##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F
  o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 For the transaction period from  to
 COMMISSION FILE NUMBER: 000-51839
 CHINA GRENTECH CORPORATION LIMITED
  
 Cayman Islands
 
 15 th Floor, Block A, Guoren Building
Keji Central 3 rd Road
Hi-Tech Park, Nanshan District
Shenzhen 518057, Peoples Republic of China
 
  Name of Each ExchangeTitle of Each Class
    
    On Which RegisteredAmerican Depositary Shares, each representing
25 ordinary shares of par value US$0.00002 per share
    
    The Nasdaq Global Select MarketOrdinary shares of par value US$0.00002 per share*
    
    The Nasdaq Global Select Market *
 
 *
    
    Not for trading, but only in connection with the registration of American Depositary Shares.  None
  None
  As of December 31, 2008, 601,978,775 ordinary shares, par value US$0.00002 per share.
  o þ
  o þ
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  U.S. GAAP þ
    
    International Financial Reporting Standards as issued
by the International Accounting Standards Board o
    
    Other o
  o o
  o þ




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##### 



Table of Contents
 FORWARD-LOOKING STATEMENTS
    
    
    1SUPPLEMENTAL INFORMATION
    
    
    2PART I
    
    
    3ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    3ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    3ITEM 3. KEY INFORMATION
    
    
    3ITEM 4. INFORMATION ON THE COMPANY
    
    
    19ITEM 4A. UNRESOLVED STAFF COMMENTS
    
    
    35ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    36ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    56ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    63ITEM 8. FINANCIAL INFORMATION
    
    
    64ITEM 9. THE OFFER AND LISTING
    
    
    65ITEM 10. ADDITIONAL INFORMATION
    
    
    66ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    70ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    70PART II
    
    
    70ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    70ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
    
    
    70ITEM 15. CONTROLS AND PROCEDURES
    
    
    71ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    72ITEM 16B. CODE OF ETHICS
    
    
    72ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    73ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    73ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    73ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    74ITEM 16G. CORPORATE GOVERNANCE
    
    
    74PART III
    
    
    74ITEM 17. FINANCIAL STATEMENTS
    
    
    74ITEM 18. FINANCIAL STATEMENTS
    
    
    74ITEM 19. EXHIBITS
    
    
    74Exhibit 4.2Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
   
    
    our companys reliance on business relationships with the Chinese telecommunications
operators and base station equipment manufacturers, in particular, the annual capital
spending by Chinese telecommunications operators;
 
    
    risks associated with large accounts receivable, long collection periods and accounts
receivable cycles;
 
    
    fierce competition in the wireless communication industry;
 
    
    growth of, and risks inherent in, the wireless communication industry in China;
 
    
    uncertainty as to future profitability and our companys ability to obtain adequate
financing for our planned capital expenditure requirements;
 
    
    uncertainty as to our companys ability to continuously develop and manufacture new
radio frequency, or RF, technology and keep up with changes in RF technology;
 
    
    uncertainty as to future capital expenditure on telecommunication infrastructure by the
Chinese telecommunications operators;
 
    
    uncertainty as to cost of raw materials and price fluctuations imposed by suppliers;
 
    
    future changes to the regulations and policies governing the telecommunications
industry in China, including possible future industry restructuring;
 
    
    limitation on our companys production capacity for RF products;
 
    
    risks associated with possible defects and errors in our wireless coverage products or
RF products;
 
    
    uncertainty as to our companys ability to protect and enforce our intellectual
property rights; and
 
    
    uncertainty as to our companys ability to attract and retain qualified executives and
personnel.
  1




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SUPPLEMENTAL INFORMATION
       2




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##### Table of Contents



PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 SELECTED FINANCIAL DATA
   Year ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands, except for per share and number of shares data)Consolidated statements of
operations informationRevenues
    
    
    566,504
    
    
    
    716,270
    
    
    
    832,795
    
    
    
    979,302
    
    
    
    984,657
    
    
    
    144,325Cost of revenues
    
    
    (241,930
    )
    
    
    (328,064
    )
    
    
    (437,040
    )
    
    
    (611,436
    )
    
    
    (751,367
    )
    
    
    (110,131
    )Gross profit
    
    
    324,574
    
    
    
    388,206
    
    
    
    395,755
    
    
    
    367,866
    
    
    
    233,290
    
    
    
    34,194Operating expensesResearch and development costs
    
    
    (16,326
    )
    
    
    (30,616
    )
    
    
    (47,671
    )
    
    
    (56,525
    )
    
    
    (70,232
    )
    
    
    (10,294
    )Sales and distribution expenses
    
    
    (71,035
    )
    
    
    (91,489
    )
    
    
    (112,948
    )
    
    
    (126,816
    )
    
    
    (138,524
    )
    
    
    (20,304
    )General and administrative
expenses
    
    
    (29,744
    )
    
    
    (41,057
    )
    
    
    (55,944
    )
    
    
    (68,498
    )
    
    
    (127,028
    )
    
    
    (18,618
    )Impairment
of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,589
    )
    
    
    (4,044
    )Total operating expenses
    
    
    (117,105
    )
    
    
    (163,162
    )
    
    
    (216,563
    )
    
    
    (251,839
    )
    
    
    (363,373
    )
    
    
    (53,260
    )Operating income/(loss)
    
    
    207,469
    
    
    
    225,044
    
    
    
    179,192
    
    
    
    116,027
    
    
    
    (130,083
    )
    
    
    (19,066
    )Other income/(expense)Interest income
    
    
    4,006
    
    
    
    3,213
    
    
    
    19,186
    
    
    
    22,313
    
    
    
    31,257
    
    
    
    4,581Interest expense
    
    
    (39,392
    )
    
    
    (36,105
    )
    
    
    (28,026
    )
    
    
    (35,347
    )
    
    
    (54,844
    )
    
    
    (8,039
    )Investment income
    
    
    899
    
    
    
    159
    
    
    
    238
    
    
    
    318
    
    
    
    4,873
    
    
    
    714Foreign currency exchange
gain/(loss)
    
    
    
    
    
    
    5,584
    
    
    
    (9,875
    )
    
    
    (18,791
    )
    
    
    (10,418
    )
    
    
    (1,527
    )Grant income
    
    
    716
    
    
    
    16,732
    
    
    
    7,670
    
    
    
    7,355
    
    
    
    15,209
    
    
    
    2,229Total other income/(expense)
    
    
    (33,771
    )
    
    
    (10,417
    )
    
    
    (10,807
    )
    
    
    (24,152
    )
    
    
    (13,923
    )
    
    
    (2,042
    )Income/(loss) before income tax
expense and minority interests
    
    
    173,698
    
    
    
    214,627
    
    
    
    168,385
    
    
    
    91,875
    
    
    
    (144,006
    )
    
    
    (21,108
    )Income tax expense
    
    
    (16,020
    )
    
    
    (26,097
    )
    
    
    (18,277
    )
    
    
    (10,321
    )
    
    
    (3,157
    )
    
    
    (463
    )Income/(loss) before minority
interests
    
    
    157,678
    
    
    
    188,530
    
    
    
    150,108
    
    
    
    81,554
    
    
    
    (147,163
    )
    
    
    (21,571
    )Minority interests, net of tax
    
    
    (11,117
    )
    
    
    (7,086
    )
    
    
    (1,267
    )
    
    
    982
    
    
    
    796
    
    
    
    117Net income/(loss)
    
    
    146,561
    
    
    
    181,444
    
    
    
    148,841
    
    
    
    82,536
    
    
    
    (146,367
    )
    
    
    (21,454
    )Dividends, accretion to redemption
value and foreign currency rate
movements on mandatorily
redeemable convertible preference
shares
    
    
    (3,509
    )
    
    
    (2,428
    )
    
    
    (549
    )
    
    
    
    
    
    
    
    
    
    
    Net earnings/(loss) available to
ordinary shareholders
    
    
    143,052
    
    
    
    179,016
    
    
    
    148,292
    
    
    
    82,536
    
    
    
    (146,367
    )
    
    
    (21,454
    )Net earnings/(loss) per share
available to ordinary
shareholders:Basic
    
    
    0.31
    
    
    
    0.38
    
    
    
    0.25
    
    
    
    0.13
    
    
    
    (0.24
    )
    
    
    (0.04
    )Diluted
    
    
    0.29
    
    
    
    0.36
    
    
    
    0.25
    
    
    
    0.13
    
    
    
    (0.24
    )
    
    
    (0.04
    )Weighted average number of
ordinary shares:Basic
    
    
    466,365,500
    
    
    
    466,365,500
    
    
    
    584,580,799
    
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    610,158,841Diluted
    
    
    500,000,000
    
    
    
    500,000,000
    
    
    
    593,150,684
    
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    610,158,841Total cash dividend declared to
ordinary shareholders
    
    
    54,411
    
    
    
    29,653
    
    
    
    7,609
    
    
    
    
    
    
    
    
    
    
    
    
  3




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Year ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Consolidated balance sheet
informationCash and cash equivalents
    
    
    302,932
    
    
    
    128,608
    
    
    
    467,423
    
    
    
    316,778
    
    
    
    293,353
    
    
    
    42,998Pledged time deposits
    
    
    95,908
    
    
    
    76,250
    
    
    
    238,618
    
    
    
    259,786
    
    
    
    122,368
    
    
    
    17,936Accounts receivable, net
    
    
    248,662
    
    
    
    537,321
    
    
    
    747,859
    
    
    
    925,838
    
    
    
    728,260
    
    
    
    106,744Inventories
    
    
    296,404
    
    
    
    370,136
    
    
    
    434,406
    
    
    
    542,094
    
    
    
    520,619
    
    
    
    76,309Total current assets
    
    
    1,014,447
    
    
    
    1,172,072
    
    
    
    1,948,407
    
    
    
    2,107,691
    
    
    
    1,779,666
    
    
    
    260,853Property, plant and equipment, net
    
    
    96,505
    
    
    
    120,356
    
    
    
    161,503
    
    
    
    225,069
    
    
    
    412,259
    
    
    
    60,426Construction in progress
    
    
    
    
    
    
    
    
    
    
    7,100
    
    
    
    134,637
    
    
    
    2,816
    
    
    
    413Long-term accounts receivable
    
    
    126,649
    
    
    
    162,032
    
    
    
    268,957
    
    
    
    389,505
    
    
    
    551,210
    
    
    
    80,793Total assets
    
    
    1,250,539
    
    
    
    1,475,469
    
    
    
    2,415,834
    
    
    
    2,997,299
    
    
    
    2,838,970
    
    
    
    416,119Short-term bank loans
    
    
    164,850
    
    
    
    160,614
    
    
    
    336,050
    
    
    
    456,050
    
    
    
    480,207
    
    
    
    70,386Total current liabilities
    
    
    662,838
    
    
    
    738,551
    
    
    
    866,435
    
    
    
    1,249,081
    
    
    
    1,266,617
    
    
    
    185,652Long-term bank loans
    
    
    171,325
    
    
    
    167,053
    
    
    
    
    
    
    
    150,000
    
    
    
    130,000
    
    
    
    19,055Total liabilities
    
    
    834,163
    
    
    
    905,604
    
    
    
    866,435
    
    
    
    1,405,019
    
    
    
    1,401,369
    
    
    
    205,404Mandatorily redeemable
convertible preference shares
    
    
    45,184
    
    
    
    45,441
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total shareholders equity
    
    
    348,790
    
    
    
    506,720
    
    
    
    1,530,428
    
    
    
    1,586,517
    
    
    
    1,433,247
    
    
    
    210,077
 Year ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Consolidated cash
flow informationNet cash provided
by / (used in)
operating
activities
    
    
    218,244
    
    
    
    (112,611
    )
    
    
    (114,778
    )
    
    
    (120,228
    )
    
    
    5,056
    
    
    
    741Net cash provided
by / (used in)
investing
activities
    
    
    (74,337
    )
    
    
    (20,900
    )
    
    
    (243,150
    )
    
    
    (294,437
    )
    
    
    28,113
    
    
    
    4,121Net cash provided
by / (used in)
financing
activities
    
    
    (22,963
    )
    
    
    (40,813
    )
    
    
    708,514
    
    
    
    272,619
    
    
    
    (52,085
    )
    
    
    (7,634
    )Cash and cash
equivalents at the
end of year
    
    
    302,932
    
    
    
    128,608
    
    
    
    467,423
    
    
    
    316,778
    
    
    
    293,353
    
    
    
    42,998
 EXCHANGE RATE INFORMATION
    Noon buying ratePeriod
    
    Period end
    
    
    Average(1)
    
    
    High
    
    
    Low(RMB per US$1.00)2004
    
    
    8.2765
    
    
    
    8.2768
    
    
    
    8.2774
    
    
    
    8.27642005
    
    
    8.0702
    
    
    
    8.1940
    
    
    
    8.2765
    
    
    
    8.07022006
    
    
    7.8041
    
    
    
    7.9723
    
    
    
    8.0702
    
    
    
    7.80412007
    
    
    7.2946
    
    
    
    7.6072
    
    
    
    7.8127
    
    
    
    7.29462008
    
    
    6.8225
    
    
    
    6.9477
    
    
    
    7.2946
    
    
    
    6.7800December
    
    
    6.8225
    
    
    
    6.8539
    
    
    
    6.8842
    
    
    
    6.82252009
January
    
    
    6.8392
    
    
    
    6.8360
    
    
    
    6.8403
    
    
    
    6.8225February
    
    
    6.8395
    
    
    
    6.8363
    
    
    
    6.8470
    
    
    
    6.8241March
    
    
    6.8329
    
    
    
    6.8360
    
    
    
    6.8438
    
    
    
    6.8240April
    
    
    6.8180
    
    
    
    6.8306
    
    
    
    6.8361
    
    
    
    6.8176May
    
    
    6.8278
    
    
    
    6.8235
    
    
    
    6.8326
    
    
    
