##### Table of Contents



As filed with the Securities and Exchange Commission on June 25, 2009
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 20-F
 (Mark One)o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF
1934orx
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For the fiscal year ended December 31, 2008oro
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934For the transition period from               tooro
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934Date of
event requiring this shell company report
 Commission file number: 1-14362
 
 (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)
 
 Mr. Guo Xiangdong
Telephone: (86-755) 2558-7920 or (86-755) 2558-8146
Email: ir@gsrc.com
Facsimile: (86-755) 2559-1480
No. 1052 Heping Road, Shenzhen, Peoples Republic of China 518010  (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
  Title of Each Class
    
    Name of Each Exchange on which ListedAmerican
Depositary Shares, eachrepresenting 50 Class H ordinary shares
    
    New York Stock Exchange, Inc.Class H
ordinary shares, nominal valueRMB 1.00 per share
    
    The Stock Exchange of Hong Kong Limited
    Domestic shares (A shares), par value RMB 1.00 per share
    
    
    5,652,237,000H shares, par value RMB 1.00 per share
    
    
    1,431,300,000
   þ o
  o þ
  þ o
  o o
  þ o o
  o
 þ
 o
  o o
  o þ




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##### Table of Contents



Table of Contents
  
 PagesForward-Looking Statements
    
    
    1Certain Terms and Conventions
    
    
    1PART IITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    
    
    4ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    4ITEM 3.  KEY INFORMATION
    
    
    4Item 3A. Selected Consolidated Financial and Other Data
    
    
    4Item 3B. Capitalization and Indebtedness
    
    
    7Item 3C. Reasons for the Offer and Use of Proceeds
    
    
    7Item 3D. Risk Factors
    
    
    7ITEM 4.  INFORMATION ON THE COMPANY
    
    
    15Item 4A. History and Development of the Company
    
    
    16Item 4B. Business Overview
    
    
    19Item 4C. Organizational Structure
    
    
    35Item 4D. Property, Plant and Equipment
    
    
    35ITEM 4A. UNRESOLVED STAFF COMMENTS
    
    
    37ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    38Item 5A. Operating Results
    
    
    39Item 5B. Liquidity and Capital Resources
    
    
    50Item 5C. Research and Development, Patents and Licenses, etc.
    
    
    53Item 5D. Trend Information
    
    
    53Item 5E. Off-Balance Sheet Arrangements
    
    
    54Item 5F. Tabular Disclosure of Contractual Obligations
    
    
    54Item 5G. Safe Harbor
    
    
    55ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    55Item 6A. Directors and Senior Management
    
    
    55Item 6B. Board Compensation
    
    
    61Item 6C. Board Practices
    
    
    63Item 6D. Employees
    
    
    65Item 6E. Share Ownership
    
    
    67ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    67Item 7A. Major Shareholders
    
    
    67Item 7B. Related Party Transactions
    
    
    68Item 7C. Interests of Experts and Counsel
    
    
    76ITEM 8.  FINANCIAL INFORMATION
    
    
    76Item 8A.  Consolidated Statements and Other Financial Information
    
    
    76Item 8B.  Significant Changes
    
    
    78ITEM 9.  THE OFFER AND LISTING
    
    
    79Item 9A.  Offer and Listing Details
    
    
    79Item 9B.  Plan of Distribution
    
    
    80Item 9C.  Markets
    
    
    80




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PagesItem 9D.  Selling Shareholders
    
    
    80Item 9E.  Dilution
    
    
    80Item 9F.  Expenses of the Issue
    
    
    80ITEM 10.  ADDITIONAL INFORMATION
    
    
    81Item 10A.  Share Capital
    
    
    81Item 10B.  Memorandum and Articles of Association
    
    
    81Item 10C.  Material Contracts
    
    
    92Item 10D.  Exchange Controls
    
    
    92Item 10E.  Taxation
    
    
    93Item 10F.  Dividends and Paying Agents
    
    
    101Item 10G.  Statement by Experts
    
    
    101Item 10H.  Documents on Display
    
    
    101Item 10I.  Subsidiary Information
    
    
    102ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    103ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    106PART IIITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    107ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    107ITEM 15.  CONTROLS AND PROCEDURES
    
    
    107ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    108ITEM 16B.  CODE OF ETHICS
    
    
    108ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    108ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    109ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    109ITEM 16F.  CHANGE IN OUR CERTIFYING ACCOUNTANT
    
    
    109ITEM 16G.  CORPORATE GOVERNANCE
    
    
    109ITEM 17.  FINANCIAL STATEMENTS
    
    
    111ITEM 18.  FINANCIAL STATEMENTS
    
    
    111ITEM 19.  EXHIBITS
    
    
    111EX-1.1EX-7.1EX-8.1EX-11.1EX-12.1EX-13.1




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Forward-Looking Statements
   
 Certain Terms and Conventions
     
    
    Acquisition means our acquisition of the railway transportation business between
Guangzhou and Pingshi and the related assets and liabilities from Yangcheng Railway
Company according to the asset purchase agreement dated November 15, 2004 between
Yangcheng Railway Company and us.
 1




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
    
    China or PRC means the Peoples Republic of China.
    
    CEPA means the Closer Economic Partnership Arrangement between Hong Kong and
Chinese Mainland entered into on October 27, 2004, as amended.
    
    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, our Company 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.
    
    HKSE means the Stock Exchange of Hong Kong Limited.
    
    Hong Kong means the Hong Kong Special Administrative Region of the PRC.
    
    Hong Kong dollars or HKD means Hong Kong dollars, the lawful currency of Hong
Kong.
    
    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.
    
    RMB means Renminbi Yuan, the lawful currency of the PRC.
    
    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.
    
    SEC means the U.S. Securities and Exchange Commission.
    
    tonne means metric tonne; and one tonne is approximately 2,205 pounds in weight.
    
    US$, USD or U.S. dollars means U.S. dollars, the lawful currency of the
United States.
 2




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
    
    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.
 3




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PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 
 Item 3A. Selected Consolidated Financial and Other Data
   Year ended December 31,2004
    
    2005
    
    2006
    
    2007(2)
    
    2008(2)
    
    2008RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB
    
    US$ (1)(in thousands except for per share data)Income Statement Data:Revenues from railroad businesses Passenger
    
    
    2,076,272
    
    
    
    2,253,335
    
    
    
    2,608,838
    
    
    
    5,833,538
    
    
    
    6,759,229
    
    
    
    991,089 Freight
    
    
    611,807
    
    
    
    540,341
    
    
    
    565,557
    
    
    
    1,326,450
    
    
    
    1,324,701
    
    
    
    194,238 Railway network usage and services
    
    
    183,399
    
    
    
    305,790
    
    
    
    291,489
    
    
    
    2,659,529
    
    
    
    2,738,425
    
    
    
    401,529Subtotal
    
    
    2,871,478
    
    
    
    3,099,466
    
    
    
    3,465,884
    
    
    
    9,819,517
    
    
    
    10,822,355
    
    
    
    1,586,856Revenues from other businesses
    
    
    166,671
    
    
    
    177,462
    
    
    
    128,590
    
    
    
    688,987
    
    
    
    866,300
    
    
    
    127,023Total revenues
    
    
    3,038,149
    
    
    
    3,276,928
    
    
    
    3,594,474
    
    
    
    10,508,504
    
    
    
    11,688,655
    
    
    
    1,713,879Railroad operating expenses
    
    
    (2,203,273
    )
    
    
    (2,339,384
    )
    
    
    (2,527,907
    )
    
    
    (8,334,293
    )
    
    
    (9,162,278
    )
    
    
    (1,343,443
    )Other businesses operating expenses
    
    
    (166,155
    )
    
    
    (190,347
    )
    
    
    (166,011
    )
    
    
    (458,819
    )
    
    
    (829,077
    )
    
    
    (121,566
    )Other income
    
    
    48,193
    
    
    
    51,628
    
    
    
    64,648
    
    
    
    49,816
    
    
    
    17,703
    
    
    
    2,596Profit from operations
    
    
    716,914
    
    
    
    798,825
    
    
    
    965,204
    
    
    
    1,765,208
    
    
    
    1,715,003
    
    
    
    251,467Profit attributable to shareholders of the Company
    
    
    600,250
    
    
    
    646,960
    
    
    
    771,513
    
    
    
    1,431,415
    
    
    
    1,224,129
    
    
    
    179,491Profit from operations per share
    
    
    0.17
    
    
    
    0.18
    
    
    
    0.22
    
    
    
    0.25
    
    
    
    0.24
    
    
    
    0.04Earnings per share for profit attributable to
shareholders of the Company
 4




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Year ended December 31,2004
    
    2005
    
    2006
    
    2007(2)
    
    2008(2)
    
    2008RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB
    
    US$ (1)(in thousands except for per share data) Basic and diluted
    
    
    0.14
    
    
    
    0.15
    
    
    
    0.17
    
    
    
    0.20
    
    
    
    0.17
    
    
    
    0.02Dividends declared per share
    
    
    0.105
    
    
    
    0.12
    
    
    
    0.08
    
    
    
    0.08
    
    
    
    0.08
    
    
    
    0.01Earnings per ADS for profit attributable to
shareholders of the Company
    
    
    6.93
    
    
    
    7.46
    
    
    
    8.73
    
    
    
    10.10
    
    
    
    8.64
    
    
    
    1.27Balance Sheet Data (at year end):Working capital
    
    
    2,051,590
    
    
    
    467,124
    
    
    
    4,249,117
    
    
    
    433,615
    
    
    
    (616,158
    )
    
    
    (90,346
    )Fixed assets
    
    
    5,889,074
    
    
    
    6,346,822
    
    
    
    6,738,477
    
    
    
    19,995,286
    
    
    
    23,903,846
    
    
    
    3,504,963Leasehold land payments
    
    
    636,379
    
    
    
    620,798
    
    
    
    625,628
    
    
    
    607,971
    
    
    
    592,368
    
    
    
    86,857Total assets
    
    
    10,362,851
    
    
    
    11,683,057
    
    
    
    24,139,331
    
    
    
    26,689,929
    
    
    
    28,221,826
    
    
    
    4,138,098Equity attributable to shareholders of the Company
    
    
    9,499,000
    
    
    
    9,796,076
    
    
    
    20,169,008
    
    
    
    21,125,761
    
    
    
    21,783,207
    
    
    
    3,194,019Share capital, issued and outstanding, RMB 1.00
per value,domestic shares
    
    
    2,904,250
    
    
    
    2,904,250
    
    
    
    5,652,237
    
    
    
    5,652,237
    
    
    
    5,652,237
    
    
    
    828,774H shares
    
    
    1,431,300
    
    
    
    1,431,300
    
    
    
    1,431,300
    
    
    
    1,431,300
    
    
    
    1,431,300
    
    
    
    209,868Cash Flow Statement Data:Net cash generated from operating activities
    
    
    1,236,579
    
    
    
    1,380,147
    
    
    
    1,112,004
    
    
    
    1,957,645
    
    
    
    1,641,069
    
    
    
    240,626Net cash used in investing activities
    
    
    (1,000,639
    )
    
    
    (820,915
    )
    
    
    (7,833,331
    )
    
    
    (5,585,414
    )
    
    
    (2,915,785
    )
    
    
    (427,534
    )Net cash (used in)/generated from financing
activities
    
    
    (469,044
    )
    
    
    (491,733
    )
    
    
    11,461,030
    
    
    
    128,289
    
    
    
    483,317
    
    
    
    70,868Purchase of fixed assets and payment for
construction-in-progress
    
    
    (310,179
    )
    
    
    (1,588,374
    )
    
    
    (3,202,670
    )
    
    
    (1,107,320
    )
    
    
    (2,947,804
    )
    
    
    (432,229
    )Dividends paid to shareholders of the Company
    
    
    (455,009
    )
    
    
    (476,904
    )
    
    
    (520,655
    )
    
    
    (566,711
    )
    
    
    (566,683
    )
    
    
    (83,091
    )Other Data:Railroad transportation operating income
    
    
    715,230
    
    
    
    808,613
    
    
    
    999,968
    
    
    
    1,538,053
    
    
    
    1,660,077
    
    
    
    243,413Other businesses operating income/(loss)
    
    
    1,684
    
    
    
    (9,788
    )
    
    
    (34,764
    )
    
    
    277,155
    
    
    
    37,223
    
    
    
    5,458
 
 (1)
    
    Translation of amounts from RMB into US$, for the convenience of the reader has been
made at US$ 1.00 = RMB 6.82, which is rounded from 6.8225, the noon buying rate in New
York City on December 31, 2008. No representation is made that the RMB amounts could have
been, or could be, converted into U.S. dollars at that rate on December 31, 2008 or on any
other date.(2)
    
    On January 1, 2007, we acquired the railway transportation business and related
assets and liabilities associated with such railway transportation business (the
Yangcheng Railway Business) between Guangzhou and Pingshi from Yangcheng Railway
Company, or the Acquisition. As described in Item 5Operating and Financial Review and
Prospects, the Acquisition does not constitute a business combination under common
control as our Company and Yangcheng Railway Business are not ultimately controlled by the
same party both before and after the business combination. Accordingly, the Acquisition
has been accounted for using the purchase method of accounting and the results of
operations of Yangcheng Railway Business have been included in our consolidated income
statement starting from January 1, 2007. As a result, our consolidated financial
information for each of the years ended December 31, 2007 and 2008 included in this annual
report has reflected the impact arising from the Acquisition. Exchange Rate Information
  5




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Noon Buying RatePeriod
    
    Average (1)
    
    High
    
    Low(RMB per U.S. dollar)2004
    
    
    8.2768
    
    
    
    8.2774
    
    
    
    8.27642005
    
    
    8.1826
    
    
    
    8.2765
    
    
    
    8.07022006
    
    
    7.9723
    
    
    
    8.0702
    
    
    
    7.80412007
    
    
    7.5806
    
    
    
    7.8127
    
    
    
    7.29462008
    
    
    6.9477
    
    
    
    7.2946
    
    
    
    6.7800December
    
    
    6.8539
    
    
    
    6.8842
    
    
    
    6.82252009January
    
    
    6.8360
    
    
    
    6.8403
    
    
    
    6.8225February
    
    
    6.8363
    
    
    
    6.8470
    
    
    
    6.8241March
    
    
    6.8362
    
    
    
    6.8438
    
    
    
    6.8240April
    
    
    6.8306
    
    
    
    6.8350
    
    
    
    6.8180May
    
    
    6.8235
    
    
    
    6.8278
    
    
    
    6.8176June (through June 19)
    
    
    6.8337
    
    
    
    6.8371
    
    
    
    6.8264
 
 (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
   6




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Item 3B. Capitalization and Indebtedness
  
 Item 3C. Reasons for the Offer and Use of Proceeds
  
 Item 3D. Risk Factors
 Risks Relating to Our Business
 The current global financial crisis and economic downturn may have a material and adverse
effect on our businesses, results of operations and financial condition.
   We face competition, which may adversely affect our business growth and results of operations.
  7




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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.
  Changes in freight composition in our freight transportation business may 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.
  8




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A change to our preferential income tax status as a result of a change of law could have a
material adverse effect on our results of operations.
   
    
    18% for 2008;
    
    20% for 2009;
    
    22% for 2010;
    
    24% for 2011; and
    
    25% for 2012.
  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 may have a
material adverse effect on our business and results of operations.
  9




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Guangzhou Railway (Group) Company as our largest shareholder and one of our major service
providers may have interests that conflict with the best interests of our other shareholders and
our Company.
   We have very limited insurance coverage.
  10




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We could incur significant costs for violations of applicable environmental laws and
regulations.
  Technological problems attributable to accidents, human error, severe weather or natural
disasters could affect the performance or perception of our railway and result in decreases in
customers and revenues, unexpected expenses and loss of market share.
    Extensive government regulation of the railway transportation industry may limit our
flexibility in responding to market conditions, competition or changes in our cost structure.
 11




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The revenues or charges settled by the MOR for certain long distance passenger train and
freight transportation businesses are finally determined by the MOR.
  We may encounter difficulties in complying with the Sarbanes-Oxley Act of 2002.
   12




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We cannot assure you that the Acquisition will benefit our business and results of operations
as we expect.
  .
 
    
    loss of key employees or customers of the acquired business;
    
    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.
   13




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Risks Relating to the Peoples Republic of China
  Chinas economic, political and social conditions, as well as government policies, could
affect our business.
  Government control of currency conversion may adversely affect our operations and financial
results.
  Fluctuation of the RMB could adversely affect our financial condition and results of
operations.
 14




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The differences with respect to the PRC legal system could limit the legal protections
available to you.
  We face risks related to health epidemics and other outbreaks.
  
 ITEM 4. INFORMATION ON THE COMPANY
 15




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Item 4A. History and Development of the Company
 Overview
 
     16




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Background, Restructuring and Acquisition
       17




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Service Territory
    18




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Northbound
 Southbound
 Westbound
 Eastbound
  
 Item 4B. Business Overview
 Business Operations
    19




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Year ended December 31,2004
    
    2005
    
    2006
    
    2007(7)
    
    2008(7)Passenger TransportationTotal passenger revenues (RMB millions)
    
    
    2,076.27
    
    
    
    2,253.34
    
    
    
    2,608.84
    
    
    
    5,833.54
    
    
    
    6,759.23Total passengers (millions)(1)
    
    
    31.56
    
    
    
    33.00
    
    
    
    35.98
    
    
    
    73.05
    
    
    
    83.82Revenues per passenger (RMB)(2)
    
    
    65.79
    
    
    
    68.28
    
    
    
    72.51
    
    
    
    79.86
    
    
    
    80.64Total
passengerkilometers (millions)
    
    
    4,200.20
    
    
    
    4,539.10
    
    
    
    4,842.7
    
    
    
    26,278.2
    
    
    
    27,923.70Revenues per
passengerkilometer (RMB)(3)
    
    
    0.49
    
    
    
    0.50
    
    
    
    0.54
    
    
    
    0.22
    
    
    
    0.24Freight TransportationTotal freight revenues (RMB millions)
    
    
    611.81
    
    
    
    540.34
    
    
    
    565.56
    
    
    
    1,326.45
    
    
    
    1,324.70Total freight tonnes (millions)
    
    
    34.20
    
    
    
    31.89
    
    
    
    30.71
    
    
    
    71.01
    
    
    
    70.14Revenues per tonne (RMB)(4)
    
    
    17.89
    
    
    
    16.94
    
    
    
    18.42
    
    
    
    18.68
    
    
    
    18.89Total
tonnekilometers (millions)
    
    
    2,489.50
    
    
    
    2,294.80
    
    
    
    2,276.3
    
    
    
    15,306.9
    
    
    
    15,557.37Revenues per
tonnekilometer (RMB)(5)
    
    
    0.25
    
    
    
    0.24
    
    
    
    0.25
    
    
    
    0.09
    
    
    
    0.09Railway Network Usage and Services(RMB millions)(6)
    
    
    183.40
    
    
    
    305.79
    
    
    
    291.49
    
    
    
    2,659.53
    
    
    
    2,738.43
 
 (1)
    
    Prior to 2006, we recorded the aggregate of the passengers arriving at and departing
from our railway stations as total passengers. Beginning from the year ended December 31,
2006, we began recording only those passengers departing from our railway stations as
total passengers. To conform to the current year presentation, we have adjusted the
numbers of total passengers for each of the years ended December 31, 2004 and 2005 to only
include passengers departing from our railway stations. 20




---



##### Table of Contents



(2)
    
    Revenues per passenger is calculated by dividing total passenger revenue by total
passengers. Management believes that revenues per passenger is a useful measure for
assessing the revenue levels of our passenger transportation business.(3)
    
    Revenues per passenger-kilometer is calculated by dividing total passenger revenue by
total passenger-kilometers. Management believes that revenues per passenger-kilometer is
a useful measure for assessing the revenue levels of our passenger transportation
business. The decrease in revenues per passenger-kilometer in 2007 and 2008 was
primarily due to our acquisition of the railway transportation business between Guangzhou and Pingshi in 2007,
whose passenger transportation business had lower tariffs than that of the Guangzhou-Shenzhen Railway we operated before 2007.(4)
    
    Revenues per tonne is calculated by dividing total freight revenue by total freight
tonnes. Management believes that revenues per tonne is a useful measure for assessing the
revenue levels of our freight transportation business.(5)
    
    Revenues per tonne-kilometer is calculated by dividing total freight revenue by total
tonne-kilometers. Management believes that revenues per tonne-kilometer is a useful
measure for assessing the revenue levels of our freight transportation business. The decrease in
revenues per tonne-kilometer in 2007 and 2008 was primarily due to our acquisition of the
railway transportation business between Guangzhou and Pingshi in 2007, whose freight transportation business
had lower tariffs than that of the Guangzhou-Shenzhen Railway we operated before 2007.(6)
    
    Since our revenue from railway network usage and services was insignificant before
the acquisition of the railway transportation business of Guangzhou-Pingshi Railway in
2007, we recorded such revenues
into the revenues from passenger and freight transportation in previous years. Upon
the acquisition of the railway transportation business of Guangzhou-Pingshi Railway,
our revenues from railway network usage and services have become material. Our
management decided to record the revenue from railway network usage and services
separately starting from the year ended December 31, 2007. To conform to the current
year presentation, we have adjusted the revenues of each of the years ended December
31, 2004, 2005 and 2006.(7)
    
    On January 1, 2007, we acquired the railway transportation business and related
assets and liabilities associated with such railway transportation business (the
Yangcheng Railway Business) between Guangzhou and Pingshi from Yangcheng Railway
Company, or the Acquisition. As described in Item 5Operating and Financial Review and
Prospects, the Acquisition does not constitute a business combination under common
control as our Company and Yangcheng Railway Business are not ultimately controlled by the
same party both before and after the business combination. Accordingly, the Acquisition
has been accounted for using the purchase method of accounting and the results of
operations of Yangcheng Railway Business have been included in our consolidated income
statement starting from January 1, 2007. As a result, our consolidated financial
information for each of the years ended December 31, 2007 and 2008 included in this annual
report has reflected the impact arising from the Acquisition. Passenger Transportation
  
    
    intercity high-speed express trains between Guangzhou and Shenzhen;
    
    Hong Kong Through Trains between Hong Kong and Guangzhou; and
    
    domestic long-distance trains.
  
    
    120 pairs were high-speed express passenger trains operating between Guangzhou and
Shenzhen (including 34 stand-by pairs), representing an increase of 40 pairs;
    
    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
 21




---



##### Table of Contents



one through train
that operates on alternating days either on the Beijing-Kowloon line or the
Shanghai-Kowloon line); and
 
    
    106.5 pairs were domestic long-distance passenger trains, representing an increase
of 4.5 pairs from 102 pairs as of December 31, 2007, which includes 24 pairs of
long-distance passenger trains operated by us between Shenzhen and Yueyang, between
Shenzhen and Shanghai South, between Shenzhen and Beijing West, between Kowloon and
Beijing West, between Shenzhen and Shaoguan, between Guangzhou and Chongqing North,
between Guangzhou and Wanzhou, between Guangzhou and Liuzhou, between Guangzhou and
Wuchang, between Guangzhou and Xian, between Guangzhou and Taizhou, between
Guangzhou and Shanghai South, between Guangzhou and Jiujiang, between Guangzhou and
Changsha, between Yueyang and Guangzhou, between Chenzhou and Foshan, between
Guangzhou and Zhangjiajie, between Guangzhou and Pingshi (two pairs), between
Guangzhou and Shaoguan (two pairs), between Yueyang and Changsha, between Guangzhou
and Lhasa and between Sanya and Beijing West, and 82.5 pairs of domestic
long-distance trains, operated by other operators but originating or terminating
on, or passing through, our railroad.
  Total passenger revenues
    
    Total passengers
    
    Revenue per passenger2006
    
    2007
    
    2008
    
    2006
    
    2007
    
    2008
    
    2006
    
    2007
    
    2008(RMB millions)
    
    (millions)
    
    (RMB)Guangzhou-Shenzhen Trains
    
    
    1,341.7
    
    
    
    1,494.2
    
    
    
    1,973.1
    
    
    
    22.2
    
    
    
    24.7
    
    
    
    32.1
    
    
    
    60.3
    
    
    
    60.5
    
    
    
    61.5Hong Kong Through Trains
    
    
    454.2
    
    
    
    430.5
    
    
    
    380.3
    
    
    
    3.2
    
    
    
    3.2
    
    
    
    3.1
    
    
    
    141.9
    
    
    
    134.5
    
    
    
    122.1Long-distance Trains
    
    
    812.9
    
    
    
    3,908.8
    
    
    
    4,405.8
    
    
    
    10.5
    
    
    
    45.1
    
    
    
    48.6
    
    
    
    77.4
    
    
    
    86.7
    
    
    
    90.6Combined passenger operations
    
    
    2,608.8
    
    
    
    5,833.5
    
    
    
    6,759.2
    
    
    
    36.0
    
    
    
    73.0
    
    
    
    83.8
    
    
    
    72.5
    
    
    
    79.9
    
    
    
    80.6
 Guangzhou-Shenzhen Trains
 22




---



##### Table of Contents



Hong Kong Through Trains.
   Domestic Long-distance Trains.
 Major Stations.
 Guangzhou East Station.
 23




---



##### Table of Contents



Dongguan Station.
 Shenzhen Station.
 Shaoguan Station.
 Guangzhou Station.
 24




---



##### Table of Contents



Freight Transportation
   
    
    inbound freight, which is primarily freight unloaded at freight stations and spur
lines connected to ports on our rail line or in Hong Kong;
    
    outbound freight, which is primarily freight bound for other regions in Mainland
China as well as foreign countries loaded at our train stations and spur lines
connected to ports on our rail line or in Hong Kong; and
    
    pass-through freight, which refers to freight that travels on our rail line, but
which does not originate from or terminate at our rail line.
     25




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##### Table of Contents



Outbound Freight
    
    Inbound (and Pass-through) Freight2006
    
    2007
    
    2008
    
    2006
    
    2007
    
    2008As a Percentage of Total Outbound Freight
    
    As a Percentage of Total Inbound(and Pass-through) FreightConstruction materials
    
    
    21.8
    %
    
    
    44.9
    %
    
    
    40.6
    %
    
    
    42.8
    %
    
    
    36.5
    %
    
    
    34.7
    %Energy products
    
    
    53.2
    %
    
    
    27.3
    %
    
    
    26.0
    %
    
    
    8.4
    %
    
    
    24.7
    %
    
    
    22.9
    %Food products
    
    
    2.8
    %
    
    
    2.8
    %
    
    
    3.1
    %
    
    
    18.7
    %
    
    
    14.9
    %
    
    
    15.3
    %Chemicals
    
    
    4.2
    %
    
    
    3.2
    %
    
    
    3.3
    %
    
    
    12.4
    %
    
    
    9.3
    %
    
    
    10.1
    %Manufactured goods
    
    
    1.2
    %
    
    
    2.1
    %
    
    
    3.0
    %
    
    
    2.8
    %
    
    
    1.3
    %
    
    
    1.7
    %Containers
    
    
    11.9
    %
    
    
    13.2
    %
    
    
    17.5
    %
    
    
    11.1
    %
    
    
    9.6
    %
    
    
    11.8
    %Other goods
    
    
    4.9
    %
    
    
    6.5
    %
    
    
    6.5
    %
    
    
    3.8
    %
    
    
    3.7
    %
    
    
    3.5
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Railway Network Usage and Services Business
   2006
    
    2007
    
    2008(RMB millions)Locomotive traction
    
    
    4.0
    
    
    
    1,155.3
    
    
    
    1,114.3Track usage
    
    
    154.8
    
    
    
    919.7
    
    
    
    953.5Electric catenaries
    
    
    24.0
    
    
    
    211.2
    
    
    
    281.8Vehicle coupling
    
    
    46.5
    
    
    
    216.6
    
    
    
    224.0Other services
    
    
    62.2
    
    
    
    156.7
    
    
    
    164.9Total
    
    
    291.5
    
    
    
    2,659.5
    
    
    
    2,738.4
 Other Businesses
   26




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##### Table of Contents



Revenues
    
    As a Percentage of
Total Revenues2006
    
    2007
    
    2008
    

from Other Businesses(RMB millions)
    
    2006
    
    2007
    
    2008Sale of materials and supplies
    
    
    
    
    
    
    103.8
    
    
    
    227.7
    
    
    
    
    
    
    
    15.1
    %
    
    
    26.3
    %Maintenance of trains
    
    
    
    
    
    
    239.2
    
    
    
    225.5
    
    
    
    
    
    
    
    34.7
    %
    
    
    26.0
    %On-board catering services
    
    
    33.9
    
    
    
    67.3
    
    
    
    97.9
    
    
    
    26.3
    %
    
    
    9.8
    %
    
    
    11.3
    %Labor services
    
    
    29.8
    
    
    
    49.7
    
    
    
    62.2
    
    
    
    23.2
    %
    
    
    7.2
    %
    
    
    7.2
    %Other services related to
railway transportation
    
    
    64.9
    
    
    
    229.1
    
    
    
    252.9
    
    
    
    50.5
    %
    
    
    33.2
    %
    
    
    29.2
    %Total
    
    
    128.6
    
    
    
    689.0
    
    
    
    866.3
    
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Seasonality of Our Railway Transportation Business
  Sales
 Passenger Transportation
     27




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Freight Transportation
     28




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##### Table of Contents



Competition
    Equipment, Tracks and Maintenance
  29




---



##### Table of Contents



30




---



##### Table of Contents



Major Suppliers and Service Providers
    31




---



##### Table of Contents



Regulatory Overview
  National Railway System
  32




---



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Transport Operations
     33




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##### Table of Contents



Pricing
   Environmental Protection
  Insurance
  34




---



##### Table of Contents



Item 4C. Organizational Structure
  Country of
    
    Percentage of Interest heldName
    
    Incorporation
    

by Guangshen RailwayDirectly held by the Company(1)Guangshen Railway Dongqun Trade and Commerce Service
Company
    
    PRC
    
    
    100
    %Shenzhen Fu Yuan Enterprise Development Company Limited
    
    PRC
    
    
    100
    %Shenzhen Guangshen Railway Travel Service Ltd.
    
