------       ---------     ---------      --------     ---------  ----------
Net book amount, restated               1,203,516      9,625       2,816,867       697,964        79,864     1,081,238   5,889,074
                                        =========    =======       =========     =========      ========     =========  ==========

YEAR ENDED 31 DECEMBER 2005
Opening net book amount, restated       1,203,516      9,625       2,816,867       697,964        79,864     1,081,238   5,889,074
Additions                                 145,981         --          65,069        28,896         1,326        39,760     281,032
Transfer from Construction-in-progress    388,217         --           2,700         3,301        14,556       121,520     530,294
Reclassifications                         (87,677)        --          87,806            --            14          (143)         --
Disposals                                 (23,250)        --         (28,673)           --          (853)       (8,844)    (61,620)
Depreciation charges, restated            (29,445)    (7,700)        (90,755)      (45,858)      (14,933)     (103,267)   (291,958)
                                        ---------    -------       ---------     ---------      --------     ---------  ----------
Closing net book amount, restated       1,597,342      1,925       2,853,014       684,303        79,974     1,130,264   6,346,822
                                        =========    =======       =========     =========      ========     =========  ==========

AT 31 DECEMBER 2005
Cost, restated                          1,864,120     38,500       3,720,018     1,083,845       339,403     1,730,730   8,776,616
Accumulated depreciation, restated       (266,778)   (36,575)       (867,004)     (385,258)     (259,429)     (599,503) (2,414,547)
Impairment                                     --         --              --       (14,284)           --          (963)    (15,247)
                                        ---------    -------       ---------     ---------      --------     ---------  ----------
Net book amount, restated               1,597,342      1,925       2,853,014       684,303        79,974     1,130,264   6,346,822
                                        =========    =======       =========     =========      ========     =========  ==========

YEAR ENDED 31 DECEMBER 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    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 31 DECEMBER 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
                                        =========    =======       =========     =========      ========     =========  ==========
</TABLE>


                                      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)

7    FIXED ASSETS (CONT'D)

     As at 31 December 2006, ownership certificates of certain buildings
     ("Building Ownership Certificates") of the Group with an aggregate carrying
     value of approximately RMB1,298,350,000 (2005: RMB1,297,947,000) 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. In addition, the Group has started the
     application process. Accordingly, no provision for fixed assets impairment
     was considered necessary.

8    CONSTRUCTION-IN-PROGRESS

<TABLE>
<CAPTION>
                              2005        2006
                            RMB'000     RMB'000
                           ---------   ---------
<S>                        <C>         <C>
At 1 January                 345,313   1,449,358
Additions                  1,634,339   3,304,379
Transfer to fixed assets    (530,294)   (447,669)
Disposal of a subsidiary          --        (911)
                           ---------   ---------
At 31 December             1,449,358   4,305,157
                           =========   =========
</TABLE>

     The construction-in-progress represents plant and facilities, mainly
     including the construction related costs for the fourth railway line of the
     Group under construction. For the year ended 31 December 2006,
     approximately RMB24,903,000 (2005 and 2004: Nil) of interest expenses were
     capitalised in the construction-in-progress balance. A capitalisation rate
     of 5.83% (2005 and 2004: Nil) per annum was used to determine the amount of
     borrowing costs eligible for capitalisation.


                                      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)

9    LEASEHOLD LAND PAYMENTS

<TABLE>
<CAPTION>
                               RMB'000
                              --------
<S>                           <C>
AT 1 JANUARY 2005
Cost                           770,774
Accumulated amortisation      (134,395)
                              --------
Net book amount                636,379
                              ========

YEAR ENDED 31 DECEMBER 2005
Opening net book amount        636,379
Disposals                           --
Amortisation charges           (15,581)
                              --------
Closing net book amount        620,798
                              ========

AT 31 DECEMBER 2005
Cost                           770,774
Accumulated amortization      (149,976)
                              --------
Net book amount                620,798
                              ========

YEAR ENDED 31 DECEMBER 2006
Opening net book amount        620,798
Additions                       21,879
Disposal of a subsidiary          (273)
Amortisation charges           (16,776)
                              --------
Closing net book amount        625,628
                              ========

AT 31 DECEMBER 2006
Cost                           792,654
Accumulated amortization      (167,026)
                              --------
Net book amount                625,628
                              ========
</TABLE>

     As of 31 December 2006, land use right certificates ("Land Certificates")
     of certain parcels of land of the Group and the Company with an aggregate
     area of approximately 1,733,987 square meters (2005: 3,450,962 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 or the Company to apply for and obtain the Land Certificates
     and it should not lead to any significant adverse impact on the operations
     of the Group or the Company. In addition, the Group has started the
     application process. Accordingly, no provision for impairment was
     considered necessary.


                                      F-28

<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)

10   INTERESTS IN SUBSIDIARIES

(i)  As of 31 December 2006, 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
                                                    Date of      equity interest
                                                incorporation/   attributable to
Name of the entity                              establishment      the Company    Paid-in capital         Principal activities
------------------                            -----------------  ---------------  ---------------         --------------------
<S>                                           <C>                <C>              <C>              <C>
DIRECTLY HELD BY THE COMPANY
Shenzhen Railway Station Passenger Services   18 December 1986          100%       RMB 1,500,000   Catering services and sales of
   Company                                                                                            merchandise
Shenzhen Fu Yuan Enterprise Development       1 November 1991           100%       RMB18,500,000   Hotel management
   Company("Fu Yuan")
Dongguan Changsheng Enterprise Company        22 May 1992                51%       RMB38,000,000   Warehousing
Guangzhou East Station Dongqun Trade and      23 November 1992          100%       RMB 1,020,000   Sales of merchandise
   Commerce Service Company
Shenzhen Longgang Pinghu Qun Yi Railway       11 September 1993          55%       RMB10,000,000   Cargo loading and unloading,
   Store Loading and Unloading Company                                                                warehousing, freight
                                                                                                      transportation
Shenzhen Jing Ming Industrial & Commercial    18 January 1994           100%       RMB 2,110,000   Maintenance of water and
   Company Limited                                                                                    electrical equipment
Guangzhou Tielian Economy Development         27 December 1994        50.50%       RMB 1,000,000   Warehousing and freight transport
Company Limited ("Tielian") (Note a)                                                                  agency services
Shenzhen Guangshen Railway Travel Service     16 August 1995            100%       RMB 2,400,000   Travel agency
   Ltd.

INDIRECTLY HELD BY THE COMPANY
Shenzhen Road Multi-modal Transportation      17 March 1994              60%       RMB 1,000,000   Freight transportation
   Company Limited
Shenzhen Nantie Construction Supervision      8 May 1995                100%       RMB 2,000,000   Supervision of construction
   Company                                                                                            projects
Shenzhen Yuezheng Enterprise Company Limited  24 June 1996              100%       RMB 1,000,000   Freight transport agency, cargo
                                                                                                      loading and unloading,
                                                                                                      warehousing
Shenzhen Railway Property Management Company  13 November 2001          100%       RMB 3,000,000   Property management
   Limited
Shenzhen Guangshen Railway Economic and       7 March 2002              100%       RMB 2,000,000   Catering management
   Trade Enterprise Company
</TABLE>

     Note a: On 17 January 2006, the Company acquired an additional 16.5% equity
     interest in Tielian from a third party. As a result the total equity
     interests increased from 34% to 50.5%, and Tielian became a subsidiary of
     the Company from then onward.

     All the above subsidiaries are limited liability companies.