    6.8176June (through June 19, 2009)
    
    
    6.8360
    
    
    
    6.8337
    
    
    
    6.8371
    
    
    
    6.8264
  4




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(1)
    
    Annual averages are calculated from month-end rates. Monthly averages are calculated using
the average of the daily rates during the relevant period. CAPITALIZATION AND INDEBTEDNESS
  REASONS FOR THE OFFER AND USE OF PROCEEDS
   5




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RISK FACTORS
 Risks Relating to Our Company
 We derive a significant portion of our revenues from China United Telecommunications Corporation
and its affiliates, or the China Unicom group, and China Mobile Communications Corporation and its
affiliates, or the China Mobile group, and our revenues could decline significantly if either of
them reduces its purchases of our wireless coverage products and services
     Because we have limited bargaining leverage with the China Unicom group and the China Mobile group,
some contractual terms and market practices are materially adverse to our interest
   6




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Changes in the procurement policies by our major customers may adversely affect our revenue and
profit margin on our wireless coverage products
  We have long accounts receivable cycles and long collection periods, and our liquidity and cash
flows from operations will deteriorate if our accounts receivable cycles or collection periods
continue to lengthen
      
    
    42% of the contract value due upon the signing of the contract and the issuance of the
completion certificate or delivery certificate,
 
    
    an additional 36% due upon the issuance of the preliminary inspection certificate,
 
    
    a further 18% due upon the issuance of the final inspection certificate, and
 
    
    the final 4% due upon the expiration of our warranty period.
   7




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We often begin work on a project before we have a contract for our products and services, which may
materially and adversely affect our cash flows from operating activities and liquidity
  We historically recognized significantly lower revenues in the first quarter, which sometimes
resulted in net losses in the first quarter, and our revenues may fluctuate significantly from
quarter to quarter in the future, resulting in quarterly net losses
    8




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We rely on bank financing, including issuing bills payable and sale of receivables, to finance our
operations; any expansion of our business will require further financing and will increase our
financial leverage
   If the wireless communication sector in China does not maintain its current pace of growth, or if
the telecommunications operators reduce their investments for 3G network coverage in the near
future, the profitability and future prospects of our business and our liquidity could be
materially and adversely affected
   9




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We may fail to offer products that meet industry standards or our customers specific requirements,
and as a result we may lose customers or orders or incur significant warranty or other costs, and
our revenue growth may be materially and adversely affected
   Our research and development efforts may not lead to successful development of commercially viable
or acceptable products, which could cause a decline in customer use of our products
  
    
    rapidly changing technology;
 
    
    evolving industry standards and transmission protocols;
 
    
    frequent improvements in products and services; and
 
    
    fierce competition from well-funded and technologically advanced companies.
  Gross profit margins for our products and services vary substantially and any deterioration in the
gross profit margin for our principal products and services will have a material and adverse effect
on our results of operations
   10




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Our industry is highly competitive and our inability to compete effectively would hurt our current
business and future growth potential
  
    
    research and development capability;
 
    
    product quality;
 
    
    scope and flexibility of product offering;
 
    
    after-sale service capability;
 
    
    pricing; and
 
    
    relationships with wireless operators
  We have limited experience in operating outside mainland China, and failure to achieve our overseas
expansion strategy may have an adverse effect on our business growth in the future
  We rely on key managerial and technical personnel, and failure to attract or retain such personnel
may compromise our ability to develop new products and to effectively carry on our research and
development and other efforts
    11




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We hire third parties to carry out some of the initial installation of our wireless coverage
products, are liable for the failure or inadequacy of their services, and may be vulnerable to the
loss and unavailability of their services
  We may lose our competitive advantage and our operations may suffer if we fail to prevent the loss
or misappropriation of, or disputes over, our intellectual property
   
    
    departure of any of our management members or employees in possession of our
confidential proprietary information;
 
    
    breach by such departing management member or employee of his or her confidentiality
and non-disclosure undertaking to us;
 
    
    expiration of the protection period of our registered patents or trademarks;
 
    
    infringement by others of our proprietary technology and intellectual property rights;
or
 
    
    refusal by relevant regulatory authorities to approve our patent or trademark
applications.
   12




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If we lose certain government tax concessions, our profitability may be materially and adversely
affected
   We may be treated as a resident enterprise for PRC tax purposes following the effectiveness of the
new enterprise income tax law on January 1, 2008, which may subject us to PRC income tax for our
global income and withholding income tax for any dividends we pay to our non-PRC shareholders on
profits earned after January 1, 2008
    13




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If our idle or insufficient production capacity significantly increases during any particular
period, our results of operations for that period may be materially and adversely affected
  Our operations may be adversely affected by shortages of raw materials and the volatility in the
prices of raw materials
  If we fail to acquire raw materials on time or on acceptable terms and consequently fail to fill
our customers orders in a timely and cost-effective manner, our business operations may be
materially and adversely affected
  We maintain limited insurance coverage, and any significant product liability claim could have a
material and adverse effect on our financial condition
  The interest of our principal shareholders may differ from your interest and their vote may
disadvantage our minority shareholders
  
    
    Guoren Industrial Developments Limited (Yingjie Gao, our chairman and chief executive
officer, has the sole power to vote or to direct the vote and the sole power to dispose or
to direct the disposition of the shares held by this company) with 25.2%;
 
    
    Drag Investments Limited (majority-owned by Professor Kunjie Zhuang, a director and a
technology consultant) with 10.8%; and
 
    
    Heng Xing Yue Investments Limited (partially-owned by Rong Yu, a director and our chief
financial officer) with 9.1%.
  14




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##### Table of Contents




    
    composition of our board of directors;
 
    
    selection of our senior management;
 
    
    amount and timing of dividends and other distributions;
 
    
    our overall strategic and investment decisions;
 
    
    issuance of securities and adjustment to our capital structure;
 
    
    amendment to our memorandum and articles of association; and
 
    
    other corporate actions requiring approval of our shareholders, including election and
removal of directors, merger, consolidation or sale of our assets, or any other change of
control event that may benefit our other shareholders generally.
  Our primary source of funds for dividends and other distributions from our operating subsidiary in
China is subject to various legal and contractual restrictions and uncertainties, and our ability
to pay dividends or make other distributions to our shareholders is negatively affected by those
restrictions and uncertainties
  If we continue to have any material weakness in our internal control over financial reporting, we
may be unable to timely and accurately report our financial results, comply with disclosure
controls and procedures, internal control over financial reporting and other reporting obligations
or prevent fraud, which could harm our business and operating results, the trading price of our
stock and our access to capital
   15




---



##### Table of Contents



We may be or become a passive foreign investment company, which could result in adverse U.S.
federal income tax consequences to U.S. investors
     16




---



##### Table of Contents



A prolonged slowdown in the PRC economy may materially and adversely affect our results of
operations, financial conditions, prospects and future expansion plans
  Risks Relating to Our Industry
 Our business might become subject to new regulatory restrictions, which may restrict the way in
which we conduct our business and subject us to severe penalties, and we may be materially and
adversely affected by any change in the composition of the primary telecommunications operators in
China
   Risks Relating to Business Operations in China
 Changes in Chinas political and economic policies and conditions could cause a substantial decline
in the demand for our products and services
   17




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##### Table of Contents



Changes in foreign exchange regulation in China may affect our ability to pay dividends in foreign
currencies
  Fluctuation in the value of Renminbi could adversely affect the value of, and dividends payable on,
our shares and ADSs in foreign currency terms
  The uncertain legal environment in China could limit the legal protections available to you
   18




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##### Table of Contents



We face risks related to health epidemics and other outbreaks of contagious diseases, including
influenza A (H1N1), avian flu and SARS, which could materially and adversely affect our overall
operations and results of operations
  Recent regulations relating to offshore investment activities by PRC residents may limit our
ability to acquire PRC companies and adversely affect our business and prospects
   
 ITEM 4. INFORMATION ON THE COMPANY
 HISTORY AND DEVELOPMENT
 rd
  19




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##### Table of Contents



(1)
    
    The remaining 1% interest in Shenzhen Lingxian is owned by Ms. Xiujun Zhang, an employee of
ours.     20




---



##### Table of Contents




    
    Shenzhen Lingxian Technology Co., Ltd., or Shenzhen Lingxian;
 
    
    Shenzhen GrenTech RF Communication Ltd., or Shenzhen GrenTech RF;
 
    
    Shenzhen Kaige Communication Technology Co., Ltd., or Shenzhen Kaige; and
 
    
    Shenzhen Kaixuan Communication Technology Co., Ltd., or Shenzhen Kaixuan.
 Shenzhen Lingxian
  Shenzhen GrenTech RF
  Shenzhen Kaige
  Shenzhen Kaixuan
  BUSINESS
 Overview
   21




---



##### Table of Contents



Our Wireless Coverage Products and Services
   22




---



##### Table of Contents



Wireless Coverage Products
   Indoor Coverage
 Outdoor Coverage
 Our Services
  Design Services.
 Installation of Wireless Coverage Products.
 Project Warranties.
  23




---



##### Table of Contents



Our Sales Cycle
   Bidding Process
  
    
    pricing;
 
    
    research and development capabilities;
 
    
    quality of products in terms of performance, functionality and reliability;
 
    
    overall financial strength and operational scale;
 
    
    range and standards of services to be provided, including after-sale services.
  
    
    specifications contained in customers bid invitations; and
 
    
    operational manuals and staff training.
 Delivery.
 Contract Signing.
 Payment.
  Bidding Process
  24




---



##### Table of Contents




    
    pricing;
 
    
    project design, installation and after sales services capacities; and
 
    
    overall financial strength and operational scale.
  Design and Installation.
 Contract Signing.
 Inspection and Warranty Period.
 Payment.
  25




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##### Table of Contents



Selected Completed Projects
  Project
    
    Location
    
    Customer
    
    Completion dateIndoor coverageSouthern Beijing Railway Station
    
    Beijing
    
    China Netcom Group
    
    June 2008Beijing Olympic Venues
    
    Beijing
    
    China Mobile group
    
    June 2008Guangzhou Pazhou International Convention Center
    
    Guangzhou
    
    China Mobile group
    
    March 2008Baoli World Trade Center Phase I & II
    
    Guangzhou
    
    China Unicom group
    
    September 2008Petro China Building
    
    Beijing
    
    China Mobile group
    
    September 2008Shanghai Mint
    
    Shanghai
    
    China Telecom group
    
    May 2008Shanghai Tan Mansion
    
    Nanning
    
    China Unicom group
    
    October 2008Shenzhen China Travel (HK) Building
    
    Shenzhen
    
    China Mobile group
    
    July 2008Diwang Tower of Nanning
    
    Nanning
    
    China Telecom group
    
    November 2008The National Bureau of Statistics
    
    Beijing
    
    China Mobile group
    
    June 2008Outdoor coverageMacau Weather Bureau
    
    Macau
    
    China Unicom group
    
    April 2008Bayingou Dushanzi Resort
    
    Xinjiang
    
    China Mobile group
    
    August 2008Quanzhou Overseas Chinese District Gymnasium
    
    Fujian
    
    China Mobile group
    
    May 2008Zhuhai Tangjia Golf Club
    
    Zhuhai
    
    China Unicom group
    
    November 2008Chengdu Hi-Tech West District Council Center
    
    Chengdu
    
    China Unicom group
    
    August 2008Badaling Highway
    
    Beijing
    
    Beijing JustTop
Network
Communication Co.,
Ltd.
    
    January 2008Beijing Sanlitun Shishang Street District
    
    Beijing
    
    China Mobile group
    
    June 2008Qiaoxiang Village Phase I & II
    
    Shenzhen
    
    China Mobile group
    
    November 2008Zunchong Highway Liangchahe Tunnel
    
    Zunyi
    
    China Mobile group
    
    April 2008Xiaying Village portion of Beijing-Guangzhou
Railway
    
    Beijing
    
    China Mobile group
    
    September 2008
 Our RF Parts and Components
   Base Station RF Parts and Components
   
    
    We first go through stringent certification processes to become a certified supplier of
base station equipment manufacturers. Each equipment manufacturer has its own unique
certification process, the principal conditions of which include production capacity,
management efficacy, quality control, environment protection, and overall reputation. To
date, we have been certified by seven major base station equipment manufacturers.
 
    
    We next obtain technology certification from our equipment manufacturer customers and
conduct product development according to the customer specifications. All of our RF
products and components are customized for each clients unique specifications.
 
    
    We then provide samples for certification by our base station equipment manufacturer
customers. We have to date developed more than 153 types of RF modules and RF subsystem
products for various equipment manufacturer customers.
  26




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##### Table of Contents




    
    Thereafter, we obtain purchase orders with trial quantities, and if our customers are
satisfied with the trials, our customers will request proposals from us for RF parts and
components. We then submit bids to the customers.
 
    
    If we win the bid, we will proceed to bulk production.
 