    PRC
    
    
    100
    %Shenzhen
Longgang Pinghu Qun Yi Railway Store Loading and Unloading Company Limited
    
    PRC
    
    
    55
    %Dongguan Changsheng Enterprise Company Limited
    
    PRC
    
    
    51
    %Shenzhen Railway Station Passenger Services Company Limited
    
    PRC
    
    
    100
    %Guangzhou Tielian Economy Development Company Limited
    
    PRC
    
    
    50.5
    %Shenzhen Nantie Construction Supervision Company
    
    PRC
    
    
    100
    %Indirectly held by the CompanyShenzhen Guangshen Railway Economic and Trade Enterprise
Company Limited
    
    PRC
    
    
    100
    %Shenzhen Railway Property Management Company Limited
    
    PRC
    
    
    100
    %
 
 (1)
    
    In 2008, we liquidated Shenzhen Jing Ming Industrial & Commercial Company Limited, which used
to be our direct wholly owned subsidiary, and we recorded a disposal loss of RMB 188,000. 
 Item 4D. Property, Plant and Equipment
  35




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36




---



##### Table of Contents



ITEM 4A. UNRESOLVED STAFF COMMENTS
  37




---



##### Table of Contents



ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 This discussion and analysis should be read in conjunction with our audited consolidated financial
statements included elsewhere in this annual report. Our audited consolidated financial statements
are prepared in accordance with International Financial Reporting Standards as issued by IASB.
 Overview
        38




---



##### Table of Contents



Item 5A. Operating Results
 Principal Factors Affecting Our Results of Operations
 Economic Development in the Pearl River Delta Region and the PRC.
 39




---



##### Table of Contents



Competitive Pressure from other Means of Transportation.
 PRC Policies. .
 Year ended December 31, 2008 compared with year ended December 31, 2007
 Revenues
  Passenger transportation service.
   Year ended December 31,
    
    Change in 2008 from2006
    
    2007
    
    2008
    
    2007Revenue from passenger
transportation (RMB thousands)
    
    
    2,608,838
    
    
    
    5,833,538
    
    
    
    6,759,229
    
    
    
    15.9
    %Total passengers (thousands)
    
    
    35,976
    
    
    
    73,053
    
    
    
    83,825
    
    
    
    14.7
    %Revenue per passenger (RMB)
    
    
    72.51
    
    
    
    79.85
    
    
    
    80.64
    
    
    
    1.0
    %
 40




---



##### Table of Contents



Year ended December 31,
    
    Change in 2008 from2006
    
    2007
    
    2008
    
    2007Total passenger-kilometers (millions)
    
    
    4,842.7
    
    
    
    26,278.2
    
    
    
    27,923.7
    
    
    
    6.3
    %Revenue per passenger-kilometer (RMB)
    
    
    0.54
    
    
    
    0.22
    
    
    
    0.24
    
    
    
    9.1
    %
  Freight transportation.
 
    
    In 2008, our outbound freight tonnage was 16.8 million tonnes, representing a decrease
of 11.6% from 19.1 million tonnes in 2007. Our outbound freight revenues were RMB 186.1
million in 2008, representing an increase of 19.0% from RMB 156.3 million in 2007. The
Companys outbound freight tonnage declined due to the freezing weather at the beginning
of the year, the upgrading of the industrial structure in the Pearl River Delta region and
the global financial crisis and economic downturn. The increase in outbound freight
revenue was primarily due to (i) the increase in railway freight transportation tariffs in
2008 against 2007 as a result of the price adjustment in November 2007 and (ii) an
increase in the delivery of higher value-added processed goods.
    
    In 2008, our inbound and pass-through freight tonnages were 53.3 million tonnes,
representing an increase of 2.6% from 52.0 million tonnes in 2007. Our inbound and
pass-through freight revenues were RMB 1,044.8 million in 2008, representing a decrease of
2.5% from RMB 1,071.2 million in 2007. Our inbound and pass-through freight revenues
decreased mainly because of the decrease in the inbound and pass-through freight tonnages.
  Year ended December 31,
    
    Change in 2008 from2006
    
    2007
    
    2008
    
    2007Revenue from freight transportation
(RMB thousands)
    
    
    565,557
    
    
    
    1,326,450
    
    
    
    1,324,701
    
    
    
    (0.1
    %) Revenue from outbound freight transportation
    
    
    144,848
    
    
    
    156,348
    
    
    
    186,096
    
    
    
    19.0
    % Revenue from inbound and pass-through transportation
    
    
    331,477
    
    
    
    1,071,205
    
    
    
    1,044,757
    
    
    
    (2.5
    %)Revenue from other freight transportation
services
    
    
    89,232
    
    
    
    98,897
    
    
    
    93,848
    
    
    
    (5.1
    %)Total freight tonnes (thousands of tonnes)
    
    
    30,708
    
    
    
    71,010
    
    
    
    70,141
    
    
    
    (1.2
    )% Outbound freight tonnage
    
    
    7,582
    
    
    
    19,056
    
    
    
    16,847
    
    
    
    (11.6
    )% Inbound and pass-through freight tonnage
    
    
    23,125
    
    
    
    51,955
    
    
    
    53,295
    
    
    
    2.6
    %Revenue per tonne (RMB)
    
    
    18.42
    
    
    
    18.68
    
    
    
    18.89
    
    
    
    1.1
    %Total tonne-kilometers (millions)
    
    
    2,276.3
    
    
    
    15,306.9
    
    
    
    15,557.4
    
    
    
    1.6
    %Revenue per tonne-kilometer (RMB)
    
    
    0.25
    
    
    
    0.09
    
    
    
    0.09
    
    
    
    
 41




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##### Table of Contents



Railway Network Usage and Services Business.
 Other Businesses.
  Year ended December 31,2006
    
    2007
    
    2008(RMB millions)Revenue from other businesses
    
    
    128.6
    
    
    
    689.0
    
    
    
    866.3 Sale of materials and supplies
    
    
    
    
    
    
    103.8
    
    
    
    227.7 Maintenance of trains
    
    
    
    
    
    
    239.2
    
    
    
    225.5 On-board catering services
    
    
    33.9
    
    
    
    67.3
    
    
    
    97.9 Labor services
    
    
    29.8
    
    
    
    49.7
    
    
    
    62.2 Other railway transportation related businesses
    
    
    64.9
    
    
    
    229.1
    
    
    
    252.9
 Operating Expenses
  Year ended December 31,2006
    
    2007
    
    2008Railroad businesses revenues (RMB millions)
    
    
    3,465.9
    
    
    
    9,819.5
    
    
    
    10,822.4Business tax
    
    
    3
    %
    
    
    2
    %
    
    
    2
    %Labor and benefits
    
    
    21
    %
    
    
    20
    %
    
    
    20
    %Equipment leases and services
    
    
    18
    %
    
    
    26
    %
    
    
    25
    %
 42




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##### Table of Contents



Year ended December 31,2006
    
    2007
    
    2008Lease of land use right
    
    
    
    
    
    
    0.51
    %
    
    
    0.46
    %Materials and supplies
    
    
    8
    %
    
    
    13
    %
    
    
    12
    %Repair costs, excluding materials and supplies
    
    
    6
    %
    
    
    5
    %
    
    
    6
    %Depreciation and amortization of leasehold land payments
    
    
    9
    %
    
    
    10
    %
    
    
    11
    %Fee for social services
    
    
    2
    %
    
    
    4
    %
    
    
    4
    %Utility and office expenses
    
    
    3
    %
    
    
    1
    %
    
    
    1
    %Others
    
    
    2
    %
    
    
    3
    %
    
    
    4
    %Operating expenses ratio(1)
    
    
    73
    %
    
    
    85
    %
    
    
    85
    %Railroad businesses operating margin
    
    
    27
    %
    
    
    15
    %
    
    
    15
    %
 
 (1)
    
    Total railroad operating expenses as a percentage of railroad businesses revenues. Railway Operating Expenses.
 
    
    Business tax. Our business tax in 2008 was RMB 253.0 million, representing an
increase of 14.1% from RMB 221.8 million in 2007. The increase was mainly due to the
increase in the operating revenues of the Company.
    
    Labor and benefits. In 2008, our labor and benefits expenses amounted to RMB
2,125.4 million, representing an increase of 10.2% from RMB 1,928.2 million in 2007.
The increase was mainly due to (i) the increase in employees basic salaries and
benefits and (ii) the increase in the number of operating staff and workload as a
result of the increase in the number of trains in operation during the year.
    
    Equipment leases and services.Our expenses for equipment leases and services
mainly consist of railway line usage fees, train hauling fees and train leasing fees
paid to other railway administrations. In 2008, our expenses relating to equipment
leases and services amounted to RMB 2,653.2 million, representing an increase of
2.2% from RMB 2,595.2 million in 2007. This was mainly due to (i) the temporary
change in locomotives and routes of the long-distance trains as a result of the
freezing weather at the beginning of 2008, which led to the increase in railway
network expenses; (ii) the operation of Guangzhou-Zhengzhou trains in July 2008 and
the corresponding increase in railway network expenses and (iii) the change in
electric locomotive routing, which led to the increase in locomotive traction
expenses. Such increase was partially offset by the fact that we did not incur any
expenses relating to the lease of Blue Arrow high-speed electric train-sets in
2008.
    
    Materials and supplies.Our materials and supplies expenses consist mainly of
materials, fuel, water and electricity expenses. In 2008, our materials and supplies expenses were RMB 1,345.7 million, representing an increase
of 8.5% from RMB 1,240.8 million in 2007. The increase was mainly due to (i) the
increase in the prices of fuel, electricity and other railway-related materials
and (ii) the increased consumption of materials, fuel, water and electricity as a
result of the increase in the number of trains we operated in 2008.
 43




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##### Table of Contents




    
    Repair (excluding materials and supplies).Our repair expenses increased by
45.7% from RMB 460.1 million in 2007 to RMB 670.2 million in 2008, primarily due to
(i) an increase in repairs of locomotives, cars, buildings and structures as a
result of the increase in the number of trains we operated in 2008 and the expansion
of our business and (ii) the addition of new vegetation and tree planting along the
rail lines to strengthen the roadbed.
    
    Depreciation.Our depreciation expenses of fixed assets increased by 13.8% from
RMB 1,006.7 million in 2007 to RMB 1,145.6 million in 2008, mainly due to the
increase in depreciation expenses relating to the CRHs and the Fourth Rail Line
between Guangzhou and Shenzhen.
    
    Utility and office expense.Our utility and office expense increased by 10.6%
from RMB 109.8 million in 2007 to RMB 121.4 million in 2008. This was mainly due to
the increase in security expenses during the Beijing 2008 Olympic Games.
    
    Others. Our other railway operating expenses increased by 23.4% from RMB 309.9
million in 2007 to RMB 382.2 million in 2008. This was mainly due to the increase
in communication fees as a result of the installation of the train monitoring system
and the upgrade of communication technology.
 Profit from Operations
  Taxation
   44




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Profit attributable to shareholders of the Company
  Year ended December 31, 2007 compared with year ended December 31, 2006
 Revenues
  Passenger transportation service.
 Freight transportation.
 
    
    In 2007, our outbound freight tonnage was 19.1 million tonnes, representing an increase
of 151.3% from 7.6 million tonnes in 2006. Our outbound freight revenues were RMB 156.3
million, representing an increase of 7.9% from RMB 144.8 million in 2006.
    
    In 2007, our inbound and pass-through freight tonnages were 51.955 million tonnes,
representing an increase of 124.7% from 23.125 million tonnes in 2006. Our inbound and
pass-through freight revenues were RMB 1,071.2 million in 2007, representing an increase
of 223.2% from RMB 331.4 million in 2006.
 Railway Network Usage and Services Business.
 Other Businesses.
 45




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##### Table of Contents



Operating Expenses
  Railway Operating Expenses.
 
    
    Business tax. Our business tax in 2007 was RMB 221.8 million, representing an
increase of 125% from RMB 98.6 million in 2006. The increase was mainly due to the
incorporation of the business of Guangzhou-Pingshi Railway.
    
    Labor and benefits. In 2007, our labor and benefits expenses amounted to RMB
1,928.2 million, representing an increase of 168.5% from RMB 718.0 million in 2006.
The increase was mainly due to (i) the incorporation of the business of
Guangzhou-Pingshi Railway; (ii) the implementation of the performance-based salary
policy and the steady improvement of operating results in 2007 which resulted in an
overall increase in employees salaries and benefits; (iii) the increase in the number
of related operation staff and workload as a result of the increase in the number of
long-distance trains in operation during the year and (iv) pursuant to an early
retirement scheme we implemented in 2006, certain employees who meet certain criteria
were provided with an offer to retire early and enjoy certain early retirement
benefits, such as payments of basic salary and other fringe benefits until they reach
the statutory retirement age. Under the terms of that scheme, all applications are
subject to our approval. Expenses incurred on such employee early retirement benefits
have been recognized in the income statement when we approved such applications from
the employees. We recorded such expenses in the amount of RMB 63.3 million in the
year ended December 31, 2007.
    
    Materials and supplies.Our materials and supplies expenses consist mainly of
materials, fuel, water and electricity expenses. In 2007, our materials and supplies expenses were RMB 1,240.8 million, representing an increase
of 362.5% from RMB 268.3 million in 2006. The increase was mainly due to the
incorporation of the business of Guangzhou-Pingshi Railway.
    
    Depreciation.Our depreciation expenses of fixed assets increased by 217.2% from
RMB 317.4 million in 2006 to RMB 1,006.7 million in 2007, mainly due to the increase
in the fixed assets during the year as a result of the Acquisition.
    
    Repair (excluding materials and supplies).Our repair expenses increased by
116.6% from RMB 212.4 million in 2006 to RMB 460.1 million in 2007, primarily due to
the acquisition of the railway transportation business of Guangzhou-Pingshi Railway.
 46




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##### Table of Contents




    
    Equipment leases and services.Our expenses on equipment leases and services
mainly consist of railway line usage fees, train hauling fees and train leasing fees
paid to other railway administrations. In 2007, our expenses relating to equipment
leases and services amounted to RMB 2,595.2 million, representing an increase of
310.0% from RMB 633.0 million in 2006. This was mainly due to (i) the incorporation
of the business of Guangzhou-Pingshi Railway; (ii) the increase in operation of
long-distance passenger trains, which led to the corresponding increase in railway
usage fees and (iii) the increase in the number of temporary passenger trains
operated during the Spring Festival season in 2007, which led to the increase of
related equipment leases and services fees.
    
    Social services. Our social services fees in 2007 were RMB 396.8 million,
representing an increase of 432.5% from RMB 74.5 million in 2006. The increase was
primarily due to the incorporation of the business of Guangzhou-Pingshi Railway.
    
    Utility and office expense.Our utility and office expense increased by 6.6%
from RMB 102.9 million in 2006 to RMB 109.8 million in 2007. This was mainly due to
the incorporation of the business of Guangzhou-Pingshi Railway.
 Profit from Operations
  Taxation
  Profit attributable to shareholders of the Company
  Critical Accounting Policies and Estimates
  47




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##### Table of Contents



Fixed assets
  Buildings (Note a)
    
    20 to 40 yearsLeasehold improvements
    
    Shorter of useful life or lease termsTrack, bridges and service roads (Note a)
    
    16 to 100 yearsLocomotives and rolling stock
    
    20 yearsCommunications and signaling systems
    
    8 to 20 yearsOther machinery and equipment
    
    4 to 25 years
 
 Note a: The estimated useful lives of buildings, tracks, bridges and service roads exceed the
initial lease periods of the respective land use right lease grants (the Lease Term) and
land use right operating leases (the Operating Lease Term) of the land on which these assets
are located. Pursuant to the relevant laws and regulations in the PRC governing the land use
right lease grant, we have the right to renew the leases for a period not less than 50 years.
This right can be exercised within one year of the expiry of the initial Lease Term and can
only be denied if such renewals are considered to be detrimental to the public interest. We
consider the approval process to be perfunctory. In addition, based on the provision of the
land use right operating lease agreement entered into with our substantial shareholder, we can
renew the lease at our own discretion upon expiration of the Operating Lease Term. Based on
these considerations, we determined the estimated useful lives of these assets to extend
beyond the initial Lease Term as well as the Operating Lease Term.
    Receivables
  48




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##### Table of Contents



Goodwill
   Impairment of investment in subsidiaries, associates and non-financial assets
  Current and deferred income tax
   49




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##### Table of Contents



Item 5B. Liquidity and Capital Resources
    
    
    capital expenditures of approximately RMB 2,947.8 million, representing an increase
of 166.2% from RMB 1,107.3 million in 2007; and
    
    payment of dividends of approximately RMB 566.7 million.
  
    
    construction of the auxiliary projects of the Fourth Rail Line;
    
    purchasing CRHs; and
    
    upgrading the facilities of the Shenzhen-Guangzhou-Pingshi railway
 50




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##### Table of Contents




    
    maintaining and generating stable operating cash inflow from our profitable
operations;
    
    undertaking close monitoring process to control the magnitude and timing of the
expected cash outlays associated with the construction of railway lines, the
improvement of the existing operation equipment and the purchase of new locomotives;
and
    
    obtaining new bank facilities and identifying sources of medium term financing in
order to finance the expected cash outlays associated with the expected capital
expenditures.
 51




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##### Table of Contents



Cash Flow
  Year ended December 31,
    
    Change2007
    
    2008
    
    from 2007(RMB thousands)Net cash generated from operating
activities
    
    
    1,957,645
    
    
    
    1,641,069
    
    
    
    (16.2
    %)Net cash used in investing activities
    
    
    (5,585,414
    )
    
    
    (2,915,785
    )
    
    
    (47.8
    %)Net cash generated from financing activities
    
    
    128,289
    
    
    
    483,317
    
    
    
    276.7
    %Net decrease in cash and
cash equivalents
    
    
    (3,499,480
    )
    
    
    (791,399
    )
    
    
    (77.4
    %)
      52




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##### Table of Contents



Item 5C. Research and Development, Patents and Licenses, etc.
  .
 
 Item 5D. Trend Information
    53




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##### Table of Contents



Item 5E. Off-Balance Sheet Arrangements
  
 Item 5F. Tabular Disclosure of Contractual Obligations
  Contractual Obligations Payments Due by Period
 Payment due by period(RMB in thousands)Less than 1
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    year
    
    
    1-3 year
    
    
    3-5 year
    
    
    5 yearsLong-Term Debt Obligations (1)
    
    
    3,400,000
    
    
    
    10,000
    
    
    
    2,350,000
    
    
    
    1,040,000
    
    
    
    Capital Expenditure Obligation
    
    
    390,691
    
    
    
    176,500
    
    
    
    214,191
    
    
    
    
    
    
    
    Capital (Finance) Lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Lease Obligations(2)
    
    
    1,332,000-
    
    
    
    74,000
    
    
    
    148,000
    
    
    
    148,000
    
    
    
    962,000Purchase Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Long-Term Liabilities Reflected on the Companys Balance Sheet under IFRS
    
    
    288,541
    
    
    
    51,119
    
    
    
    113,285
    
    
    
    82,375
    
    
    
    41,762Total
    
    
    5,411,232
    
    
    
    311,619`
    
    
    
    2,825,476
    
    
    
    1,270,375
    
    
    
    1,003,762
 54




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##### Table of Contents



(1)
    
    The interest to be paid for the bank borrowings of RMB 3,900 million reflected on the
Companys balance sheet under IFRS is calculated using floating rates.(2)
    
    In connection with the Acquisition, we signed an agreement on November 15, 2004 with GRGC
for leasing the land on which the acquired assets are located. The agreement became effective upon
the completion of the Acquisition on January 1, 2007 and the lease term is 20 years, renewable at
our discretion. According to the terms of the agreement, the rental for such lease will be agreed
by both parties every year with a maximum amount not exceeding RMB 74,000,000. In the year ended
December 31, 2008, the related rental cost paid and payable was RMB 50,000,000.  
    
    purchasing 25G and 25T passenger trains;
    
    purchasing CRHs;
    
    constructing the Buji passenger station; and
    
    upgrading and expanding the transportation equipment for the
Shenzhen-Guangzhou-Pingshi Railway.
 