(ii) Disposal of a subsidiary

     On 13 June 2006, the Company and Fu Yuan (the Company's wholly-owned
     subsidiary) signed equity transfer agreements with Guangzhou Railway
     Economic and Technology Development Group Company ("Economic and Technology
     Company", a subsidiary of Guangzhou Railway Group), separately. The Company
     and Fu Yuan transferred 41% and 10% equity interest in Shenzhen Guangshen
     Railway Civil Engineering Company to the Economic and Technology Company
     ("SZ Civil Engineer", the Group's wholly-owned subsidiary) separately. The
     total consideration of these agreements is RMB35,224,400. Upon the
     completion of the disposal, the equity interest held by the Group decreased
     from 100% to 49% and the results of SZ Civil Engineer (the Group's
     associate after the disposal) has not been consolidated in the Group's
     Financial Statements from then onwards.


                                      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)

11   INTERESTS IN ASSOCIATES

<TABLE>
<CAPTION>
                                                2005      2006
                                              RMB'000   RMB'000
                                              -------   -------
<S>                                           <C>       <C>
Share of net assets                           137,578   152,209
Less: provision for impairment in value (a)   (29,689)  (29,689)
                                              -------   -------
Interest in associates, net                   107,889   122,520

Due from associates                            12,423    12,312
Less: provision for doubtful accounts (a)     (12,312)  (12,312)
                                              -------   -------
                                                  111        --
Due to associate                                   --   (29,686)
                                              -------   -------
                                              108,000    92,834
                                              =======   =======
</TABLE>

     Note a: The provision at the Group level as of 31 December 2006 represents
          (i) provision for full impairment losses in investment in Zengcheng
          Lihua Stock Company Limited ("Zengcheng Lihua") at approximately
          RMB29,700,000 and (ii) full impairment loss provision against a
          receivable balance due from Zengcheng Lihua at approximately
          RMB12,300,000. Both provisions (the "Zengcheng Lihua Provision") were
          brought forward from prior years.

     The movement of interest in associates during the year is as follows:

<TABLE>
<CAPTION>
                                      2005      2006
                                    RMB'000   RMB'000
                                    -------   -------
<S>                                 <C>       <C>
Beginning of the year               127,838   107,889
Additions - cost                         --    45,891
Share of results after tax          (19,949)  (28,306)
Disposal of Tielian (Note 10(i)a)        --    (2,954)
                                    -------   -------
End of the year                     107,889   122,520
                                    =======   =======
</TABLE>

     As of 31 December 2006, 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
                                      Date of         interest          capital
                                  incorporation/    attributable       amount of
Name of the entity                 establishment   to the Company    the associate              Principal activities
------------------                --------------   --------------   --------------   --------------------------------------
<S>                               <C>              <C>              <C>              <C>
DIRECTLY HELD BY THE COMPANY

SZ Civil Engineer (Note 10(ii))    1 March 1984           49%       RMB 55,000,000   Construction of railroad properties

Zengcheng Lihua                    30 July 1992           27%       RMB100,000,000   Real estate construction, provision of
                                                                                     warehousing, cargo uploading and
                                                                                     unloading services

Tiecheng (Note b)                   2 May 1995            49%       RMB245,000,000   Properties management and trading of
                                                                                     merchandise

INDIRECTLY HELD BY THE COMPANY

Guangzhou Huangpu Yuehua           20 July 1990         33.3%       RMB  6,610,000   Cargo loading and unloading,
   Freight Transportation Joint                                                      warehousing, freight transport
   Venture Company Limited                                                           agency services
</TABLE>

     All the above associates are limited liability companies.


                                      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)

11   INTERESTS IN ASSOCIATES (CONT'D)

     The Group's share of the results with its percentage ownership of its
     principal associates, and its share of the assets are as follows:

<TABLE>
<CAPTION>
            Assets   Liabilities   Revenues   Profit/(Loss)
           RMB'000     RMB'000      RMB'000      RMB'000
           -------   -----------   --------   -------------
<S>        <C>       <C>           <C>        <C>
2005
Tiecheng   152,499      48,648       2,534       (19,979)
Tielian      3,488         287       1,253            30
           -------     -------      ------       -------
           155,987      48,935       3,787       (19,949)
           =======     =======      ======       =======

2006
Tiecheng   184,428      93,560       2,899       (26,973)
Tielian     77,689      72,760      90,092         1,509
           -------     -------      ------       -------
           262,117     166,320      92,991       (25,464)
           =======     =======      ======       =======
</TABLE>

     Note b: As indicated above, the carrying amount of the Company's investment
     in Tiecheng as of 31 December 2006 was approximately RMB90,868,000.

     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 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. 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 event 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 further 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 14 November 2006 and 25 December
     2006 respectively, but no judgement had yet 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.
     Management has determined that no provision for impairment loss of the
     Company's 49% interest in Tiecheng is required on the basis that the
     estimated fair value of the properties exceeds the carrying value. 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 an indemnity letter issued by the Guangzhou Railway Group to
     ensure that the investment interests of the Company in Tiecheng would not
     be adversely affected by this outstanding proceeding.


                                      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)

12   AVAILABLE-FOR-SALE INVESTMENTS

<TABLE>
<CAPTION>
                          2005       2006
                         RMB'000   RMB'000
                        --------   -------
<S>                     <C>        <C>
Beginning of the year    167,962    46,108
Disposals               (121,854)       --
                        --------    ------
End of the year           46,108    46,108
                        ========    ======
</TABLE>

     The Company'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 31 December 2006, no
     impairment provision was considered necessary by the directors to write
     down the carrying amounts of these investments.

13   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>
                                                                       2005        2006
                                                                      RMB'000    RMB'000
                                                                    ----------   -------
                                                                    (Restated)
                                                                      Note 5
<S>                                                                 <C>          <C>
Deferred tax assets:
- Deferred tax asset to be recovered after more than 12 months       183,329     175,700
- Deferred tax asset to be recovered within 12 months                  9,363      15,143
                                                                     -------     -------
                                                                     192,692     190,843
                                                                     =======     =======
Deferred tax liability:
- Deferred tax liability to crystallise after more than 12 months     (4,830)     (9,802)
                                                                     =======     =======
</TABLE>


                                      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)

13.  DEFERRED TAX ASSETS /LIABILITIES (CONT'D)

     The movement in deferred tax assets and liabilities of the Group during the
     year, without taking into consideration the offsetting of balances within
     the same tax jurisdiction, is as follows:

<TABLE>
<CAPTION>
                                                                                            (Charged)
                                                                   Credited                  /Credit
                                                        At 1        to the        At 31       to the      At 31
                                                       January      income      December      income    December
                                                        2005       statement      2005      Statement     2006
                                                       Rmb'000      Rmb'000      Rmb'000     Rmb'000     Rmb'000
                                                     ----------   ----------   ----------   ---------   --------
                                                     (Restated)   (Restated)   (Restated)
                                                       Note 5       Note 5       Note 5
<S>                                                  <C>          <C>          <C>          <C>         <C>
DEFERRED TAX ASSETS:
Provision for doubtful debts                            10,463       3,627        14,090        185       14,275
Impairment provision for fixed assets                    2,946          --         2,946       (750)       2,196
Impairment provision for interests in associates         4,453          --         4,453         --        4,453
Adjustments made to carrying value of fixed assets     162,630       5,229       167,859        572      168,431
Others                                                     544       2,800         3,344     (1,856)       1,488
                                                       -------      ------       -------     ------      -------
                                                       181,036      11,656       192,692     (1,849)     190,843
                                                       =======      ======       =======     ======      =======
</TABLE>

<TABLE>
<CAPTION>
                                                                                                        Charged
                                                                   At 1      Charged to      At 31       to the      At 31
                                                                  January    the income    December      income    December
                                                                   2005       statement      2005      Statement     2006
                                                                  Rmb'000      Rmb'000      Rmb'000     Rmb'000     Rmb'000
                                                                ----------   ----------   ----------   ---------   --------
                                                                (Restated)   (Restated)   (Restated)
                                                                  Note 5       Note 5       Note 5
<S>                                                             <C>          <C>          <C>          <C>         <C>
DEFERRED TAX LIABILITIES:
Capitalisation of replacement costs of rail-line track assets        --         4,830        4,830         (66)      4,764
Difference on deferral of acquisition cost                           --            --           --       3,082       3,082
Difference on capitalisation of interest expense                     --            --           --       1,956       1,956
                                                                    ---         -----        -----       -----       -----
                                                                     --         4,830        4,830       4,972       9,802
                                                                    ===         =====        =====       =====       =====
</TABLE>