    
    We generally provide a credit period for payment to our customers and payments are
usually made within 90 to 180 days of delivery.
 Base Station RF Subsystem
  Production
 Production Facilities
   Production facilities
    
    Type of products
    
    
    Capacity
    
    
    Utilization(sets per month)
    
    
    (sets per month)Shenzhen
    
    Wireless coverage products
    
    
    4,108
    
    
    
    2,914RF parts and components for base stations
    
    
    38,000
    
    
    
    30,889
  Production Process
   
    
    integrated circuit board processing;
 
    
    covering and welding;
 
    
    manufacturing and assembly;
 
    
    testing; and
 
    
    quality control.
  27




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##### Table of Contents



Quality Control
  Quality Control for Raw Materials.
 Quality Control During Production.
 Final Testing Before Delivery.
 Testing at Customer Site.
 Warranty.
   28




---



##### Table of Contents



Research and Development
  RF Technology
    Sales, Marketing and Key Customers
 Sales and Marketing Team
      29




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##### Table of Contents



Pricing
  
    
    type, quantity and composition of RF products;
 
    
    internal target gross margin objectives;
 
    
    region in which the products are sold; and
 
    
    current market conditions, including the prevailing prices offered by our competitors.
  Key Customers
  Year ended December 31,2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (%)
    
    
    (RMB)
    
    
    (%)
    
    
    (RMB)
    
    
    (US$)
    
    
    (%)(in millions, except for percentages)Wireless coverage products:China Unicom group
    
    
    298.7
    
    
    
    35.9
    %
    
    
    377.8
    
    
    
    38.6
    %
    
    
    244.5
    
    
    
    35.8
    
    
    
    24.8
    %China Mobile group
    
    
    277.1
    
    
    
    33.3
    
    
    
    317.7
    
    
    
    32.4
    
    
    
    390.3
    
    
    
    57.2
    
    
    
    39.6China Telecom group
    
    
    89.2
    
    
    
    10.7
    
    
    
    49.6
    
    
    
    5.1
    
    
    
    75.4
    
    
    
    11.1
    
    
    
    7.7China Netcom group(1)
    
    
    69.2
    
    
    
    8.3
    
    
    
    20.5
    
    
    
    2.1
    
    
    
    4.7
    
    
    
    0.7
    
    
    
    0.5Overseas customers
    
    
    10.0
    
    
    
    1.2
    
    
    
    11.6
    
    
    
    1.2
    
    
    
    8.1
    
    
    
    1.2
    
    
    
    0.8Others
    
    
    56.6
    
    
    
    6.8
    
    
    
    28.6
    
    
    
    2.9
    
    
    
    40.1
    
    
    
    5.8
    
    
    
    4.1Subtotal
    
    
    800.8
    
    
    
    96.2
    
    
    
    805.8
    
    
    
    82.3
    
    
    
    763.1
    
    
    
    111.8
    
    
    
    77.5RF products:Base station equipment
manufacturers
    
    
    32.0
    
    
    
    3.8
    
    
    
    173.5
    
    
    
    17.7
    
    
    
    221.6
    
    
    
    32.5
    
    
    
    22.5Total
    
    
    832.8
    
    
    
    100.0
    %
    
    
    979.3
    
    
    
    100.0
    %
    
    
    984.7
    
    
    
    144.3
    
    
    
    100.00
    %
 
 (1)
    
    As part of the restructuring of the Chinese telecommunications operators, China Netcom group
merged with China Unicom group in 2008.
   30




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##### Table of Contents



Suppliers and Raw Materials
  Competition
   
    
    steadily increasing market demand;
 
    
    increasing technical requirements;
  31




---



##### Table of Contents




    
    increasing number of transmission protocols, from GSM and CDMA to 3G protocols such as
TD-SCDMA and WCDMA;
 
    
    expanding customer base, beginning with the China Mobile group and the China Unicom
group, and now including the China Telecom group and overseas customers; and
 
    
    increasing demand for 3G network construction and the triggering of expanded market
opportunities that are expected to attract new competitors to enter into the wireless
coverage market.
     Property
 Owned Property
    32




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##### Table of Contents



Leased Property
  Intellectual Property Rights
     Insurance
  Employees
  Number of employeesManagement and administrative
    
    
    224Research and development
    
    
    337Production and quality control
    
    
    806Project design and technical service
    
    
    1,333Sales and marketing
    
    
    357Total
    
    
    3,057
    33




---



##### Table of Contents



Legal Proceedings
  Industry Regulation in China
  Research, Development and Production of Radio Transmission Equipment
   Connection of Radio Communication Equipment with a Public Telecommunication Network
  Installation of Wireless Coverage Equipment
   
    
    lead project contractors,
 
    
    specialized contractors, and
 
    
    service subcontractors.
  34




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##### Table of Contents



Our Compliance with Regulations
      
 ITEM 4A. UNRESOLVED STAFF COMMENTS
   35




---



##### Table of Contents



ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 You should read the following discussion and analysis of our financial condition and results
of operations in conjunction with our audited consolidated financial statements and related notes
included in this annual report on Form 20-F . The audited consolidated financial statements have
been prepared in accordance with U.S. GAAP. The following discussion and analysis contain
forward-looking statements that involve risks and uncertainties.
 OVERVIEW
      36




---



##### Table of Contents



KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS
  Expenditure by Wireless Operators and Base Station Equipment Manufacturers
  Our Business Practice with Wireless Operators and Its Implication on Our Financial Condition
and Results of Operations
  Revenue Recognition Policy and Accounts Receivable Cycle
   
    
    the risk and rewards are transferred;
 
    
    delivery has occurred;
 
    
    persuasive evidence of an arrangement exists;
 
    
    price to the buyer is fixed and determinable;
 
    
    collectibility is reasonably assured; and
 
    
    we have an enforceable legal right to receive the contractually specified amount in cash
attributable to the product sale.
     37




---



##### Table of Contents



Liquidity Concern Arising out of Our Accounts Receivable Cycle and Revenue Cycle
   38




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##### Table of Contents



Significant Quarterly Fluctuations of Our Results of Operations
   Three months endedMarch 31,
    
    
    June 30,
    
    
    Sept, 30
    
    
    Dec 31,
    
    
    March 31,
    
    
    June 30,
    
    
    Sept, 30
    
    
    Dec 31,
    
    
    March 31,
    
    
    June 30,
    
    
    Sept, 30
    
    
    Dec 31,2006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008(in thousands of RMB)Revenues
    
    
    14,796
    
    
    
    179,976
    
    
    
    187,729
    
    
    
    450,294
    
    
    
    31,286
    
    
    
    203,024
    
    
    
    273,214
    
    
    
    471,778
    
    
    
    71,389
    
    
    
    186,341
    
    
    
    212,478
    
    
    
    514,449Cost of revenues
    
    
    (6,787
    )
    
    
    (90,505
    )
    
    
    (98,659
    )
    
    
    (241,089
    )
    
    
    (18,300
    )
    
    
    (120,378
    )
    
    
    (165,634
    )
    
    
    (307,124
    )
    
    
    (49,420
    )
    
    
    (124,216
    )
    
    
    (149,635
    )
    
    
    (428,096
    )Gross profit
    
    
    8,009
    
    
    
    89,471
    
    
    
    89,070
    
    
    
    209,205
    
    
    
    12,986
    
    
    
    82,646
    
    
    
    107,580
    
    
    
    164,654
    
    
    
    21,969
    
    
    
    62,125
    
    
    
    62,843
    
    
    
    86,353Operating expenses:Research and development
costs
    
    
    (8,393
    )
    
    
    (8,306
    )
    
    
    (13,882
    )
    
    
    (17,090
    )
    
    
    (13,201
    )
    
    
    (14,326
    )
    
    
    (13,286
    )
    
    
    (15,712
    )
    
    
    (15,328
    )
    
    
    (17,815
    )
    
    
    (15,477
    )
    
    
    (21,612
    )Sales and distribution
expenses
    
    
    (24,138
    )
    
    
    (26,606
    )
    
    
    (25,905
    )
    
    
    (36,299
    )
    
    
    (28,599
    )
    
    
    (31,854
    )
    
    
    (33,636
    )
    
    
    (32,727
    )
    
    
    (28,810
    )
    
    
    (31,014
    )
    
    
    (26,841
    )
    
    
    (51,859
    )General and administrative
expenses
    
    
    (11,109
    )
    
    
    (10,967
    )
    
    
    (11,377
    )
    
    
    (22,491
    )
    
    
    (13,405
    )
    
    
    (15,655
    )
    
    
    (14,473
    )
    
    
    (24,965
    )
    
    
    (14,158
    )
    
    
    (18,225
    )
    
    
    (17,816
    )
    
    
    (76,829
    )Impairment
of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,589
    )Total operating expenses
    
    
    (43,640
    )
    
    
    (45,879
    )
    
    
    (51,164
    )
    
    
    (75,880
    )
    
    
    (55,205
    )
    
    
    (61,835
    )
    
    
    (61,395
    )
    
    
    (73,404
    )
    
    
    (58,296
    )
    
    
    (67,054
    )
    
    
    (60,134
    )
    
    
    (177,889
    )Operating income/(loss)
    
    
    (35,631
    )
    
    
    43,592
    
    
    
    37,906
    
    
    
    133,325
    
    
    
    (42,219
    )
    
    
    20,811
    
    
    
    46,185
    
    
    
    91,250
    
    
    
    (36,327
    )
    
    
    (4,929
    )
    
    
    2,709
    
    
    
    (91,536
    )Other (expense)/incomeInterest income
    
    
    859
    
    
    
    5,761
    
    
    
    8,108
    
    
    
    4,458
    
    
    
    2,456
    
    
    
    1,776
    
    
    
    2,525
    
    
    
    15,556
    
    
    
    5,472
    
    
    
    4,764
    
    
    
    4,482
    
    
    
    16,539Interest expense
    
    
    (8,897
    )
    
    
    (6,369
    )
    
    
    (4,063
    )
    
    
    (8,697
    )
    
    
    (6,062
    )
    
    
    (6,525
    )
    
    
    (8,398
    )
    
    
    (14,362
    )
    
    
    (13,242
    )
    
    
    (13,990
    )
    
    
    (15,349
    )
    
    
    (12,263
    )Investment income
    
    
    238
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318
    
    
    
    
    
    
    
    
    
    
    
    296
    
    
    
    
    
    
    
    
    
    
    
    4,577Foreign currency exchange
gain/(loss)
    
    
    1,101
    
    
    
    
    
    
    
    (6,333
    )
    
    
    (4,643
    )
    
    
    (2,788
    )
    
    
    (2,941
    )
    
    
    (4,369
    )
    
    
    (8,693
    )
    
    
    (7,029
    )
    
    
    (2,904
    )
    
    
    (974
    )
    
    
    489Grant income
    
    
    127
    
    
    
    100
    
    
    
    
    
    
    
    7,443
    
    
    
    120
    
    
    
    3,310
    
    
    
    1,000
    
    
    
    2,925
    
    
    
    2,030
    
    
    
    91
    
    
    
    110
    
    
    
    12,978Total other
(expense)/income
    
    
    (6,571
    )
    
    
    (508
    )
    
    
    (2,288
    )
    
    
    (1,439
    )
    
    
    (6,274
    )
    
    
    (4,062
    )
    
    
    (9,242
    )
    
    
    (4,574
    )
    
    
    (12,473
    )
    
    
    (12,039
    )
    
    
    (11,731
    )
    
    
    22,320Income/(loss) before income
tax benefit/(expense) and
minority interests
    
    
    (42,202
    )
    
    
    43,084
    
    
    
    35,618
    
    
    
    131,885
    
    
    
    (48,493
    )
    
    
    16,749
    
    
    
    36,943
    
    
    
    86,676
    
    
    
    (48,800
    )
    
    
    (16,968
    )
    
    
    (9,022
    )
    
    
    (69,216
    )Income tax (expense)/benefit
    
    
    5,931
    
    
    
    (3,583
    )
    
    
    (5,043
    )
    
    
    (15,582
    )
    
    
    3,441
    
    
    
    (1,360
    )
    
    
    (3,816
    )
    
    
    (8,586
    )
    
    
    7,046
    
    
    
    (277
    )
    
    
    363
    
    
    
    (10,289
    )Income/(loss) before minority
interests
    
    
    (36,271
    )
    
    
    39,501
    
    
    
    30,575
    
    
    
    116,303
    
    
    
    (45,052
    )
    
    
    15,389
    
    
    
    33,127
    
    
    
    78,090
    
    
    
    (41,754
    )
    
    
    (17,245
    )
    
    
    (8,659
    )
    
    
    (79,505
    )Minority interests, net of tax
    
    
    533
    
    
    
    (68
    )
    
    
    162
    
    
    
    (1,894
    )
    
    
    241
    
    
    
    784
    
    
    
    (5
    )
    
    
    (38
    )
    
    
    226
    
    
    
    202
    
    
    
    227
    
    
    
    141Net Income/(loss)
    
    
    (35,738
    )
    
    
    39,433
    
    
    
    30,737
    
    
    
    114,410
    
    
    
    (44,811
    )
    
    
    16,173
    
    
    
    33,122
    
    
    
    78,052
    
    
    
    (41,528
    )
    
    
    (17,043
    )
    
    
    (8,432
    )
    
    
    (79,364
    )Dividends, accretion to
redemption value and of
foreign currency rate
movements on mandatorily
redeemable convertible
preference shares
    
    
    (909
    )
    
    
    360
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings/(loss) available
to ordinary shareholders
    
    
    (36,647
    )
    
    
    39,793
    
    
    
    30,737
    
    
    
    114,410
    
    
    
    (44,811
    )
    
    
    16,173
    
    
    
    33,122
    
    
    
    78,052
    
    
    
    (41,528
    )
    
    
    (17,043
    )
    
    
    (8,432
    )
    
    
    (79,364
    )
  39




---



##### Table of Contents



As ofMarch 31,
    
    
    June 30,
    
    
    Sept, 30
    
    
    Dec 31,
    
    
    March 31,
    
    
    June 30,
    
    
    Sept, 30
    
    
    Dec 31,
    
    
    March 31,
    
    
    June 30,
    
    
    Sept, 30
    
    
    Dec 31,2006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008(in thousands of RMB)Cash and cash equivalents
    
    
    36,064
    
    
    
    647,751
    
    
    
    399,680
    
    
    
    467,423
    
    
    
    290,346
    
    
    
    303,642
    
    
    
    205,319
    
    
    
    316,778
    
    
    
    216,193
    
    
    
    43,089
    
    
    
    67,954
    
    
    
    293,353Pledged time deposits
    
    
    65,044
    
    
    
    65,652
    
    
    
    77,150
    
    
    
    238,618
    
    
    
    212,319
    
    
    
    228,065
    
    
    
    213,208
    
    
    
    259,786
    
    
    