 Item 5G. Safe Harbor
 Safe Harbor
  
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
 Item 6A. Directors and Senior Management
 Directors
   Date FirstElected orName
    
    Age
    
    Position
    
    AppointedHe Yuhua
    
    
    56
    
    
    Chairman of the Board of Directors
    
    2007
 55




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##### Table of Contents



Date FirstElected orName
    
    Age
    
    Position
    
    AppointedShen Yi
    
    
    54
    
    
    Director and General Manager
    
    2008Cao Jianguo
    
    
    51
    
    
    Director
    
    2006Yu Zhiming
    
    
    50
    
    
    Director
    
    2008Luo Qing
    
    
    44
    
    
    Director
    
    2009Li Liang
    
    
    49
    
    
    Director
    
    2009Dai Qilin
    
    
    41
    
    
    Independent Director
    
    2008Wilton Chau Chi Wai
    
    
    47
    
    
    Independent Director
    
    2004Lv Yuhui
    
    
    54
    
    
    Independent Director
    
    2008
      56




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##### Table of Contents



57




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##### Table of Contents



Supervisors
  Date First ElectedName
    
    Age
    
    Position
    
    or AppointedYao Muming
    
    
    55
    
    
    Chairman of the supervisory committee
    
    
    1999Chen Shaohong
    
    
    42
    
    
    Supervisor
    
    
    2008Wang Jianping
    
    
    52
    
    
    Supervisor
    
    
    2008Li Zhiming
    
    
    48
    
    
    Supervisor
    
    
    2005Huang Lika
    
    
    52
    
    
    Supervisor
    
    
    2008Liu Xilin
    
    
    53
    
    
    Supervisor
    
    
    2008
      58




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##### Table of Contents



,
 Senior Management
  Date First ElectedName
    
    Age
    
    Position
    
    or AppointedShen Yi
    
    54
    
    General Manager
    
    2008Mu Anyun
    
    49
    
    Deputy General Manager
    
    2009Wu Weimin
    
    51
    
    Deputy General Manager
    
    2004Tang Xiangdong
    
    40
    
    Chief Accountant
    
    2008Guo Xiangdong
    
    43
    
    Company Secretary
    
    2004Luo Jiancheng
    
    36
    
    Assistant General Manager
    
    2006
     59




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##### Table of Contents



Additional Information
  Name
    
    PositionHe Yuhua
    
    Chairman of the Board of Directors of:
    
    GRGC
    
    Guangmeishan Railway Company Limited
    
    Sanmao Railway Company Limited
    
    Yuehai Railway Company LimitedCao Jianguo
    
    Vice Chairman of the Board of Directors of:
    
    Shenzhen Pingnan Railway Company LimitedDirector of:
    
    Sanmao Railway Company Limited
    
    Guangdong Tieqing International Travel Agency Company
LimitedDeputy General Manager of:
    
    GRGCYu Zhiming
    
    Chairman of the supervisory committee of:
    
    Yuehai Railway Company LimitedDirector of:
    
    Guangmeishan Railway Company Limited
    
    Sanmao Railway Company Limited
    
    Shichang Railway Company LimitedLi Liang
    
    Executive Deputy General Manager of:
 60




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##### Table of Contents



Name
    
    Position
    
    GRGCLv Yuhui
    
    Director of:
    
    Inner Mongolia China Rail Tailida Joint Logistic
Company LimitedYao Muming
    
    Chairman of the supervisory committee of:
    
    Guangmeishan Railway Company Limited
    
    Sanmao Railway Company Limited
    
    Shichang Railway Company LimitedLi Zhiming
    
    Chairman of the supervisory committee of:
    
    Guangdong Tieqing International Travel Agency Company
Limited
    
    Guangdong Tiecheng Industrial Company LimitedSupervisor of:
    
    Sanmao Railway Company Limited
    
    Sanmao Railway Enterprise Development Company Limited
    
    Shichang Railway Company Limited
    
    Yuehai Railway Company LimitedChen Shaohong
    
    Director of:
    
    Guangmeishan Railway Company Limited
    
    Guangdong Tieqing International Travel Agency Limited
    
    Yuehai Railway Company Limited
    
    Sanmao Railway Enterprise Development Company LimitedSupervisor of:
    
    Shichang Railway Company Limited
    
    Sanmao Railway Company Limited
  
 Item 6B. Board Compensation
 Directors and Senior Management
  61




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##### Table of Contents



Interests of Our Directors, Supervisors and Other Senior Management in Our Share Capital
  Service Contracts of Our Directors and Supervisors
  Contracts Entered into by Our Directors and Supervisors
  Remuneration of Our Directors and Supervisors
  62




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##### Table of Contents



Item 6C. Board Practices
 Board of Directors
  Supervisory Committee
   
    
    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
 63




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##### Table of Contents



management who have violated
any law, administrative regulations, the Articles of Association or resolutions of the
shareholders general meetings;
 
    
    to demand a director, general manager, deputy general manager or any other senior
management to rectify such breach when the acts of such persons are harmful to the
Companys interest;
    
    to propose the convening of shareholders general meetings, and to convene and
chair the shareholders general meetings if the board of directors fails to perform
this duty as stipulated in the Articles of Association;
    
    to propose motions to shareholders general meetings; and
    
    to initiate legal proceedings against any director, general manager, deputy general
manager and other senior management in accordance with Article 152 of the Company Law.
   Audit Committee
  
    
    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;
 64




---



##### Table of Contents




    
    pursuant to the resolutions of the annual general meeting, determining with the
Board of Directors the annual auditing fees paid to our independent auditor;
    
    reviewing with the management and the independent auditor the performance, adequacy
and effectiveness of the internal controls and risk management, as well as any
material deficiencies and weakness existing in the internal controls;
    
    evaluating the Companys performance in complying with industrial practices, market
rules, and statutory duties, and the safeguarding of its own interests and the
interests of its shareholders;
    
    considering and determining whether any senior executive officer or senior
financial personnel is in violation of their code of conduct, and the consequences for
such a violation; and
    
    overseeing the management of the retirement pension fund of the Company.
 Remuneration Committee
   
 Item 6D. Employees
  Function
    
    EmployeesPassenger transportation personnel (1)
    
    
    8,901Coordination personnel (2)
    
    
    1,950Freight transportation personnel (3)
    
    
    1,497Mechanical personnel (4)
    
    
    4,137Power and water supply personnel (5)
    
    
    1,501Vehicle personnel (6)
    
    
    2,905Maintenance personnel (7)
    
    
    3,755Power service personnel (8)
    
    
    1,200
 65




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##### Table of Contents



Function
    
    EmployeesTransportation supporting personnel (9)
    
    
    1,059Diversified businesses and other supporting personnel (10)
    
    
    387Technical and administrative personnel (11)
    
    
    4,044Other personnel (12)
    
    
    2,443Total
    
    
    33,779
 
 (1)
    
    Passenger transportation personnel mean those people that provide station boarding
and train services.(2)
    
    Coordination personnel mean those people responsible for train coordination.(3)
    
    Freight transportation personnel mean those people responsible for organization of
freight transportation.(4)
    
    Mechanical personnel mean those people responsible for train operation and overhaul.(5)
    
    Power and water supply personnel mean those people responsible for contact network
operation and overhaul as well as power and water consumption maintenance.(6)
    
    Vehicle personnel mean those people responsible for vehicle operation and overhaul.(7)
    
    Maintenance personnel mean those people responsible for station track and railroad
switch maintenance.(8)
    
    Power service personnel mean those people responsible for signal equipment
maintenance.(9)
    
    Transportation supporting personnel means the supporting personnel of trains,
machinery, works, power and vehicle organizations.(10)
    
    Diversified businesses and other supporting personnel mean all personnel involved in
diversified businesses.(11)
    
    Technical and administrative personnel mean all managerial personnel other than the
personnel of diversified businesses.(12)
    
    Other personnel include all personnel who have been sick, studying or early-retired.     66




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##### Table of Contents



Item 6E. Share Ownership
  
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 
 Item 7A. Major Shareholders
  Shareholding Structure of the Company
  Types
    
    
    
    
    
    ShareholdingName of Shareholders
    
    of Shares
    
    Number of Shares Held
    
    Percentage %Public Shareholders of H
shares (including ADSs)
    
    H shares
    
    
    1,431,300,000
    
    
    
    20.2Guangzhou Railway (Group)
Company
    
    A shares
    
    
    2,904,250,000
    
    
    
    41.0Public Shareholders of A shares
    
    A shares
    
    
    2,747,987,000
    
    
    
    38.8Total
    
    
    
    
    7,083,537,000
    
    
    
    100.0
  Identity of Person
    
    Amount Owned
    
    Percentage of Class
    
    Percent of TotalTitle of Class
    
    or Group
    
    (thousand shares)
    
    of Shares
    
    CapitalCommon Shares (A shares)(1)
    
    GRGC
    
    
    2,904,250
    
    
    
    51.38
    
    
    
    41.00
    %
 67




---



##### Table of Contents



(1)
    
    A shares held by GRGC are restricted from sales and redemption within 36 months starting from
December 22, 2006.  Percentage ofIdentity of Person or Group
    
    Shares Owned
    
    H Shares
    
    Percent of Total CapitalJPMorgan Chase & Co.
    
    172,324,069(L) (1)
    
    
    12.04
    
    
    
    2.43
    %T. Rowe Price Associates,
Inc. and Its Affiliates
    
    142,840,000(L) (1)
    
    
    9.98
    
    
    
    2.02
    %Barclays Global Investors UK Holdings Limited
    
    140,241,345(L) (1)
    
    
    9.80
    
    
    
    1.98
    %Barclays PLC (2)
    
    140,241,345(L) (1)
    
    
    9.80
    
    
    
    1.98
    %Baring Asset Management Limited
    
    129,350,000 (L) (1)
    
    
    9.03
    
    
    
    1.83
    %Northern Trust Fiduciary Services (Ireland) Limited
    
    117,042,000(L) (1)
    
    
    8.18
    
    
    
    1.58
    %
 
 (1)
    
    The letter L denotes a long position.(2)
    
    As of June 8, 2009, Barclays PLC owned 92.3% shares of Barclays Global Investors UK Holdings
Limited. According to the Securities and Futures Ordinance, Barclays PLC is deemed to hold the
share interests of Barclays Global Investors UK Holdings Limited.   
 Item 7B. Related Party Transactions
   68




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##### Table of Contents



Name of related parties
    
    Relationship with the CompanyControlling entity of substantial shareholder, substantial
shareholder and fellow subsidiariesMinistry of Railways of the PRC, or MOR
    
    Controlling entity of GRGCGuangzhou Railway (Group) Company, or GRGC
    
    Substantial shareholderGuangzhou Railway Group Yangcheng Railway Enterprise Development Company, or Yangcheng Railway Company
    
    Subsidiary of GRGCGuangmeishan Railway Company Limited, or Guangmeishan
    
    Subsidiary of GRGCGuangzhou Railway (Group) Guangshen Railway Enterprise Development Company
    
    Subsidiary of GRGCGuangzhou Railway Material Supply Company
    
    Subsidiary of GRGCGuangzhou Railway Engineer Construction Enterprise Development Company, or Engineer Construction Enterprise
    
    Subsidiary of GRGCYuehai Railway Company Limited
    
    Subsidiary of GRGCShichang Railway Company Limited
    
    Subsidiary of GRGCCYTS Guangdong Railway Shenzhen Co., Ltd.
    
    Subsidiary of GRGCChangsha Railway Construction Company Limited
    
    Subsidiary of GRGCGuangdong Pearl River Delta Inter-city Railway Traffic Co., Ltd.
    
    Subsidiary of GRGCGuangdong Sanmao Enterprise Development Company Limited
    
    Subsidiary of GRGCGuangzhou Qingda Transportation Company Limited
    
    Subsidiary of GRGCAssociates of the CompanyGuangzhou Tiecheng Enterprise Company Limited
    
    Associate of the CompanyZengcheng Lihua Stock Company Limited
    
    Associate of the CompanyShenzhen Guangshen Railway Civil Engineering Company
    
    Associate of the Company
   69




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##### Table of Contents




    
    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.
   
    
    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
 70




---



##### Table of Contents



Railway by GRGC equal approximately 6% of GRGCs purchase price for the coaches,
approximating GRGCs depreciation expenses for the coaches; Guangshen Railway also
bears all costs of maintenance and overhaul of these coaches;
    
    the prices for social and related services provided by Yangcheng Railway Company
(i.e., educational) and GEDC (i.e., security and housing) are determined based on
the actual cost of providing these services;
    
    the prices for social and related services provided by GRGC are determined on the
following basis:
  
    
    child care services:
    
    in accordance with the actual cost
incurred for providing such services;
    
    newspaper supply services:
    
    at an agreed cost of
approximately RMB 25 per year per copy of newspaper supplied, which cost may
change based on cost changes to GRGC;
 
    
    the prices for the supply of railroad transportation related materials are
determined in accordance with the relevant regulations issued by GRGC (which
regulations are applicable to other railroads under the jurisdiction of GRGC);
    
    the prices for the provision of overhaul and large scale maintenance services for
our track and bridges are based on the relevant approved estimates plus a profit
margin of 8%, and the prices for other maintenance services are to be agreed by the parties on a case-by-case basis; and
    
    Guangshen Railway is entitled to 45% of the profits derived from the advertising
businesses at its Shenzhen station.
  71




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##### Table of Contents



72




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##### Table of Contents



2006
    
    2007
    
    2008(RMB in thousands)Recurring Transactions:Transactions with the MOR and GRGC and its subsidiariesI. IncomeRevenue collected from the MOR(1), (2) Passenger transportation
    
    
    (800,859
    )
    
    
    (5,318,369
    )
    
    
    (6,196,596
    ) Freight transportation
    
    
    (124,465
    )
    
    
    (906,516
    )
    
    
    (841,240
    ) Railway network usage and services
    
    
    (315,847
    )
    
    
    (2,659,529
    )
    
    
    (2,738,425
    )including: service provided to GRGC
    
    
    (56,509
    )
    
    
    (1,005,505
    )
    
    
    (1,038,611
    )Provision of train transportation services to GRGC and its
subsidiaries(2)
    
    
    (22,295
    )
    
    
    (316,182
    )
    
    
    (402,951
    )Provision of repairing services for cargo trucks of GRGC and the
MOR(2)
    
    
    (32,787
    )
    
    
    (175,284
    )
    
    
    (148,322
    )II. Charges and PaymentsServices charges allocated from the MOR for equipment lease and
services(1), (2)
    
    
    410,353
    
    
    
    1,990,297
    
    
    
    2,179,407
 73




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##### Table of Contents



2006
    
    2007
    
    2008(RMB in thousands)including: service provided by GRGC
    
    
    101,371
    
    
    
    1,105,890
    
    
    
    1,218,138Operating lease rentals paid/payable to the MOR(2)
    
    
    40,885
    
    
    
    156,628
    
    
    
    176,880Provision of train transportation services provided by GRGC and
its subsidiaries(2)
    
    
    26,065
    
    
    
    213,388
    
    
    
    235,303Social services (employee housing, health care, educational and
public security services and other ancillary services) provided
by(3):
    
    
    74,520
    
    
    
    429,655
    
    
    
    440,602 GEDC
    
    
    74,520
    
    
    
    119,657
    
    
    
    126,839 Yangcheng Railway Company
    
    
    
    
    
    
    309,998
    
    
    
    313,763Purchase of materials and supplies from GRGC and its
subsidiaries(4)
    
    
    89,731
    
    
    
    577,352
    
    
    
    398,230Provision of repair and maintenance services by GRGC and its
subsidiaries(2)
    
    
    
    
    
    
    82,478
    
    
    
    115,568Other services provided by subsidiaries of GRGC(4), (5)
    
    
    
    
    
    
    50,569
    
    
    
    21,459Non-Recurring Transactions:Transactions with the MOR and GRGC and its subsidiariesRental income from an associate(5)
    
    
    
    
    
    
    
    
    
    
    (4,681
    )Project construction services provided by GRGC and its
subsidiaries(5)
    
    
    70,537
    
    
    
    52,662
    
    
    
    253,607Provision of construction management services by GRGC in
connection with the construction of fixed assets of the
Company(6)
    
    
    9,326
    
    
    
    9,288
    
    
    
    181Operating lease rental paid to GRGC for the leasing of land use
rights (Note 36(b))
    
    
    
    
    
    
    50,000
    
    
    
    50,000Payment for the acquisition of net assets of Yangcheng Railway
Business
    
    
    5,265,250
    
    
    
    4,873,332
    
    
    
    Other services provided by GRGC and its subsidiaries(2)
    
    
    21,779
    
    
    
    21,633
    
    
    
    
 
 (1)
    
    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 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 allocations are 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 the MOR by 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.(2)
    
    The service charges are based on a pricing scheme set by the MOR or by
reference to current market prices with guidelines provided by the MOR.
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(3)
    
    The service charges are levied based on contract prices determined as cost plus
a profit margin and explicitly agreed to between the contracting parties.(4)
    
    The prices are based on mutual negotiation between the contracting parties with
reference to guidelines provided by the MOR.(5)
    
    The prices are based on mutual negotiation between the contracting parties.(6)
    
    Pursuant to the provisions of a construction management agreement and several
supplemental agreements 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-controlled 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.
  2007
    
    2008(RMB in thousands)Due from GRGC
    
    
    
    
    
    
    155,034 Trade balance(1)
    
    
    
    
    
    
    150,066 Non-trade balance
    
    
    
    
    
    
    4,968Due to GRGC
    
    
    (78,262
    )
    
    
    (35,209
    ) Trade balance(1)
    
    
    (96,995
    )
    
    
    (25,787
    ) Non-trade balance(3)
    
    
    18,733
    
    
    
    (9,422
    )Due from subsidiaries of GRGC
    
    
    39,911
    
    
    
    16,815 Trade balance
    
    
    17,843
    
    
    
    15,350 Non-trade balance
    
    
    22,068
    
    
    
    1,465Due to subsidiaries of GRGC
    
    
    (940,928
    )
    
    
    (302,206
    ) Trade balance(2)
    
    
    (157,001
    )
    
    
    (198,843
    ) Non-trade balance(3)
    
    
    (783,927
    )
    
    
    (103,363
    )Due from an associate
    
    
    1,825
    
    
    
    2,019 Trade balance
    
    
    14,137
    
    
    
    14,331Less: impairment provision(5)
    
    
    (12,312
    )
    
    
    (12,312
    )Due to an associate
    
    
    (2,935
    )
    
    
    (25,118
    ) Non-trade balance(4)
    
    
    (2,935
    )
    
    
    (25,118
    )Due from the MOR
    
    
    42,189
    
    
    
    53,048 Trade balance
    
    
    42,189
    
    
    
    53,048Prepayment for fixed assets and construction-in-progress
    
    
    12,617
    
    
    
    31,012 GRGC and its subsidiaries
    
    
    12,617
    
    
    
    31,012Payables for fixed assets and construction-in-progress
    
    
    53,546
    
    
    
    (125,487
    ) GRGC and its subsidiaries
    
    
    45,496
    
    
    
    (95,498
    ) Associates
    
    
    8,050
    
    
    
    (29,989
    )
 
 (1)
    
    The trade balances due from/to GRGC, subsidiaries of GRGC 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 note (1) of the previous table.
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(2)
    
    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 and related parties.(3)
    
    The non-trade balance due to related parties mainly represents the deposits of
related parties held in the deposit-taking center of the Company.(4)
    
    The non-trade balance due to an associate mainly represents the payable balance
arising from unsettled balance for the construction project services undertaken by an
associate.(5)
    
    Full impairment loss provision set up against a receivable balance due from
Zengcheng Lihua, which was brought forward from prior years.
   
 Item 7C. Interests of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION
 
 Item 8A. Consolidated Statements and Other Financial Information
 Item 8A.1  Item 8.A.6:
  Item 8A.7 Legal Proceedings
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Item 8A.8 Dividend Distributions
  
    
    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.
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Item 8B. Significant Changes
   78




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ITEM 9. THE OFFER AND LISTING
 
 Item 9A. Offer and Listing Details
 Price Range of our H shares and ADSs
    New York Stock Exchange
    
    HKSECalendar Period
    
    High
    
    Low
    
    High
    
    Low(USD per ADS)
    
    (HKD per H share)2004
    
    
    20.74
    
    
    
    11.50
    
    
    
    3.35
    
    
    
    1.762005
    
    
    20.50
    
    
    
    13.07
    
    
    
    3.225
    
    
    
    2.002006
    
    
    35.24
    
    
    
    14.70
    
    
    
    5.41
    
    
    
    2.302007January to March
    
    
    36.84
    
    
    
    26.80
    
    
    
    5.48
    
    
    
    4.30April to June
    
    
    44.13
    
    
    
    31.57
    
    
    
    7.24
    
    
    
    4.90July to September
    
    
    44.50
    
    
    
    28.82
    
    
    
    6.74
    
    
    
    4.68October to December
    
    
    45.59
    
    
    
    32.81
    
    
    
    6.93
    
    
    
    5.152008January to March
    
    
    37.02
    
    
    
    24.25
    
    
    
    5.83
    
    
    
    3.70April to June
    
    
    30.01
    
    
    
    21.00
    
    
    
    4.65
    
    
    
    3.31July to September
    
    
    25.55
    
    
    
    19.45
    
    
    
    3.95
    
    
    
    3.00October to December
    
    
    26.11
    
    
    
    13.05
    
    
    
    3.93
    
    
    
    2.00December
    
    
    19.23
    
    
    
    16.51
    
    
    
    2.99
    
    
    
    2.60
 79




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New York Stock Exchange
    
    HKSECalendar Period
    
    High
    
    Low
    
    High
    
    Low(USD per ADS)
    
    (HKD per H share)2009January
    
    
    20.20
    
    
    
    15.01
    
    
    
    3.18
    
    
    
    2.32February
    
    
    17.28
    
    
    
    14.55
    
    
    
    2.64
    
    
    
    2.30March
    
    
    17.15
    
    
    
    13.85
    
    
    
    2.66
    
    
    
    2.16April
    
    
    23.26
    
    
    
    16.86
    
    
    
    3.64
    
    
    
    2.50May
    
    
    25.55
    
    
    
    21.60
    
    
    
    3.95
    
    
    
    3.33June (through June 8)
    
    
    24.53
    
    
    
    23.24
    
    
    
    3.86
    
    
    
    3.57
   
 Item 9B. Plan of Distribution
  
 Item 9C. Markets
  
 Item 9D. Selling Shareholders
  
 Item 9E. Dilution
  
 Item 9F. Expenses of the Issue
  80




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ITEM 10. ADDITIONAL INFORMATION
 
 
 Item 10A. Share Capital
    Number
    
    
    Percentageof shares
    
    
    of shareType of share capital
    
    (in thousands)
    
    
    (%)Domestic tradable shares with restriction on sales (A shares)
    
    
    2,904,250
    
    
    
    41.0Domestic tradable shares without restriction on sales (A
shares)
    
    
    2,747,987
    
    
    
    38.8H shares
    
    
    1,431,300
    
    
    
    20.2Total
    
    
    7,083,537
    
    
    
    100.00
 Public Float
  Pre-Emptive Rights
  
 Item 10B. Memorandum and Articles of Association
  General
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Significant Differences between H shares and A shares
  Restrictions on Transferability
  
    
    relevant transfer fees have been paid, if any;
    
    the instrument of transfer only involves H shares;
    
    the stamp duty chargeable on the instrument of transfer has been paid;
    
    the relevant share certificate and, upon the reasonable request of the board of
directors, any evidence in relation to the right of the transferor to transfer the shares have been submitted;
    
    if the shares are being transferred to joint owners, the maximum number of joint
owners does not exceed four; and
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
    
    we do not have any lien on the relevant shares.
 Dividends
  
    
    PRC accounting standards and regulations; and
    
    international accounting standards or the accounting standards of the countries in
which our shares are listed.
  
    
    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.
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Voting Rights and Shareholder Meetings
    
    
    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.
   84




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
    
    be given by way of public notice or other means as specified under our Articles of
Association;
    
    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.
 www.gsrc.com
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
    
    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.
  
    
    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.
  86




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
    
    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.
  Board of Directors
     87




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Liquidation Rights
  Liability of Shareholders
  Increases in Share Capital and Preemptive Rights
  Reduction of Share Capital and Purchase by us of our Shares
  (1)
    
    cancellation of shares for capital reduction;(2)
    
    merging with another company that holds our shares;(3)
    
    paying shares to our employees as bonus; or(4)
    
    repurchasing, upon request, any shares held by any shareholder who is opposed
to the Companys resolution for merger or spin-off at a shareholders general meeting.
  88




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
    
    under a general offer;
    
    open offer on a stock exchange; or
    
    by off-market contract.
    
    
    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
 89




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made out of our book balance distributable profits; and
    
    if the shares being repurchased were issued at a premium, payment
shall 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;
  Restrictions on Controlling 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.
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Changing Rights of a Class of Shareholders
  Duties of Directors, Supervisors and Other Senior Officers in Interested Transactions
    
    
    the provision by us of a loan or a guarantee of a loan to one of our subsidiaries;
    
    the provision by us of a loan or a guarantee in connection with a loan or any other
funds to any of our directors, supervisors, general managers, deputy general managers
or other senior officers to pay expenditures incurred or to be incurred on our behalf
by him or her or for the purpose of enabling him or her to perform his or her duties
properly, in accordance with the terms of a service contract approved by the
shareholders at a general meeting; and
    
    the provision by us of a loan or a guarantee in connection with a loan to any of our
directors, supervisors, general managers, deputy general managers or other senior
officers or their respective associates on normal commercial terms, provided that the
ordinary course of our business includes the lending of money or the giving of
guarantees.
 Recent Amendments to Our Articles of Association
 91




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Item 10C. Material Contracts
  
 Item 10D. Exchange Controls
  92




---



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e.g.
 
 Item 10E. Taxation
 PRC Taxation
 Tax Basis of Assets
  Income Tax
  93




---



##### Table of Contents



Value Added Tax
  Business Tax
  Tax on Dividends
 For an Individual Investor
 For An Enterprise
 94




---



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Capital Gains Tax
 For An Individual Investor
 For An Enterprise
 Tax Treaties
   United States Federal Income Taxation
  95




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
    
    banks, insurance companies and financial institutions;
    
    United States expatriates;
    
    tax-exempt entities;
    
    certain insurance companies;
    
    broker-dealers;
    
    traders in securities that elect to mark to market;
    
    U.S. holders liable for alternative minimum tax;
    
    U.S. holders that own 10% or more of our voting stock;
    
    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.
   
    
    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.
  96




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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.
  Distributions on the H shares or ADSs
  
    
    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,
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Sale, Exchange or Other Disposition
   PFIC Rules
  
    
    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.
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Backup Withholding and Information Reporting
  
    
    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.
  Hong Kong Taxation
  Dividends
  Taxation of Capital Gains
  100




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Hong Kong Stamp Duty
   Hong Kong Estate Duty
  
 Item 10F. Dividends and Paying Agents
  
 Item 10G. Statement by Experts
  
 Item 10H. Documents on Display
   101




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Item 10I. Subsidiary Information
  102




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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Currency Risks
   Currency
    
    
    As of December 31,Monetary assets
    
    denomination
    
    
    2007
    
    
    2008(RMB in thousands)Current assetsCash and cash equivalent
    
    USD
    
    
    3,505
    
    
    
    3,176Cash and cash equivalent
    
    HKD
    
    
    9,310
    
    
    
    30,452Other receivables
    
    HKD
    
    
    562
    
    
    
    529Trade payables
    
    USD
    
    
    (1,005
    )
    
    
    (940
    )
    103




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Interest Rate Risks
    Credit Risks
     Liquidity Risks
  104




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105




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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  106




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PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
   107




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Internal
Control  Integrated Framewor
  Changes in Internal Control over Financial Reporting
  
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
  
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  108




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2007
    
    2008(RMB millions)Audit Fees
    
    
    8.0
    
    
    
    9.6Audit-related Fees
    
    
    Tax Fees
    
    
    All Other Fees
    
    
    Total
    
    
    8.0
    
    
    
    9.6
 
 Notes:1.
    
    Traveling expenses and tax fees are included in the audit fees and do not require additional
payment.2.
    