14   DEFERRED STAFF COSTS

<TABLE>
<CAPTION>
                             2005      2006
                           RMB'000    RMB'000
                           -------   --------
<S>                        <C>       <C>
AT 1 JANUARY
Cost                       226,369    226,369
Accumulated amortization   (75,458)   (90,548)
                           -------   --------
Net book amount            150,911    135,821
                           -------   --------
YEAR ENDED 31 DECEMBER
Opening net book amount    150,911    135,821
Amortization               (15,090)   (15,091)
                           -------   --------
Closing net book amount    135,821    120,730
                           =======   ========
AT 31 DECEMBER
Cost                       226,369    226,369
Accumulated amortization   (90,548)  (105,639)
                           -------   --------
Net book amount            135,821    120,730
                           =======   ========
</TABLE>


                                      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)

15   MATERIALS AND SUPPLIES

<TABLE>
<CAPTION>
                                               2005      2006
                                             RMB'000   RMB'000
                                             -------   -------
<S>                                          <C>       <C>
Train compartment materials                   34,420    34,311
Reusable rail-line track materials             8,708     8,532
Track and track diversion joints materials     4,735     6,849
Construction materials                         4,579        --
Locomotive materials                           4,063     5,949
Electrical materials                           2,909     2,770
Others                                         5,539     8,536
                                              ------    ------
                                              64,953    66,967
                                              ======    ======
</TABLE>

     The costs of materials and supplies consumed of the Group were recognised
     as 'operating expenses' amounting to approximately RMB351,331,000 (2005:
     RMB387,151,000). As of 31 December 2006, the inventories were stated at
     cost as the costs of the inventories were lower than the net realizable
     values of the inventories.

16   TRADE RECEIVABLES

<TABLE>
<CAPTION>
                                          2005      2006
                                        RMB'000   RMB'000
                                        -------   -------
<S>                                     <C>       <C>
Trade receivables                       116,877   71,614
Less: Provision for doubtful accounts   (10,484)  (8,745)
                                        -------   ------
                                        106,393   62,869
                                        =======   ======
</TABLE>

     Movement of provision for doubtful accounts was as below:

<TABLE>
<CAPTION>
                                          2005      2006
                                        RMB'000   RMB'000
                                        -------   -------
<S>                                     <C>       <C>
At beginning of year                     15,423   10,484
Addition of provision during the year     6,684      924
Reversal during the year                (11,623)  (2,663)
                                        -------   ------
At end of year                           10,484    8,745
                                        =======   ======
</TABLE>

     The credit period of trade receivables is generally within one year. As at
     31 December 2006 and 2005, the aging analysis of trade receivables was as
     follows:

<TABLE>
<CAPTION>
                                    2005      2006
                                    RMB       RMB
                                  -------   -------
<S>                               <C>       <C>
Within 1 year                     101,729    62,769
Over 1 year but within 2 years      4,645       100
Over 2 years but within 3 years        19        --
                                  -------    ------
                                  106,393    62,869
                                  =======    ======
</TABLE>

     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 31 December 2006 and 2005, the carrying amounts of the above trade
     receivables approximated to their fair values.


                                      F-34
<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)

17   PREPAYMENTS AND OTHER RECEIVABLES

<TABLE>
<CAPTION>
                                          2005       2006
                                         RMB'000   RMB'000
                                        --------   -------
<S>                                     <C>        <C>
Other receivables                        211,969   156,072
Less: Provision for doubtful accounts    (71,717)  (60,441)
                                        --------   -------
Other receivables, net                   140,252    95,631
Prepayments                               30,355     3,005
                                        --------   -------
                                         170,607    98,636
                                        ========   =======
</TABLE>

     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.

     Movement of provision for doubtful accounts was as below:

<TABLE>
<CAPTION>
                                          2005      2006
                                        RMB'000   RMB'000
                                        -------   -------
<S>                                     <C>       <C>
At beginning of year                     57,038   71,717
Addition of provision during the year    15,180      634
Reversal during the year                   (501)  (3,210)
Write off during the year                    --   (8,700)
                                        -------   ------
At end of year                           71,717   60,441
                                        =======   ======
</TABLE>

     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 at 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.

18   RESTRICTED CASH

     Restricted cash represents an employee housing fund that the Company has
     specifically set up pursuant to applicable government policies and
     regulations for the benefits of its employees (see Note 26(b)). The Company
     is responsible to administer the fund on behalf of them. Appropriations at
     7% of the aggregate salaries of the employees residing in the Guangzhou
     area or along the Guangzhou-Shenzhen rail-line route, and 13% of the
     aggregate salaries of the employees residing in the Shenzhen area, are made
     to the fund. The funds collected have been deposited in designated bank
     accounts set up by and in the name of the Company for the respective
     employees. The Company does not have any right to use the funds for other
     purposes except for making housing welfare payments upon requests made from
     the respective employees.


                                      F-35

<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)

19   SHORT-TERM DEPOSIT

     Short-term deposits with original maturities ranging from three months to
     one year are held for investment purpose and stated at amortised cost.

<TABLE>
<CAPTION>
                                                                    2005      2006
                                                           Note   RMB'000   RMB'000
                                                           ----   -------   -------
<S>                                                        <C>    <C>       <C>
Time deposits with maturities over three months in banks    (a)   598,131        --
Time deposits with maturities over three months in the
   deposit-taking centre of MOR ("MOR Depositing-taking
   Centre")                                                 (b)   168,000   169,739
                                                                  -------   -------
                                                                  766,131   169,739
                                                                  =======   =======
</TABLE>

     (a)  In 2006, time deposits with maturities over three months in banks
          consist of short-term deposits denominated in RMB, HKD, and USD (2005:
          RMB, HK$, USD) with original maturities of six months placed with
          banks in the PRC. The annual interest rates of these deposits are
          2.07% for RMB deposits (2005: 2.07%); 1.2% for HK$ deposits (2005:
          1.2%); and LIBOR for USD deposits (2005: LIBOR minus of maximum
          floating rate of 0.2%). Total interest income derived from these
          deposits amounted to approximately RMB13,056,857 (2005: RMB
          7,968,000).

     (b)  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
          companies under its control. The balances consist of short-term
          deposits denominated in RMB (2005: RMB) with original maturities of
          six months (2005: six months). The annual interest rate is 2.07% in
          2006 (2005: 2.07%). Total interest income derived from these deposits
          amounted to approximately RMB3,496,000 (2005: approximately
          RMB2,885,000) for the year ended 31 December 2006 (see also Note
          35(b)).

20   SHARE CAPITAL

     As of 31 December 2006, the total authorised number of ordinary shares is
     7,083,537,000 shares (2005: 4,335,550,000 shares) with a par value of RMB
     1.00 per share (2005: RMB 1.00 per share).

<TABLE>
<CAPTION>
                                                             Percentage
                                       Number     Nominal    of capital
                                     of shares     value       stock
                                     ---------   ---------   ----------
                                       '000       RMB'000        %
<S>                                  <C>         <C>         <C>
Authorised, issued and fully paid:
   State-owned Domestic Shares       2,904,250   2,904,250       41%
   H Shares                          1,431,300   1,431,300     20.2%
   A Share                           2,747,987   2,747,987     38.8%
                                     ---------   ---------     ----
                                     7,083,537   7,083,537      100%
                                     =========   =========     ====
</TABLE>

     In December 2006, the Company issued 2,747,987,000 A shares on the Shanghai
     Stock Exchange through an initial public offering at RMB3.76 per share,
     resulting in the receipt net proceeds of approximately RMB10 billion. The
     issuance is for the financing of the acquisition of net assets of Yangcheng
     Railway relating to its railway transportation business (please see Note
     36).