    216,602
    
    
    
    188,817
    
    
    
    131,999
    
    
    
    122,368Accounts receivable, net
    
    
    461,360
    
    
    
    563,192
    
    
    
    604,360
    
    
    
    747,859
    
    
    
    720,433
    
    
    
    806,760
    
    
    
    938,746
    
    
    
    925,838
    
    
    
    890,095
    
    
    
    960,019
    
    
    
    959,887
    
    
    
    728,260Long-term accounts
receivable
    
    
    176,387
    
    
    
    214,331
    
    
    
    298,228
    
    
    
    268,957
    
    
    
    247,728
    
    
    
    281,830
    
    
    
    312,217
    
    
    
    389,505
    
    
    
    369,329
    
    
    
    341,675
    
    
    
    387,573
    
    
    
    551,210Short-term bank loans
    
    
    183,990
    
    
    
    261,631
    
    
    
    266,050
    
    
    
    336,050
    
    
    
    333,550
    
    
    
    426,050
    
    
    
    436,050
    
    
    
    456,050
    
    
    
    506,050
    
    
    
    429,925
    
    
    
    448,083
    
    
    
    480,207Long-term debt
    
    
    165,952
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    130,000
    
    
    
    130,000
    
    
    
    130,000
  FINANCIAL OVERVIEW
 Revenues
   Year ended December 31,2006
    
    
    2007
    
    
    2008RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in millions, except for percentages)Wireless coverage solutionsSale of wireless coverage products
    
    
    679.6
    
    
    
    81.6
    %
    
    
    575.3
    
    
    
    58.7
    %
    
    
    499.0
    
    
    
    73.1
    
    
    
    50.7
    %Installation services
    
    
    108.9
    
    
    
    13.1
    
    
    
    223.5
    
    
    
    22.8
    
    
    
    277.9
    
    
    
    40.7
    
    
    
    28.2RF parts and components
    
    
    32.0
    
    
    
    3.8
    
    
    
    173.6
    
    
    
    17.7
    
    
    
    221.6
    
    
    
    32.5
    
    
    
    22.5Write back/(provision) for settlement discounts
    
    
    5.1
    
    
    
    0.6
    
    
    
    4.3
    
    
    
    0.5
    
    
    
    (13.8
    )
    
    
    (2.0
    )
    
    
    (1.4
    )Others
    
    
    7.2
    
    
    
    0.9
    
    
    
    2.6
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    832.8
    
    
    
    100.0
    %
    
    
    979.3
    
    
    
    100.0
    %
    
    
    984.7
    
    
    
    144.3
    
    
    
    100.0
    %
 Wireless Coverage Products and Services.
  RF Parts and Components.
  40




---



##### Table of Contents



Cost of Revenues
   Year ended December 31,2006
    
    
    2007
    
    
    2008RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in millions, except for percentages)Cost of hardware
    
    
    352.8
    
    
    
    80.7
    %
    
    
    459.8
    
    
    
    75.2
    %
    
    
    565.2
    
    
    
    82.8
    
    
    
    75.2
    %Cost of services
    
    
    84.2
    
    
    
    19.3
    
    
    
    151.6
    
    
    
    24.8
    
    
    
    186.2
    
    
    
    27.3
    
    
    
    24.8Total
    
    
    437.0
    
    
    
    100.0
    %
    
    
    611.4
    
    
    
    100.0
    %
    
    
    751.4
    
    
    
    110.1
    
    
    
    100.0
    %
 Cost of Hardware.
 Cost of Services.
 Operating Expenses
  Year ended December 31,2006
    
    
    2007
    
    
    2008RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in millions, except for percentages)Research and development
costs
    
    
    47.7
    
    
    
    22.0
    %
    
    
    56.5
    
    
    
    22.4
    %
    
    
    70.3
    
    
    
    10.4
    
    
    
    19.3
    %Sales and distribution
expenses
    
    
    113.0
    
    
    
    52.2
    
    
    
    126.8
    
    
    
    50.4
    
    
    
    138.5
    
    
    
    20.3
    
    
    
    38.1General and administrative
expenses
    
    
    55.9
    
    
    
    25.8
    
    
    
    68.5
    
    
    
    27.2
    
    
    
    127.0
    
    
    
    18.6
    
    
    
    35.0Impairment
of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27.6
    
    
    
    4.0
    
    
    
    7.6Total operating expenses
    
    
    216.6
    
    
    
    100.0
    %
    
    
    251.8
    
    
    
    100.0
    %
    
    
    363.4
    
    
    
    53.3
    
    
    
    100.0
    %
  41




---



##### Table of Contents



Research and Development Costs.
 Sales and Distribution Expenses.
 General and Administrative Expenses.
 Impairment
of Goodwill.
 Interest Expense
    Year ended December 31,2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Bank loan interest
    
    
    13,709
    
    
    
    24,345
    
    
    
    35,186
    
    
    
    5,157Receivable discounting fee (1)
    
    
    8,666
    
    
    
    7,753
    
    
    
    13,521
    
    
    
    1,982Financial charges on bills financing
    
    
    1,082
    
    
    
    1,192
    
    
    
    1,763
    
    
    
    259Interest on exchangeable bonds (2)
    
    
    3,341
    
    
    
    
    
    
    
    
    
    
    
    Others (3)
    
    
    1,228
    
    
    
    2,057
    
    
    
    4,374
    
    
    
    641Total
    
    
    28,026
    
    
    
    35,347
    
    
    
    54,844
    
    
    
    8,039
 
 (1)
    
    We receive proceeds from the sale of accounts receivable and record a receivable discounting
fee. Discount on the sale of accounts receivable is recorded as interest expense in the period
during which it occurs. The significant increase of receivable discounting fee in 2008 was due
to expected delay in collection which would require further discounting on the sale of
accounts receivable.  42




---



##### Table of Contents



(2)
    
    In 2003, several of our ordinary shareholders, including Guoren Industrial Developments
Limited, Heng Xing Yue Investments Limited and Drag Investments Limited, issued an aggregate
of US$20.7 million of 5% exchangeable bonds to our preference shareholders, Actis China,
Standard Chartered Private Equity and JAFCO, which bonds were exchangeable into our ordinary
shares held by these ordinary shareholders. These exchangeable bonds were redeemable at an
amount equal to their principal amount plus 8% interest. Because we guaranteed the bonds, we
accounted for the interest payment obligation on the exchangeable bonds as our obligation.
These exchangeable bonds were exchanged into ordinary shares held by our ordinary shareholders
upon the completion of our initial global offering in 2006. As a result, we were no longer
required to accrue interest expense with respect to the exchangeable bonds in 2007.(3)
    
    Others mainly consist of bank fees. Income Tax Expense
  Minority Interests, Net of Tax
  Critical Accounting Policies
  Revenue Recognition.
 
    
    the risk and rewards are transferred;
 
    
    delivery has occurred;
 
    
    persuasive evidence of an arrangement exists;
 
    
    price to the buyer is fixed and determinable;
  43




---



##### Table of Contents




    
    collectibility is reasonably assured; and
 
    
    we have an enforceable legal right to receive the contractually specified amount in
cash attributable to the product sale.
   Year ended December 31,2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Balance at beginning of year
    
    
    20,057
    
    
    
    14,982
    
    
    
    10,657
    
    
    
    1,562(Reversal)/provided during the year
    
    
    (5,075
    )
    
    
    (4,325
    )
    
    
    13,768
    
    
    
    2,019Balance at end of year
    
    
    14,982
    
    
    
    10,657
    
    
    
    24,425
    
    
    
    3,581
 Allowance for Doubtful Accounts.
 Year ended December 31,2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Balance at beginning of year
    
    
    4,147
    
    
    
    6,177
    
    
    
    22,354
    
    
    
    3,277Derecognized on disposal of subsidiaries
    
    
    
    
    
    
    
    
    
    
    (11,017
    )
    
    
    (1,616
    )Bad debt expense
    
    
    2,030
    
    
    
    16,177
    
    
    
    57,574
    
    
    
    8,439Written off during the year
    
    
    
    
    
    
    
    
    
    
    (43,588
    )
    
    
    (6,388
    )Balance at end of year
    
    
    6,177
    
    
    
    22,354
    
    
    
    25,323
    
    
    
    3,712
  44




---



##### Table of Contents



Inventories.
  Allowance for Warranties.
 Impairment of Long-lived Assets.
 Acquisitions.
 Recoverability of the carrying amount of goodwill.
  45




---



##### Table of Contents



Results of Operations
  Year ended December 31,2006
    
    
    2007
    
    
    2008Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    (52.5
    )
    
    
    (62.4
    )
    
    
    (76.3
    )Gross profit
    
    
    47.5
    
    
    
    37.6
    
    
    
    23.7Operating expenses:Research and development costs
    
    
    (5.7
    )
    
    
    (5.8
    )
    
    
    (7.1
    )Sales and distribution expenses
    
    
    (13.6
    )
    
    
    (12.9
    )
    
    
    (14.1
    )General and administrative expenses
    
    
    (6.7
    )
    
    
    (7.0
    )
    
    
    (12.9
    )Impairment
of goodwill
    
    
    
    
    
    
    
    
    
    
    (2.8
    )Total operating expenses
    
    
    (26.0
    )
    
    
    (25.7
    )
    
    
    (36.9
    )Operating income/(loss)
    
    
    21.5
    
    
    
    11.9
    
    
    
    (13.2
    )Other (expense)/ income:
    
    
    (1.3
    )
    
    
    (2.5
    )
    
    
    (1.4
    )Income/(loss) before income tax expense and minority interests
    
    
    20.2
    
    
    
    9.4
    
    
    
    (14.6
    )Income tax expense
    
    
    (2.2
    )
    
    
    (1.1
    )
    
    
    (0.3
    )Income/(loss) before minority interests
    
    
    18.0
    
    
    
    8.3
    
    
    
    (14.9
    )Minority interests, net of tax
    
    
    (0.2
    )
    
    
    0.1
    
    
    
    0.1Net income/(loss)
    
    
    17.9
    
    
    
    8.4
    
    
    
    (14.8
    )Dividends, accretion to redemption values and foreign
exchange rate movements on mandatorily redeemable convertible
preference shares
    
    
    (0.1
    )
    
    
    
    
    
    
    Net income/(loss) available to ordinary shareholders
    
    
    17.8
    
    
    
    8.4
    
    
    
    (14.8
    )
 2008 compared to 2007
 Revenues.
  46




---



##### Table of Contents



Cost of Revenues.
 Gross Profit.
 Research and Development Costs.
 Sales and Distribution Expenses.
 General and Administrative Expenses.
 Impairment
of Goodwill.
 Operating
Loss.
 Other Expense/Income.
 Income Tax Expense.
 Minority Interests.
 Net
Loss.
  47




---



##### Table of Contents



2007 compared to 2006
 Revenues.
 Cost of Revenues.
 Gross Profit.
 Research and Development Costs.
 Sales and Distribution Expenses.
 General and Administrative Expenses.
 Operating Income.
 Other Expense/Income.
 Income Tax Expense.
 Minority Interests.
 Net Income.
 Liquidity and Capital Resources
   48




---



##### Table of Contents



Year ended December 31,2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Net cash (used in) / provided by operating activities
    
    
    (114,778
    )
    
    
    (120,228
    )
    
    
    5,056
    
    
    
    741Net cash (used in) / provided by investing activities
    
    
    (243,150
    )
    
    
    (294,437
    )
    
    
    28,113
    
    
    
    4,121Net cash provided by / (used in) financing activities
    
    
    708,514
    
    
    
    272,619
    
    
    
    (52,085
    )
    
    
    (7,634
    )Cash and cash equivalents at the end of year
    
    
    467,423
    
    
    
    316,778
    
    
    
    293,353
    
    
    
    42,998
    Accounts Receivable and Receivable Selling
   49




---



##### Table of Contents



As of December 31, 2008(RMB)
    
    
    (US$)
    
    
    (%)(in millions, except for percentages)China Unicom group
    
    
    488.0
    
    
    
    71.4
    
    
    
    39.1
    %China Mobile group
    
    
    451.8
    
    
    
    66.2
    
    
    
    36.2China Telecom group
    
    
    144.4
    
    
    
    21.2
    
    
    
    11.6Others
    
    
    165.0
    
    
    
    24.2
    
    
    
    13.1Total
    
    
    1,249.2
    
    
    
    183.0
    
    
    
    100
    %
  As of December 31,2006
    
    
    2007
    
    
    2008RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in millions, except for percentages)Less than one year
    
    
    700.9
    
    
    
    69.7
    %
    
    
    831.1
    
    
    
    63.1
    %
    
    
    571.9
    
    
    
    83.8
    
    
    
    45.8
    %Between one to two years
    
    
    231.3
    
    
    
    23.0
    
    
    
    275.4
    
    
    
    20.8
    
    
    
    392.1
    
    
    
    57.5
    
    
    
    31.4Between two to three years
    
    
    68.0
    
    
    
    6.8
    
    
    
    153.8
    
    
    
    11.7
    
    
    
    184.4
    
    
    
    26.9
    
    
    
    14.8Over three years
    
    
    4.8
    
    
    
    0.5
    
    
    
    57.6
    
    
    
    4.4
    
    
    
    100.8
    
    
    
    14.8
    
    
    
    8.0Total
    
    
    1,005.0
    
    
    
    100.0
    %
    
    
    1,317.9
    
    
    
    100.0
    %
    
    
    1,249.2
    
    
    
    183.0
    
    
    
    100.0
    %
  As of December 31,2006
    
    
    2007
    
    
    2008RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in millions, except for percentages)Contractually due
    
    
    353.5
    
    
    
    35.2
    %
    
    
    505.3
    
    
    
    38.3
    %
    
    
    632.1
    
    
    
    92.6
    
    
    
    50.6
    %Non-contractually due
    
    
    651.5
    
    
    