    As of December 31, 2008, there did not exist any amount that became payable but remained
outstanding.  
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 ITEM 16F. CHANGE IN OUR CERTIFYING ACCOUNTANT
  
 ITEM 16G. CORPORATE GOVERNANCE
  
    
    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;
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
    
    we do not have a nominating committee or a corporate governance committee similar to
that required for U.S. domestic companies;
    
    instead of having formal corporate governance guidelines similar to those required
for U.S. domestic companies, we have, in accordance with applicable PRC laws and
regulations and the HKSE Listing Rules, adopted the Articles of Association, the
General Meeting System, the Working Ordinance for the Board of Directors, the Working
Ordinance for the supervisory committee, the Working Ordinance for the General Manager,
the Capital Management Measures, the Investment Management Measures, the Code of Ethics
for Senior Officers and the Audit Committee Charter that contain provisions addressing
(i) director qualification standards and responsibilities; (ii) key board committee
responsibilities; (iii) director access to management and, as necessary and
appropriate, independent advisors; (iv) director compensation; (v) management
succession and (vi) 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; and
    
    we have not adopted a set of formal code of business conduct and ethics for our
directors, officers and employees similar to that required for U.S. domestic companies.
We have implemented code of business conduct and ethics for senior management,
including our General Manager, Deputy General Manager, Chief Accountant and Company
Secretary. In addition, our directors are required to comply with the Model Code for
Securities Transactions by Directors of Listed Companies set out in the HKSE Listing
Rules, which sets out standards with which directors are required to comply with
respect to transactions involving our securities.
 110




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##### Table of Contents



ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
  
 ITEM 19. EXHIBITS
    ExhibitNumber
    
    Description1.1
    
    Amended and Restated Articles of Association2.1
    
    Form of Amendment No.1 to Deposit Agreement*2.2
    
    Form of American Depositary Receipt*4.1
    
    Land Lease Agreement dated November 15, 2004 between Guangshen Railway
Company Limited and Guangzhou Railway (Group) Company**4.2
    
    Master comprehensive services agreements dated November 5, 2007 between
Guangshen Railway Company Limited and each of GRGC, GEDC and Yangcheng
Railway Company***7.1
    
    Statements explaining how certain ratios are calculated in this annual report8.1
    
    List of subsidiaries of Guangshen Railway Company Limited as of December 31,
200811.1
    
    Code of Ethics for the Senior Management as amended on April 29, 200912.1
    
    Section 302 principal executive officers and principal financial officers
certifications13.1
    
    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
 
 *
    
    Incorporated by reference from the Registrants Form F-6EF filed with the SEC on April 24,
2009 111




---



##### Table of Contents



**
    
    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 26, 2008 112




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##### Table of Contents



SIGNATURE
  GUANGSHEN RAILWAY COMPANY LIMITEDDate:  June 25, 2009
    By:
    /s/ He YuhuaHe YuhuaChairman of the Board of Directors




---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
 PageGUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIESReport
of Independent Registered Public Accounting Firm
    
    F-2,3Consolidated
Balance Sheets as of December 31, 2008 and 2007
    
    F-4Consolidated Income Statements for the years ended December 31,
2008, 2007 and 2006
    
    F-5Consolidated Cash Flow Statements for the years ended December
31, 2008, 2007 and 2006
    
    F-6Consolidated Statements of Changes in Equity for the years ended
December 31, 2008, 2007 and 2006
    
    F-7Notes to the Consolidated Financial Statements
    
    F-8




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
   F-2




---



##### Table of Contents



F-3




---



##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2008 AND 2007
 December 31,Note
    
    2007
    
    2008
    
    2008RMB
    
    RMB
    
    US$*ASSETSNon-current assetsFixed assets
    
    6
    
    
    19,995,286
    
    
    
    23,903,846
    
    
    
    3,504,963Construction-in-progress
    
    7
    
    
    1,422,635
    
    
    
    504,775
    
    
    
    74,014Prepayment for fixed assets and
construction-in-progress
    
    
    
    
    891,592
    
    
    
    151,972
    
    
    
    22,283Leasehold land payments
    
    8
    
    
    607,971
    
    
    
    592,368
    
    
    
    86,857Goodwill
    
    9,36
    
    
    281,255
    
    
    
    281,255
    
    
    
    41,240Interests in associates
    
    11
    
    
    124,350
    
    
    
    120,705
    
    
    
    17,699Deferred tax assets
    
    12
    
    
    338,921
    
    
    
    331,738
    
    
    
    48,642Deferred employee costs
    
    13
    
    
    141,391
    
    
    
    99,614
    
    
    
    14,606Available-for-sale investments
    
    15
    
    
    46,608
    
    
    
    48,326
    
    
    
    7,086Long-term receivable
    
    16
    
    
    48,547
    
    
    
    48,136
    
    
    
    7,05823,898,556
    
    
    
    26,082,735
    
    
    
    3,824,448Current assetsMaterials and supplies
    
    17
    
    
    153,674
    
    
    
    201,923
    
    
    
    29,607Trade receivables, net
    
    18
    
    
    59,749
    
    
    
    53,426
    
    
    
    7,834Due from related parties
    
    35(d)
    
    
    83,925
    
    
    
    226,916
    
    
    
    33,272Prepayments and other receivables, net
    
    19
    
    
    141,674
    
    
    
    88,574
    
    
    
    12,987Short term deposits
    
    
    
    
    
    
    
    
    7,300
    
    
    
    1,070Cash and cash equivalents
    
    32(c)
    
    
    2,352,351
    
    
    
    1,560,952
    
    
    
    228,8792,791,373
    
    
    
    2,139,091
    
    
    
    313,649Total assets
    
    
    
    
    26,689,929
    
    
    
    28,221,826
    
    
    
    4,138,097EquityCommon stock, par value RMB1.00 per share,
7,083,537 shares authorised and outstanding
    
    20
    
    
    7,083,537
    
    
    
    7,083,537
    
    
    
    1,038,642Reserves
    
    21
    
    
    14,042,224
    
    
    
    14,699,670
    
    
    
    2,155,37721,125,761
    
    
    
    21,783,207
    
    
    
    3,194,019Minority interests
    
    
    
    
    55,709
    
    
    
    55,948
    
    
    
    8,203Total equity
    
    
    
    
    21,181,470
    
    
    
    21,839,155
    
    
    
    3,202,222LiabilitiesNon-current liabilitiesBorrowings
    
    22
    
    
    2,850,000
    
    
    
    3,390,000
    
    
    
    497,067Employee benefits obligations
    
    23
    
    
    300,701
    
    
    
    237,422
    
    
    
    34,8133,150,701
    
    
    
    3,627,422
    
    
    
    531,880Current liabilitiesTrade payables
    
    24
    
    
    291,423
    
    
    
    416,227
    
    
    
    61,030Payables for fixed assets and
construction-in-progress
    
    
    
    
    337,213
    
    
    
    764,609
    
    
    
    112,113Due to related parties
    
    35(d)
    
    
    1,022,125
    
    
    
    362,533
    
    
    
    53,157Dividends payable
    
    
    
    
    46
    
    
    
    47
    
    
    
    7Income tax payable
    
    
    
    
    89,996
    
    
    
    48,977
    
    
    
    7,181Accruals and other payables
    
    25
    
    
    616,955
    
    
    
    652,856
    
    
    
    95,727Borrowings
    
    22
    
    
    
    
    
    
    510,000
    
    
    
    74,7802,357,758
    
    
    
    2,755,249
    
    
    
    403,995Total liabilities
    
    
    
    
    5,508,459
    
    
    
    6,382,671
    
    
    
    935,875Total equity and liabilities
    
    
    
    
    26,689,929
    
    
    
    28,221,826
    
    
    
    4,138,097
  
 *
    
    Translation of amounts from Renminbi (RMB) into United States dollars (US$) for the
convenience of the reader has been made at the Noon Buying Rate on December 31, 2008 of
US$1.00=RMB6.82 as certified for customs purposes by the Federal Reserve Bank of New York. No
representation is made that the RMB amounts could have been, or could be, converted into US$
at that rate on December 31, 2008. F-4




---



##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 Years ended December 31,Note
    
    2006
    
    2007
    
    2008
    
    2008RMB
    
    RMB
    
    RMB
    
    US$*Revenue from railroad businessesPassenger
    
    
    
    
    2,608,838
    
    
    
    5,833,538
    
    
    
    6,759,229
    
    
    
    991,089Freight
    
    
    
    
    565,557
    
    
    
    1,326,450
    
    
    
    1,324,701
    
    
    
    194,238Railway network usage and services
    
    
    
    
    291,489
    
    
    
    2,659,529
    
    
    
    2,738,425
    
    
    
    401,5293,465,884
    
    
    
    9,819,517
    
    
    
    10,822,355
    
    
    
    1,586,856Revenue from other businesses
    
    
    
    
    128,590
    
    
    
    688,987
    
    
    
    866,300
    
    
    
    127,023Total revenue
    
    
    
    
    3,594,474
    
    
    
    10,508,504
    
    
    
    11,688,655
    
    
    
    1,713,879Operating expensesRailroad businessesBusiness tax
    
    
    
    
    (98,567
    )
    
    
    (221,820
    )
    
    
    (253,001
    )
    
    
    (37,097
    )Labour and benefits
    
    26
    
    
    (718,035
    )
    
    
    (1,928,171
    )
    
    
    (2,125,376
    )
    
    
    (311,639
    )Equipment leases and services
    
    
    
    
    (633,036
    )
    
    
    (2,595,181
    )
    
    
    (2,653,188
    )
    
    
    (389,030
    )Land use right leases
    
    34(b)
    
    
    
    
    
    
    (50,000
    )
    
    
    (50,000
    )
    
    
    (7,331
    )Materials and supplies
    
    
    
    
    (268,259
    )
    
    
    (1,240,801
    )
    
    
    (1,345,651
    )
    
    
    (197,310
    )Repairs and facilities maintenance
costs, excluding materials and
supplies
    
    
    
    
    (212,435
    )
    
    
    (460,133
    )
    
    
    (670,209
    )
    
    
    (98,271
    )Depreciation of fixed assets
    
    
    
    
    (317,358
    )
    
    
    (1,006,728
    )
    
    
    (1,145,624
    )
    
    
    (167,980
    )Amortization of leasehold land payments
    
    
    
    
    (16,776
    )
    
    
    (15,002
    )
    
    
    (15,001
    )
    
    
    (2,200
    )Social services charges
    
    
    
    
    (74,520
    )
    
    
    (396,789
    )
    
    
    (400,546
    )
    
    
    (58,731
    )Utility and office expenses
    
    
    
    
    (102,949
    )
    
    
    (109,792
    )
    
    
    (121,436
    )
    
    
    (17,806
    )Others
    
    
    
    
    (85,972
    )
    
    
    (309,876
    )
    
    
    (382,246
    )
    
    
    (56,048
    )(2,527,907
    )
    
    
    (8,334,293
    )
    
    
    (9,162,278
    )
    
    
    (1,343,443
    )Other businessesBusiness tax
    
    
    
    
    (4,885
    )
    
    
    (17,611
    )
    
    
    (20,846
    )
    
    
    (3,057
    )Labour and benefits
    
    26
    
    
    (65,710
    )
    
    
    (171,921
    )
    
    
    (312,333
    )
    
    
    (45,797
    )Materials and supplies
    
    
    
    
    (83,072
    )
    
    
    (161,719
    )
    
    
    (387,651
    )
    
    
    (56,840
    )Depreciation of fixed assets
    
    
    
    
    (2,529
    )
    
    
    (10,372
    )
    
    
    (26,418
    )
    
    
    (3,874
    )Amortization of leasehold land payments
    
    
    
    
    
    
    
    
    (1,019
    )
    
    
    (602
    )
    
    
    (88
    )Utility and office expenses
    
    
    
    
    (9,815
    )
    
    
    (96,177
    )
    
    
    (81,227
    )
    
    
    (11,910
    )(166,011
    )
    
    
    (458,819
    )
    
    
    (829,077
    )
    
    
    (121,566
    )Total operating expenses
    
    
    
    
    (2,693,918
    )
    
    
    (8,793,112
    )
    
    
    (9,991,355
    )
    
    
    (1,465,009
    )Other income, net
    
    27
    
    
    64,648
    
    
    
    49,816
    
    
    
    17,703
    
    
    
    2,596Profit from operations
    
    
    
    
    965,204
    
    
    
    1,765,208
    
    
    
    1,715,003
    
    
    
    251,466Finance costs
    
    28
    
    
    (15,970
    )
    
    
    (98,487
    )
    
    
    (213,469
    )
    
    
    (31,300
    )Share of results of associates
    
    11
    
    
    (28,306
    )
    
    
    1,830
    
    
    
    128
    
    
    
    19Profit before income tax
    
    
    
    
    920,928
    
    
    
    1,668,551
    
    
    
    1,501,662
    
    
    
    220,185Income tax expense
    
    29
    
    
    (149,155
    )
    
    
    (232,349
    )
    
    
    (277,294
    )
    
    
    (40,659
    )Profit for the year
    
    
    
    
    771,773
    
    
    
    1,436,202
    
    
    
    1,224,368
    
    
    
    179,526Attributable to:Equity holders of the Company
    
    
    
    
    771,513
    
    
    
    1,431,415
    
    
    
    1,224,129
    
    
    
    179,491Minority interests
    
    
    
    
    260
    
    
    
    4,787
    
    
    
    239
    
    
    
    35771,773
    
    
    
    1,436,202
    
    
    
    1,224,368
    
    
    
    179,526Dividends
    
    31
    
    
    566,683
    
    
    
    566,683
    
    
    
    566,683
    
    
    
    83,091Earnings per share for profit attributable
to the equity holders of the Company during
the year- Basic and diluted
    
    30
    
    RMB0.17
    
    RMB0.20
    
    RMB0.17
    
    US$0.02Earnings per equivalent ADS- Basic and diluted
    
    
    
    RMB8.73
    
    RMB10.10
    
    RMB8.64
    
    US$1.27
  
 *
    
    Translation of amounts from Renminbi (RMB) into United States dollars (US$) for the
convenience of the reader has been made at the Noon Buying Rate on December 31, 2008 of
US$1.00=RMB6.82 as certified for customs purposes by the Federal Reserve Bank of New York. No
representation is made that the RMB amounts could have been, or could be, converted into US$
at that rate on December 31, 2008. F-5




---



##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 Year ended December 31,Note
    
    2006
    
    2007
    
    2008
    
    2008RMB
    
    RMB
    
    RMB
    
    US$*Cash flows from operating activities:Cash generated from operations
    
    32(a)
    
    
    1,230,958
    
    
    
    2,430,689
    
    
    
    2,173,685
    
    
    
    318,722Interest paid
    
    
    
    
    (1,745
    )
    
    
    (173,515
    )
    
    
    (221,488
    )
    
    
    (32,476
    )Income tax paid
    
    
    
    
    (117,209
    )
    
    
    (299,529
    )
    
    
    (311,128
    )
    
    
    (45,620
    )Net cash generated from operating activities
    
    
    
    
    1,112,004
    
    
    
    1,957,645
    
    
    
    1,641,069
    
    
    
    240,626Cash flows from investing activities:Payments for acquisition of fixed assets and
construction-in-progress and prepayment for
fixed assets, net of related payables
    
    
    
    
    (3,202,670
    )
    
    
    (1,107,320
    )
    
    
    (2,947,804
    )
    
    
    (432,230
    )Deposits for business combination
    
    36
    
    
    (5,265,250
    )
    
    
    
    
    
    
    
    
    
    
    Payment for business combination, net of cash
acquired
    
    36
    
    
    
    
    
    
    (4,781,633
    )
    
    
    
    
    
    
    Proceeds from sales of fixed assets
    
    32(b)
    
    
    42,596
    
    
    
    83,701
    
    
    
    11,358
    
    
    
    1,665Interest received
    
    
    
    
    36,633
    
    
    
    57,183
    
    
    
    24,321
    
    
    
    3,566Net cash balance acquired in an acquisition
of a subsidiary
    
    
    
    
    1,905
    
    
    
    
    
    
    
    
    
    
    
    Decrease in interests in associates, net
    
    
    
    
    (42,937
    )
    
    
    
    
    
    
    
    
    
    
    Decrease/(increase) in short-term deposits
with maturities more than three months
    
    
    
    
    596,392
    
    
    
    169,739
    
    
    
    (7,300
    )
    
    
    (1,070
    )Dividends received
    
    
    
    
    
    
    
    
    
    
    
    
    4,475
    
    
    
    656Disposal of subsidiaries, net of cash received
    
    
    
    
    
    
    
    
    (7,084
    )
    
    
    (835
    )
    
    
    (122
    )Net cash used in investing activities
    
    
    
    
    (7,833,331
    )
    
    
    (5,585,414
    )
    
    
    (2,915,785
    )
    
    
    (427,535
    )Cash flows from financing activities:Proceeds from issuance of share capital
    
    
    
    
    10,332,432
    
    
    
    
    
    
    
    
    
    
    
    Share issuance costs
    
    
    
    
    (210,747
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from borrowings
    
    
    
    
    1,860,000
    
    
    
    695,000
    
    
    
    1,050,000
    
    
    
    153,959Dividends paid to the Companys shareholders
    
    
    
    
    (520,655
    )
    
    
    (566,711
    )
    
    
    (566,683
    )
    
    
    (83,091
    )Net cash generated from financing activities
    
    
    
    
    11,461,030
    
    
    
    128,289
    
    
    
    483,317
    
    
    
    70,868Net increase / (decrease) in cash and cash
equivalents
    
    
    
    
    4,739,703
    
    
    
    (3,499,480
    )
    
    
    (791,399
    )
    
    
    (116,041
    )Cash and cash equivalents, at beginning of year
    
    
    
    
    1,112,128
    
    
    
    5,851,831
    
    
    
    2,352,351
    
    
    
    344,920Cash and cash equivalents, at end of year
    
    32(c)
    
    
    5,851,831
    
    
    
    2,352,351
    
    
    
    1,560,952
    
    
    
    228,879
  
 *
    
    Translation of amounts from Renminbi (RMB) into United States dollars (US$) for the
convenience of the reader has been made at the Noon Buying Rate on December 31, 2008 of
US$1.00=RMB6.82 as certified for customs purposes by the Federal Reserve Bank of New York. No
representation is made that the RMB amounts could have been, or could be, converted into US$
at that rate on December 31, 2008. F-6




---



##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 Attributable to equity holdersShares
    
    Statutory
    
    Statutory
    
    Discretionaryissuance
    
    surplus
    
    public
    
    surplus
    
    Retained
    
    Minority
    
    TotalShare capital
    
    Share premium
    
    costs
    
    reserve
    
    welfare fund
    
    reserve
    
    earnings
    
    interest
    
    equityRMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB(Note 20)
    
    
    
    
    
    (Note 21)
    
    
    
    (Note 21)Balance at January 1, 2006
    
    
    4,335,550
    
    
    
    2,855,778
    
    
    
    (27,007
    )
    
    
    662,542
    
    
    
    534,536
    
    
    
    345,993
    
    
    
    1,088,684
    
    
    
    48,757
    
    
    
    9,844,833Class A share issuance
    
    
    2,747,987
    
    
    
    7,584,445
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,332,432Share issuance costs
    
    
    
    
    
    
    
    
    
    
    (210,747
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (210,747
    )Total recognised income and
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    771,513
    
    
    
    260
    
    
    
    771,773Profit for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    771,513
    
    
    
    260
    
    
    
    771,773Acquisitions of a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,229
    
    
    
    4,229Disposal of a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,324
    )
    
    
    (2,324
    )Appropriation from retained
earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,605
    
    
    
    
    
    
    
    41
    
    
    
    (71,646
    )
    
    
    
    
    
    
    Share issuance cost offset
against share premium
    
    
    
    
    
    
    (237,754
    )
    
    
    237,754
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Transfers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    534,536
    
    
    
    (534,536
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends relating to 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (520,266
    )
    
    
    
    
    
    
    (520,266
    )Balance at December 31, 2006
    
    
    7,083,537
    
    
    
    10,202,469
    
    
    
    
    
    
    
    1,268,683
    
    
    
    
    
    
    
    346,034
    
    
    
    1,268,285
    
    
    
    50,922
    
    
    
    20,219,930Balance at January 1, 2007
    
    
    7,083,537
    
    
    
    10,202,469
    
    
    
    
    
    
    
    1,268,683
    
    
    
    
    
    
    
    346,034
    
    
    
    1,268,285
    
    
    
    50,922
    
    
    
    20,219,930Total recognised income and
expense
    
    
    
    
    
    
    92,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,431,415
    
    
    
    4,787
    
    
    
    1,528,223Adjustment to deferred tax
arising from group
reorganisation brought
forward due to change of
income tax rate (Note 12)
    
    
    
    
    
    
    92,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92,021Profit for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,431,415
    
    
    
    4,787
    
    
    
    1,436,202Appropriations from
retained earnings (Note 21)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    139,778
    
    
    
    
    
    
    
    
    
    
    
    (139,778
    )
    
    
    
    
    
    
    Reversal of appropriation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,766
    )
    
    
    
    
    
    
    
    
    
    
    2,766
    
    
    
    
    
    
    
    Dividends relating to 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (566,683
    )
    
    
    
    
    
    
    (566,683
    )Balance at December 31, 2007
    
    
    7,083,537
    
    
    
    10,294,490
    
    
    
    
    
    
    
    1,405,695
    
    
    
    
    
    
    
    346,034
    
    
    
    1,996,005
    
    
    
    55,709
    
    
    
    21,181,470Balance at January 1, 2008
    
    
    7,083,537
    
    
    
    10,294,490
    
    
    
    
    
    
    
    1,405,695
    
    
    
    
    
    
    
    346,034
    
    
    
    1,996,005
    
    
    
    55,709
    
    
    
    21,181,470Total recognised income and
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,224,129
    
    
    
    239
    
    
    
    1,224,368Profit for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,224,129
    
    
    
    239
    
    
    
    1,224,368Appropriations from
retained earnings(Note 21)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,444
    
    
    
    
    
    
    
    
    
    
    
    (121,444
    )
    
    
    
    
    
    
    Dividends relating to 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (566,683
    )
    
    
    
    
    
    
    (566,683
    )Reversal of appropriations
(Note 21)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,969
    )
    
    
    
    
    
    
    (41,975
    )
    
    
    75,944
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    7,083,537
    
    
    
    10,294,490
    
    
    
    
    
    
    
    1,493,170
    
    
    
    
    
    
    
    304,059
    
    
    
    2,607,951
    
    
    
    55,948
    
    
    
    21,839,155Balance at December 31,
2008 (*)
    
    US$
    1,038,642
    
    
    US$
    1,509,456
    
    
    
    
    
    
    US$
    218,940
    
    
    
    
    
    
    US$
    44,583
    
    
    US$
    382,398
    
    
    US$
    8,203
    
    
    US$
    3,202,222
  
 *
    
    Translation of amounts from Renminbi (RMB) into United States dollars (US$) for the
convenience of the reader has been made at the Noon Buying Rate on December 31, 2008 of
US$1.00=RMB6.82 as certified for customs purposes by the Federal Reserve Bank of New York. No
representation is made that the RMB amounts could have been, or could be, converted into US$ at
that rate on December 31, 2008. F-7




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 1
    
    GENERAL INFORMATION
 Guangshen Railway Company Limited (the Company) was established as a joint stock limited company
in the Peoples Republic of China (the PRC) on March 6, 1996. On the same date, the Company
assumed the business operations of certain railroad and other related businesses (collectively the
Businesses) that had been undertaken previously by its predecessor, Guangshen Railway Company
(the Predecessor) and certain of its subsidiaries; and Guangzhou Railway (Group) Company (the
Guangzhou Railway Group) and certain of its subsidiaries prior to the formation of the Company.The Predecessor is controlled by and is under the administration of the Guangzhou Railway Group.
Pursuant to a restructuring agreement entered into between the Guangzhou Railway Group, the
Predecessor and the Company in 1996 (the Restructuring Agreement), the Company issued to the
Guangzhou Railway Group 100% of its equity interest in the form of 2,904,250,000 ordinary shares
(the State-owned Domestic Shares) in exchange for the assets and liabilities associated with the
operations of the Businesses (the Restructuring). After the Restructuring, the Predecessor
changed its name to Guangzhou Railway (Group) Guangshen Railway Enterprise Development Company.In May 1996, the Company issued 1,431,300,000 shares, representing 217,812,000 H Shares (H
Shares) and 24,269,760 American Depositary Shares (ADSs, one ADS represents 50 H Shares) in a
global public offering for cash of approximately RMB4,214,000,000 in order to finance the capital
expenditure and working capital requirements of the Company and its subsidiaries (collectively
defined as the Group).In December 2006, the Company issued 2,747,987,000 A Shares on the Shanghai Stock Exchange through
an initial public offering of shares in order to finance the acquisition of the business and
related assets and liabilities associated with the railway transportation business of Guangzhou
Railway Group Yangcheng Railway Enterprise Development Company (Yangcheng Railway Business), a
wholly owned subsidiary of Guangzhou Railway Group which operates a railway line between the cities
of Guangzhou and Pingshi in the Southern region of the PRC. On January 1, 2007, control of
Yangcheng Railway Business was transferred to the Company at a cash consideration of
RMB10,169,925,000. See more details in Note 36.The principal activities of the Group are the provision of passenger and cargo transportation on
railroad. The Group also operates certain other businesses, which principally include services
offered in railway stations; and sales of food, beverages and merchandises on board the trains and
in the railway stations.The registered address of the Company is No. 1052 Heping Road, Shenzhen, Guangdong Province, the
Peoples Republic of China.As of December 31, 2008, the Company had in total approximately 33,779 employees, representing an
increase of 779 as compared to that of December 31, 2007.
 F-8




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 1
    
    GENERAL INFORMATION (CONTINUED)
 The financial statements were authorized for issue by the board of directors of the Company on June
25, 2009.The English names of all companies listed in the financial statements are direct translations of
their registered names in Chinese.
 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.
 2.1
    
    Basis of presentation
 The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The
financial statements have been prepared under the historical cost convention.The preparation of financial statements in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires management to exercise its judgement in the process
of applying the Groups accounting policies. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are significant to the financial statements
are disclosed in Note 4.The Group reported net current liabilities of approximately RMB616,158,000 as of 31 December 2008.
It is mainly due to the fact that certain capital expenditures were financed by self generated
operating cash flow and short-term bank borrowings.Notwithstanding the foregoing, the directors have adopted the going concern basis in the
preparation of the consolidated financial statements based on the following:
 
    
    The Group has always been able to maintain a stable operating cash inflow derived from its
profitable operations. The directors expect that the Group will continue to generate
sufficient cash flows from its future operating activities; and
    
    As of December 31,2008, the Group had unutilised borrowing facilities of approximately
RMB900,000,000 (Note 22). In addition, certain banks have indicated to the Group their
intention to offer borrowing facilities in an aggregate amount of approximately
RMB1,700,000,000 in 2009. In addition, the Group would also identify alternative sources of
financing such as issuing bonds of medium maturity terms (Note 37).
 F-9




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 2.1
    
    Basis of preparation (continued)
 
    
    As of December 31, 2008, the total capital
commitments, authorised but not contracted
for and contracted but not provided for,
were approximately RMB2,530,325,000 and
RMB390,691,000 respectively (Note 34). The
directors of the Company are able to, and
will also undertake necessary monitoring
procedures, to control the magnitude and
timing of the expected cash outlays
associated with these commitments with
reference made to the operating cash inflow
and bank financing arranged by the Group.
 In light of the above, the directors consider that the Group will have sufficient financial
resources to settle its liabilities and fund its obligations and it is appropriate to prepare the
financial statements of the Group on a going concern basis.
 (a)
    
    New accounting pronouncements and amendments effective in 2008
 
    
    The IAS 39, Financial instruments: Recognition and measurement, amendment on
reclassification of financial assets permits reclassification of certain financial assets out
of the held-for-trading and available-for-sale categories if specified conditions are met. The
related amendment to IFRS 7, Financial instruments: Disclosures, introduces disclosure
requirements with respect to financial assets reclassified out of the held-for-trading and
available-for-sale categories. The amendment is effective prospectively from July 1, 2008.
This amendment does not have any impact on the Groups financial statements, as the Group was
not required to reclassify any financial assets accordingly.
 (b)
    
    Accounting interpretations effective in 2008 but not relevant to the Groups operationsThe following interpretations to published standards are mandatory for accounting periods beginning
on or after January 1, 2008 but are not relevant to the Groups operations:
 
    
    IFRIC  Int 11, IFRS 2  Group and treasury share transactions;
    
    IFRIC  Int 12, Service Concession arrangements  As the Company does not have the
obligation to provide its railway services to the public on behalf of the government; and
there is no legal restriction on the transfer of the Companys railway operating assets to any
third party, the directors of the Company have concluded that the scope of operations of the
Company is not within the scope of IFRIC 12; and
    
    IFRIC  Int 14, IAS 19  The limit on a defined benefit asset, minimum funding
requirements and their interaction.
 F-10




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 2.1
    
    Basis of preparation (continued)
 (c)
    
    Accounting standards, amendments and interpretations to existing standards that are not yet
effective and have not been early adopted by the Group:The following standards, amendments and interpretations to existing standards, have been published
that are mandatory for the Groups accounting periods beginning on or after January 1, 2009 or
later periods and have not been early adopted by the Group:
 
    
    IFRS 3 (Revised), Business Combination (effective from July 1, 2009). Management does not
expect that the application will result in a material impact on the Groups accounts.
    