                                      F-36

<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)

21   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.

     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.

     As of 31 December 2006, the reserve of the Company available for
     distribution was approximately RMB1,250,854,000 (2005: approximately RMB
     1,088,684,000 as restated).


                                      F-37

<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)

22   BORROWINGS

<TABLE>
<CAPTION>
                    2005       2006
                  Rmb'000    Rmb'000
                  -------   ---------
<S>               <C>       <C>
Bank borrowings
- Unsecured            --   1,860,000
                  =======   =========
</TABLE>

     The borrowing is obtained specifically for the construction of a fourth
     rail-line. The carrying amounts of the borrowings are all denominated in
     RMB.

     The maturity of these borrowings is as follows:

<TABLE>
<CAPTION>
                         2005       2006
                       Rmb'000    Rmb'000
                       -------   ---------
<S>                    <C>       <C>
Within 2 to 5 years*        --   1,860,000
                       =======   =========
</TABLE>

*    The maturity dates of all the borrowings are in 2011.

     The interest rate exposure of the borrowings is as follows:

<TABLE>
<CAPTION>
                                                         2005      2006
                                                       Rmb'000    Rmb'000
                                                       -------   ---------
<S>                                                    <C>       <C>
At floating rates (relevant interest rate announced
   by the central bank minus a maximum range of 10%)        --   1,860,000
                                                       =======   =========
</TABLE>

     The effective interest rate of the bank borrowings as of 31 December 2006
     was 5.83% p.a. (2005: Nil).

     As of 31 December 2006, the carrying amounts of the borrowings approximate
     their fair values.

     As of 31 December 2006, the Group had RMB4,900,000,000 unutilized banking
     facilities granted (2005: approximately RMB8,100,000,000).


                                      F-38

<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)

23   EARLY RETIREMENT OBLIGATIONS

<TABLE>
<CAPTION>
                  2006
                Rmb'000
                -------
<S>             <C>
At 1 January         --
Addition         22,420
                 ------
At 31 December   22,420
                 ======
</TABLE>

<TABLE>
<CAPTION>
                                                                  2006
                                                                 Rmb'000
                                                                --------
<S>                                                             <C>
Early retirement obligation                                      22,420
Less: current portion included in accruals and other payables    (5,503)
                                                                 ------
                                                                 16,917
                                                                 ======
</TABLE>

     Pursuant to an early retirement scheme implemented by the Group in 2006,
     certain employees who meet certain specified criteria were provided with an
     offer to early retirement and enjoy certain early retirement benefits, such
     as payments of the basic salary and other fringe benefits, offered by the
     Group, 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 the Group 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.

     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).

24   TRADE PAYABLES

     The aging analysis of trade payables was as follows:

<TABLE>
<CAPTION>
                                    2005      2006
                                  RMB'000   RMB'000
                                  -------   -------
<S>                               <C>       <C>
Within 1 year                     114,651   238,381
Over 1 year but within 2 years      3,696     1,875
Over 2 years but within 3 years       360        78
                                  -------   -------
                                  118,707   240,334
                                  =======   =======
</TABLE>

25   ACCRUALS AND OTHER PAYABLES

<TABLE>
<CAPTION>
                                                                2005      2006
                                                              RMB'000   RMB'000
                                                              -------   -------
<S>                                                           <C>       <C>
Advance for construction projects carried out for customers   113,038    38,484
Accrued expenses                                               23,941    21,521
Salary and welfare payables                                    17,872    28,075
Other payables (a)                                            183,656   321,541
                                                              -------   -------
                                                              338,507   409,641
                                                              =======   =======
</TABLE>

     Note a: This mainly represents the deposits in relation to the
     constructions and other operational activities.


                                      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)

26   LABOUR AND BENEFITS

<TABLE>
<CAPTION>
                                                                   2004      2005      2006
                                                                 RMB'000   RMB'000   RMB'000
                                                                 -------   -------   -------
<S>                                                              <C>       <C>       <C>
Wages and salaries                                               442,820   477,799   570,049
Provision for staff welfare and bonus                             74,399    71,391    71,451
Contributions to a defined contribution pension scheme (a)        42,950    52,949    62,274
Contributions to the housing scheme (b)                           21,405    23,941    29,142
Medical and other employee benefits                               57,710    14,845    13,318
Amortisation of deferred staff cost                               15,092    15,090    15,091
Early retirement obligations (Note 23)                                --        --    22,420
                                                                 -------   -------   -------
                                                                 654,376   656,015   783,745
                                                                 =======   =======   =======
</TABLE>

(a)  Pension scheme

All the full-time employees of the Group are entitled to a pension equal to
their basic salaries beginning at their retirement dates until death from a
statutory pension scheme. A government agent is responsible for honouring the
pension liabilities relating to such retired staff and the obligation of the
Group is limited to making the monthly contributions to the scheme, computed at
18% of the standard salary set by the provincial government. The Group has no
further legal or constructive obligation to the pension costs beyond making its
monthly contribution.

(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 (please see Note 18). The Group
have no further legal or constructive obligation for housing benefits beyond the
above contributions made.

27   FINANCE COSTS

<TABLE>
<CAPTION>
                                                                   2004      2005      2006
                                                                 RMB'000   RMB'000   RMB'000
                                                                 -------   -------   -------
<S>                                                              <C>       <C>       <C>
Interest expenses on bank borrowings                                 --         --    24,903
Less: interest capitalized as construction-in-progress               --         --   (24,903)
Interest expenses incurred for current account balances
   maintained with related parties wholly
   repayable within five years                                      667        654     1,745
Bank charges                                                        106        323       546
Net foreign exchange losses (Note 3(a))                             363     21,761    13,679
                                                                  -----    -------   -------
                                                                  1,136     22,738    15,970
                                                                  =====    =======   =======
</TABLE>


                                      F-40

<PAGE>

               GANGSHEN 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   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 Shenzhen
     Municipal Tax Bureau confirmed that entitlement of the Company in 1996 and
     the preferential rate has been applied from that year onwards. Accordingly,
     the enacted income tax rate of the Company for the year ended 31 December
     2006 is 15% (2005 and 2004 - same).

     According to the relevant income tax laws of the PRC, the subsidiaries of
     the Group are subject to income tax rates of 15% or 33%, mainly depending
     on the places of incorporation/establishment.

     On 16 March 2007, the National People's Congress approved the new Corporate
     Income Tax Law of the PRC, which is effective from 1 January 2008. Please
     see Note 37.

     An analysis of the current year taxation charges is as follows:

<TABLE>
<CAPTION>
                                                                    2004         2005       2006
                                                                   RMB'000      RMB'000    RMB'000
                                                                 ----------   ----------   -------
                                                                 (Restated)   (Restated)
                                                                   Note 5       Note 5
<S>                                                              <C>          <C>          <C>
Current income tax                                                110,625      117,002     142,334
Deferred income tax (Note 12)                                      (6,470)      (6,826)      6,821
                                                                  -------      -------     -------
                                                                  104,155      110,176     149,155
                                                                  =======      =======     =======
</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:

<TABLE>
<CAPTION>


                                                                    2004         2005       2006
                                                                   RMB'000      RMB'000    RMB'000
                                                                 ----------   ----------   -------
                                                                 (Restated)   (Restated)
                                                                   Note 5       Note 5
<S>                                                              <C>          <C>          <C>
Profit before tax                                                 703,659      756,138     920,928
                                                                  -------      -------     -------
Tax calculated at a statutory rate of 15% (2005: 15%)             105,549      113,421     138,139
Tax effect of expenses that are not deductible in determining
   taxable profit:
   Effect of different tax rates of certain subsidiaries            2,123        1,111       1,495
   Tax losses for which no deferred tax asset was recognised        1,818        2,992       4,284
   Expenses not deductible for tax purposes                         4,069        4,944       5,234
   Provision of deferred tax for adjustments made to carrying
      values of fixed assets                                          --       (12,292)         --
   Deferred tax benefits resulting from provision for doubtful
      debts                                                        (9,404)          --          --
                                                                  -------      -------     -------
Income tax expense                                                104,155      110,176     149,155
                                                                  =======      =======     =======
</TABLE>

     The weighted average applicable tax rate was 16.2% (2005: 14.6% and 2004:
     14.8%).