    64.8
    %
    
    
    812.6
    
    
    
    61.7
    %
    
    
    617.1
    
    
    
    90.4
    
    
    
    49.4
    %Total
    
    
    1,005.0
    
    
    
    100.0
    %
    
    
    1,317.9
    
    
    
    100.0
    %
    
    
    1,249.2
    
    
    
    183.0
    
    
    
    100.0
    %
    50




---



##### Table of Contents



Inventories
   As of December 31,2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Raw materials
    
    
    65,395
    
    
    
    137,723
    
    
    
    163,589
    
    
    
    23,978Work in progress
    
    
    5,135
    
    
    
    14,014
    
    
    
    15,539
    
    
    
    2,278Finished goods
    
    
    363,876
    
    
    
    390,357
    
    
    
    341,491
    
    
    
    50,053Total
    
    
    434,406
    
    
    
    542,094
    
    
    
    520,619
    
    
    
    76,309
  51




---



##### Table of Contents



Finished goods
    
    
    Work in progress
    
    
    Raw materials
    
    
    Total(RMB)
    
    
    (US$)
    
    
    (%)
    
    
    (RMB)
    
    
    (US$)
    
    
    (%)
    
    
    (RMB)
    
    
    (US$)
    
    
    (%)
    
    
    (RMB)
    
    
    (US$)
    
    
    (%)(in thousands, except for percentages)AgeLess than one year
    
    
    319,071
    
    
    
    46,767
    
    
    
    93.4
    %
    
    
    15,539
    
    
    
    2,278
    
    
    
    100.0
    %
    
    
    163,589
    
    
    
    23,978
    
    
    
    100.0
    %
    
    
    498,199
    
    
    
    73,023
    
    
    
    95.7
    %One to two years
    
    
    22,420
    
    
    
    3,286
    
    
    
    6.6
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,420
    
    
    
    3,286
    
    
    
    4.3
    %Over two years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    341,491
    
    
    
    50,053
    
    
    
    100.0
    %
    
    
    15,539
    
    
    
    2,278
    
    
    
    100.0
    %
    
    
    163,589
    
    
    
    23,978
    
    
    
    100.0
    %
    
    
    520,619
    
    
    
    76,309
    
    
    
    100.0
    %
 Borrowings
      Capital Expenditure and Contractual Commitments
   52




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##### Table of Contents



As of December 31, 2008Payment Due by PeriodLess thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    After 3 YearsRMB
    
    
    US$
    
    
    RMB
    
    
    US$
    
    
    RMB
    
    
    US$
    
    
    RMB
    
    
    US$(in millions)Short-term bank loans
    
    
    425
    
    
    
    62.3
    
    
    
    425
    
    
    
    62.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt
    
    
    181.7
    
    
    
    26.6
    
    
    
    29.5
    
    
    
    4.3
    
    
    
    79.4
    
    
    
    11.6
    
    
    
    72.8
    
    
    
    10.7Bills payable
    
    
    110.6
    
    
    
    16.2
    
    
    
    110.6
    
    
    
    16.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease
commitments
    
    
    5.4
    
    
    
    0.8
    
    
    
    4.8
    
    
    
    0.7
    
    
    
    0.6
    
    
    
    0.1
    
    
    
    
    
    
    
    Other capital
commitments
    
    
    0.5
    
    
    
    0.1
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
contractual
obligations
    
    
    723.2
    
    
    
    106.0
    
    
    
    570.4
    
    
    
    83.6
    
    
    
    80.0
    
    
    
    11.7
    
    
    
    72.8
    
    
    
    10.7
 Off-Balance Sheet Arrangements and Contingent Liabilities
      Inflation
  Quantitative and Qualitative Disclosure about Market Risk
 Foreign Exchange Risk.
 Interest Rate Risk.
 Credit Risk.
  53




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Corporate Structure
  Taxation
     54




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##### Table of Contents



Recent Accounting Pronouncements
 SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including
an amendment of SFAS No. 115
  SFAS No. 141 (R), Business Combinations
  SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements
  FASB Staff Position, No. FAS 142-3, Determination of the Useful Life of an Intangible Asset
   55




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##### Table of Contents



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 Directors and senior management
  Directors and Executive Officers
    
    Age
    
    PositionYingjie Gao
    
    
    53
    
    
    Chairman of the board and chief executive officerRong Yu
    
    
    44
    
    
    Director and chief financial officerKunjie Zhuang
    
    
    72
    
    
    DirectorLiping Mao
    
    
    43
    
    
    DirectorCuiming Shi
    
    
    68
    
    
    Independent directorXiaohu You
    
    
    46
    
    
    Independent directorKin Kwong Mak
    
    
    47
    
    
    Independent director (audit committee financial expert)Qi Wang
    
    
    43
    
    
    Vice presidentQingchang Liu
    
    
    41
    
    
    Vice president
 Yingjie Gao
 Rong Yu
 Kunjie Zhuang
 Liping Mao
 Cuiming Shi
 Xiaohu You
  56




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##### Table of Contents



Kin Kwong Mak
 Qi Wang
 Qingchang Liu
 rd
 Board of Directors
  Audit Committee
 
    
    Our audit committee consists of our three independent non-executive directors, namely
Mr. Kin Kwong Mak, Mr. Cuiming Shi and Professor Xiaohu You. All of them satisfy the
independence requirements of the Nasdaq Listing Rules and meet the criteria for
independence set forth in Section 10A(m)(3)(B)(i) of the Exchange Act. Such committee
composition was established by our board of directors by reference to similarly situated
issuers and is in line with Rule 5605(c) of the Nasdaq Listing Rules that requires the
audit committees of listed companies to have a minimum of three independent directors.
There are, however, no specific requirements under Cayman Islands law on the composition
of our audit committee. The audit committee oversees our accounting and financial
reporting processes and the audits of our financial statements. The audit committee is
responsible for, among other things:
 
    
    selecting the independent auditors and pre-approving all auditing and non-auditing
services permitted to be performed by the independent auditors;
 
    
    reviewing and approving all proposed related-party transactions;
 
    
    discussing the annual audited financial statements with management and the independent
auditors;
 
    
    annually reviewing and reassessing the adequacy of our audit committee charter;
  57




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##### Table of Contents




    
    meeting separately and periodically with management and the independent auditors;
 
    
    reviewing such other matters that are specifically delegated to our audit committee by
our board of directors from time to time; and
 
    
    reporting regularly to the full board of directors.
 Compensation Committee
  
    
    reviewing and determining the compensation package for our senior executives;
 
    
    reviewing and making recommendations to our board with respect to the compensation of
our directors;
 
    
    reviewing and approving officer and director indemnification and insurance matters;
 
    
    reviewing and approving any employee loan in an amount equal to or greater than
RMB100,000; and
 
    
    reviewing periodically and approving any long-term incentive compensation or equity
plans, programs or similar arrangements, annual bonuses, employee pension and welfare
benefit plans.
 Corporate Governance and Nominating Committee
  
    
    identifying and recommending to the board nominees for election or re-election to the
board;
 
    
    making appointments to fill any vacancy on our board;
 
    
    reviewing annually with the board the current composition of the board in light of the
characteristics of independence, age, skills, experience and availability of service to
us;
 
    
    identifying and recommending to the board any director to serve as a member of the
boards committees;
 
    
    advising the board periodically with respect to significant developments in the law and
practice of corporate governance as well as our compliance with applicable laws and
regulations, and making recommendations to the board on all matters of corporate
governance and on any corrective action to be taken; and
 
    
    monitoring compliance with our code of business conduct and ethics, including reviewing
the adequacy and effectiveness of our procedures to ensure proper compliance.
  58




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Duties of Directors
  Employment and Service Agreements
    Compensation
   Indemnification
   59




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##### Table of Contents



Share Option Scheme
  
    
    motivate the eligible participants to optimize their performance efficiency for the
benefit of our company; and
 
    
    attract and retain or otherwise maintain an on-going business relationship with the
eligible participants whose contributions are or will be beneficial to our long-term
growth.
  Number of shares
    
    
    Per ordinary shareto be issued upon
    
    
    exerciseName
    
    exercise of options
    
    
    price (US$)
    
    
    Grant date
    
    
    Date of ExpirationRong Yu
    
    
    200,000
    
    
    
    0.21
    
    
    March 14, 2008
    
    March 14, 20131,400,000
    
    
    
    0.0388
    
    
    December 23, 2008
    
    December 23, 2013Qi Wang
    
    
    150,000
    
    
    
    0.21
    
    
    March 14, 2008
    
    March 14, 20131,350,000
    
    
    
    0.0388
    
    
    December 23, 2008
    
    December 23. 2013Qingchang Liu
    
    
    150,000
    
    
    
    0.21
    
    
    March 14, 2008
    
    March 14, 20131,350,000
    
    
    
    0.0388
    
    
    December 23, 2008
    
    December 23, 2013Cuiming Shi
    
    
    100,000
    
    
    
    0.21
    
    
    March 14, 2008
    
    March 14, 2013150,000
    
    
    
    0.0388
    
    
    December 23, 2008
    
    December 23, 2013Xiaohu You
    
    
    100,000
    
    
    
    0.21
    
    
    March 14, 2008
    
    March 14, 2013150,000
    
    
    
    0.0388
    
    
    December 23, 2008
    
    December 23, 2013Kin Kwong Mak
    
    
    100,000
    
    
    
    0.21
    
    
    March 14, 2008
    
    March 14, 2013150,000
    
    
    
    0.0388
    
    
    December 23, 2008
    
    December 23, 2013Liping Mao
    
    
    200,000
    
    
    
    0.21
    
    
    March 14, 2008
    
    March 14, 2013Other individuals as a group
    
    
    9,000,000
    
    
    
    0.21
    
    
    March 14, 2008
    
    March 14, 201323,450,000
    
    
    
    0.0388
    
    
    December 23, 2008
    
    December 23, 2013
 Eligible Participants
  
    
    any full-time or part-time employees, executives or officers of our company or any of
our subsidiaries;
 
    
    any directors, including non-executive directors and independent directors, of our
company or any of our subsidiaries;
 
    
    any advisers, consultants and agents to us or any of our subsidiaries; and
 
    
    such other persons who, in the sole opinion of our board of directors, will contribute
or have contributed to our development and operations and our quality of work, have shown
initiative and commitment in performing his/her duties, or have provided service or
contribution to our company for a specified length of time.
  60




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Maximum Number of Shares
    Price of Shares
  Restrictions on the Times of Grant of Options
  Transferability
  Exercise of Option and Duration of the Share Option Scheme
   Rights on Ceasing Employment or Death of an Employee
  
    
    by any reason other than death or termination of his employment on the grounds
specified in paragraph Right on Dismissal in the scheme, the grantee may exercise the
option up to the entitlement of the grantee as of the date of cessation (to the extent not
already exercised) within a period of one month from such cessation; or
 
    
    by reason of death, his personal representative(s) may exercise the option within a
period of 12 months from such cessation, which date shall be the last actual working day
with us or our subsidiary whether salary is paid in lieu of notice or not, failing which
it will lapse.
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##### Table of Contents



Rights on Takeover/Winding-Up
   Alteration of the Share Option Scheme
  Employees
  Share Ownership
  
    
    each of our executive officers and directors;
 
    
    each person known by us to beneficially own 5% or more of our ordinary shares; and
 
    
    all current directors and executive officers as a group.
  Shares beneficiallyowned(1)(2)Name
    
    Number of Shares
    
    
    %Directors and executive officers(3)Yingjie Gao(4)
    
    
    150,000,000
    
    
    
    25.2
    %Rong Yu(5)
    
    
    44,829,587
    
    
    
    7.5
    %Kunjie Zhuang(6)
    
    
    51,432,000
    
    
    
    8.6
    %Liping Mao
    
    
    
    
    
    
    Cuiming Shi
    
    
    
    
    
    
    Xiaohu You
    
    
    
    
    
    
    Kin Kwong Mak
    
    
    
    
    
    
    Qi Wang(7)
    
    
    10,520,935
    
    
    
    1.8
    %Qingchang Liu
    
    
    
    
    
    
    All current directors and executive officers as a group (9 persons)
    
    
    256,783,022
    
    
    
    43.1
    %Principal shareholdersGuoren Industrial Developments Limited(4)
    
    
    150,000,000
    
    
    
    25.2
    %Drag Investments Limited(6)
    
    
    64,290,000
    
    
    
    10.8
    %Heng Xing Yue Investments Limited(5)
    
    
    54,377,375
    
    
    
    9.1
    %
 
 (1)
    
    Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and
Regulations under the Exchange Act, and includes voting or investment power with respect to
the ordinary shares.(2)
    
    Percentage of beneficial ownership of each listed person is based on 595,579,650 ordinary
shares outstanding as of May 31, 2009, as well as the ordinary shares underlying share options
exercisable by such person within 60 days of May 31, 2009.  62




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##### Table of Contents



(3)
    
    The address of our current executive officers and directors is c/o China GrenTech Corporation
Limited, 15th Floor, Block A, Guoren Building, Keji Central 3rd Road, Hi-Tech Park,
Nanshan District, Shenzhen 518057, Peoples Republic of China.(4)
    
    Mr. Yingjie Gao, our chairman and chief executive officer, beneficially owns 150,000,000
ordinary shares, which are held through his wholly-owned company, Guoren Industrial
Developments Limited. Guoren Industrial Developments Limited is a British Virgin Islands
company with its business address at 15th Floor, Block A, Guoren Building, Keji
Central 3rd Road, Hi-Tech Park, Nanshan District, Shenzhen 518057, Peoples
Republic of China. Its principal business is investment holding. Guoren Industrial
Developments Limited is ultimately wholly-owned by The GRRF Trust, a family trust established
by Mr. Yingjie Gao, our chairman and chief executive officer. Guoren Industrial Developments
Limited, as the record holder, of which Mr. Gao is the sole director, continues to have sole
power to vote or to direct the vote and the sole power to dispose or to direct the disposition
with respect to such 150,000,000 ordinary shares. Mr. Gao, as the sole director of Guoren
Industrial Developments Limited, also acts as the protector and the investment manager of The
GRRF Trust. Credit Suisse Trust Limited acts as the trustee of The GRRF Trust and disclaims
beneficial ownership of our ordinary shares. This share information is based upon a report on
Schedule 13D/A filed by Guoren Industrial Developments Limited with the U.S. Securities and
Exchange Commission on September 9, 2008.(5)
    