    IFRS 7 (Amendment),Financial Instruments: Disclosure,(effective from January 1, 2009).
Management does not expect that the application will result in a material impact on the
Groups accounts.
    
    IFRS 8, Operating segments  (effective from January 1, 2009). IFRS 8 replaces IAS 14 and
aligns segment reporting with the requirements of the US standard SFAS 131, Disclosures about
segments of an enterprise and related information. The expected impact of this new standard
is still being assessed in details by management, but management does not anticipate that the
application will result in any material impact on the Groups financial statements.
    
    IAS 1 (Revised), Presentation of Financial Statements (effective from January 1, 2009).
The Group is currently evaluating the possible impact arising from the IAS 1(Revised).
    
    IAS 23 (Amendment), Borrowing costs (effective from January 1, 2009). The existing
accounting policy of the Group is the same as the requirements of the revised IAS 23.
    
    IAS 27 (Revised), Consolidated and Separate Financial Statements (effective from July 1,
2009). Management does not expect the adoption of this new requirement will have a material
impact on the Groups accounts.
    
    IASBs Annual Improvements Project published in May 2008 and April 2009. IASB published
its annual improvement project, which made some amendments to IFRSs to clarify some accounting
treatments/disclosure requirements under new/revised IFRSs and eliminate inconsistency.
Management does not expect these amendments will have a material impact on the Groups
financial statements.
 F-11




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 2.1
    
    Basis of preparation (continued)
 (d)
    
    Accounting standards, amendments and interpretations to existing standards that are not yet
effective and not relevant to the Groups operations:The following standards, amendments and interpretations to existing standards have been published
that are mandatory for the Groups accounting periods beginning on or after July 1, 2008 or later
periods but are not relevant to the Groups operations:
 
    
    IFRS 1 (Amendment), First time adoption of IFRS and IAS 27 Consolidated and separate
financial statements (effective from January 1, 2009).
    
    IFRS 2 Amendment, Share-based Payment Vesting Conditions and Cancellations (effective
from January 1, 2009).
    
    IAS 32 (Amendment), Financial instruments: Presentation, and IAS 1 (Amendment),
Presentation of financial statements  Puttable financial instruments and obligations
arising on liquidation (effective from January 1, 2009).
    
    IAS 39 (Amendment),Financial Instruments: Recognition and Measurement (effective from
June 30, 2009).
    
    IFRIC  Int 13, Customer loyalty programmes (effective from July 1, 2008).
    
    IFRIC  Int 15, Agreements for construction of real estates (effective from January 1,
2009).
    
    IFRIC  Int 16, Hedges of a net investment in a foreign operation (effective from
October 1, 2008).
    
    IFRIC  Int 17  Distributions of non-cash assets to owners (effective from July 1,
2009).
    
    IFRIC  Int 18, Transfers of Assets from Customers (effective for transfers on or after
July 1, 2009).
    
    IFRIC  Int 9,Reassessment of Embedded Derivative(effective from June 30, 2009)
 2.2
    
    Consolidation
 (a)
    
    SubsidiariesSubsidiaries 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 set out in Note 10.
 F-12




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 2.2
    
    Consolidation (continued)
 (a)
    
    Subsidiaries (continued)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 Groups share
of the identifiable net assets of the subsidiary acquired, the difference is recognised directly in
the consolidated income statement.Inter-company transactions, balances and unrealised gains on transactions between group companies
are eliminated. Unrealised losses are also eliminated unless 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.
 (b)
    
    Transactions with minority interestsThe 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 consolidated 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)
    
    AssociatesAssociates are all entities over which the Group has significant influence but not control,
generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in
associates are accounted for using the equity method of accounting and are initially recognised at
cost. The groups investment in associates includes goodwill identified on acquisition, net of any
accumulated impairment loss (Note 2.9). Details of the Groups associates are set out in Note 11.The Groups share of its associates post-acquisition profits or losses is recognised in the
consolidated 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.
 F-13




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 2.2
    
    Consolidation (continued)
 (c)
    
    Associates (continued)Unrealised gains on transactions between the Group and its associates are eliminated to the extent
of the Groups interest in the associates. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Accounting policies of
associates have been changed where necessary to ensure consistency with the policies adopted by the
Group.Dilution gains and losses arising in investments in associates are recognised in the consolidated
income statement.
 2.3
    
    Segment reportingA 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.All of the Groups business operations are conducted within the PRC. Accordingly, no geographical
segment is presented.
 2.4
    
    Foreign currency transactions
 (a)
    
    Functional and presentation currencyItems 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
Groups functional and presentation currency.
 (b)
    
    Transactions and balancesForeign 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 consolidated income
statement.
 F-14




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 2.5
    
    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
intended use.Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will
flow to the Group and the cost of the item can be measured reliably. The carrying amount of the
replaced part is derecognised. All other repairs and maintenance are charged to the consolidated
income statement during the financial period in which they are incurred.Depreciation is calculated using the straight-line method to allocate the cost amount, after taking
into account the estimated residual value of not more than 4% of cost, of each asset over its
estimated useful life. The estimated useful lives are as follows:
 Buildings (Note a)
    
    20 to 40 yearsLeasehold improvements
    
    Shorter of useful life or lease termsTrack, bridges and service roads (Note a)
    
    16 to 100 yearsLocomotives and rolling stock
    
    20 yearsCommunications and signalling systems
    
    8 to 20 yearsOther machinery and equipment
    
    4 to 25 years
 
 Note a:
    
    The estimated useful lives of buildings, tracks, bridges and service roads exceed the
initial lease periods of the respective land use right lease grants (the Lease Term); and
the initial period of land use right operating leases (the Operating Lease Term), on which
these assets are located (Notes 2.7 and 34(b)).Pursuant to the relevant laws and regulations in the PRC governing the land use right lease
grants, the Group has the right to renew the respective leases up for a period not
less than 50 years. This right can be exercised within one year before the expiry of
the initial Lease Term, and can only be denied if such renewals are considered to be
detrimental to the public interest. Accordingly, the directors of the Company
consider that the approval process to be perfunctory. In addition, based on the
provision of the land use right operating lease agreement entered into with the
substantial shareholder (details contained in Note 34(b)), the Company can renew the
lease at its own discretion upon expiry of the Operating Lease Term. Based on the
above considerations, the directors have determined the estimated useful lives of
these assets to extend beyond the initial Lease Term as well as the Operating Lease
Term. The assets residual values and estimated useful lives are reviewed, and adjusted if appropriate,
at each balance sheet date.An assets carrying amount is written down immediately to its recoverable amount if the assets
carrying amount is greater than its estimated recoverable amount (Note 2.9).Gains and losses on disposals are determined by comparing the sales proceeds with the carrying
amount and are recognised within other gain or loss, included in the consolidated income statement.
 F-15




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 2.6
    
    Construction-in-progressConstruction-in-progress represents buildings, tracks, bridges and service roads, mainly includes
the construction related costs for the associated facilities of the fourth railway line of the
Group. Construction-in-progress is stated at cost, which includes all expenditures and other direct
costs, site restoration costs, prepayments attributable to the construction and interest charges
arising from borrowings used to finance the construction during the construction period, less
impairment loss. Construction-in-progress is not depreciated until such assets are completed and
ready for their intended use.
 2.7
    
    Leasehold land paymentsAll 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 extend and renew the lease for a period not less than 50 years. This
right can be exercised within one year before 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 is reasonably assured.
 2.8
    
    Goodwill
 Goodwill represents the excess of the cost of an acquisition over the fair value of the Groups
share of the net identifiable assets of the acquired subsidiary/business at the date of
acquisition. Goodwill on acquisitions of subsidiaries is disclosed separately on the Balance Sheet.
Goodwill is tested for impairment annually or, whenever there is an indication of impairment, and
carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to
the entity sold.Goodwill is allocated to cash-generating units for the purpose of impairment testing. The
allocation is made to those cash-generating units or groups of cash-generating units that are
expected to benefit from the business combination in which the goodwill arose.
 2.9
    
    Impairment of investment in subsidiaries, associates and non-financial assets
 Assets that have an indefinite useful life, for example goodwill, are not subject to amortization
and are tested annually for impairment. Assets that are subject to amortization are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is 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.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 2.10
    
    Financial assets
 2.10.1
    
    Classification
 The Group classifies its financial assets in the following categories: at fair value through profit
or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial
assets. The classification depends on the purpose for which the financial assets were acquired.
Management determines the classification of its financial assets at initial recognition. Other than
loans and receivables and available-for-sale financial assets, the Group did not hold any financial
assets in other categories during 2008 and 2007.
 (a)
    
    Loans and receivables
 Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. They are included in current assets, except for maturities
greater than 12 months after the balance sheet date. These are classified as non-current assets.
The Groups loan and receivables comprise receivables and cash and cash equivalents in the
balance sheet (Notes 2.13 and 2.14).
 (b)
    
    Available-for-sale financial assets
 Available-for-sale financial assets are non-derivatives that are either designated in this category
or not classified in any of the other categories. They are included in non-current assets unless
management intends to dispose of the investment within 12 months of the balance sheet date.
 2.10.2
    
    Recognition and measurement
 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, except for all financial assets carried at fair value through
profit or loss. Financial assets are derecognised when the rights to receive cash flows from the
investments have expired or have been transferred and the Group has transferred substantially all
risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at
fair value. Loans and receivables are carried at amortised cost using the effective interest
method.Changes in the fair value of monetary and non-monetary securities classified as available-for-sale
are recognised in equity. When securities classified as available-for-sale are sold or impaired,
the accumulated fair value adjustments recognised in equity are included in the income statement as
gains and losses from investment securities.Dividends on available-for-sale equity instruments are recognised in the consolidated income
statement as part of other income when the Groups right to receive payments is established.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)2.10
    
    Financial assets (continued)2.10.2
    
    Recognition and measurement (continued)The fair values of quoted investments are based on current bid prices. If the market for a
financial asset is not active (and for unlisted securities), the Group established fair value by
using valuation techniques. These include the use of recent arms length transactions, reference
to other instruments that are substantially the same, discounted cash flow analysis, and option
pricing models, making maximum use of market inputs and relying as little as possible on
entity-specific inputs. In case of unlisted equity instruments that do not have a quoted market
price in an active market and whose fair value cannot be reliably determined via valuation
techniques, they are measured at cost, subject to impairment review.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 consolidated
income statement. Impairment testing of receivables is described in Note 2.13.2.11
    
    Deferred employee costsThe Group implemented a scheme (the Scheme) for selling staff quarters to its employees in
2000. Under the Scheme, the Group sold certain staff quarters to their employees at
preferential prices in the form of housing benefits provided to these employees. The total
housing benefits (the Benefits), which represent the difference between the net book value
of the staff quarters sold and the proceeds collected from the employees, are expected to
benefit the Group at least over 15 years, which was determined according to the contractual
service period of the employees participating in the Scheme. Upon the implementation of the
Scheme in 2000, the Benefits were recorded as deferred employee costs and the balance is then
amortised over the contractual service period of the employees participating in the Scheme.At each balance sheet date, the Group reassesses whether there is any indication of impairment,
taking into account the remaining service period of the employees and other qualitative
factors. If such indication exists, a detailed analysis will be performed in order to assess
whether the carrying amount of the deferred employee costs can be recoverable in full. A
write-down is made if the carrying amount exceeds the recoverable amount.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)2.12
    
    Materials and suppliesMaterials and supplies are stated at the lower of cost and net realisable value. Cost is determined
using the weighted average method. Materials and supplies are charged as fuel costs and repair and
maintenance expenses when consumed, or capitalised to fixed assets when the items are installed
with the related fixed assets, whichever is appropriate. Net realisable value is the estimated
selling price in the ordinary course of business, less applicable variable selling expenses.2.13
    
    ReceivablesReceivables 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 a debtor may enter into bankruptcy or financial
reorganisation; and default or delinquency in payments are considered indicators that a receivable
is impaired. The amount of the impairment 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 assets is reduced through the use of an
allowance account, and the amount of the loss is recognised in the consolidated income statement
within operating expenses. When a receivable is uncollectible, it is written off against the
allowance account for receivables. Subsequent recoveries of amounts previously written off are
credited against operating expenses in the consolidated income statement.2.14
    
    Cash and cash equivalentsCash and cash equivalents include cash in hand; deposits held at call with banks; and other
short-term highly liquid investments with original maturities of three months or less.2.15
    
    Share capitalOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of
new shares or options are shown in equity as a deduction, net of tax, from the proceeds.2.16
    
    Trade payablesTrade payables are recognised initially at fair value and subsequently measured at amortised cost
using the effective interest method.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)2.17
    
    BorrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. They are
subsequently stated at amortised cost; and any difference between proceeds (net of transaction
costs) and the redemption value is recognised in the consolidated income statement over the period
of the borrowings using the effective interest method.Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan
to the extent that it is probable that some or all of the facility will be drawn down. In this
case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it
is probable that some or all of the facility will be drawn down, the fee is capitalised as a
prepayment for liquidity services and amortised over the period of the facility to which it
relates.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.2.18
    
    Current and deferred income taxThe tax expense for the period comprises current and deferred tax. Tax is recognised in the
consolidated income statement, except to the extent that it relates to items recognised directly in
equity. In this case, the tax is also recognised in equity.The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the balance sheet date in the countries where the Companys subsidiaries and associates
operate and generate taxable income. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpretation
and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities.Deferred income tax is provided in full, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the
consolidated financial statements. However, the deferred income tax is not accounted for if it
arises from goodwill or from the 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 nor 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 only 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.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)2.19
    
    Employee benefits(a)
    
    Defined contribution planThe Group pays contributions to defined contribution schemes operated by the local government for
employee benefits in respect of pension and housing, etc. The Group has no further payment
obligations once the contributions have been paid. The contributions to the defined contribution
schemes are recognised as staff costs when they are due.(b)
    
    Termination benefitsTermination benefits are payable when selected employees who meet certain criteria accept voluntary
redundancy in exchange for these benefits, with specific approval granted by management of the
Group. The Group recognises retirement benefits when it is demonstrably committed to either
terminate the employment of current employees according to a detailed formal plan without
possibility of withdrawal or to provide retirement benefits as a result of an offer made to
encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date
are discounted to present value.2.20
    
    ProvisionsProvisions for environmental restoration, restructuring costs and legal claims are recognised when:
the Group has a present legal or constructive obligation as a result of past events; it is probable
that an outflow of resources will be required to settle the obligation; and the amount has been
reliably estimated. Restructuring provisions comprise lease termination penalties and employee
termination payments. Provisions are not recognised for future operating losses.Where there are a number of similar obligations, the likelihood that an outflow will be required
in settlement is determined by considering the class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow with respect to any one item included in the same
class of obligations may be small.Provisions are measured at the present value of the expenditures expected to be required to settle
the obligation using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the obligation. The increase in the provision due to
passage of time is recognised as interest expense.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)2.21
    
    Revenue recognitionRevenue comprises the fair value of the consideration received or receivable for the sale of goods
and services in the ordinary course of the Groups activities. Revenue is shown net of
value-added tax, returns, rebates and discounts and after eliminating sales within the Group.The Group recognises revenue when the amount of revenue can be reliably measured, it is probable
that future economic benefits will flow to the entity and specific criteria have been met for each
of the Groups activities as described below. The amount of revenue is not considered to be
reliably measurable until all contingencies relating to the sales have been resolved. The Group
bases its estimates on historical results, taking into consideration the type of customer, the
type of transactions and the specifics of each arrangement.(a)
    
    Revenue from railway businessRevenue from railway business includes revenue from passenger and freight services and revenue from
railway network usage and services. Revenue from railway business is recognised when the services
are rendered and revenue can be reliably measured.(b)
    
    Revenue from other businessesRevenue from other business is recognised once the related services or goods are delivered, the
related risks and rewards of ownership have been transferred and revenue can be reliably measured.(c)
    
    Interest incomeInterest income is recognised on a time-proportion basis using the effective interest method. When
a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being
the estimated future cash flow discounted at original effective interest rate of the instrument,
and continues unwinding the discount as interest income. Interest income on impaired loans is
recognised using the original effective interest rate.(d)
    
    Dividend incomeDividend income is recognised when the right to receive payment is established.(e)
    
    Rental incomeRevenue from operating lease arrangements is recognized on a straight-line basis over the period
of the respective leases.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 2
    
    PRINCIPAL ACCOUNTING POLICIES (CONTINUED)2.22
    
    Government grantsGrants 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.2.23
    
    Operating leasesLeases 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 consolidated income statement on a
straight-line basis over the period of the lease. Please refer to 2.21(e) for operating lease
income.2.24
    
    Dividend distributionDividend 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.3
    
    FINANCIAL RISK MANAGEMENT3.1
    
    Financial risk factorThe Groups activities expose it to a variety of financial risks: price risk, foreign currency
risk, cash flow and fair value interest rate risk, credit risk, and liquidity risk. The Groups
overall risk management strategy seeks to minimise the potential adverse effects on the financial
performance of the Group.(a)
    
    Price riskThe Group is exposed to price risk because of investments held by the Group and classified as
available-for-sale on the consolidated balance sheet.To manage its price risk arising from investments in equity interests, the Group diversifies its
portfolio. Diversification of the portfolio is done in accordance with the limits set by the
Group.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 3
    
    FINANCIAL RISK MANAGEMENT (CONTINUED)3.1
    
    Financial risk factor (continued)(b)
    
    Foreign currency riskThe Group mainly operates in the PRC with most of the transactions settled in RMB. RMB is also the
functional currency of the Company and its subsidiaries. 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, RMB has experienced significant fluctuations as compared to other currencies. Any
foreign currency denominated monetary assets and liabilities other than in RMB would subject the
Group to foreign exchange exposure.The Groups objective of managing the foreign currency risk is to minimise potential adverse
effects arising from foreign transaction movements. Depending on volatility of specific foreign
currency exposed, measures are taken by management to manage the foreign currency positions.The following table shows the Groups exposures to foreign currency rate fluctuation arising from
foreign currency denominated monetary assets and liabilities:
 As of December 31,Currency
    
    
    2007
    
    
    2008Monetary assets and liabilities
    
    denomination
    
    
    (RMB000)
    
    
    (RMB000)Cash and cash equivalents
    
    USD
    
    
    
    3,505
    
    
    
    3,176Cash and cash equivalents
    
    HKD
    
    
    
    9,310
    
    
    
    30,452Other receivables
    
    HKD
    
    
    
    562
    
    
    
    529Trade payables
    
    USD
    
    
    
    (1,005
    )
    
    
    (940
    )
 The Group may experience a loss as a result of any foreign currency exchange rate fluctuations in
connection with the deposits and other monetary assets and liabilities shown above. The Group has
not used any means to hedge the exposure.As at December 31, 2008, if RMB had weakened/strengthened by 5% against the HKD with all other
variables held constant, post-tax profit for the year would have been RMB1,270,000 (2007:
RMB412,000) higher/lower, mainly as a result of foreign exchange gains/losses on translation of
HKD-denominated cash in banks. The impact of exchange fluctuations of USD is not significant.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 3
    
    FINANCIAL RISK MANAGEMENT (CONTINUED)3.1
    
    Financial risk factor (continued)(c)
    
    Cash flow and fair value interest rate riskOther than deposits held in banks, the Group does not have significant interest-bearing assets. The
average interest rate of deposits held in banks in the PRC throughout the year was approximately
1.10% (2007: 0.72%). Any change in the interest rate promulgated by the Peoples Bank of China from
time to time is not considered to have significant impact to the Group.The Groups interest rate risk which affects its income and operating cash flows mainly arises from
bank borrowings. All the Groups bank borrowings were at floating rates (Note 22). Bank
borrowings at floating rates expose the Group to cash flow interest rate risk.As of December 31, 2008, if interest rates on bank borrowings had been 10 basis points higher/lower
with all other variables held constant, post-tax profit for the year would have been approximately
RMB2,574,800 (2007: RMB2,292,000) lower/higher, mainly as a result of higher or lower interest
expense.(d)
    
    Credit riskCredit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, trade
and other receivables (excluding prepayments), short-term deposit, long-term receivable, and
amounts due from related parties.Cash and short term liquid investments are placed with reputable banks. There was no recent
history of default of cash and cash equivalents and short-term deposits from such financial
institutions/authority. The majority of the Groups trade receivable balances and long term
receivable balance are due from third party customers as a result of rendering of services or sales
of merchandises. The Groups other receivable balances mainly arise from services rendered other
than the main railway transportation operations. The Group performs ongoing credit evaluations of
its customers/debtors financial condition and generally does not require collateral from the
customers/debtors account on the outstanding balances. Based on the expected realisability and
timing for collection of the outstanding balances, the Group maintains a provision for doubtful
accounts and actual losses incurred have been within managements expectation. In view of the
history of business dealings made with the customers and the sound collection history of the
receivables due from them, management believes that there is no material credit risk inherent in
the Groups outstanding receivable balances.There were no other financial assets carrying a significant exposure to credit risk.With the consideration of the above and due to the fact that the majority of the Groups revenue is
derived from the railroad businesses which are cash transactions, the directors of the Company
believe that there is no significant credit risk inherent in the Groups business during the
reporting period.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 3
    
    FINANCIAL RISK MANAGEMENT (CONTINUED)3.1
    
    Financial risk factor (continued)(e)
    
    Liquidity riskPrudent liquidity risk management includes maintaining sufficient cash, the availability of funding
through an adequate amount of committed credit facilities and the ability to close out market
positions.Management monitors rolling forecasts of the Groups liquidity reserves (comprising undrawn
borrowing facilities and cash and cash equivalents) on the basis of expected cash flows.As disclosed in Note 2.1, the Group reported net current liabilities of approximately
RMB616,158,000 as of December 31, 2008. In addition, the Group had total capital commitments,
authorised but not contracted for and contracted but not provided for, of approximately
RMB2,530,325,000 and RMB390,691,000, respectively, as of the same date. The directors of the
Company have undertaken the following actions and procedures to mitigate the liquidity risks of the
Group, including:
 (a)
    
    Maintain and generate stable operating cash inflow from its profitable operations;(b)
    
    Undertake close monitoring process to control the magnitude and timing of the expected cash
outlays associated with the construction of railway lines, the improvement of the existing
operation equipments and the purchase of new locomotives; and(c)
    
    Obtain new bank facilities and identify sources of medium term financing in order to finance
the expected cash outlays associated with the expected capital expenditures.
 The directors are of the view that these measures would be adequate to contain the liquidity risk
at an acceptable level.The table below analyses the Groups financial liabilities into relevant maturity groupings based
on the remaining period at the balance sheet to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months
equal their carrying balances, as the impact of discounting is not significant.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 3
    
    FINANCIAL RISK MANAGEMENT (CONTINUED)3.1
    
    Financial risk factor (continued)(e)
    
    Liquidity risk (continued)
 Less than
    
    
    Between 1
    
    
    Between 21 year
    
    
    and 2 years
    
    
    and 5 yearsRMB000
    
    
    RMB000
    
    
    RMB000At December 31, 2007Borrowings (including interests payable)
    
    
    199,704
    
    
    
    201,288
    
    
    
    3,221,740Trade and other payables (Notes 24 and 25)
    
    
    866,104
    
    
    
    
    
    
    
    Payables for fixed assets and
construction-in-progress
    
    
    337,213
    
    
    
    
    
    
    
    Due to related parties (Note 35(d))
    
    
    1,022,125
    
    
    
    
    
    
    
    At December 31, 2008Borrowings (including interests payable)
    