                                      F-41

<PAGE>

               GANGSHEN 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)

29   PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

     The profit attributable to equity holders of the Company for the year at
     approximately RMB763,556,000 (2005: RMB633,161,000, as restated).

30   EARNINGS PER SHARE AND PER EQUIVALENT ADS

     The calculation of basic earnings per share is based on the net profit for
     the year attributable to ordinary shareholders of approximately
     RMB771,513,000 (2005: RMB646,960,000 and 2004: RMB600,250,000, restated),
     divided by the weighted average number of ordinary shares outstanding
     during the year of 4,418,427,000 shares (2005 and 2004: 4,335,550,000
     shares). There were no dilutive potential ordinary shares as at the year
     end.

31   DIVIDENDS

<TABLE>
<CAPTION>
                                                                   2004      2005      2006
                                                                 RMB'000   RMB'000   RMB'000
                                                                 -------   -------   -------
<S>                                                              <C>       <C>       <C>
Final, proposed, of RMB 0.08  (2005: RMB0.12 and 2004:
   RMB0.11) per ordinary share                                   476,911   520,266   566,683
                                                                 =======   =======   =======
</TABLE>

     At a meeting of the directors held on 19 April 2007, the directors proposed
     a final dividend of RMB0.08 per ordinary share for the year ended 31
     December 2006. 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 31 December 2007.


                                      F-42

<PAGE>

                GANGSHEN 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)

32   CASHFLOW GENERATED FROM OPERATION

     (a)  Reconciliation from profit attributable to shareholders to cash
          generated from operations:

<TABLE>
<CAPTION>
                                                                    2004         2005         2006
                                                                   RMB'000      RMB'000     RMB'000
                                                                 ----------   ----------   ---------
                                                                 (Restated)   (Restated)
                                                                   Note 5       Note 5
<S>                                                              <C>          <C>          <C>
Profit before income tax:                                           703,659     756,138      920,928
Adjustments for:
   Depreciation of fixed assets (Note 7)                            297,541     291,958      319,887
   Amortisation of leasehold land payments (Note 9)                  15,704      15,581       16,776
   Loss on disposal of fixed assets                                     234      23,385        8,414
   Amortisation of deferred staff costs (Note 14)                    15,092      15,090       15,091
   Share of losses of associates (Note 11)                           12,119      19,949       28,306
   Provision for doubtful accounts (Note 16,17)                      18,750       9,740       (4,315)
   Interest expenses                                                  1,030         654        1,745
   Interest income                                                  (42,384)    (53,409)     (30,735)
                                                                  ---------   ----------   ---------
Operating profit before working capital changes                   1,021,745   1,079,086    1,276,097
   (Increase)/decrease in trade receivables                         (26,038)      5,198       45,263
   Increase in materials and supplies                               (21,910)     (4,351)      (2,014)
   Decrease in prepayments and other current assets                   3,998      31,286        5,963
   Increase in restricted cash                                      (42,286)    (48,787)     (60,061)
   Decrease/(increase) in due from related parties                  143,857      54,792      (46,556)
   Decrease in due from associates                                       29         398          111
   Increase in trade payables                                        21,647      81,571      121,627
   Increase in early retirement obligations (Note 23)                    --          --       22,420
   Increase in due to associates                                         --          --       29,686
   Increase/(decrease) in due to related parties                     38,903     199,838     (287,271)
   Increase in housing fund payable                                  42,286      48,787       60,061
   Increase in accrued expenses and other payables                  139,619      23,707       65,632
                                                                  ---------   ----------   ---------
   Cash generated from operations                                 1,321,850   1,471,525    1,230,958
                                                                  =========   ==========   =========
</TABLE>

(b)  Analysis of the balance of cash and cash equivalents

<TABLE>
<CAPTION>
                                                                    2004         2005          2006
                                                                  RMB'000      RMB'000       RMB'000
                                                                 ---------   ----------   ------------
<S>                                                              <C>         <C>          <C>
Cash at MOR Deposit-taking Centre (note i)                         862,508      628,746        25,786
Cash at bank and in hand                                            97,632      113,382     5,406,045
Short-term deposits with maturities no more than three months
   (note ii)                                                        84,489      370,000       420,000
                                                                 ---------    ---------     ---------
                                                                 1,044,629    1,112,128     5,851,831
                                                                 =========    =========     =========
</TABLE>

Note i: The amount of approximately RMB25,786,000 (2005: RMB628,746,000) was
     deposited with the MOR Deposit-taking Centre at an annual interest rate of
     0.72% (2005: 0.72%), which is commensurate with the prevailing interest
     rates offered by banks in the PRC.

Note ii: Short term time deposits with maturities no more than three months
     consist of deposits denominated in RMB. The effective interest rate of RMB
     deposits is 1.665% (2005: 1.71%). These deposits have an average maturity
     of 90 days.


                                      F-43

<PAGE>

                GANGSHEN 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)

33   CONTINGENCY

     There were no significant contingent liabilities as at the date of approval
     of the Financial Statements.

34   COMMITMENTS

     (a)  Capital commitments

          As of 31 December 2006, the Group had the following capital
          commitments which are authorized but not contracted for, and
          contracted but not provided for:

<TABLE>
<CAPTION>
                                                                    2005        2006
                                                                  RMB'000     RMB'000
                                                                 ---------   ---------
<S>                                                              <C>         <C>
Authorised but not contracted for                                3,985,253   1,384,287
                                                                 =========   =========
Contracted but not provided for                                  3,331,311   3,137,581
                                                                 =========   =========
</TABLE>

          A substantial amount of these commitments is related to the
          construction of the fourth rail-line of the Company ("Fourth
          Rail-Line") and purchase of new locomotives.

     (b)  Capital commitments relating to the acquisition of net assets of
          Yangcheng Railway

          Please refer to Note 36 for details.

     (c)  Operating lease commitments

          Total future minimum lease payments under non-cancelable operating
          leases were as follows:

<TABLE>
<CAPTION>
                                                                    2005        2006
                                                                  RMB'000     RMB'000
                                                                 ---------   --------
<S>                                                              <C>         <C>
Machinery and equipment
- not more than one year                                           75,375     69,673
- more than one year but not more than five years                      --         --
                                                                   ------     ------
                                                                   75,375     69,673
                                                                   ======     ======
</TABLE>

35   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. Parties
     are also considered to be related if they are subject to common control or
     common significant influence.