    Ms. Rong Yu, our director, chief financial officer and principal accounting officer,
beneficially owns 44,829,587 ordinary shares, which are held indirectly through Heng Xing Yue
Investments Limited and through her wholly-owned company, Well Sino Enterprises Limited, which
is a shareholder of Heng Xing Yue Investments Limited. Heng Xing Yue Investments Limited is a
British Virgin Islands company with its business address at 15th Floor, Block A,
Guoren Building, Keji Central 3rd Road, Hi-Tech Park, Nanshan District, Shenzhen
518057, Peoples Republic of China. Its principal business is investment holding. Heng Xing
Yue Investments Limited is the record holder of an aggregate of 54,377,375 ordinary shares in
our share capital. Ms. Rong Yu and Ms. Yin Huang are directors of Heng Xing Yue Investments
Limited. Each beneficial owner of Heng Xing Yue Investments Limited has the voting rights with
respect to the securities beneficially owned by him or her. This share information is based
upon a report on Schedule 13G/A filed by Heng Xing Yue Investments Limited with the U.S.
Securities and Exchange Commission on January 16, 2009.(6)
    
    Professor Kunjie Zhuang, our director, beneficially owns 51,432,000 ordinary shares, which
are held through his majority-owned company, Drag Investments Limited. Drag Investments
Limited is a British Virgin Islands company with its business address at 16th Floor, Zhongyin
Tower, Caitian North Road, Futian District, Shenzhen 518026, Peoples Republic of China. Its
principal business is investment holding. Drag Investments Limited is 80%-owned by
Professor Kunjie Zhuang, and 20%-owned by Mr. Haifan Zhuang, a son of Professor Kunjie Zhuang.
Each beneficial owner of Drag Investments Limited has the voting rights with respect to the
securities beneficially owned by him. This share information is based upon a report on
Schedule 13G/A filed by Drag Investments Limited with the U.S. Securities and Exchange
Commission on February 12, 2008.(7)
    
    Mr. Qi Wang, our vice president, beneficially owns 10,520,935 ordinary shares, which are held
indirectly through Heng Xing Yue Investments Limited. 
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 MAJOR SHAREHOLDERS
   63




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RELATED PARTY TRANSACTIONS
 Share-based compensation
  Our Related-Party Transaction Policies
  Divestiture of Network Coverage Module Manufacturing Subsidiaries, Lake Communication and Lake
Microwave
  Interests of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION
  Legal Proceedings
  Dividend Policy
  
    
    the level of our cash and retained earnings;
 
    
    our expected financial performance;
 
    
    our projected levels of capital expenditure and other investment plans;
  64




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##### Table of Contents




    
    the adequacy of our working capital; and
 
    
    the dividend yield of similarly listed companies with similar growth prospects as well
as comparable providers of wireless coverage products and services globally.
   
 ITEM 9. THE OFFER AND LISTING
    Price per ADS (US$)High
    
    
    LowAnnual2006 (from listing date)
    
    
    22.50
    
    
    
    8.212007
    
    
    19.00
    
    
    
    6.892008
    
    
    9.12
    
    
    
    0.78QuarterlyFirst Quarter, 2007
    
    
    19.00
    
    
    
    9.06
  65




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##### Table of Contents



Price per ADS (US$)High
    
    
    LowSecond Quarter, 2007
    
    
    14.94
    
    
    
    9.76Third Quarter, 2007
    
    
    14.03
    
    
    
    6.89Fourth Quarter, 2007
    
    
    12.78
    
    
    
    7.41First Quarter, 2008
    
    
    9.12
    
    
    
    3.85Second Quarter, 2008
    
    
    6.20
    
    
    
    4.37Third Quarter, 2008
    
    
    4.67
    
    
    
    1.01Forth Quarter, 2008
    
    
    2.27
    
    
    
    0.78First Quarter, 2009
    
    
    1.50
    
    
    
    0.90MonthlyDecember 2008
    
    
    1.20
    
    
    
    0.83January 2009
    
    
    1.50
    
    
    
    0.96February 2009
    
    
    1.20
    
    
    
    0.90March 2009
    
    
    1.45
    
    
    
    0.95April 2009
    
    
    2.19
    
    
    
    1.33May 2009
    
    
    3.68
    
    
    
    1.65
 
 ITEM 10. ADDITIONAL INFORMATION
 SHARE CAPITAL
  MEMORANDUM AND ARTICLES OF ASSOCIATION
  MATERIAL CONTRACTS
  EXCHANGE CONTROLS
    66




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TAXATION
  Cayman Islands Taxation
  PRC Taxation
  United States Federal Income Taxation
   
    
    dealers in stocks, securities or currencies;
 
    
    securities traders that use a mark-to-market accounting method;
 
    
    banks and financial institutions;
 
    
    insurance companies;
 
    
    regulated investment companies;
 
    
    real estate investment trusts;
 
    
    tax-exempt organizations;
 
    
    persons holding shares or ADSs as part of a hedging or conversion transaction or a
straddle;
 
    
    persons deemed to sell shares or ADSs under the constructive sale provisions of the
Code;
 
    
    persons who or that are, or may become, subject to the expatriation provisions of the
Code;
  67




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##### Table of Contents




    
    persons whose functional currency is not the United States dollar; and
 
    
    direct, indirect or constructive owners of 10% or more of the total combined voting
power of all classes of our voting stock.
 Prospective purchasers are urged
to consult their tax advisers about the United States federal, state and local tax consequences to
them of the purchase, ownership and disposition of shares or ADSs.
  
    
    an individual citizen or resident of the United States;
 
    
    a corporation or other entity classified as a corporation for United States federal
income tax purposes created or organized in or under the laws of the United States, any
state thereof or the District of Columbia;
 
    
    an estate, the income of which is subject to United States federal income taxation
regardless of its source; or
 
    
    a trust, if a court within the United States is able to exercise primary supervision
over the administration of such trust and one or more U.S. persons (within the meaning of
the Code) have the authority to control all substantial decisions of the trust, or if a
valid election is in effect to be treated as a U.S. person.
   U.S. Holders
 Taxation of Dividends and Other Distributions on the Shares or ADSs
    68




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##### Table of Contents



Taxation of Disposition of Shares or ADSs
  Passive Foreign Investment Company
         69




---



##### Table of Contents



Information Reporting and Backup Withholding
  DIVIDENDS AND PAYING AGENTS
  STATEMENT BY EXPERTS
  DOCUMENTS ON DISPLAY
  SUBSIDIARY INFORMATION
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS
  USE OF PROCEEDS
    70




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##### Table of Contents



ITEM 15. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Managements Report on Internal Control over Financial Reporting and Attestation Report of the
Registered Public Accounting Firm
 Internal Control  Integrated Framework
 Internal Control  Integrated Framework
 
    
    Ineffective controls over monitoring of receipts in advance
   71




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##### Table of Contents




    
    Inadequate level of review of long-aged bank reconciling items
  
    
    Insufficient competent accounting personnel in applying U.S. GAAP in the financial
reporting process
   Remediation Plan
  
    
    Formalize the procedure to monitor and keep track of receipts in advance balance to
ensure it is properly reversed when the relevant revenue is recognized.
 
    
    Strengthen the review procedures on the bank reconciliation process to ensure
outstanding bank reconciling items are resolved in a timely manner.
 
    
    Recruit more competent accounting personnel who are proficient in applying U.S. GAAP in
the financial reporting process to assure our financial statements are prepared in a timely
manner.
   Changes in Internal Control over Financial Reporting
  
 ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM
16B. CODE OF ETHICS
   72




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##### Table of Contents



ITEM
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Audit Fees
    
    
    Audit-Related Fees
    
    
    Tax Fees
    
    
    Other Fees(in millions of RMB)2007
    
    
    3.2
    
    
    
    
    
    
    
    
    
    
    
    2008
    
    
    5.2
    
    
    
    
    
    
    
    
    
    
    
    
  
 ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 Total Number of
    
    
    ApproximateAverage
    
    
    
    
    
    
    ADSs Purchased
    
    
    Dollar Value of ADSsTotal Number of
    
    
    Price
    
    
    Average
    
    
    as Part of Publicly
    
    
    that May Yet BeAmerican Depositary
    
    
    Paid
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Purchased UnderPeriod
    
    Shares Purchased(1)
    
    
    Per ADS
    
    
    Per ADS(2)
    
    
    or Programs
    
    
    the ProgramsUS$
    
    
    RMB
    
    
    
    
    
    
    US$January 1 through January 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    February 1 through February 29, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    March 1 through March 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    April 1 through April 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 1 through May 31, 2008
    
    
    19,879
    
    
    
    4.9920
    
    
    
    34.8067
    
    
    
    457,319
    
    
    
    4,292,762June 1 through June 30, 2008
    
    
    139,645
    
    
    
    4.8767
    
    
    
    33.6458
    
    
    
    596,964
    
    
    
    3,611,755July 1 through July 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    August 1 through August 31, 2008
    
    
    126,800
    
    
    
    3.6142
    
    
    
    34.8067
    
    
    
    723,764
    
    
    
    3,153,474September 1 through September 30, 2008
    
    
    12,757
    
    
    
    3.9327
    
    
    
    33.6458
    
    
    
    736,521
    
    
    
    3,103,305October1 through October 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    November 1 through November 30, 2008
    
    
    115,278
    
    
    
    0.9312
    
    
    
    6.3583
    
    
    
    851,799
    
    
    
    2,995,958December 1 through December 31, 2008
    
    
    69,050
    
    
    
    0.9605
    
    
    
    6.5832
    
    
    
    920,849
    
    
    
    2,292,635Total
    
    
    920,849
    
    
    
    5.5062
    
    
    
    38.2554
    
    
    
    920,849
 
 (1)
    
    Our companys ADS to ordinary share ratio is one ADS for every 25 ordinary shares.(2)
    
    The conversion from United States dollars into Renminbi (RMB) is based on the noon buying
rates adopted by our company for the reporting of our periodic results as follows: Exchange ratePeriod
    
    Period ended
    
    
    US$ to RMBMay 1 through May 31, 2008
    
    May 31, 2008
    
    
    6.9725June 1 through June 30, 2008
    
    June 30, 2008
    
    
    6.8993August 1 through August 31, 2008
    
    August 31, 2008
    
    
    6.8462September 1 through September 30, 2008
    
    September 30, 2008
    
    
    6.8307November 1 through November 30, 2008
    
    November 30, 2008
    
    
    6.8281December 1 through December 31, 2008
    
    December 31, 2008
    
    
    6.8539
 (3)
    
    On September 21, 2007, we announced a share repurchase program authorized by our board of
directors. Under the terms of the approved share repurchase program, we may repurchase up to
US$8.0 million worth of our issued and outstanding ADSs from time to time in open-market
transactions on Nasdaq. The share repurchase program does not have an expiration date and may
be modified or discontinued at any time by our board of directors.
  73




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##### Table of Contents



ITEM
16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
  
 ITEM
16G. CORPORATE GOVERNANCE
      
 PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
  
 ITEM 19. EXHIBITS
 ExhibitNo.
    
    
    Description of Exhibit1.1
    
    
    Amended and restated memorandum and articles of association of the Registrant (1)2.1
    
    
    Form of share certificate (1)2.2
    
    
    Form of deposit agreement, including form of American Depositary Receipt (2)4.1
    
    
    Contract for grant of land use right of Shenzhen Municipality (3)4.2
    
    
    Translation of share transfer agreement for Lake Communication Limited by and
between Shenzhen GrenTech Company Limited and Zhuang Haifan dated December 17,
2008 and related disposition of liabilities agreement4.3
    
    
    Share option scheme (4)
  74




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##### Table of Contents



ExhibitNo.
    