    
    737,185
    
    
    
    188,704
    
    
    
    3,559,551Trade and other payables (Notes 24 and 25)
    
    
    1,011,182
    
    
    
    
    
    
    
    Payables for fixed assets and
construction-in-progress
    
    
    764,609
    
    
    
    
    
    
    
    Due to related parties (Note 35(d))
    
    
    362,533
    
    
    
    
    
    
    
    
 3.2
    
    Capital risk managementThe Groups objectives of managing capital are to safeguard the Groups ability to continue as a
going concern in order to provide returns for shareholders and benefits for other stakeholders; as
well as to maintain an optimal capital structure to reduce the cost of capital.In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends
paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce
debt.The Group monitors capital by regularly reviewing the gearing ratio. This ratio is calculated as
net debt divided by total capital. Net debt is calculated as total borrowings (including current
and non-current bank borrowings as shown in the consolidated balance sheet) less cash and cash
equivalents. Total capital is calculated as equity, as shown in the consolidated balance sheet
plus net debt.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 3
    
    FINANCIAL RISK MANAGEMENT (CONTINUED)3.2
    
    Capital risk management (continued)The gearing ratios as at December 31, 2008 and 2007 were as follows:
 2007
    
    
    2008RMB000
    
    
    RMB000Total Borrowing (Note 22)
    
    
    2,850,000
    
    
    
    3,900,000Less: Cash and cash equivalents (Note 32(c))
    
    
    (2,352,351
    )
    
    
    (1,560,952
    )Net Debt
    
    
    497,649
    
    
    
    2,339,048Total Equity
    
    
    21,181,470
    
    
    
    21,839,155Total capital
    
    
    21,679,119
    
    
    
    24,178,203Gearing ratio
    
    
    2
    %
    
    
    10
    %
 The increase in the gearing ratio during 2008 was primarily resulted from the increase in
borrowings of RMB1,050,000,000 (Note 22) for the financing of the construction of a portion of the
fourth rail-line and the purchase of locomotive. The directors of the Company, having considered
the gearing ratio, are of the view that current capital structure is within their expectation.3.3
    
    Fair value estimationThe carrying amounts of the Groups cash and cash equivalents, short-term deposits, trade and other
receivables, amounts due from related parties, and financial liabilities including trade and other
payables, payables for fixed assets and construction-in-progress, and amounts due to related
parties, approximate their fair values due to their short maturities.The fair values of long-term receivable and long-term bank borrowings for disclosure purposes are
estimated by discounting the future contractual cash flows at the current market interest rate that
is available to the Group for similar financial instruments.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 4
    
    CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTSEstimates and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances.4.1
    
    Critical accounting estimates and assumptionsThe Group makes estimates and assumptions concerning the future. The resulting accounting estimates
will, by definition, seldom equal the related actual results. The estimates and assumptions that
have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are outlined below.(a)
    
    The estimates of the depreciable lives of fixed assetsThe estimate of depreciable lives of fixed assets, especially tracks, bridges and service roads,
was made by the directors with reference to the historical usage of the assets; their expected
physical wear and tear; results of recent durability assessment performed; technical or commercial
obsolescence arising from changes or improvements in production of similar fixed assets, the right
of the Group to renew the land use right grants and the land use right lease on which these assets
are located (Notes 2.5 and 34(b)), and the changes in market demand for, or legal or comparable
limits imposed on, the use of such fixed assets.The current estimated useful lives are stated in Note 2.5. If the estimated depreciable lives of
tracks, bridges and service roads had been increased/decreased by 10%, the depreciation of fixed
assets for the year ended 31 December 2008 would have been decreased/increased by approximately
RMB15,901,000 and RMB19,435,000, respectively (2007: RMB12,653,000 and RMB15,464,000,
respectively).(b)
    
    Estimated impairment of goodwillThe Group tests whether goodwill has suffered any impairment annually or, whenever there is an
indication of 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 (Note 9).
 F-29




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 4
    
    CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS4.1
    
    Critical accounting estimates and assumptions (Continued)(c)
    
    Estimated impairment of non-financial assets (other than goodwill)In determining whether an asset is impaired or the event previously causing the impairment no
longer exists, management has to exercise judgement, particularly in assessing: (1) whether an
event has occurred that may affect the asset value or such event affecting the asset value has not
been in existence; (2) whether the carrying value of an asset can be supported by the net present
value of future cash flows which are estimated based upon the continued use of the asset or
derecognition; and (3) the appropriate key assumptions to be applied in preparing cash flow
projections including whether these cash flow projections are discounted using an appropriate rate.
Changing the assumptions selected by management to determine the level of impairment, including the
discount rate or the growth rate assumptions in the cash flow projections, could materially affect
the net present value used in the impairment test.For the impairment assessment made on the recoverable amount of the carrying value of the
investment in an associate, Guangzhou Tiecheng Enterprise Company, please refer to details of the
estimate made described in Note 11.(d)
    
    Income taxesThe Group recognizes liabilities for anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact the current and deferred income
tax assets and liabilities in the period in which such determination is made.5
    
    SEGMENT INFORMATION(a)
    
    Primary reporting format  business segmentsThe Group conducts the majority of its business activities in railway transportation (Railroad
Businesses) and other related business operations (Other Business). These segments are so
determined primarily due to the fact that senior management make key operating decisions and assess
performance of the segments separately. The Group evaluates performance based on profit from
operations.Segment assets exclude deferred tax assets. Segment liabilities exclude borrowings and income tax
payable. Capital expenditure comprises addition from acquisition of a business, additions to fixed
assets (Note 6), construction-in-progress (Note 7) and prepayments for fixed assets and
construction-in-progress.
 F-30




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 5
    
    SEGMENT INFORMATION (CONTINUED)(a)
    
    Primary reporting format  business segments (continued)An analysis by business segment is as follows:
 Railroad businesses
    
    
    Other businesses
    
    
    Unallocated
    
    
    Elimination
    
    
    Total2006
    
    
    2007
    
    
    2008
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2006
    
    
    2007
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000Revenues- External
    
    
    3,465,884
    
    
    
    9,819,517
    
    
    
    10,822,355
    
    
    
    128,590
    
    
    
    688,987
    
    
    
    866,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,594,474
    
    
    
    10,508,504
    
    
    
    11,688,655- Inter-segment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,661
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,661
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,465,884
    
    
    
    9,819,517
    
    
    
    10,822,355
    
    
    
    158,251
    
    
    
    688,987
    
    
    
    866,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,661
    )
    
    
    
    
    
    
    
    
    
    
    3,594,474
    
    
    
    10,508,504
    
    
    
    11,688,655Other income/(loss),net
    
    
    61,991
    
    
    
    52,829
    
    
    
    14,924
    
    
    
    2,657
    
    
    
    (3,013
    )
    
    
    2,779
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,648
    
    
    
    49,816
    
    
    
    17,703Segment result
    
    
    999,968
    
    
    
    1,538,053
    
    
    
    1,675,002
    
    
    
    (34,764
    )
    
    
    227,155
    
    
    
    40,001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    965,204
    
    
    
    1,765,208
    
    
    
    1,715,003Finance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,970
    )
    
    
    (98,487
    )
    
    
    (213,469
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,970
    )
    
    
    (98,487
    )
    
    
    (213,469
    )Share of results of associates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,306
    )
    
    
    1,830
    
    
    
    128
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,306
    )
    
    
    1,830
    
    
    
    128Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149,155
    )
    
    
    (232,349
    )
    
    
    (277,294
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149,155
    )
    
    
    (232,349
    )
    
    
    (277,294
    )Profit for the year
    
    
    999,968
    
    
    
    1,538,053
    
    
    
    1,675,002
    
    
    
    (63,070
    )
    
    
    228,985
    
    
    
    40,129
    
    
    
    (165,125
    )
    
    
    (330,836
    )
    
    
    (490,763
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    771,773
    
    
    
    1,436,202
    
    
    
    1,224,368Non-cash expenses- Depreciation
    
    
    317,358
    
    
    
    1,006,728
    
    
    
    1,145,624
    
    
    
    2,529
    
    
    
    10,372
    
    
    
    26,418
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319,887
    
    
    
    1,017,100
    
    
    
    1,172,042- Amortization of leasehold land payments
    
    
    16,776
    
    
    
    15,002
    
    
    
    15,001
    
    
    
    
    
    
    
    1,019
    
    
    
    602
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,776
    
    
    
    16,021
    
    
    
    15,603- Amortization of deferred employee costs
    
    
    15,091
    
    
    
    24,339
    
    
    
    32,005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,091
    
    
    
    24,339
    
    
    
    32,005- Recognition of employee benefits obligations
    
    
    22,420
    
    
    
    65,256
    
    
    
    85,988
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,420
    
    
    
    65,256
    
    
    
    85,988- Impairment for fixed assets
    
    
    
    
    
    
    6,359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,359
    
    
    
    - (Reversal of provision)/provision for
doubtful accounts
    
    
    (4,331
    )
    
    
    (8,260
    )
    
    
    2,766
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,315
    )
    
    
    (8,260
    )
    
    
    2,766
 Railroad businesses
    
    
    Other businesses
    
    
    Unallocated
    
    
    Elimination
    
    
    Total2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000Other informationSegment assets
    
    
    26,085,326
    
    
    
    27,346,436
    
    
    
    141,332
    
    
    
    422,947
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,226,658
    
    
    
    27,769,383Investment in associates
    
    
    
    
    
    
    
    
    
    
    124,350
    
    
    
    120,705
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,350
    
    
    
    120,705Deferred tax assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338,921
    
    
    
    331,738
    
    
    
    
    
    
    
    
    
    
    
    338,921
    
    
    
    331,738Total assets
    
    
    26,085,326
    
    
    
    27,346,436
    
    
    
    265,682
    
    
    
    543,652
    
    
    
    338,921
    
    
    
    331,738
    
    
    
    
    
    
    
    
    
    
    
    26,689,929
    
    
    
    28,221,826Segment liabilities
    
    
    2,491,957
    
    
    
    2,315,201
    
    
    
    76,506
    
    
    
    118,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,568,463
    
    
    
    2,433,694Income tax payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,996
    
    
    
    48,977
    
    
    
    
    
    
    
    
    
    
    
    89,996
    
    
    
    48,977Borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,850,000
    
    
    
    3,900,000
    
    
    
    
    
    
    
    
    
    
    
    2,850,000
    
    
    
    3,900,000Total liabilities
    
    
    2,491,957
    
    
    
    2,315,201
    
    
    
    76,506
    
    
    
    118,493
    
    
    
    2,939,996
    
    
    
    3,948,977
    
    
    
    
    
    
    
    
    
    
    
    5,508,459
    
    
    
    6,382,671Capital expendituresAcquisition of Yangcheng Railway Business (Note 36)
    
    
    4,873,332
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,873,332
    
    
    
    Other additions
    
    
    931,117
    
    
    
    3,464,429
    
    
    
    16,846
    
    
    
    16,129
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    947,963
    
    
    
    3,480,558
 F-31




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 5
    
    SEGMENT INFORMATION (CONTINUED)(b)
    
    Secondary reporting format  geographical segmentsFor the year ended December 31, 2008, 2007 and 2006, all of the Groups business operations are
conducted within the PRC. Accordingly, no analysis of geographical segment information is
presented.6
    
    FIXED ASSETS
 Tracks,
    
    
    Locomotives
    
    
    CommunicationsLeasehold
    
    
    bridges and
    
    
    and rolling
    
    
    and signalling
    
    
    Other machineryBuildings
    
    
    improvements
    
    
    service roads
    
    
    stock
    
    
    systems
    
    
    and equipment
    
    
    TotalRMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000At January 1, 2007Cost
    
    
    2,245,311
    
    
    
    38,500
    
    
    
    3,644,108
    
    
    
    1,392,654
    
    
    
    349,980
    
    
    
    1,751,185
    
    
    
    9,421,738Accumulated 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
    
    
    
    6,738,477Year ended December 31, 2007Opening net book amount
    
    
    1,892,066
    
    
    
    
    
    
    
    2,713,915
    
    
    
    930,787
    
    
    
    93,216
    
    
    
    1,108,493
    
    
    
    6,738,477Acquisition of Yangcheng Railway Business (Note 36)
    
    
    1,131,855
    
    
    
    
    
    
    
    5,540,127
    
    
    
    2,456,408
    
    
    
    430,728
    
    
    
    1,268,626
    
    
    
    10,827,744Additions
    
    
    741
    
    
    
    
    
    
    
    
    
    
    
    23,964
    
    
    
    1,815
    
    
    
    27,961
    
    
    
    54,481Transfer from construction-in-progress (Note 7)
    
    
    41,638
    
    
    
    
    
    
    
    2,705,401
    
    
    
    7,778
    
    
    
    401,257
    
    
    
    355,205
    
    
    
    3,511,279Reclassifications
    
    
    (1,885
    )
    
    
    
    
    
    
    
    
    
    
    (936
    )
    
    
    (121
    )
    
    
    2,942
    
    
    
    Disposals
    
    
    (85,107
    )
    
    
    
    
    
    
    
    
    
    
    (26,200
    )
    
    
    (92
    )
    
    
    (1,837
    )
    
    
    (113,236
    )Depreciation charges
    
    
    (111,609
    )
    
    
    
    
    
    
    (139,178
    )
    
    
    (259,938
    )
    
    
    (128,881
    )
    
    
    (377,494
    )
    
    
    (1,017,100
    )Impairment charges
    
    
    (6,359
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,359
    )Closing net book amount
    
    
    2,861,340
    
    
    
    
    
    
    
    10,820,265
    
    
    
    3,131,863
    
    
    
    797,922
    
    
    
    2,383,896
    
    
    
    19,995,286At December 31, 2007Cost
    
    
    3,363,597
    
    
    
    38,500
    
    
    
    11,929,430
    
    
    
    3,859,566
    
    
    
    1,194,756
    
    
    
    3,515,465
    
    
    
    23,901,314Accumulated depreciation
    
    
    (495,898
    )
    
    
    (38,500
    )
    
    
    (1,109,165
    )
    
    
    (727,703
    )
    
    
    (396,834
    )
    
    
    (1,131,215
    )
    
    
    (3,899,315
    )Impairment
    
    
    (6,359
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (354
    )
    
    
    (6,713
    )Net book amount
    
    
    2,861,340
    
    
    
    
    
    
    
    10,820,265
    
    
    
    3,131,863
    
    
    
    797,922
    
    
    
    2,383,896
    
    
    
    19,995,286Year ended December 31, 2008Opening net book amount
    
    
    2,861,340
    
    
    
    
    
    
    
    10,820,265
    
    
    
    3,131,863
    
    
    
    797,922
    
    
    
    2,383,896
    
    
    
    19,995,286Additions
    
    
    2,425
    
    
    
    
    
    
    
    
    
    
    
    2,626,286
    
    
    
    38,241
    
    
    
    103,836
    
    
    
    2,770,968Transfer from construction-in-progress (Note 7)
    
    
    326,841
    
    
    
    
    
    
    
    1,634,785
    
    
    
    13,363
    
    
    
    219,002
    
    
    
    173,079
    
    
    
    2,367,070Government grants received
    
    
    (8,675
    )
    
    
    
    
    
    
    (5,550
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,225
    )Reclassifications
    
    
    (3,774
    )
    
    
    
    
    
    
    1,002
    
    
    
    (13
    )
    
    
    (75,334
    )
    
    
    78,119
    
    
    
    Disposals
    
    
    (3,867
    )
    
    
    
    
    
    
    (36,258
    )
    
    
    
    
    
    
    (1
    )
    
    
    (2,774
    )
    
    
    (42,900
    )Depreciation charges
    
    
    (116,008
    )
    
    
    
    
    
    
    (174,916
    )
    
    
    (369,163
    )
    
    
    (166,678
    )
    
    
    (345,588
    )
    
    
    (1,172,353
    )Closing net book amount
    
    
    3,058,282
    
    
    
    
    
    
    
    12,239,328
    
    
    
    5,402,336
    
    
    
    813,332
    
    
    
    2,390,568
    
    
    
    23,903,846At December 31, 2008Cost
    
    
    3,686,870
    
    
    
    
    
    
    
    13,519,696
    
    
    
    6,499,176
    
    
    
    1,364,722
    
    
    
    3,900,756
    
    
    
    28,971,220Accumulated depreciation
    
    
    (622,229
    )
    
    
    
    
    
    
    (1,280,368
    )
    
    
    (1,096,840
    )
    
    
    (551,390
    )
    
    
    (1,509,991
    )
    
    
    (5,060,818
    )Impairment
    
    
    (6,359
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (197
    )
    
    
    (6,556
    )Net book amount
    
    
    3,058,282
    
    
    
    
    
    
    
    12,239,328
    
    
    
    5,402,336
    
    
    
    813,332
    
    
    
    2,390,568
    
    
    
    23,903,846
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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 6
    
    FIXED ASSETS (CONTINUED)
 As of December 31, 2008, the ownership certificates of certain buildings (Building Ownership
Certificates) with an aggregate carrying value of approximately RMB2,000,621,000 (2007:
RMB1,980,467,000) 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.As of December 31, 2008, the fixed assets with an aggregate net book value of approximately
RMB26,894,352 (2007: RMB23,426,683) is fully depreciated but still in use.
 7
    
    CONSTRUCTION-IN-PROGRESS
 2007
    
    
    2008RMB000
    
    
    RMB000At January 1
    
    
    4,305,157
    
    
    
    1,422,635Acquisition of Yangcheng Railway Business (Note 36)
    
    
    215,391
    
    
    
    Additions
    
    
    413,366
    
    
    
    1,449,210Transfer to fixed assets (Note 6)
    
    
    (3,511,279
    )
    
    
    (2,367,070
    )At December 31
    
    
    1,422,635
    
    
    
    504,775
 For the year ended December 31, 2008, approximately RMB13,721,000 (2007: RMB79,438,000) of interest
expenses were capitalised in the construction-in-progress balance. A capitalisation rate of 6.55%
(2007: 5.87%) per annum was used to determine the amount of borrowing costs eligible for
capitalisation.
 F-33




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 8
    
    LEASEHOLD LAND PAYMENTS
 RMB000At January 1, 2007Cost
    
    
    792,654Accumulated amortization
    
    
    (167,026
    )Net book amount
    
    
    625,628Year ended December 31, 2007Opening net book amount
    
    
    625,628Amortization charges
    
    
    (16,021
    )Disposal
    
    
    (1,636
    )Closing net book amount
    
    
    607,971At December 31, 2007Cost
    
    
    791,018Accumulated amortization
    
    
    (183,047
    )Net book amount
    
    
    607,971Year ended December 31, 2008Opening net book amount
    
    
    607,971Amortization charges
    
    
    (15,603
    )Closing net book amount
    
    
    592,368At December 31, 2008Cost
    
    
    791,213Accumulated amortization
    
    
    (198,845
    )Net book amount
    
    
    592,368
 As of December 31, 2008, land use right certificates (Land Certificates) of certain parcels
of land with an aggregate area of 1,620,894 square meters (2007: 1,712,846 square meters), had not
been obtained. After consultation made with the Companys legal counsel, the directors consider
that there is no legal restriction for the Group to apply for and obtain the Land Certificates and
it should not lead to any significant adverse impact on the operations of the Group.
 9
    
    GOODWILL
 RMB000Year ended December 31, 2007Opening net book amount
    
    
    Acquisition of Yangcheng Railway Business (Note 36)
    
    
    281,255Closing net book amount
    
    
    281,255At December 31, 2007 and December 31, 2008Cost
    
    
    281,255Accumulated impairment
    
    
    Net book amount
    
    
    281,255
 F-34




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 9
    
    GOODWILL (CONTINUED)
 As described in details in Note 36, the goodwill arose from the excess of purchase
consideration paid by the Company over the aggregate fair values of the identifiable assets,
liabilities and contingent liabilities of Yangcheng Railway Business.Goodwill is allocated to the cash generating unit (CGU) comprising the Yangcheng Railway
Business. A segment-level summary of the goodwill allocation is presented below:
 2007
    
    
    2008RMB000
    
    
    RMB000Railroad business  Yangcheng Railway Business
    
    
    281,255
    
    
    
    281,255
 The recoverable amount of the CGU is determined based on value-in-use calculations. These
calculations use pre-tax cash flow projections based on financial forecasts prepared by management
covering a five-year period. Cash flows beyond the five-year period are extrapolated using the
estimated growth rates stated below. The growth rate does not exceed the long-term average growth
rate for the industry in which the CGU operates.The key assumptions used for value-in-use calculations are as follows:
 Railroad business2007
    
    
    2008Gross margin
    
    
    25.80
    %
    
    
    26.85
    %Growth rate
    
    
    1
    %
    
    
    2.0
    %Discount rate
    
    
    13.84
    %
    
    
    12.37
    %
 Management estimated the gross margin and growth rate based on past performance and its
expectations for the market development. The weighted average growth rate used is consistent with
the external sources of information available to management. The discount rate used is pre-tax and
reflect specific risks relating to the railroad business segment.Even if the budgeted growth rate used in the value-in-use calculation for the CGU in the railroad
business had been 10% lower than managements estimates at December 31, 2008, the Group still
would not be required to recognise any impairment losses against goodwill.Even if the estimated pre-tax discount rate applied to the discounted cash flows for the CGU in the
railroad business had been 1% higher than managements estimates at December 31, 2008, the Group
would not be required to recognise any impairment recognised losses against goodwill.If the budgeted growth rate used in the value-in-use calculation for the CGU in railroad
business had been 10% lower than managements estimates at 31 December 2007, the Group would have
recognised an impairment of goodwill by RMB77,832,000.If the estimated pre-tax discount rate applied to the discounted cash flows for the CGU in
railroad business had been 1% higher than managements estimates at 31 December 2007, the Group
would have recognised an impairment against goodwill by RMB5,270,000.
 F-35




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 10
    
    INVESTMENTS IN SUBSIDIARIES(i)
    
    As of December 31, 2008, the Company had direct or indirect interests in the following
subsidiaries which are incorporated / established and are operating in the PRC:
 Date of
    
    Percentage of equityincorporation/
    
    interest attributableName of the entity
    
    establishment
    
    to the Company
    
    Paid-in capital
    
    Principal activitiesDirectly
    
    IndirectlyDongguan Changsheng Enterprise Company
    
    May 22, 1992
    
    
    51
    %
    
    
    
    
    
    RMB38,000,000
    
    WarehousingShenzhen Fu Yuan Enterprise Development
Company(Fu Yuan)
    
    November 1, 1991
    
    
    97
    %
    
    
    3
    %
    
    RMB18,500,000
    
    Hotel managementShenzhen Pinghu Qun Yi Railway Store Loading
and Unloading Company
    
    September 11, 1993
    
    
    55
    %
    
    
    
    
    
    RMB10,000,000
    
    Cargo loading and unloading, warehousing, freight
transportationShenzhen Railway Property Management Company 
Limited
    
    November 13, 2001
    
    
    
    
    
    
    100
    %
    
    RMB3,000,000
    
    Property managementShenzhen Guangshen Railway Travel Service Ltd.
    