                                      F-44

<PAGE>

                GANGSHEN 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)

35   RELATED PARTY TRANSACTIONS (CONT'D)

     (a)  The Group had the following material related parties:

<TABLE>
<CAPTION>
                             NAME OF RELATED PARTIES                                  RELATIONSHIP  WITH THE COMPANY
                             -----------------------                               -----------------------------------
<S>                                                                                <C>
MAJOR SHAREHOLDER AND FELLOW SUBSIDIARIES (NOTE A)
Guangzhou Railway (Group) Company                                                  Major shareholder
Guangzhou Railway Group Yang Cheng Railway Company ("Yangcheng Railway")           Subsidiary of the major shareholder
Guangmeishan Railway Company Limited ("Guangmeishan")                              Subsidiary of the major shareholder
Guangzhou Railway (Group) Guangshen Railway Enterprise Development Company
   (the Predecessor as defined in Note 1, "GEDC")                                  Subsidiary of the major shareholder
Guangzhou Railway Material Supply Company                                          Subsidiary of the major shareholder
Guangzhou Railway Engineer Construction Enterprise Development Company
   ("Engineer Construction Enterprise")                                            Subsidiary of the major shareholder
Guangzhou Guangtie Huake Technology Service Company ("Guangtie Huake")             Subsidiary of the major 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
Guangzhou Huangpu Yuehua Freight Transportation Company Limited                    Associate of the Company

STATE-OWNED COMPANIES (NOTE A)
Ministry of Railways ("MOR") of the PRC
MOR's Railroad Deposit-taking Centre
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 Companay
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>

Note a:

Prior to the A share issuance in December 2006, the Company was controlled by
Guangzhou Railway Group 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, all other
state controlled enterprises and their subsidiaries, other than Guangzhou
Railway Group and its fellow subsidiaries and associates, were also related
parties of the Company ("State-owned Companies") prior to the A share issuance
in December 2006.

Subsequent to the A share issuance on 22 December 2006, the Company is no longer
controlled by Guangzhou Railway Group and the PRC government. Such Stated-Owned
Companies were consequently no longer considered as related parties of the Group
as of 31 December 2006. However, the transactions conducted between the Group
and such State-Owned Companies during the period from 1 January 2006 to 21
December 2006 have been disclosed as related party transactions in the Financial
Statements.


                                      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)

35   RELATED PARTY TRANSACTIONS (CONT'D)

     (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>
                                                           2004        2005        2006
                                                         RMB'000     RMB'000     RMB'000
                                                         --------   ---------   ---------
<S>                                                      <C>        <C>         <C>
RECURRING TRANSACTIONS:
TRANSACTIONS WITH MOR AND ITS RELATED ENTITIES
I. INCOME
Provision of train transportation and related services
   by the Group to other railway companies controlled
   by MOR (i, vi and xiii)                               (183,399)   (304,842)   (315,847)
Revenue received, processed and allocated by MOR
   (i and vi)
   - long distance passenger transportation              (486,825)   (575,849)   (800,859)
   - cargo forwarding railway usage fees                 (128,962)   (123,763)   (124,465)
   Provision of repairing service by the Group for
      cargo trucks of Guangzhou Railway Group(i)                      (28,799)    (32,787)
   Operating lease rentals received/receivable from
      Guangzhou Railway Group (i)                              --          --      (6,568)
   Provision of train transportation service to
      Guangzhou Railway Group by the Group (i and vi)          --          --     (15,727)
Interest income received/receivable from MOR Deposit-
   taking Centre (see Notes 19 and 32(b))                  (6,111)     (5,530)     (5,531)

II. CHARGES AND PAYMENTS
Services charges allocated from MOR for train
   transportation and related services offered by
   other railway companies controlled by MOR (i, vi
   and xiii)                                              209,503     290,825     410,353
Operating lease rentals paid/payable to MOR (i)            65,485      50,804      40,885
Lease of locomotives and related services provided
   from Yangcheng (i)                                      48,179       8,449      26,065
Social services (employee housing, health care,
   educational and public security services and other
   ancillary services) provided by the GEDC under a
   service agreement (ii)                                  94,246      78,227      74,520
Purchase of materials and supplies from Guangzhou
   Railway Material Supply Company (iii and xiii)          65,998      73,146      89,731
Interest expenses paid/payable to the Parent Company,
   net (iv)                                                   553         721          --
                                                         --------   ---------    --------

NON-RECURRING TRANSACTIONS:
I. TRANSACTIONS WITH MOR AND ITS RELATED ENTITIES
Disposal of an available-for-sale investment
   (See note 11)                                               --    (121,854)         --
Disposal of part of equity interests in a subsidiary
   (Note 10 (ii))                                              --          --     (35,224)
Provision of repair and maintenance services by
   subsidiaries held by the Parent company to the
   Group (i and xiii)                                      58,908      73,134      21,779
Provision of construction management services by the
   Parent Company to the Group in connection with the
   construction of fixed assets of the Company (v)          5,300       6,194       9,326
Provision of supplies and materials by subsidiaries of
   Parent Company to the Group (iii and xiii)                  --       5,249       4,045
Provision of construction projects to the Group
   (ii and xiii)                                               --          --      70,537
Payment of a deposit for the acquisition of net assets
   of Yang Cheng Railway (c) (viii)                            --          --   5,265,250

II. TRANSACTIONS WITH OTHER STATE-OWNED COMPANIES
Provision of construction project and related service
   to the Group (iii and v)                               106,638   1,148,781   3,112,131
Provision of repair and maintenance services to the
   Group (iii)                                             55,125      75,867     105,641
Provision of supplies and materials to the Group (iii)      5,604       5,977      15,051
Purchase of fixed assets by the Group (iii)                    --      55,803     207,688
                                                         --------   ---------    --------
</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)

35   RELATED PARTY TRANSACTIONS (CONT'D)

     (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) Interest was calculated and levied based on the average balances due
          from/to Guangzhou Railway Group on a quarterly basis at the prevailing
          lending interest rates of bank loans borrowed from banks in the PRC.

     (v)  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. The PRC National Audit Office (the "NAO"), commenced
          audits on certain railway bureaus in the PRC under the control of the
          MOR, including Guangzhou Railway Group, and certain railway
          construction projects, including our construction of the Fourth
          Rail-Line. In addition, as part of its audit on Guangzhou Railway
          Group, the NAO is also conducting an audit of the Company, which
          mainly focuses on business transactions with Guangzhou Railway Group.
          As at the date of approval of these financial statements, these audits
          had not been completed and there were no findings nor results arising
          from the audits being made available to the Company.

     (vi) 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.
          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.

     (c)  As of 31 December 2006 and 2005, the Group had the following material
          balances maintained with related parties:

<TABLE>
<CAPTION>
                                                                                            2005       2006
                                                                                          RMB'000    RMB'000
                                                                                         --------   ---------
<S>                                                                                      <C>        <C>
Cash and cash equivalents maintained in the MOR Deposit-taking Centre (see Note 32(b))    628,746      25,786
Short-term time deposits in the MOR Deposit-taking Centre (see Note 19)                   168,000     169,739
Due from/(to) Guangzhou Railway Group (vi)                                                 15,636      31,584
                                                                                         --------   ---------
   - Trade balance (vii)                                                                  (43,518)     28,234
   - Non-trade balance                                                                     59,154       3,350
                                                                                         --------   ---------
Deposit for acquisition of Yangcheng Railway (viii)                                            --   5,265,250
Due from subsidiaries of Guangzhou Railway Group                                           64,670         173
                                                                                         --------   ---------
   - Trade balance                                                                         25,257          61
   - Non-trade balance                                                                     39,413         112
                                                                                         --------   ---------
Due to subsidiaries of Guangzhou Railway Group                                           (276,520)   (220,915)
                                                                                         --------   ---------
   - Trade balance (ix)                                                                  (276,520)    (39,813)
   - Non-trade balance (x)                                                                     --    (181,102)
                                                                                         --------   ---------
</TABLE>


                                      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)

<TABLE>
<S>                                                                                      <C>        <C>
Due from/(to) an associate                                                                 12,423     (17,374)
                                                                                         --------   ---------
   - Trade balance                                                                         12,423      12,312
   - Non-trade balance (xii)                                                                   --     (29,686)
                                                                                         --------   ---------
Due from State-Owned Companies included in prepayments for fixed assets                    55,803          --
Due to State-Owned Companies                                                             (897,581)         --
                                                                                         --------   ---------
   - Trade balance (vii)                                                                  (50,564)         --
   - Non-trade balance (xi)                                                              (847,017)         --
                                                                                         --------   ---------
</TABLE>

35   RELATED PARTY TRANSACTIONS (CONT'D)

     (vii) 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).