    
    Description of Exhibit8.1
    
    
    List of subsidiaries11.1
    
    
    Code of ethics (5)12.1
    
    
    CEO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
    
    
    CFO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
    
    
    CEO and CFO certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated by reference to our Registration Statement on Form F-1 (File No. 333-132381)
filed with the SEC in connection with our global offering in November 2004.(2)
    
    Incorporated by reference to our Registration Statement on Form F-6 (File No. 333-132385)
filed with the SEC with respect to American Depositary Shares representing our ordinary
shares.(3)
    
    Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended
December 31, 2007 filed with the SEC on July 15, 2008.(4)
    
    Incorporated by reference to our Registration Statement on Form F-1 (File No. 333-132381)
filed with the SEC in connection with our global offering in November 2004.(5)
    
    Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended
December 31, 2006 filed with the SEC on May 4, 2007.  75




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##### Table of Contents



SIGNATURE
  China GrenTech Corporation Limited/s/ Rong YuName:
    Rong YuTitle:
    Chief Financial Officer   76




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##### Table of Contents



INDEX
TO THE FINANCIAL STATEMENTS
 Reports of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets as of December 31, 2007 and 2008
    
    
    F-3Consolidated Statements of Operations for the years ended December 31, 2006, 2007
and 2008
    
    
    F-4Consolidated Statements of Shareholders Equity for the years ended December 31,
2006, 2007 and 2008
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2006,
2007 and 2008
    
    
    F-6Notes to the Consolidated Financial Statements
    
    
    F-8




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
      /s/ KPMG

KPMG
 
  F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
        /s/ KPMG

KPMG
 
  F-2




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
 
 Consolidated Balance Sheets
 as of December 31,
2007 and 2008
  Note
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    US$AssetsCurrent assetsCash and cash equivalents
    
    
    
    
    
    
    316,778
    
    
    
    293,353
    
    
    
    42,998Pledged time deposits
    
    
    3
    
    
    
    259,786
    
    
    
    122,368
    
    
    
    17,936Accounts receivable, net
    
    
    4
    
    
    
    925,838
    
    
    
    728,260
    
    
    
    106,744Inventories
    
    
    5
    
    
    
    542,094
    
    
    
    520,619
    
    
    
    76,309Prepaid expenses and other current assets
    
    
    
    
    
    
    54,184
    
    
    
    97,668
    
    
    
    14,316Deferred tax assets
    
    
    6
    
    
    
    7,826
    
    
    
    17,137
    
    
    
    2,512Deferred tax charges
    
    
    
    
    
    
    1,185
    
    
    
    261
    
    
    
    38Total current assets
    
    
    
    
    
    
    2,107,691
    
    
    
    1,779,666
    
    
    
    260,853Property, plant and equipment, net
    
    
    7
    
    
    
    225,069
    
    
    
    412,259
    
    
    
    60,426Construction in progress
    
    
    7
    
    
    
    134,637
    
    
    
    2,816
    
    
    
    413Lease prepayments, net
    
    
    8
    
    
    
    89,683
    
    
    
    82,124
    
    
    
    12,037Investment securities
    
    
    9
    
    
    
    7,944
    
    
    
    
    
    
    
    Intangible assets, net
    
    
    10
    
    
    
    37
    
    
    
    1,815
    
    
    
    266Goodwill
    
    
    11
    
    
    
    38,247
    
    
    
    
    
    
    
    Prepayment for fixed assets
    
    
    
    
    
    
    4,486
    
    
    
    9,080
    
    
    
    1,331Long-term accounts receivable
    
    
    4
    
    
    
    389,505
    
    
    
    551,210
    
    
    
    80,793Total assets
    
    
    
    
    
    
    2,997,299
    
    
    
    2,838,970
    
    
    
    416,119LiabilitiesCurrent liabilitiesShort-term bank loans
    
    
    14
    
    
    
    456,050
    
    
    
    480,207
    
    
    
    70,386Current portion of long term bank loan
    
    
    15
    
    
    
    
    
    
    
    20,000
    
    
    
    2,931Accounts payable
    
    
    
    
    
    
    329,220
    
    
    
    370,965
    
    
    
    54,374Bills payable
    
    
    
    
    
    
    85,216
    
    
    
    110,599
    
    
    
    16,211Accrued expenses and other payables
    
    
    12
    
    
    
    340,765
    
    
    
    247,484
    
    
    
    36,274Income tax payable
    
    
    
    
    
    
    37,830
    
    
    
    37,362
    
    
    
    5,476Total current liabilities
    
    
    
    
    
    
    1,249,081
    
    
    
    1,266,617
    
    
    
    185,652Long-term bank loan
    
    
    15
    
    
    
    150,000
    
    
    
    130,000
    
    
    
    19,055Deferred tax liabilities
    
    
    6
    
    
    
    5,938
    
    
    
    4,752
    
    
    
    697Total liabilities
    
    
    
    
    
    
    1,405,019
    
    
    
    1,401,369
    
    
    
    205,404Commitments and contingencies
    
    
    28Minority interests
    
    
    
    
    
    
    5,763
    
    
    
    4,354
    
    
    
    638Shareholders equityOrdinary shares US$0.00002 par value; 2,500,000,000 shares authorized, 625,000,000 issued as of December 31,
2007 and 2008 respectively; 614,064,000 and 601,978,775 outstanding as of December 31, 2007 and 2008
respectively
    
    
    17
    
    
    
    103
    
    
    
    103
    
    
    
    15Contributed surplus
    
    
    
    
    
    
    853,476
    
    
    
    856,670
    
    
    
    125,565Statutory reserves
    
    
    
    
    
    
    146,077
    
    
    
    142,158
    
    
    
    20,837Retained earnings
    
    
    
    
    
    
    613,308
    
    
    
    470,860
    
    
    
    69,016Treasury stock at cost, 10,936,000 shares and 23,021,225 shares as of December 31, 2007 and 2008 respectively
    
    
    
    
    
    
    (26,447
    )
    
    
    (36,544
    )
    
    
    (5,356
    )Total shareholders equity
    
    
    
    
    
    
    1,586,517
    
    
    
    1,433,247
    
    
    
    210,077Total liabilities and shareholders equity
    
    
    
    
    
    
    2,997,299
    
    
    
    2,838,970
    
    
    
    416,119
   F-3




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
 
 Consolidated Statements of Operations
 for the years ended December 31, 2006, 2007 and 2008
  Note
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Revenues
    
    
    21
    
    
    
    832,795
    
    
    
    979,302
    
    
    
    984,657
    
    
    
    144,325Cost of revenues
    
    
    
    
    
    
    (437,040
    )
    
    
    (611,436
    )
    
    
    (751,367
    )
    
    
    (110,131
    )Gross profit
    
    
    
    
    
    
    395,755
    
    
    
    367,866
    
    
    
    233,290
    
    
    
    34,194Operating expenses:Research and development costs
    
    
    
    
    
    
    (47,671
    )
    
    
    (56,525
    )
    
    
    (70,232
    )
    
    
    (10,294
    )Sales and distribution expenses
    
    
    
    
    
    
    (112,948
    )
    
    
    (126,816
    )
    
    
    (138,524
    )
    
    
    (20,304
    )General and administrative expenses
    
    
    
    
    
    
    (55,944
    )
    
    
    (68,498
    )
    
    
    (127,028
    )
    
    
    (18,618
    )Impairment
of goodwill
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    (27,589
    )
    
    
    (4,044
    )Total operating expenses
    
    
    
    
    
    
    (216,563
    )
    
    
    (251,839
    )
    
    
    (363,373
    )
    
    
    (53,260
    )Operating income / (loss)
    
    
    
    
    
    
    179,192
    
    
    
    116,027
    
    
    
    (130,083
    )
    
    
    (19,066
    )Other income/(expense)Interest income
    
    
    
    
    
    
    19,186
    
    
    
    22,313
    
    
    
    31,257
    
    
    
    4,581Interest expense
    
    
    
    
    
    
    (28,026
    )
    
    
    (35,347
    )
    
    
    (54,844
    )
    
    
    (8,039
    )Investment income
    
    
    
    
    
    
    238
    
    
    
    318
    
    
    
    4,873
    
    
    
    714Foreign currency exchange loss
    
    
    
    
    
    
    (9,875
    )
    
    
    (18,791
    )
    
    
    (10,418
    )
    
    
    (1,527
    )Grant income
    
    
    
    
    
    
    7,670
    
    
    
    7,355
    
    
    
    15,209
    
    
    
    2,229Total other expense
    
    
    
    
    
    
    (10,807
    )
    
    
    (24,152
    )
    
    
    (13,923
    )
    
    
    (2,042
    )Income/(loss) before income tax expense
and minority interests
    
    
    
    
    
    
    168,385
    
    
    
    91,875
    
    
    
    (144,006
    )
    
    
    (21,108
    )Income tax expense
    
    
    6
    
    
    
    (18,277
    )
    
    
    (10,321
    )
    
    
    (3,157
    )
    
    
    (463
    )Income/(loss) before minority interests
    
    
    
    
    
    
    150,108
    
    
    
    81,554
    
    
    
    (147,163
    )
    
    
    (21,571
    )Minority interests
    
    
    
    
    
    
    (1,267
    )
    
    
    982
    
    
    
    796
    
    
    
    117Net income/(loss)
    
    
    
    
    
    
    148,841
    
    
    
    82,536
    
    
    
    (146,367
    )
    
    
    (21,454
    )Dividends, accretion to redemption value
and of foreign currency rate
movements
on mandatorily redeemable
convertible
preference shares
    
    
    16
    
    
    
    (549
    )
    
    
    
    
    
    
    
    
    
    
    Net income/(loss) available to ordinary
shareholders
    
    
    
    
    
    
    148,292
    
    
    
    82,536
    
    
    
    (146,367
    )
    
    
    (21,454
    )Net income/(loss) per share available to
ordinary shareholders: Basic
    
    
    23
    
    
    
    0.25
    
    
    
    0.13
    
    
    
    (0.24
    )
    
    
    (0.04
    ) Diluted
    
    
    23
    
    
    
    0.25
    
    
    
    0.13
    
    
    
    (0.24
    )
    
    
    (0.04
    )Weighted average number of ordinary
shares: Basic
    
    
    23
    
    
    
    584,580,799
    
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    610,158,841 Diluted
    
    
    23
    
    
    
    593,150,684
    
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    610,158,841
   F-4




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
 
 Consolidated Statements of Shareholders Equity
 for the years ended December 31, 2006, 2007 and 2008
  Ordinary shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalNumber of
    
    
    
    
    
    
    Contributed
    
    
    Statutory
    
    
    Retained
    
    
    Treasury
    
    
    shareholdersNote
    
    
    shares
    
    
    Amount
    
    
    surplus
    
    
    reserves
    
    
    earnings
    
    
    stock
    
    
    equityRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBBalance as of January 1, 2006
    
    
    
    
    
    
    466,365,500
    
    
    
    77
    
    
    
    158,534
    
    
    
    117,092
    
    
    
    231,017
    
    
    
    
    
    
    
    506,720Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    148,841
    
    
    
    
    
    
    
    148,841Interest on long-term debt
paid by shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,345
    
    
    
    
    
    
    
    8,345Appropriation to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,311
    
    
    
    (15,311
    )
    
    
    
    
    
    
    Dividends declared on ordinary shares
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,609
    )
    
    
    
    
    
    
    (7,609
    )Dividends declared on mandatorily
redeemable convertible
preference shares
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (548
    )
    
    
    
    
    
    
    (548
    )Accretion to redemption value on
mandatorily redeemable
convertible preference shares
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (360
    )
    
    
    
    
    
    
    (360
    )Effect of foreign currency rate
movement on mandatorily redeemable
convertible preference shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    359
    
    
    
    
    
    
    
    359Issue of new shares, net of related
    
    
    17
    
    
    
    125,000,000
    
    
    
    20
    
    
    
    649,002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    649,022offering costs of RMB 71,534
Conversion of mandatorily redeemable
convertible preference shares
    
    
    16
    
    
    
    33,634,500
    
    
    
    6
    
    
    
    45,940
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,946Extinguishment of obligations in respect
of long-term debt and related
interest payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179,712
    
    
    
    
    
    
    
    179,712Balance as of December 31, 2006
    
    
    
    
    
    
    625,000,000
    
    
    
    103
    
    
    
    853,476
    
    
    
    132,403
    
    
    
    544,446
    
    
    
    
    
    
    
    1,530,428Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,536
    
    
    
    
    
    
    
    82,536Share repurchased during the year
    
    
    
    
    
    
    (10,936,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,447
    )
    
    
    (26,447
    )Appropriation to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,674
    
    
    
    (13,674
    )
    
    
    
    
    
    
    Balance as of December 31, 2007
    
    
    
    
    
    
    614,064,000
    
    
    
    103
    
    
    
    853,476
    
    
    
    146,077
    
    
    
    613,308
    
    
    
    (26,447
    )
    
    
    1,586,517Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (146,367
    )
    
    
    
    
    
    
    (146,367
    )Share repurchased during the year
    
    
    
    
    
    
    (12,085,225
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,097
    )
    
    
    (10,097
    )Share-based compensation, net of nil tax
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    3,194
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,194Appropriation to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,511
    
    
    
    (2,511
    )
    
    
    
    
    
    
    Derecognized on disposal of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,430
    )
    
    
    6,430
    
    
    
    
    
    
    
    Balance as of December 31, 2008
    
    
    
    
    
    
    601,978,775
    
    
    
    103
    
    
    
    856,670
    
    
    
    142,158
    
    
    
    470,860
    
    
    
    (36,544
    )
    
    
    1,433,247Balance as of December 31,
2008 US$
    
    
    
    
    
    
    
    
    
    15
    
    
    
    125,565
    
    
    
    20,837
    
    
    
    69,016
    
    
    
    (5,356
    )
    
    
    210,077
   F-5




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
 
 Consolidated Statements of Cash Flows
 for the years ended December 31, 2006, 2007 and 2008
 Note
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Cash flow from operating activitiesNet income/(loss)
    
    
    
    
    
    
    148,841
    
    
    
    82,536
    
    
    
    (146,367
    )
    
    
    (21,454
    )Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:Loss on disposal of property, plant and equipment
    
    
    
    
    
    
    1,297
    
    
    
    308
    
    
    
    390
    
    
    
    57Depreciation of property, plant and equipment
    
    
    22
    
    
    
    22,050
    
    
    
    29,004
    
    
    
    32,327
    
    
    
    4,738Impairment
of goodwill
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    27,589
    
    
    
    4,044Amortization of lease prepayments and intangible assets
    
    
    
    
    
    
    330
    
    
    
    1,216
    
    
    
    3,356
    
    
    
    492Interest expense on Exchangeable Bonds
    
    
    
    
    
    
    3,340
    
    
    
    
    
    
    
    
    
    
    
    Minority interests
    
    
    
    
    
    
    1,267
    
    
    
    (982
    )
    
    
    (796
    )
    
    
    (117
    )Allowance for doubtful accounts
    
    
    4
    
    
    
    2,030
    
    
    
    16,177
    
    
    
    57,574
    
    
    
    8,439Deferred tax expense (benefit)
    
    
    
    
    
    
    2,836
    
    
    
    (5,141
    )
    
    
    (9,451
    )
    
    
    (1,385
    )Deferred tax charges
    
    
    
    
    
    
    (1,820
    )
    
    
    3,596
    
    
    