    August 16, 1995
    
    
    100
    %
    
    
    
    
    
    RMB2,400,000
    
    Travel agencyShenzhen Shenhuasheng Storage and
Transportation Company Limited
    
    January 2, 1985
    
    
    42
    %
    
    
    58
    %
    
    RMB2,000,000
    
    Warehousing, freight transport and packaging
agency servicesShenzhen Nantie Construction Supervision 
Company
    
    May 8, 1995
    
    
    100
    %
    
    
    
    
    
    RMB2,000,000
    
    Supervision of construction projectsShenzhen Guangshen Railway Economic and Trade
Enterprise Company Limited
    
    March 7, 2002
    
    
    
    
    
    
    100
    %
    
    RMB2,000,000
    
    Catering managementShenzhen Railway Station Passenger Services 
Company
    
    December 18, 1986
    
    
    100
    %
    
    
    
    
    
    RMB1,500,000
    
    Catering services and sales of
merchandiseGuangshen Railway Dongqun Trade and Commerce
Service Company
    
    November 23, 1992
    
    
    100
    %
    
    
    
    
    
    RMB1,020,000
    
    Sales of merchandisesGuangzhou Tielian Economy Development Company
Limited (Tielian)
    
    December 27, 1994
    
    
    50.50
    %
    
    
    
    
    
    RMB1,000,000
    
    Warehousing and freight transport agency
servicesGuangzhou Dongqun Advertising Company Limited
    
    March 6, 1996
    
    
    
    
    
    
    100
    %
    
    RMB500,000
    
    Advertising serviceGuangzhou Railway Huangpu Service Company
    
    January 21, 1985
    
    
    100
    %
    
    
    
    
    
    RMB379,000
    
    Cargo loading and unloading, warehousing, freight
transportation
 All the above subsidiaries are limited liability companies.
 (ii)
    
    Subsidiaries disposed
 In 2008, the Group put Shenzhen Jing Ming Industrial & Commercial Company Limited into liquidation
and recorded a disposal loss of approximately RMB188,000.In 2007, the Group put Shenzhen Road Multi-modal Transportation Company Limited and Shenzhen
Yuezheng Enterprise Company Limited into liquidation and recorded disposal losses of RMB166,000 and
RMB897,000, respectively.
 F-36




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 11
    
    INTERESTS IN ASSOCIATES
 2007
    
    
    2008RMB000
    
    
    RMB000Share of net assets
    
    
    154,039
    
    
    
    150,394Less: provision for impairment in value (Note a)
    
    
    (29,689
    )
    
    
    (29,689
    )124,350
    
    
    
    120,705
 
 Note a:
    
    The impairment provision represents provision for full impairment losses in interest in
Zengcheng Lihua Stock Company Limited at approximately RMB29,689,000 made in prior years
(Zengcheng Lihua Provision). The movement of interests in associates during the year is as follows:
 2007
    
    
    2008RMB000
    
    
    RMB000Beginning of the year
    
    
    122,520
    
    
    
    124,350Dividends received and receivable from the associates
    
    
    
    
    
    
    (2,055
    )Share of results after tax
    
    
    1,830
    
    
    
    128Others
    
    
    
    
    
    
    (1,718
    )End of the year
    
    
    124,350
    
    
    
    120,705
 As of December 31, 2008, the Group had direct interests in the following companies which are
incorporated / established and are operating in the PRC:
 Percentage ofequityDate of
    
    interestincorporation/
    
    attributable toName of the entity
    
    establishment
    
    the Company
    
    Pain-in capital
    
    Principal activitiesShenzhen Guangshen Railway Civil Engineering Company
    
    1 March 1984
    
    
    49
    %
    
    RMB55,000,000
    
    Construction of railroad propertiesZengcheng Lihua
    
    30 July 1992
    
    
    27
    %
    
    RMB100,000,000
    
    Real estate construction, provision of
warehousing, cargo uploading and unloading
servicesTiecheng
    
    2 May 1995
    
    
    49
    %
    
    RMB245,000,000
    
    Properties leasing and trading of merchandise
 All the above associates are limited liability companies.
 F-37




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 11
    
    INTERESTS IN ASSOCIATES (CONTINUED)
 The share of the results with its percentage ownership of its principal associates, and its share
of the related assets and liabilities, net of applicable impairment provision are as follows:
 Assets
    
    
    Liabilities
    
    
    Revenue
    
    
    (Loss)/Profit
    
    
    % interestRmb000
    
    
    Rmb000
    
    
    Rmb000
    
    
    Rmb000
    
    
    held2007Tiecheng (Note b)
    
    
    198,149
    
    
    
    110,399
    
    
    
    4,486
    
    
    
    (3,118
    )
    
    
    49
    %Other associates
    
    
    178,419
    
    
    
    141,819
    
    
    
    109,783
    
    
    
    4,948
    
    
    
    27%~49
    %376,568
    
    
    
    252,218
    
    
    
    114,269
    
    
    
    1,8302008Tiecheng (Note b)
    
    
    190,783
    
    
    
    105,051
    
    
    
    11,158
    
    
    
    (2,018
    )
    
    
    49
    %Other associates
    
    
    172,808
    
    
    
    137,835
    
    
    
    128,466
    
    
    
    2,146
    
    
    
    27%~49
    %363,591
    
    
    
    242,886
    
    
    
    139,624
    
    
    
    128
 
 Note b:
    
    As indicated above, the carrying amount of the interest in Tiecheng as of December 31,
2008 was approximately RMB85,732,000 (2007: RMB87,750,000). In 1996, Tiecheng and a third party company jointly established a sino-foreign contractual joint
venture, Guangzhou Guantian Real Estate Company (Guangzhou Guantian), in Guangzhou of the PRC for
developing certain properties near a railway station operated by the Group. In 2000, Guangzhou
Guantian together with two other parties, namely Guangzhou Guanhua Real Estate Company Limited
(Guangzhou Guanhua) and Guangzhou Guanyi Real Estate Company Limited (Guangzhou Guanyi),
undertook 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).Due to the fact that Guangdong Guancheng has failed to settle the Payables, as a result, the
Guarantors were found to be jointly liable to the Creditor an amount of approximately
RMB257,000,000 plus accrued interest (collectively the Damages) according to the court verdicts
(the Verdicts). Guangzhou Guantian made an appeal to overturn the Verdicts. In the case that
Guangzhou Guantian had to honour its joint obligation to settle the Damages, the carrying value of
the Group investment in Tiecheng would have been impaired.A final judgement on the appeal which was in favour of Guangzhou Guantian, was obtained from the
Supreme Peoples Court of the PRC in March 2009. Accordingly, Guangzhou Guantian was not held
liable to settle the Damages.
 F-38




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 12
    
    DEFERRED TAX ASSETS/LIABILITIES
 Deferred income tax assets and liabilities are offset when there is a legally enforceable right to
offset current tax assets against current tax liabilities and when the deferred income tax assets
and liabilities relate to income taxed levied by the same taxation authority on either the taxable
entity or different taxable entities where there is an intention to settle the balances on a net
basis. The offset amounts are as follows:
 2007
    
    
    2008RMB000
    
    
    RMB000Deferred tax assets:- Deferred tax assets to be recovered after more than
12 months
    
    
    343,389
    
    
    
    337,893-  Deferred tax assets to be recovered within 12 months
    
    
    18,867
    
    
    
    18,848362,256
    
    
    
    356,741Deferred tax liabilities:- Deferred tax liabilities to crystallise after
more than 12 months
    
    
    (23,155
    )
    
    
    (24,802
    )- Deferred tax liabilities to crystallise within 12
months
    
    
    (180
    )
    
    
    (201
    )(23,335
    )
    
    
    (25,003
    )Deferred tax assets (net)
    
    
    338,921
    
    
    
    331,738
 As of December 31, 2008, the Group offset deferred tax liabilities against deferred tax assets
under the same tax jurisdiction, as allowed under IAS 12. The 2007 comparative figures had also
been adjusted to conform to the current year presentation.The gross movement on the deferred income tax account is as follows:
 2007
    
    
    2008RMB000
    
    
    RMB000At January 1
    
    
    181,041
    
    
    
    338,921Acquisition of Yangcheng Railway Business (Note 36)
    
    
    42,459
    
    
    
    Consolidated income statement charge (Note 29)
    
    
    23,400
    
    
    
    (7,183
    )Revision to deferred tax arising from change of tax
rate charged directly to equity (Note a)
    
    
    92,021
    
    
    
    At December 31
    
    
    338,921
    
    
    
    331,738
 
 Note a:
    
    As explained in further details in Note 29, the
corporate income tax rate for domestic enterprises in the PRC was
changed with effect from January 1, 2008. As a result of such a change
in enacted tax rate, additional deferred tax asset at approximately
RMB92,021,000 was recognized in equity by the Group for temporary
differences arising from fixed assets contributed by Guangzhou Railway
Group into the Group during the Restructuring of the Group (Note 1). F-39




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 12
    
    DEFERRED TAX ASSETS/LIABILITIES (CONTINUED)
 The movement in deferred tax assets and liabilities during the year, without taking into
consideration the offsetting of balances within the same tax jurisdiction, is as follows:
 Acquisitionof
    
    
    Charged/
    
    
    
    
    
    
    
    
    
    
    Charged/Yangcheng
    
    
    (Credit) to
    
    
    Charged
    
    
    At
    
    
    (Credit) to
    
    
    AtAt January
    
    
    Railway
    
    
    the income
    
    
    directly to
    
    
    December
    
    
    the income
    
    
    December1, 2007
    
    
    Business
    
    
    statement
    
    
    equity
    
    
    31, 2007
    
    
    statement
    
    
    31, 2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000(Note 36)Deferred tax assets:Impairment
provision for
receivables
    
    
    14,275
    
    
    
    
    
    
    
    6,088
    
    
    
    
    
    
    
    20,363
    
    
    
    1,088
    
    
    
    21,451Impairment
provision for fixed
assets
    
    
    2,196
    
    
    
    
    
    
    
    (268
    )
    
    
    
    
    
    
    1,928
    
    
    
    (39
    )
    
    
    1,889Impairment
provision for
interests in
associates
    
    
    4,453
    
    
    
    
    
    
    
    2,969
    
    
    
    
    
    
    
    7,422
    
    
    
    
    
    
    
    7,422Difference in
accounting base and
tax base of fixed
assets
    
    
    168,431
    
    
    
    
    
    
    
    (3,068
    )
    
    
    92,021
    
    
    
    257,384
    
    
    
    (3,925
    )
    
    
    253,459Difference in
accounting base and
tax base of
employee benefits
obligations
    
    
    1,488
    
    
    
    54,750
    
    
    
    18,921
    
    
    
    
    
    
    
    75,159
    
    
    
    (2,639
    )
    
    
    72,520190,843
    
    
    
    54,750
    
    
    
    24,642
    
    
    
    92,021
    
    
    
    362,256
    
    
    
    (5,515
    )
    
    
    356,741
 Acquisitionof
    
    
    (Credit)/
    
    
    
    
    
    
    Charged/Yangcheng
    
    
    Charged to
    
    
    At
    
    
    (Credit) to
    
    
    AtAt January
    
    
    Railway
    
    
    the income
    
    
    December
    
    
    the income
    
    
    December1, 2007
    
    
    Business
    
    
    statement
    
    
    31, 2007
    
    
    statement
    
    
    31, 2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000(Note 36)Deferred tax liabilities:Difference in accounting
base and taxation base
relating to replacement
costs of rail-line track
assets
    
    
    4,764
    
    
    
    
    
    
    
    (4,764
    )
    
    
    
    
    
    
    
    
    
    
    Difference in accounting
base and tax base of
fixed assets
    
    
    
    
    
    
    12,291
    
    
    
    7,783
    
    
    
    20,074
    
    
    
    (229
    )
    
    
    19,845Others
    
    
    5,038
    
    
    
    
    
    
    
    (1,777
    )
    
    
    3,261
    
    
    
    1,897
    
    
    
    5,1589,802
    
    
    
    12,291
    
    
    
    1,242
    
    
    
    23,335
    
    
    
    1,668
    
    
    
    25,003
 F-40




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 13
    
    DEFERRED EMPLOYEE COSTS
 2007
    
    
    2008RMB000
    
    
    RMB000At January 1Cost
    
    
    226,369
    
    
    
    271,369Accumulated amortization
    
    
    (105,639
    )
    
    
    (129,978
    )Net book amount
    
    
    120,730
    
    
    
    141,391Year ended December 31Opening net book amount
    
    
    120,730
    
    
    
    141,391Additions
    
    
    45,000
    
    
    
    16,733Amortization (Note 26)
    
    
    (24,339
    )
    
    
    (32,005
    )Offset against employee benefits obligation provision
(Note 23)
    
    
    
    
    
    
    (26,505
    )Closing net book amount
    
    
    141,391
    
    
    
    99,614At December 31Cost
    
    
    271,369
    
    
    
    243,102Accumulated amortization
    
    
    (129,978
    )
    
    
    (143,488
    )Net book amount
    
    
    141,391
    
    
    
    99,614
 14
    
    FINANCIAL INSTRUMENTS BY CATEGORY
  Loans and
    
    
    Available-receivables
    
    
    for-sale
    
    
    TotalAs at December 31,2007:Available-for-sale investments (Note 15)
    
    
    
    
    
    
    46,608
    
    
    
    46,608Long term receivables (Note 16)
    
    
    48,547
    
    
    
    
    
    
    
    48,547Trade and other receivables (Notes 18 and 19)
    
    
    174,386
    
    
    
    
    
    
    
    174,386Due from related parties (Note 35(d))
    
    
    83,925
    
    
    
    
    
    
    
    83,925Cash and cash equivalents (Note 32(c))
    
    
    2,352,351
    
    
    
    
    
    
    
    2,352,351Total
    
    
    2,659,209
    
    
    
    46,608
    
    
    
    2,705,817Asset as per consolidated balance sheetAs at December 31,2008:Available-for-sale investments (Note 15)
    
    
    
    
    
    
    48,326
    
    
    
    48,326Long-term receivable (Note 16)
    
    
    48,136
    
    
    
    
    
    
    
    48,136Trade and other receivables (Notes 18 and 19)
    
    
    111,004
    
    
    
    
    
    
    
    111,004Due from related parties (Note 35(d))
    
    
    226,916
    
    
    
    
    
    
    
    226,916Short-term deposits
    
    
    7,300
    
    
    
    
    
    
    
    7,300Cash and cash equivalents (Note 32(c))
    
    
    1,560,952
    
    
    
    
    
    
    
    1,560,952Total
    
    
    1,954,308
    
    
    
    48,326
    
    
    
    2,002,634
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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 14
    
    FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED)
 Other financialliabilitiesAs at December 31,2007:Borrowings (Note 22)
    
    
    2,850,000Trade and other payables (Notes 24 and 25)
    
    
    866,104Payables for fixed assets and construction-in-progress
    
    
    337,213Due to related parties (Note 35(d))
    
    
    1,022,125Total
    
    
    5,075,442Liability items as per balance sheetAs at December 31, 2008:Borrowings (Note 22)
    
    
    3,900,000Trade and other payables (Notes 24 and 25)
    
    
    1,011,182Payables for fixed assets and construction-in-progress
    
    
    764,609Due to related parties (Note 35(d))
    
    
    362,533Total
    
    
    6,038,324
 15
    
    AVAILABLE-FOR-SALE INVESTMENTS
 2007
    
    
    2008RMB000
    
    
    RMB000Beginning of the year
    
    
    46,108
    
    
    
    46,608Additions arising from acquisition of Yangcheng
Railway Business (Note 36)
    
    
    500
    
    
    
    Others
    
    
    
    
    
    
    1,718End of the year
    
    
    46,608
    
    
    
    48,326
  F-42




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 16
    
    LONG-TERM RECEIVABLE
 2007
    
    
    2008RMB000
    
    
    RMB000Opening net book amount
    
    
    
    
    
    
    48,547Acquisition of Yangcheng Railway Business (Note 36)
    
    
    54,547
    
    
    
    Release of accrued interest
    
    
    
    
    
    
    7,589Repayment received
    
    
    (6,000
    )
    
    
    (8,000
    )Closing net book amount
    
    
    48,547
    
    
    
    48,136
   17
    
    MATERIALS AND SUPPLIES
 2007
    
    
    2008RMB000
    
    
    RMB000Raw materials
    
    
    87,423
    
    
    
    139,497Other interchangeable accessories
    
    
    54,613
    
    
    
    52,794Reuseable rail-line track materials
    
    
    9,129
    
    
    
    5,741Retailing Materials
    
    
    2,509
    
    
    
    3,891153,674
    
    
    
    201,923
  18
    
    TRADE RECEIVABLES
 2007
    
    
    2008RMB000
    
    
    RMB000Trade receivables
    
    
    66,516
    
    
    
    62,568Less: Provision for impairment of receivables
    
    
    (6,767
    )
    
    
    (9,142
    )59,749
    
    
    
    53,426
  F-43




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 18
    
    TRADE RECEIVABLES (CONTINUED)
  2007
    
    
    2008RMB000
    
    
    RMB000Within 1 year
    
    
    55,936
    
    
    
    50,032Over 1 year but within 2 years
    
    
    2,162
    
    
    
    3,087Over 2 years but within 3 years
    
    
    1,068
    
    
    
    40Over 3 years
    
    
    583
    
    
    
    26759,749
    
    
    
    53,426
  2007
    
    
    2008RMB000
    
    
    RMB000Over 1 year but within 2 years
    
    
    1,306
    
    
    
    642Over 2 year but within 3 years
    
    
    
    
    
    
    401,306
    
    
    
    682
  2007
    
    
    2008RMB000
    
    
    RMB000Within 1 year
    
    
    
    
    
    
    559Over 1 year but within 2 years
    
    
    857
    
    
    
    2,564Over 2 years but within 3 years
    
    
    1,068
    
    
    
    Over 3 years
    
    
    7,349
    
    
    
    8,7319,274
    
    
    
    11,854
 F-44




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 18
    
    TRADE RECEIVABLES (CONTINUED)
  2007
    
    
    2008RMB000
    
    
    RMB000At January 1
    
    
    8,745
    
    
    
    6,767Provision for impairment loss
    
    
    86
    
    
    
    2,630Receivables written off during the year as uncollectible
    
    
    (224
    )
    
    
    Reversal of impairment loss provision
    
    
    (1,840
    )
    
    
    (255
    )At December 31
    
    
    6,767
    
    
    
    9,142
    19
    
    PREPAYMENTS AND OTHER RECEIVABLES
 2007
    
    
    2008RMB000
    
    
    RMB000Other receivables
    
    
    168,572
    
    
    
    111,857Less: Provision for impairment loss (Note a)
    
    
    (53,935
    )
    
    
    (54,279
    )Other receivables, net
    
    
    114,637
    
    
    
    57,578Prepayments
    
    
    27,037
    
    
    
    30,996141,674
    
    
    
    88,574
 Note a:

    
    Included in the balance was a doubtful debt provision of approximately RMB31,365,000 set
up by the Group in prior years in order to provide for potential recoverability losses
associated with a deposit placed with a deposit-taking agency, Zeng Cheng City Li Cheng Credit
Cooperative (Li Cheng) at a principal balance of the same amount (the Deposit). The Group
has been unable to recover the Deposit from Li Cheng upon maturity and the Group has initiated
several legal proceedings against Li Cheng to enforce the recovery but without success.
  F-45




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 19
    
    PREPAYMENTS AND OTHER RECEIVABLES (CONTINUED)As of December 31, 2008 and 2007, there were no significant balances of other receivables that were
past due after the credit period that are not impaired. A provision for impairment loss of
approximately RMB391,000 (2007: reversal of RMB6,506,000) has been included in the income
statement.The carrying amounts of prepayment and other receivables are denominated in the following
currencies:
 2007
    
    
    2008RMB000
    
    
    RMB000RMB
    
    
    141,112
    
    
    
    88,045HKD
    
    
    562
    
    
    
    529141,674
    
    
    
    88,574
 20
    
    SHARE CAPITALAs of December 31, 2008 and 2007, both the total authorised number of ordinary shares is
7,083,537,000 shares with a par value of RMB1.00 per share . These shares are divided into A shares
and H shares. Apart from certain A shares held by state-own legal person and legal persons which
have sale restrictions (see details below), they rank pari passu against each other.
 Opening
    
    
    
    
    
    
    Closingbalance at
    
    
    
    
    
    
    balance atJanuary 1,
    
    
    
    
    
    
    December2007
    
    
    Transfers
    
    
    31, 2007RMB000
    
    
    RMB000
    
    
    RMB000Authorised, issued and fully paid:A shares subject to sale restrictions- shares held by state-owned legal person
    
    
    2,904,250
    
    
    
    
    
    
    
    2,904,250- shares held by legal persons
    
    
    1,480,944
    
    
    
    (1,480,944
    )
    
    
    4,385,194
    
    
    
    (1,480,944
    )
    
    
    2,904,250Listed shares- H shares
    
    
    1,431,300
    
    
    
    
    
    
    
    1,431,300- A shares
    
    
    1,267,043
    
    
    
    1,480,944
    
    
    
    2,747,9872,698,343
    
    
    
    1,480,944
    
    
    
    4,179,287Total
    
    
    7,083,537
    
    
    
    
    
    
    
    7,083,537
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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 20
    
    SHARE CAPITAL (CONTINUED)
 Opening
    
    
    
    
    
    
    Closingbalance at
    
    
    
    
    
    
    balance atJanuary 1,
    
    
    
    
    
    
    December 31,2008
    
    
    Transfers
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000Authorised, issued and fully paid:A shares subject to sale restrictions- shares held by state-owned legal person
    
    
    2,904,250
    
    
    
    
    
    
    
    2,904,250Listed shares
    
    
    
    
    
    
    - H shares
    
    
    1,431,300
    
    
    
    
    
    
    
    1,431,300- A shares
    
    
    2,747,987
    
    
    
    
    
    
    
    2,747,9874,179,287
    
    
    
    
    
    
    
    4,179,287Total
    
    
    7,083,537
    
    
    
    
    
    
    
    7,083,537
 In December 2006, the Company issued 2,747,987,000 A shares on the Shanghai Stock Exchange through
an initial public offering, among which 1,480,944,000 A shares held by legal persons were subject
to a sale and transfer restriction period of 3-month or one year. In addition, at the time of this
A shares offering, Guangzhou Railway Group also undertook its 2,904,250,000 A shares to be subject
to a 3-year sale and transfer restriction period.21
    
    RESERVESAccording to the provisions of the articles of association of the Company, the Company shall first
set aside 10% of its profit after tax attributable to shareholders 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 in
previous years, the current year profit attributable to shareholders shall be used to make good the
losses before any allocations are set aside for the statutory surplus reserve.The statutory surplus reserve, the discretionary surplus reserve and the share premium account may
be converted into share capital of the Company provided it is approved by a resolution passed in a
shareholders general meeting with the provision that the ending balance of the statutory surplus
reserve does not fall below 25% of the registered share capital amount. The Company may either
allot newly created shares to the shareholders at the same proportion of the existing number of
shares held by these shareholders, or it may increase the par value of each share.
 F-47




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 21
    
    RESERVES (CONTINUED)For the years ended December 31, 2008 , 2007 and 2006, the directors proposed the following
appropriations to reserves of the Company:
 2006
    
    
    2007
    
    
    2008Percentage
    
    
    RMB000
    
    
    Percentage
    
    
    RMB000
    
    
    Percentage
    
    
    RMB000Statutory surplus reserve
    
    
    10
    %
    
    
    71,469
    
    
    
    10
    %
    
    
    139,778
    
    
    
    10
    %
    
    
    121,444
 In addition, because of a change in the rules governing appropriation of statutory reserves of
enterprises in the PRC effective from 2008, the Group had made appropriate changes to the reserve
balances brought forward from 2007 and before during the year ended 31 December 2008.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.22
    
    BORROWINGS
 2007
    
    
    2008RMB000
    
    
    RMB000Non currentUnsecured bank borrowings
    
    
    2,850,000
    
    
    
    3,390,000CurrentUnsecured bank borrowings
    
    
    
    
    
    
    510,000Total borrowings
    
    
    2,850,000
    
    
    
    3,900,000
 The borrowings are mainly obtained for the payment of construction of the fourth rail-line and
purchase of locomotives. The carrying amounts of the borrowings are all denominated in RMB.The maturity of these borrowings is as follows:
 2007
    
    
    2008RMB000
    
    
    RMB000Within one year
    
    
    
    
    
    
    510,000Within 1 to 2 years
    
    
    
    
    
    
    10,000Within 2 to 5 years
    
    
    2,850,000
    
    
    
    3,380,0002,850,000
    
    
    
    3,900,000
 F-48




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 22
    
    BORROWINGS (CONTINUED)The interest rate exposure of the borrowings is as follows:
 2007
    
    
    2008Rmb000
    
    
    Rmb000At floating rates (at relevant prevailing
interest rates with a maximum range of downward
adjustment up to 10%)
    
    
    2,850,000
    
    
    
    3,900,000
 The effective interest rates of the bank borrowings as of December 31, 2008 and 2007 were 6.44% and
6.07%. The carrying amounts of the borrowings approximated their fair values as all the borrowings
are at floating interest rates as of both dates.As of December 31, 2008 and 2007, the Group had unutilized banking facilities granted by various
financial institutions amounting to approximately RMB900,000,000 and RMB5,450,000,000,
respectively.23
    
    EMPLOYEE BENEFITS OBLIGATIONS
 2007
    
    
    2008RMB000
    
    
    RMB000At January 1
    
    
    22,420
    
    
    
    377,409Acquisition of Yangcheng Railway Business (Note 36)
    
    
    410,000
    
    
    
    Additions (Note 26)
    
    
    65,256
    
    
    
    85,988Interest unwound
    
    
    (1,988
    )
    
    
    3,417Payment
    
    
    (118,279
    )
    
    
    (151,768
    )Offset against deferred employee costs (Note 13)
    
    
    
    
    
    
    (26,505
    )At December 31
    
    
    377,409
    
    
    
    288,541
 2007
    
    
    2008RMB000
    
    
    RMB000Employee benefits obligations
    
    
    377,409
    
    
    
    288,541Less: current portion included in accruals and
other payables (Note 25)
    
    
    (76,708
    )
    
    
    (51,119
    )300,701
    
    
    
    237,422
 Pursuant to a redundancy plan implemented by the Group in 2006, selected employees who had met
certain specified criteria and accepted voluntary redundancy were provided with an offer of early
retirement benefits, up to their official age of retirement. Such arrangements required specific
approval granted by management of the Group.With the acquisition of the Yangcheng Railway Business in 2007 (Note 36), the Group has also
assumed certain retirement and termination benefits obligations associated with the operations of
Yangcheng Railway Business. The amount mainly includes the redundancy termination benefits similar
to those mentioned above, as well as the obligation for funding post-retirement medical insurance
premiums of retired employees before the acquisition.
 F-49




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 23
    
    EMPLOYEE BENEFITS OBLIGATIONS (CONTINUED)These obligations have been provided for by the Group at amounts equal to the total expected
benefit payments. 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 PAYABLESThe aging analysis of trade payables was as follows:
 2007
    
    
    2008RMB000
    
    
    RMB000Within 1 year
    
    
    288,763
    
    
    
    413,002Over 1 year but within 2 years
    
    
    1,064
    
    
    
    1,763Over 2 years but within 3 years
    
    
    83
    
    
    
    66Over 3 years
    
    
    1,513
    
    
    
    1,396291,423
    
    
    
    416,227
 25
    
    ACCRUALS AND OTHER PAYABLES
 2007
    
    
    2008RMB000
    
    
    RMB000Deposits received for construction projects
    
    
    197,561
    
    
    
    263,721Salary and welfare payables
    
    
    55,217
    
    
    
    65,232Advance received from customers
    
    
    42,274
    
    
    
    57,901Other payables
    
    
    95,700
    
    
    
    53,782Employee benefits obligations (Note 23)
    
    
    76,708
    
    
    
    51,119Deposits received from ticketing agencies
    
    
    64,748
    
    
    
    50,297Other taxes payable
    
    
    42,644
    
    
    
    44,256Other deposits received
    
    
    14,556
    
    
    
    43,688Housing maintenance fund
    
    
    17,212
    
    
    
    17,286Fund for employee injury insurance
    
    
    7,564
    
    
    
    5,574Accrued expenses
    
    
    2,771
    
    
    
    616,955
    
    
    
    652,856
 F-50




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 26
    
    LABOUR AND BENEFITS
 2006
    
    
    2007
    
    
    2008RMB000
    
    
    Rmb000
    
    
    Rmb000Wages and salaries
    
    
    570,049
    
    
    
    1,388,342
    
    
    
    1,661,325Provision for medical and other employee benefits
    
    
    84,769
    
    
    
    325,438
    
    
    
    306,282Contributions to a defined contribution pension
scheme (a)
    
    
    62,274
    
    
    
    220,856
    
    
    
    260,014Contributions to the housing scheme (b)
    
    
    29,142
    
    
    
    75,861
    
    
    
    92,095Amortization of deferred staff cost (Note 13)
    
    
    15,091
    
    
    
    24,339
    
    
    
    32,005Employee benefits obligations (Note 23)
    
    
    22,420
    
    
    
    65,256
    
    
    
    85,988783,745
    
    
    
    2,100,092
    
    
    
    2,437,709
 (a)
    