     (viii) As of 31 December 2006, the balance represents 51% of the agreed
          purchase consideration paid to Guangzhou Railway Group for the
          acquisition of net assets of Yangcheng Railway (Note 36).

     (ix) 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).

     (x)  The non-trade balances due to related parties mainly represent the
          deposits received from those related parties.

     (xi) The non-trade balance due to other state-owned companies as of 31
          December 2005 mainly represents the payable balances arising from
          unsettled fees for construction projects undertaken for the Group.

     (xii) 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.

     (xiii) Pursuant to the acquisition of certain assets and business (details
          described in Note 36) of Yangcheng Railway, the Company entered into
          supplementary service agreements with Guangzhou Railway Group and
          Yangcheng Railway (the "New Service Agreements") which govern the
          terms and conditions for the various services originally covered by
          the service agreements entered into with the related parties (the
          "Original Service Agreements"). The New Service Agreement became
          effective on 1 January 2007 upon completion of the Aquisition and the
          terms of the Original Service Agreements expired.

     As of 31 December 2006, all the balances maintained with related parties
     are unsecured, non-interest bearing and are repayable on demand, except for
     those short-term deposits balances maintained with the MOR Deposit-taking
     Centre disclosed above.

36   THE ACQUISITION OF NET ASSETS OF YANGCHENG RAILWAY

     On 15 November 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 RMB 10,181,037,000 was
     determined based on an appraisal of Yangcheng performed by an independent
     appraisal firm as of 31 March 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 20. The
     acquisition received the approval of more than 50% of the then H share
     shareholders attending a special shareholders' meeting for the approval of
     the transaction on 30 December 2004.

     As disclosed in Note 20, the offering of A shares of the Company was
     completed in December 2006. On 28 December 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


                                      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)

     (approximately RMB5 billion) is due for payment to Yangcheng Railway within
     2 months after the completion of a closing audit of Yangcheng.

     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 have been deferred and recorded as
     non-current deferred acquisition costs, and amounted to RMB 31,343,000 as
     of 31 December 2006 (2005: RMB 25,214,000).


                                      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)

36   THE ACQUISITION OF NET ASSETS OF YANGCHENG RAILWAY (CONT'D)

     On 1 January 2007, control of the assets and operations of Yangcheng was
     transferred to the Company. Accordingly, for accounting purposes, 1 January
     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.

     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 1 January 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.

     The Group has completed its preliminary purchase price allocation with the
     assistance of an independent appraisal firm. The provisional fair values of
     the net assets acquired and resulting goodwill are as set out below. These
     provisional values and the resulting goodwill are still preliminary as of
     the date of issuance of the financial statements as Group has not finalized
     its valuation exercise.

<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)        9,862,679
                                                ----------
Goodwill                                           307,246
                                                ----------
</TABLE>

     Goodwill is mainly attributable to Yangcheng's profitability derived from
     the monopoly operations in the region where the acquired business is
     located.


                                      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)

36   THE ACQUISITION OF NET ASSETS OF YANGCHENG RAILWAY (CONT'D)

     The assets and liabilities arising from the acquisition, provisionally
     determined, are as follows:

<TABLE>
<CAPTION>
                                                          Carrying
                                            Fair value     amount
                                              RMB'000     RMB'000
                                            ----------   ---------
<S>                                         <C>          <C>
Cash and cash equivalents                       91,699      91,699
Trade and other receivables                     57,733      57,733
Materials and supplies                          55,070      55,070
Fixed assets and construction-in-progress   11,059,603   7,506,426
Long-term receivables                           56,034      56,034
Deferred staff cost                             45,000      45,000
Trade and other payables                      (797,460)   (797,460)
Retirement benefit obligations                (410,000)   (410,000)
Long-term borrowings                          (295,000)   (295,000)
                                            ----------   ---------
Net assets acquired                          9,862,679   6,309,502
                                            ----------   ---------
</TABLE>

37   SUBSEQUENT EVENTS

     Save as disclosed in other notes to the financial statements, the Group had
     the following significant subsequent events:

     On 16 March 2007, the National People's Congress approved the Corporate
     Income Tax Law of the People's Republic of China (the "new CIT Law"), which
     is effective from 1 January 2008.

     Since the deferred tax assets and deferred tax liabilities shall be
     measured at the tax rates that are expected to apply to the period when the
     asset is realized or the liability is settled, the change in the applicable
     tax rate will affect the determination of the carrying values of deferred
     tax assets and deferred tax liabilities of the Group.

     As at the date of issuance of the Financial Statements, detailed measures
     of the new CIT Law have yet to be issued, specific provisions concerning
     the applicable income tax rates, computation of taxable income, as well as
     specific preferential tax treatments and their related transitional
     provisions for the periods from 2008 and onwards have not been clarified.
     Consequently, the Group is not in a position to reasonably assess the
     impact, if any, to the carrying values of deferred tax assets and deferred
     tax liabilities as the result of the implementation of the new CIT Law. The
     Group will further evaluate the impact to its operating results and
     financial positions of future periods as and when more detailed measures
     and other related regulations are announced.


                                      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)

38   RECONCILIATION OF CONSOLIDATED PROFIT ATTRIBUTABLE TO SHAREHOLDERS AND
     CONSOLIDATED NET ASSETS BETWEEN IFRS AND US GAAP

     The accompanying financial statements have been prepared in accordance with
     IFRS which differs in certain respects from those prepared under Generally
     Accepted Accounting Principles in the United States of America ("US GAAP").
     The major difference between IFRS and US GAAP, which has a significant
     effect on the consolidated financial statements is set out below:

<TABLE>
<CAPTION>
                                                     2004         2005         2006      2006
                                                    RMB'000      RMB'000     RMB'000    US$000*
                                                  ----------   ----------   -------   --------
                                                  (Restated)   (Restated)
                                                    Note 5       Note 5
<S>                                               <C>          <C>          <C>       <C>
CONSOLIDATED NET PROFIT UNDER IFRS                  599,504     645,962     771,773     98,945
Minority interest (c)                                   746         998        (260)       (33)
                                                    -------     -------     -------   --------
PROFIT FOR SHAREHOLDERS UNDER IFRS                  600,250     646,960     771,513     98,912
   Adjustment to share issuance costs (a)                --      (9,300)     (3,000)      (385)
   Adjustment to deferred acquisition costs (b)          --      (6,301)         --         --
                                                    -------     -------     -------   --------
CONSOLIDATED NET PROFIT UNDER US GAAP               600,250     631,359     768,513     98,527
                                                    =======     =======     =======   ========
EARNINGS PER SHARE UNDER US GAAP
   -BASIC AND DILUTED                               RMB0.14     RMB0.15     RMB0.17   US$0.022
                                                    =======     =======     =======   ========
EARNINGS PER EQUIVALENT ADS UNDER US GAAP
   -BASIC AND DILUTED                               RMB6.92     RMB7.28     RMB8.70   US$1.115
                                                    =======     =======     =======   ========
</TABLE>

<TABLE>
<CAPTION>
                                                     2005         2006         2006
                                                    RMB'000      RMB'000     US$000*
                                                  ----------   ----------   ---------
                                                  (Restated)
                                                    Note 5
<S>                                               <C>          <C>          <C>
CONSOLIDATED SHAREHOLDERS' EQUITY UNDER IFRS      9,796,076    20,169,008   2,585,770
   Adjustment to share issuance costs (a)            17,707            --          --
   Adjustment to deferred acquisition costs (b)      (6,301)       (6,301)       (808)
                                                  ---------    ----------   ---------
CONSOLIDATED SHAREHOLDERS' EQUITY UNDER US GAAP   9,807,482    20,162,707   2,584,962
                                                  =========    ==========   =========
</TABLE>

*    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 29 December 2006 of US$1.00=RMB7.8 as certified for customs
     purposes by the Federal Reserve Bank of New York. No representation is made
     that the RMB amounts could have been, or could be, converted into US$ at
     that rate on 29 December 2006.


                                      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)

38   RECONCILIATION OF CONSOLIDATED PROFIT ATTRIBUTABLE TO SHAREHOLDERS AND
     CONSOLIDATED NET ASSETS BETWEEN IFRS AND US GAAP (CONT'D)

     Note (a):

     In 2005, the Company incurred certain share issuance costs for the Class A
     share issuance of approximately RMB27, 007,000 which are recorded as a
     deduction from reserve under IFRS as the costs were incurred. However,
     under US GAAP, since the share issuance was not completed by the end of
     2005, costs incurred to date have been recorded as deferred costs until the
     transaction is completed, at which time the direct costs are charged
     against the gross proceeds of the offering. In addition, under US GAAP,
     certain accounting and auditing services (RMB9,300,000) indirectly
     associated with the share issuance did not qualify for deferral but rather
     were expensed as incurred in 2005. As a result, there was a reconciling
     item of RMB9,300,000 for the net income; while there was another
     reconciling item of RMB17,707,000 for the Shareholders' equity between IFRS
     and US GAAP for 2005.

     In 2006, additional accounting and auditing expenses of RMB3,000,000
     relating to the share issuance were expensed under US GAAP but recorded as
     a reduction from reserve under IFRS. Due to the fact that the A share
     issuance was completed in December 2006 and the aggregate share issuance
     costs had been deducted from reserve by the end of year 2006 under both
     IFRS and US GAAP. Accordingly, there is no GAAP difference for the
     Shareholders' equity balance between IFRS and US GAAP as at 31 December
     2006.

     Note (b):

     In 2005, the Company incurred certain acquisition costs of approximately
     RMB6,301,000 (accounting and auditing related) associated with the
     acquisition of Yangcheng Railway which had been recorded as a deferred
     acquisition costs under IFRS. However, as such costs are considered to be
     indirectly attributable to the acquisition, they were expensed as incurred
     under US GAAP. As at 31 December 2006, the acquisition had not yet been
     completed and therefore such costs continued to be deferred under IFRS and
     led to a GAAP difference in reconciling shareholder's equity.

     Note (c):

     IFRS requires the presentation of minority interest within equity on the
     face of the balance sheet. Under US GAAP, minority interest is presented as
     a separate item on the face of the balance sheet outside of equity.

     In addition, reclassifications have been made for presentation of certain
     selected financial data in conformity with US GAAP requirements for the
     following items:

     i.   Profit from operations

<TABLE>
<CAPTION>
                                          2004         2005         2006      2006
                                         RMB'000      RMB'000     RMB'000   US$000*
                                       ----------   ----------   -------   -------
                                       (Restated)   (Restated)
                                         Note 5       Note 5
<S>                                    <C>          <C>          <C>       <C>
PROFIT FROM OPERATIONS UNDER IFRS       716,914      798,825     965,204   123,744
Less: Other income, net                 (48,193)     (48,505)    (37,027)   (4,747)
                                        -------      -------     -------   -------
Including: Interest income (d)          (42,384)     (53,409)    (30,735)   (3,940)
           Others                        (5,809)       4,904      (6,292)     (807)
                                        -------      -------     -------   -------
PROFIT FROM OPERATIONS UNDER US GAAP    668,721      750,320     928,177   118,997
                                        =======      =======     =======   =======
</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)

38   RECONCILIATION OF CONSOLIDATED PROFIT ATTRIBUTABLE TO SHAREHOLDERS AND
     CONSOLIDATED NET ASSETS BETWEEN IFRS AND US GAAP (CONT'D)

     ii.  Finance costs

<TABLE>
<CAPTION>
                                                    2004      2005      2006      2006
                                                  RMB'000   RMB'000   RMB'000   US$000*
                                                  -------   -------   -------   -------
<S>                                               <C>       <C>       <C>       <C>
FINANCE COSTS UNDER IFRS                            1,136    22,738    15,970    2,047
Less: interest income included in other income,
   net under IFRS (d)                             (42,384)  (53,409)  (30,735)  (3,940)
                                                  -------   -------   -------   ------
FINANCE INCOME, NET UNDER US GAAP                 (41,248)  (30,671)  (14,765)  (1,893)
                                                  =======   =======   =======   ======
</TABLE>

     Note (d): Under IFRS, interest income is recorded as other income and
     included in profit from operation. While under US GAAP, this income is
     reclassified to finance cost.

*    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 29 December 2006 of US$1.00=RMB7.8 as certified for customs
     purposes by the Federal Reserve Bank of New York. No representation is made
     that the RMB amounts could have been, or could be, converted into US$ at
     that rate on 30 December 2006.

     iii. Deferred tax assets and liabilities

     Under IFRS, deferred tax assets and liabilities are classified as
     non-current on the balance sheet, whereas under US GAAP, deferred tax
     assets and liabilities are either classified based on the classification of
     the underlying asset or liability for financial reporting, or if no related
     asset or liability exists such deferred tax assets or liabilities are
     classified based on when they are expected to be realized. Please refer to
     Note 13 for details.

     iv.  Due from/to related parties

     As disclosed in Note 35, subsequent to the A share issuance on 22 December
     2006, the Company is no longer controlled by Guangzhou Railway Group which
     is a subsidiary of the MOR and is ultimately controlled by the PRC
     government. As a result, Stated-owned Companies and the subsidiaries and
     associates of GRGC were not considered as related parties of the Group as
     of 31 December 2006 under IFRS. However, under US GAAP, the PRC government
     still meets the definition of a principal owner and accordingly all the
     Stated-owned Companies are still considered as related parties. As of 31
     December 2006, the major balances that the Group had with such Stated-owned
     Companies are set out as follows:

<TABLE>
<CAPTION>
                                  31 December 2006
                                      (RMB'000)
                                  ----------------
<S>                               <C>
Due from Stated-owned Companies        35,223
   -Trade balance                      31,580
   -Non-trade balance                   3,643
</TABLE>


                                      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)

<TABLE>
<S>                               <C>
Due to Stated-owned Companies        (1,204,529)
   -Trade balance                      (138,305)
   -Non-trade balance                (1,066,224)
</TABLE>


                                      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)

39   RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2006, the FASB issued FIN 48 Accounting for Uncertainty in Income
     Taxes, an interpretation of FASB Statement No. 109. This Interpretation
     prescribes a recognition threshold and measurement attribute for the
     financial statement recognition and measurement of a tax position taken or
     expected to be taken in a tax return. This Interpretation also provides
     guidance on derecognition, classification, interest and penalties,
     accounting in interim periods, disclosure, and transition. FIN 48 is
     effective as of the beginning of fiscal years that start after December 15,
     2006. The Group has commenced the assessment of the impacts arising from
     the adoption of FIN 48 and the assessment has not been completed.

     In September 2006, the FASB issued Statement of Financial Accounting
     Standards No. 157, "Fair Value Measurements" ("FAS157"), which defines fair
     value, establishes guidelines for measuring fair value and expands
     disclosures regarding fair value measurements. FAS 157 does not require any
     new fair value measurements but rather eliminates inconsistencies in
     guidance found in various prior accounting pronouncements. FAS 157 will be
     effective for fiscal years beginning after November 15, 2007, and all
     interim periods within those fiscal years. Earlier application is permitted
     if the entity has not issued interim or annual financial statements for
     that fiscal year. The Group is currently evaluating the impact of adopting
     FAS 157 and the evaluation has not been completed.

40   APPROVAL OF FINANCIAL STATEMENTS

     The financial statements were approved by the Board of Directors on 28 June
     2007.


                                      F-56