    Pension schemeAll the full-time employees are entitled to join a statutory pension scheme. The employees would
receive pension payments equal to their basic salaries payable upon their retirement up to their
death. Pursuant to the PRC laws and regulations, contributions to the basic old age insurance for
the 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 employees. The government agency is responsible for the pension
liabilities due to the employees upon their retirement. The Group accounts for these contributions
on an accrual basis and charges the related contributions to income in the year to which the
contributions relate.(b)
    
    Housing schemeIn accordance with the PRC housing reform regulations, the Group is required to make contributions
to a State-sponsored Housing Fund at 7% or 13% of the salaries of the employees. At the same time,
the employees are also required to make a contribution at 7% or 13% of the salaries out of their
payroll. The employees are entitled to claim the entire sum of the fund under certain specified
withdrawal circumstances. The Group have no further legal or constructive obligation for housing
benefits of these employees beyond the above contributions made.27
    
    OTHER INCOME, NET
 2006
    
    
    2007
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000Interest income from bank
    
    
    30,735
    
    
    
    61,063
    
    
    
    24,321Income from waiver of payables
    
    
    30,441
    
    
    
    
    
    
    
    Unwinding of interest accrued on
long-term receivable (Note 16)
    
    
    
    
    
    
    
    
    
    
    7,589Write-back of long outstanding payables
    
    
    
    
    
    
    
    
    
    
    21,562Loss on disposal of fixed assets
    
    
    (8,414
    )
    
    
    (3,335
    )
    
    
    (31,542
    )Gain/(loss) on disposal of subsidiaries
    
    
    1,161
    
    
    
    (1,063
    )
    
    
    (188
    )Others
    
    
    10,725
    
    
    
    (6,849
    )
    
    
    (4,039
    )64,648
    
    
    
    49,816
    
    
    
    17,703
 F-51




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 28
    
    FINANCE COSTS
 2006
    
    
    2007
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000Interest expenses
    
    
    26,648
    
    
    
    173,515
    
    
    
    221,488Less: interest capitalized in
construction-in-progress (Note 7)
    
    
    (24,903
    )
    
    
    (79,438
    )
    
    
    (13,721
    )Bank charges
    
    
    546
    
    
    
    1,942
    
    
    
    5,728Net foreign exchange losses
    
    
    13,679
    
    
    
    2,468
    
    
    
    (26
    )15,970
    
    
    
    98,487
    
    
    
    213,469
 29
    
    INCOME TAX EXPENSEBefore 2008, enterprises established in the Shenzhen Special Economic Zone of the PRC were subject
to income tax at a reduced preferential rate of 15% as compared with the standard income tax rate
for PRC companies of 33%. The Company and the subsidiaries located in Shenzhen were subject to
income tax rate of 15%, while those subsidiaries located outside Shenzhen were subject to income
tax rate of 33%.On March 16, 2007, the National Peoples Congress approved the Corporate Income Tax Law of the
Peoples Republic of China (the new CIT Law), which became effective on January 1, 2008. Under
the new CIT Law, the enterprise income tax rate was changed from 33% to 25% from January 1, 2008
onwards. While the enterprise income tax rate applicable to the Company and the subsidiaries
located in Shenzhen would increase gradually to 25% within 5 years from 2008 to 2012. Accordingly
, the applicable income tax rates in 2006, 2007 and 2008 are 15%, 15% and 18%, respectively.An analysis of the current year taxation charges is as follows:
 2006
    
    
    2007
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000Current income tax
    
    
    142,334
    
    
    
    255,749
    
    
    
    270,111Deferred income tax (Note 12)
    
    
    6,821
    
    
    
    (23,400
    )
    
    
    7,183149,155
    
    
    
    232,349
    
    
    
    277,294
 The tax on the profit before tax differs from the theoretical amount that would arise using the tax
rate of the home country of the Company as follows:
 F-52




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 29
    
    INCOME TAX EXPENSE (CONTINUED)
 2006
    
    
    2007
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000Profit before tax
    
    
    920,928
    
    
    
    1,668,551
    
    
    
    1,501,662Tax calculated at the statutory rate of 18% (2007
and 2006: 15%)
    
    
    138,139
    
    
    
    250,283
    
    
    
    270,299Tax effect of expenses that are not deductible in
determining taxable profit:Effect of change of income tax rate on deferred
taxation previously recognised
    
    
    
    
    
    
    (30,413
    )
    
    
    Effect of tax rates differentials
    
    
    1,495
    
    
    
    1,137
    
    
    
    (3,652
    )Effect of share of results of associates
    
    
    4,246
    
    
    
    (275
    )
    
    
    (23
    )Effect of expenses not deductible for tax purposes
    
    
    5,237
    
    
    
    5,462
    
    
    
    10,686Effect of income not subject to tax
    
    
    
    
    
    
    
    
    
    
    (436
    )Tax losses for which no deferred tax asset was
recognised
    
    
    38
    
    
    
    380
    
    
    
    420Reversal of deferred tax assets on previously
recognised tax losses
    
    
    
    
    
    
    5,775
    
    
    
    Income tax expense
    
    
    149,155
    
    
    
    232,349
    
    
    
    277,294
 The effective tax rate was 18.5% (2007 and 2006: 13.9% and 16.2%).30
    
    EARNINGS PER SHAREThe calculation of basic earnings per share is based on the net profit for the year attributable to
ordinary shareholders of approximately RMB1,224,129,000 (2007 and 2006: RMB1,431,415,000 and
RMB771,513,000), divided by the weighted average number of ordinary shares outstanding during the
year of 7,083,537,000 shares (2007 and 2006: 7,083,537,000 shares and 4,418,427,000 shares). There
were no dilutive potential ordinary shares during the three years.31
    
    DIVIDENDS
 2006
    
    
    2007
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000Final, proposed, of RMB0.08 (2007 and
2006: RMB0.08) per ordinary share
    
    
    566,683
    
    
    
    566,683
    
    
    
    566,683
 At a meeting of the directors held on April 29, 2009, the directors proposed a final dividend of
RMB0.08 per ordinary share for the year ended December 31, 2008, which is subject to the approval
of our shareholders. Such dividend distribution proposal was approved by the shareholders in the
annual general meeting dated on June 25, 2009. This proposed dividend has not been reflected as a
dividend payable in the financial statements, but will be reflected as an appropriation of retained
earnings for the year ending December 31, 2009.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 32
    
    CASH FLOW GENERATED FROM OPERATIONS(a)
    
    Reconciliation from profit attributable to shareholders to cash generated from operations:
 2006
    
    
    2007
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000Profit before income tax:
    
    
    920,928
    
    
    
    1,668,551
    
    
    
    1,501,662Adjustments for:Depreciation of fixed assets
    
    
    319,887
    
    
    
    1,017,100
    
    
    
    1,172,042Impairment of fixed assets (Note 6)
    
    
    
    
    
    
    6,359
    
    
    
    Amortization of leasehold land payments (Note 8)
    
    
    16,776
    
    
    
    16,021
    
    
    
    15,603Loss on disposal of fixed assets (Note 27)
    
    
    8,414
    
    
    
    3,335
    
    
    
    31,542Amortization of deferred employee costs (Note 13)
    
    
    15,091
    
    
    
    24,339
    
    
    
    32,005Recognition of employee benefits obligations (Note 23)
    
    
    
    
    
    
    65,256
    
    
    
    85,988Interest unwound (Note 23)
    
    
    
    
    
    
    (1,988
    )
    
    
    3,417Share of results of associates (Note 11)
    
    
    28,306
    
    
    
    (1,830
    )
    
    
    (128
    )Loss on disposal of subsidiaries (Note 27)
    
    
    
    
    
    
    1,063
    
    
    
    188Dividend income on available-for-sale investment
    
    
    
    
    
    
    
    
    
    
    (2,420
    )Provision/(reversal of provision) for doubtful
accounts (Notes 18 and 19)
    
    
    (4,315
    )
    
    
    (8,260
    )
    
    
    2,766Write-back of long outstanding of payables (Note 27)
    
    
    
    
    
    
    
    
    
    
    (21,562
    )Interest expenses (Note 28)
    
    
    1,745
    
    
    
    173,515
    
    
    
    207,767Interest income (Note 27)
    
    
    (30,735
    )
    
    
    (61,063
    )
    
    
    (31,910
    )Operating profit before working capital changes
    
    
    1,276,097
    
    
    
    2,902,398
    
    
    
    2,996,960Decrease in trade receivables
    
    
    45,263
    
    
    
    46,839
    
    
    
    3,948Increase in materials and supplies
    
    
    (2,014
    )
    
    
    (31,637
    )
    
    
    (48,249
    )Decrease/(increase) in prepayments and other
receivables
    
    
    5,963
    
    
    
    (14,260
    )
    
    
    47,178Decrease in long-term receivables
    
    
    
    
    
    
    6,000
    
    
    
    8,000(Increase)/decrease in due from related parties
    
    
    (46,445
    )
    
    
    36,653
    
    
    
    (142,991
    )Increase/(decrease) in trade payables
    
    
    121,627
    
    
    
    (145,774
    )
    
    
    124,804Increase/(decrease) in employee benefits obligations
    
    
    22,420
    
    
    
    (112,526
    )
    
    
    (126,179
    )(Decrease)/increase in due to related parties
    
    
    (257,585
    )
    
    
    206,744
    
    
    
    (659,592
    )Increase/(decrease) in accrued expenses and other
payables
    
    
    65,632
    
    
    
    (463,748
    )
    
    
    (30,194
    )Cash generated from operations
    
    
    1,230,958
    
    
    
    2,430,689
    
    
    
    2,173,685
 (b)
    
    In the cash flow statement, proceeds from disposal of property, plant and equipment comprise:
 2006
    
    
    
    
    
    
    2008RMB000
    
    
    2007
    
    
    RMB000Net book amount (Note 6)
    
    
    51,008
    
    
    
    113,236
    
    
    
    42,900Receivable arising from disposal of property, plant
and equipment
    
    
    2
    
    
    
    (26,200
    )
    
    
    Loss on disposal of property, plant and equipment
    
    
    (8,414
    )
    
    
    (3,335
    )
    
    
    (31,542
    )Proceeds from disposal of property, plant and equipment
    
    
    42,596
    
    
    
    83,701
    
    
    
    11,358
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 32
    
    CASH FLOW GENERATED FROM OPERATIONS (CONTINUED)(c)
    
    Analysis of the balance of cash and cash equivalents:
 2007
    
    
    2008RMB000
    
    
    RMB000Cash at bank and in hand
    
    
    1,109,241
    
    
    
    618,877Short-term deposits with original maturities no
more than three months (Note i)
    
    
    1,243,110
    
    
    
    942,0752,352,351
    
    
    
    1,560,952
 Note i:
    
    Short term time deposits with maturities of no more than
three months consist of deposits denominated in RMB. The
original effective interest rate of RMB deposits is 1.35%
(2007: 1.71%).
 33
    
    CONTINGENCYThere were no significant contingent liabilities as at the date of approval of these financial
statements.34
    
    COMMITMENTS(a)
    
    Capital commitmentsAs of December 31, 2008, the Group had the following capital commitments which are authorized but
not contracted for, and contracted but not provided for:
 2007
    
    
    2008RMB000
    
    
    RMB000Authorised but not contracted for
    
    
    3,674,095
    
    
    
    2,530,325Contracted but not provided for
    
    
    2,132,634
    
    
    
    390,691
 A substantial amount of these commitments as of December 31, 2007 and 2008 is related to the
remaining construction works of a portion of the fourth rail-line, improvement of the existing
operation equipments and the purchase of new locomotives for its expanded operations. The related
financing would be from self generated operating cash flow and bank facilities.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 34
    
    COMMITMENTS (CONTINUED)(b)
    
    Operating lease commitmentsIn connection with the acquisition of Yangcheng Railway Business mentioned in Note 36, the Group
signed an agreement on November 15, 2004 with Guangzhou Railway Group for leasing the land use
rights associated with the land on which the acquired assets of Yangcheng Railway Business are
located. The agreement became effective upon the completion of the acquisition on January 1, 2007
and the remaining lease term is 20 years, renewable at the discretion of the Group. According to
the terms of the agreement, the rental for such lease would be agreed by both parties every year
with a maximum amount not exceeding RMB74,000,000 per year. During the year ended December 31,
2008, the related lease rental paid and payable was RMB50,000,000 (2007: RMB50,000,000).35
    
    RELATED PARTY TRANSACTIONSParties are considered to be related if one party has the ability, directly or indirectly, to
control the other party or exercise significant influence over the other party in making financial
and operating decisions.(a)
    
    Related parties that control the Company or are controlled by the Company:None of the shareholders is the controlling entity of the Company.See Note 10 for details of the subsidiaries of the Group.(b)
    
    Nature of the principal related parties that do not control/are not controlled by the Group:
 Name of related parties
    
    Relationship with the CompanyControlling entity of substantial shareholder, substantial
shareholder and fellow subsidiariesMinistry of Railways (MOR) of the PRC
    
    Controlling entity of substantial
shareholderGuangzhou Railway Group
    
    Substantial shareholderGuangzhou Railway Group YangCheng Railway Enterprise
Development Company (Yangcheng Railway)
    
    Subsidiary of the substantial shareholderGuangmeishan Railway Company Limited (Guangmeishan)
    
    Subsidiary of the substantial shareholderGuangzhou Railway (Group) Guangshen Railway Enterprise 
Development Company
    
    Subsidiary of the substantial shareholderGuangzhou Railway Material Supply Company
    
    Subsidiary of the substantial shareholderGuangzhou Railway Engineer Construction Enterprise Development
Company (Engineer Construction Enterprise)
    
    Subsidiary of the substantial shareholderYuehai Railway Company Limited
    
    Subsidiary of the substantial shareholderShichang Railway Company Limited
    
    Subsidiary of the substantial shareholderCYTS Guangdong Railway Shenzhen Co., Ltd.
    
    Subsidiary of the substantial shareholderChangsha Railway Construction Company Limited
    
    Subsidiary of the substantial shareholderGuangdong Pearl River Delta Inter-city Railway Traffic Co., Ltd.
    
    Subsidiary of the substantial shareholderGuangdong Sanmao Enterprise Development Company Limited
    
    Subsidiary of the substantial shareholderGuangzhou Qingda Transportation Company Limited
    
    Subsidiary of the substantial shareholderAssociates of the GroupGuangzhou Tiecheng Enterprise Company Limited
    
    Associate of the GroupZengcheng Lihua Stock Company Limited
    
    Associate of the GroupShenzhen Guangshen Railway Civil Engineering Company
    
    Associate of the Group
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 35
    
    RELATED PARTY TRANSACTIONS (CONTINUED)(c)
    
    Save as disclosed in other notes to the financial statements, during the year, the Group had
the following material transactions undertaken with related parties:
 2006
    
    
    2007
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000Recurring Transactions:I. Transactions with the MOR and Guangzhou Railway Group and its subsidiaries(a) IncomeRevenue collected from the MOR ((i) and (ii)) Passenger transportation
    
    
    (800,859
    )
    
    
    (5,318,369
    )
    
    
    (6,196,596
    ) Freight transportation
    
    
    (124,465
    )
    
    
    (906,516
    )
    
    
    (841,240
    ) Railway network usage and services
    
    
    (315,847
    )
    
    
    (2,659,529
    )
    
    
    (2,738,425
    )Provision of train transportation services to Guangzhou Railway Group and its
subsidiaries (i)
    
    
    (22,295
    )
    
    
    (316,182
    )
    
    
    (402,951
    )Provision of repairing services for cargo trucks of Guangzhou Railway Group
and MOR (ii)
    
    
    (32,787
    )
    
    
    (175,284
    )
    
    
    (148,322
    )Interest income received/receivable form the MOR Deposit-taking Centre (ii)
    
    
    (5,331
    )
    
    
    
    
    
    
    (b) Charges and PaymentsServices charges allocated from the MOR for equipment lease and services ((i)
and (ii))
    
    
    410,353
    
    
    
    1,990,297
    
    
    
    2,179,407Operating lease rentals paid/payable to the MOR (ii)
    
    
    40,885
    
    
    
    156,628
    
    
    
    176,880Provision of train transportation services provided by Guangzhou Railway
Group and its subsidiaries (ii)
    
    
    26,065
    
    
    
    213,388
    
    
    
    235,303Social services (employee housing, health care, educational and public
security services and other ancillary services) provided by the GEDC and
Yangcheng Railway under the service agreements (ii)
    
    
    74,520
    
    
    
    429,655
    
    
    
    440,602Other services provided by subsidiaries of Guangzhou Railway Group ((iv) and
(v))
    
    
    
    
    
    
    50,569
    
    
    
    21,459Purchase of materials and supplies from Guangzhou Railway Group and its
subsidiaries (iv)
    
    
    89,731
    
    
    
    577,352
    
    
    
    398,230Provision of repair and maintenance services by Guangzhou Railway Group and
its subsidiaries (ii)
    
    
    
    
    
    
    82,478
    
    
    
    115,568Non-Recurring Transactions:I. Transactions with the MOR and Guangzhou Railway Group and its subsidiariesRental income from an associate (v)
    
    
    
    
    
    
    
    
    
    
    (4,681
    )Partial disposal of equity interests in a subsidiary
    
    
    (35,224
    )
    
    
    
    
    
    
    Other services provided by Guangzhou Railway Group and its subsidiaries (ii)
    
    
    21,779
    
    
    
    21,633
    
    
    
    Provision of construction management services by Guangzhou Railway Group in
connection with the construction of fixed assets of the Company (vi)
    
    
    9,326
    
    
    
    9,288
    
    
    
    181Provision of supplies and materials by subsidiaries of Guangzhou Railway
Group (iii)
    
    
    4,045
    
    
    
    
    
    
    
    Project construction services provided by Guangzhou Railway Group and its
subsidiaries (v)
    
    
    70,537
    
    
    
    52,662
    
    
    
    253,607Payment for the acquisition of net assets of Yangcheng Railway Business (Note
36)
    
    
    5,265,250
    
    
    
    4,873,332
    
    
    
    Operating lease rental paid to Guangzhou Railway Group for the leasing of
land use rights (Note 34(b))
    
    
    
    
    
    
    50,000
    
    
    
    50,000
 II. Transactions with Other State-controlled CompaniesAs mentioned in Note 36, subsequent to the A share issuance on December 22, 2006, the Company is no
longer controlled by Guangzhou Railway Group and MOR, which are state-controlled entities in the
PRC. As a result, other state-controlled companies in the PRC were no longer considered as related
parties of the Group from December 22, 2006 onwards. The aggregate amount of transactions
undertaken with the other state-controlled companies in the period from January 1, 2006 to December 21, 2006, for the provision of supplies
and materials, construction project and related service, repair and maintenance services, and
purchase of fixed assets, was approximately RMB3,440,511,000.
 F-57




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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 35
    
    RELATED PARTY TRANSACTIONS (CONTINUED)(c)
    
    Save as disclosed in other notes to the financial statements, during the year, the Group had
the following material transactions undertaken with related parties (continued):
 (i)
    
    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.(ii)
    
    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.(iii)
    
    The service charges are levied based on contract prices determined based on cost plus a
profit margin and explicitly agreed between both contract parties.(iv)
    
    The prices are determined based on mutual negotiation between the contracting parties with
reference to guidance provided by the MOR.(v)
    
    The prices are determined based on mutual negotiation between the contracting parties.(vi)
    
    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 controlled 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.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 35
    
    RELATED PARTY TRANSACTIONS (CONTINUED)(d)
    
    As of December 31, 2008 and 2007, the Group had the following material balances maintained
with related parties:
 2007
    
    
    2008RMB000
    
    
    RMB000Due from Guangzhou Railway Group
    
    
    
    
    
    
    155,034- Trade balance (i)
    
    
    
    
    
    
    150,066- Non-trade balance
    
    
    
    
    
    
    4,968Due to Guangzhou Railway Group
    
    
    (78,262
    )
    
    
    (35,209
    )- Trade balance (i)
    
    
    (96,995
    )
    
    
    (25,787
    )- Non-trade balance (iii)
    
    
    18,733
    
    
    
    (9,422
    )Due from subsidiaries of Guangzhou Railway Group
    
    
    39,911
    
    
    
    16,815- Trade balance
    
    
    17,843
    
    
    
    15,350- Non-trade balance
    
    
    22,068
    
    
    
    1,465Due to subsidiaries of Guangzhou Railway Group
    
    
    (940,928
    )
    
    
    (302,206
    )- Trade balance (ii)
    
    
    (157,001
    )
    
    
    (198,843
    )-  Non-trade balance (iii)
    
    
    (783,927
    )
    
    
    (103,363
    )Due from an associate
    
    
    1,825
    
    
    
    2,019- Trade balance
    
    
    14,137
    
    
    
    14,331Less: impairment provision (v)
    
    
    (12,312
    )
    
    
    (12,312
    )Due to an associate
    
    
    (2,935
    )
    
    
    (25,118
    )- Non-trade balance (iv)
    
    
    (2,935
    )
    
    
    (25,118
    )Due from MOR
    
    
    42,189
    
    
    
    53,048- Trade balance (i)
    
    
    42,189
    
    
    
    53,048Prepayment for fixed assets and construction-in-progress
    
    
    12,617
    
    
    
    31,012Guangzhou Railway Group and its subsidiaries
    
    
    12,617
    
    
    
    31,012Payable for fixed assets and construction-in-progress
    
    
    (53,546
    )
    
    
    (125,487
    )- Guangzhou Railway Group and its subsidiaries
    
    
    (45,496
    )
    
    
    (95,498
    )- Associates
    
    
    (8,050
    )
    
    
    (29,989
    )
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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 35
    
    RELATED PARTY TRANSACTIONS (CONTINUED)(d)
    
    As of December 31, 2008 and 2007, the Group had the following material balances maintained
with related parties (continued):
 (i)
    
    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 37(c)(i).(ii)
    
    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 related parties (see Note 35(c) above).(iii)
    
    The non-trade balances due to related parties mainly represent the deposits of related
parties maintained in the deposit-taking centre of the Company.(iv)
    
    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.(v)
    
    Full impairment loss provision set up against a receivable balance due from Zengcheng Lihua,
which was brought forward from prior years.
 All the balances maintained with related parties are unsecured, non-interest bearing and are
repayable on demand.36
    
    THE ACQUISITION OF YANGCHENG RAILWAY BUSINESSOn November 15, 2004, the Company entered into an agreement to acquire Yangcheng Railway
Business which consists of all of its assets and liabilities related to its railway
transportation business on the rail line running between the cities of Guangzhou and Pingshi
in Southern China.The purchase consideration, all settled in cash in the amount of approximately RMB10,169,925,000,
was financed by the offering of A shares of the Company completed in December 2006 (see Note 20).On January 1, 2007, control of the assets and operations of Yangcheng was transferred to the
Company. Accordingly, for accounting purposes, January 1, 2007 is considered by the directors
of the Company to be the effective date of acquisition. The results of operations of
Yangcheng have been included in the Groups consolidated income statement from that date
onwards. The acquired business contributed revenue of approximately RMB5,993,189,000 and net
profit of approximately RMB900,332,000 to the Group for the period from January 1, 2007 to
December 31, 2007.Prior to the A share issuance , Yangcheng Railway and the Group were both controlled by the MOR,
as it indirectly held controlling interests in both the companies. Subsequent to the A share
issuance in December 2006, the equity interest of the MOR in the Group was diluted to 41%. As
a result, as on the acquisition date of January 1, 2007, Yangcheng Railway and the Group were
no longer under common control. Under IFRS 3 Business Combination, the transaction does not
constitute a business combination under common control as the Group and Yangcheng Railway are
not ultimately controlled by the same party (the MOR) both before and after the business combination.
Accordingly, the transaction has been accounted for using the purchase method of accounting with
the acquired identifiable assets, liabilities and contingent liabilities stated at their respective
fair values as at the date of acquisition.
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GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 36
    
    THE ACQUISITION OF YANGCHENG RAILWAY BUSINESS (CONTINUED)Purchase price allocation was performed by the Group. Details of net assets acquired and goodwill
are as follows:
 RMB000Purchase consideration:- Cash paid
    
    
    10,138,582- Direct costs relating to the acquisition
    
    
    31,343Total purchase consideration
    
    
    10,169,925Fair value of assets acquired (see below)
    
    
    (9,888,670
    )Goodwill
    
    
    281,255
 Goodwill is mainly attributable to the profitability of Yangcheng Railways derived from its
monopolised operations in the region where the acquired business is located.The assets and liabilities arising from the acquisition are as follows:
 AcquireesFair value
    
    
    Carrying amountRMB000
    
    
    RMB000Cash and cash equivalents
    
    
    91,699
    
    
    
    91,699Trade and other receivables
    
    
    58,720
    
    
    
    57,733Materials and supplies
    
    
    55,070
    
    
    
    55,070Fixed assets
    
    
    10,827,744
    
    
    
    7,291,022Construction-in-progress
    
    
    215,391
    
    
    
    215,391Long-term receivable
    
    
    54,547
    
    
    
    140,000Available-for-sale investment
    
    
    500
    
    
    
    500Deferred staff cost
    
    
    45,000
    
    
    
    Deferred tax assets
    
    
    54,750
    
    
    
    Trade and other payables
    
    
    (797,460
    )
    
    
    (797,460
    )Deferred tax liability
    
    
    (12,291
    )
    
    
    Retirement benefit obligations
    
    
    (410,000
    )
    
    
    Borrowings
    
    
    (295,000
    )
    
    
    (295,000
    )Net assets acquired
    
    
    9,888,670
    
    
    
    6,758,955Outflow of cash to acquire business, net of cash acquired:- Cash consideration paid in 2006 and 2005 (as a deposit
and acquisition cost)
    
    
    
    
    
    
    5,296,593- Cash consideration paid in 2007
    
    
    
    
    
    
    4,873,332- Cash and cash equivalents balance acquired
    
    
    
    
    
    
    (91,699
    )Net cash outflow on acquisition
    
    
    
    
    
    
    10,078,226
 F-61




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##### Table of Contents



GUANGSHEN RAILWAY COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 37
    
    SUBSEQUENT EVENTSSave as already disclosed in the notes to the financial statements, the Group had the following
significant subsequent events.On April 29, 2009, the board of directors of the Company resolved to issue bonds, in an amount of
RMB4,000,000,000, in the PRC market with medium term of maturity. The
issuance was approved by the shareholders in the annual general
meeting dated June 25, 2009.
 F-62