    (261
    )
    
    
    (38
    )Foreign currency exchange loss
    
    
    
    
    
    
    8,428
    
    
    
    18,791
    
    
    
    10,418
    
    
    
    1,527Share-based compensation
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    3,194
    
    
    
    468Net gain from disposal of interests in subsidiaries
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    (4,556
    )
    
    
    (668
    )Changes in operating assets and liabilities, net of effects
of acquisition of a subsidiary:Accounts receivable
    
    
    
    
    
    
    (319,493
    )
    
    
    (380,865
    )
    
    
    (132,065
    )
    
    
    (19,357
    )Inventories
    
    
    
    
    
    
    (64,270
    )
    
    
    (104,373
    )
    
    
    13,442
    
    
    
    1,970Prepaid expenses and other current assets
    
    
    
    
    
    
    (1,360
    )
    
    
    1,061
    
    
    
    (64,186
    )
    
    
    (9,408
    )Accounts payable
    
    
    
    
    
    
    6,853
    
    
    
    142,652
    
    
    
    205,605
    
    
    
    30,136Bills payable
    
    
    
    
    
    
    49,509
    
    
    
    6,640
    
    
    
    36,470
    
    
    
    5,346Accrued expenses and other payables
    
    
    
    
    
    
    19,888
    
    
    
    66,370
    
    
    
    (38,012
    )
    
    
    (5,571
    )Income tax payable
    
    
    
    
    
    
    7,416
    
    
    
    2,782
    
    
    
    10,385
    
    
    
    1,522Amounts due to related parties
    
    
    
    
    
    
    (1,920
    )
    
    
    
    
    
    
    
    
    
    
    Net cash
(used in)/provided by operating activities
    
    
    
    
    
    
    (114,778
    )
    
    
    (120,228
    )
    
    
    5,056
    
    
    
    741Cash flow from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (71,639
    )
    
    
    (193,117
    )
    
    
    (100,138
    )
    
    
    (14,678
    )Purchase of land use rights
    
    
    
    
    
    
    (9,188
    )
    
    
    (75,890
    )
    
    
    
    
    
    
    Decrease/(increase) in pledged time deposits
    
    
    
    
    
    
    (162,368
    )
    
    
    (31,359
    )
    
    
    132,695
    
    
    
    19,450Acquisition of interests in subsidiary, net of cash acquire
    
    
    
    
    
    
    
    
    
    
    5,842
    
    
    
    
    
    
    
    Disposal of interests in subsidiary, net of cash dispose
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,479
    )
    
    
    (656
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    45
    
    
    
    87
    
    
    
    35
    
    
    
    5Net cash
(used in)/provided by investing activities
    
    
    
    
    
    
    (243,150
    )
    
    
    (294,437
    )
    
    
    28,113
    
    
    
    4,121Cash flow from financing activitiesRepurchase of registered capital interests
    
    
    
    
    
    
    
    
    
    
    (26,447
    )
    
    
    (10,097
    )
    
    
    (1,480
    )Net proceeds from issue of new shares
    
    
    
    
    
    
    649,022
    
    
    
    
    
    
    
    
    
    
    
    Principal payments of short-term bank loans
    
    
    
    
    
    
    (342,104
    )
    
    
    (612,050
    )
    
    
    (930,550
    )
    
    
    (136,394
    )Proceeds from short-term bank loans
    
    
    
    
    
    
    517,540
    
    
    
    882,050
    
    
    
    937,450
    
    
    
    137,406(Payment for)/proceeds from collection of sold accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    receivable on behalf of financial institutions, net
    
    
    
    
    
    
    (54,321
    )
    
    
    58,862
    
    
    
    (48,888
    )
    
    
    (7,166
    )Dividends paid to minority interest holders
    
    
    
    
    
    
    
    
    
    
    (3,800
    )
    
    
    
    
    
    
    Dividends paid to ordinary shareholders
    
    
    
    
    
    
    (61,623
    )
    
    
    (25,996
    )
    
    
    
    
    
    
    Net cash

provided by/(used in) financing activities
    
    
    
    
    
    
    708,514
    
    
    
    272,619
    
    
    
    (52,085
    )
    
    
    (7,634
    )Effect of foreign currency exchange rate change on cash
    
    
    
    
    
    
    (11,771
    )
    
    
    (8,599
    )
    
    
    (4,509
    )
    
    
    (661
    )Net increase/(decrease) in cash and cash equivalents
    
    
    
    
    
    
    338,815
    
    
    
    (150,645
    )
    
    
    (23,425
    )
    
    
    (3,433
    )Cash and cash equivalents:At beginning of year
    
    
    
    
    
    
    128,608
    
    
    
    467,423
    
    
    
    316,778
    
    
    
    46,431At end of year
    
    
    
    
    
    
    467,423
    
    
    
    316,778
    
    
    
    293,353
    
    
    
    42,998
  F-6




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 2006, 2007 and 2008
 2006
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Supplemental Disclosures of Cash Flow Information:Cash paid during the year for:Income tax
    
    
    9,844
    
    
    
    8,251
    
    
    
    2,485
    
    
    
    364Interest expense, net of interest capitalized
    
    
    24,686
    
    
    
    32,829
    
    
    
    50,310
    
    
    
    7,374Significant Non-Cash Transactions:Interest on long-term debt paid by shareholders
    
    
    8,345
    
    
    
    
    
    
    
    
    
    
    
    Extinguishment of obligations in respect of long-term
debt and related interest payable
    
    
    179,712
    
    
    
    
    
    
    
    
    
    
    
    Conversion of mandatorily redeemable convertible
preference shares into new ordinary shares
    
    
    45,946
    
    
    
    
    
    
    
    
    
    
    
    Acquisition on additional equity interest in subsidiary by
transfer and exchange of accounts receivable
    
    
    
    
    
    
    77,494
    
    
    
    
    
    
    
    
   F-7




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
 
 Notes to the Consolidated Financial Statements
 December 31, 2006, 2007 and 2008
  (1)
    
    Principal Activities, Basis of Presentation and Organization
 Principal Activities
  Basis of Presentation and Organization
   F-8




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (1)
    
    Principal Activities, Basis of Presentation and Organization (continued)
 Basis of Presentation and Organization (continued)
       F-9




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices
 (a)
    
    Principles of Consolidation
   (b)
    
    Foreign Currency Transactions
      F-10




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (b)
    
    Foreign Currency Transactions (continued)
   (c)
    
    Use of Estimates
   F-11




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (d)
    
    Cash and Cash Equivalents
     F-12




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (e)
    
    Accounts Receivable
    (f)
    
    Inventories
    F-13




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (g)
    
    Property, Plant and Equipment
  YearsBuildings
    
    
    2056Equipment and machinery
    
    
    510Motor vehicles
    
    
    10Office equipment and computer software
    
    
    5
   (h)
    
    Lease Prepayments
   F-14




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (i)
    
    Goodwill and Other Intangible Assets
    F-15




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (j)
    
    Investment Securities
  (k)
    
    Impairment of Long-Lived Assets
    F-16




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (l)
    
    Revenue Recognition
  Wireless coverage products and services
 Revenue Arrangements with Multiple
Deliverables
  F-17




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (l)
    
    Revenue Recognition (continued)
     F-18




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (l)
    
    Revenue Recognition (continued)
     F-19




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (l)
    
    Revenue Recognition (continued)
   Standalone wireless coverage products and RF-based parts and components
   (m)
    
    Cost of Revenues
   F-20




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (n)
    
    Income Taxes
   (o)
    
    Advertising and Research and Development Costs
   F-21




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (p)
    
    Freight Costs
  (q)
    
    Bills Payable
  (r) Government Grants
  (s)
    
    Commitments and Contingencies
   F-22




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (t)
    
    Income/(loss) per Share
 Computation of Earnings per Share
 (u)
    
    Share-Based Payment
  (v)
    
    Segment Reporting
   F-23




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (v)
    
    Segment Reporting (continued)
  (w)
    
    Fair value measurements
     F-24




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (x)
    
    Recently Issued Accounting Standards
 SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities  Including an amendment of SFAS No. 115
  SFAS No. 141 (R), Business Combinations
   F-25




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (x)
    
    Recently Issued Accounting Standards (continued)
 SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements
   F-26




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (x)
    
    Recently Issued Accounting Standards (continued)
 FASB Staff Position, No. FAS 142-3, Determination of the Useful Life of an
Intangible Asset
  (3)
    
    Pledged Time Deposits
  2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    US$000Pledged deposits with financial institutions
for security on:- accounts receivable sold (Note (a))
    
    
    51,499
    
    
    
    30,361
    
    
    
    4,450- bills payable (Note (b))
    
    
    62,396
    
    
    
    37,007
    
    
    
    5,424- short-term bank loans (Note (b))
    
    
    145,891
    
    
    
    55,000
    
    
    
    8,062259,786
    
    
    
    122,368
    
    
    
    17,936
  F-27




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (3)
    
    Pledged Time Deposits (continued)
 (a)
    
    In its ordinary course of business, the Company entered into certain one-year
agreements with independent financial institutions to sell, on an ongoing basis,
accounts receivable up to a specified amount (which totalled RMB300 million as of
December 31, 2007 and 2008). Accounts receivable are sold at a discount, which is
adjusted based upon the timing of collection by the financial institutions. Under the
terms of certain of these agreements, a portion of the sold receivables are subject to
certain limited recourse provisions pursuant to which the Company is required to
deposit 10% to 20% of the sale proceeds into a restricted bank account as security in
the event of default of payment by the paying accounts receivable customer. The cash
in the restricted bank account is released to the Company upon full payment by the
customer and is released on a proportionate basis to the extent that the collections
fall short of the amount of accounts receivable sold. The Company did not experience
any significant losses under these recourse provisions during the three-year period
ended December 31, 2008. The Company surrendered control over the accounts receivable
transferred to the financial institutions. Accordingly, pursuant to the provisions of
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,accounts receivable of RMB117,664,000, RMB200,440,000
and RMB202,178,000 (USD 29,634,000) were derecognized from the balance sheet on their
respective dates of the transfer during 2006, 2007 and 2008, respectively. The Company
received proceeds from the sale of the accounts receivable of RMB108,998,000,
RMB192,687,000 and RMB188,422,000 (US$27,652,000), respectively, for the years ended
December 31, 2006, 2007 and 2008, and recorded a discount from the sale of accounts
receivable of RMB8,666,000, RMB7,753,000 and RMB13,521,000 (US$1,982,000),
respectively, which was included in interest expense for the years ended December 31,
2006, 2007 and 2008. Discount on the sale of accounts receivable is recorded as
interest expense in the period during which it occurs.
    F-28




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (3)
    
    Pledged Time Deposits (continued)
 (b)
    
    The Company entered into several financing facilities for bills and short-term
loans with banks during the years presented. Under the terms of the arrangements, cash
deposits ranging from 20% to 100% of the respective financing facilities amount were
pledged to the banks. The pledged deposits will be released upon the termination or
expiry of these facilities.
 (4)
    
    Accounts Receivable, net
  2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    US$000Accounts receivable net of
allowances for estimated settlement
discounts of RMB10,657 and RMB24,425
respectively as of December 31, 2007
and 2008
    
    
    1,317,868
    
    
    
    1,249,250
    
    
    
    183,107Less: Allowance for doubtful accounts
    
    
    (22,354
    )
    
    
    (25,323
    )
    
    
    (3,712
    )1,295,514
    
    
    
    1,223,927
    
    
    
    179,395Long term accounts receivable, net
    
    
    (389,505
    )
    
    
    (551,210
    )
    
    
    (80,793
    )906,009
    
    
    
    672,717
    
    
    
    98,602Bills receivable
    
    
    19,829
    
    
    
    55,543
    
    
    
    8,142925,838
    
    
    
    728,260
    
    
    
    106,744
  2006
    
    
    2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    US$000Balance at beginning of year
    
    
    20,057
    
    
    
    14,982
    
    
    
    10,657
    
    
    
    1,562(Reversal)/provided during
the year
    
    
    (5,075
    )
    
    
    (4,325
    )
    
    
    13,768
    
    
    
    2,019Balance at end of year
    
    
    14,982
    
    
    
    10,657
    
    
    
    24,425
    
    
    
    3,581
  F-29




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (4)
    
    Accounts Receivable, net (continued)
     2006
    
    
    2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    US$000Balance at beginning of year
    
    
    4,147
    
    
    
    6,177
    
    
    
    22,354
    
    
    
    3,277Derecognized on disposal of
subsidaries
    
    
    
    
    
    
    
    
    
    
    (11,017
    )
    
    
    (1,616
    )Charge to statements of
operations
    
    
    2,030
    
    
    
    16,177
    
    
    
    57,574
    
    
    
    8,439Written off during the year
    
    
    
    
    
    
    
    
    
    
    (43,588
    )
    
    
    (6,388
    )Balance at end of year
    
    
    6,177
    
    
    
    22,354
    
    
    
    25,323
    
    
    
    3,712
   F-30




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (5)
    
    Inventories
  2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    US$000Raw materials
    
    
    137,722
    
    
    
    163,589
    
    
    
    23,978Work-in-progress
    
    
    14,014
    
    
    
    15,539
    
    
    
    2,278Finished goods
    
    
    390,358
    
    
    
    341,491
    
    
    
    50,053542,094
    
    
    
    520,619
    
    
    
    76,309
   (6)
    
    Income Tax Expense
 Cayman Islands and British Virgin Islands Taxes
   F-31




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (6)
    
    Income Tax Expense (continued)
 PRC Tax
     F-32




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (6)
    
    Income Tax Expense (continued)
  Current
    
    
    Deferred
    
    
    TotalPRC Income tax expense/(benefit)
    
    RMB000
    
    
    RMB000
    
    
    RMB000Year ended December 31, 2006
    
    
    17,261
    
    
    
    1,016
    
    
    
    18,277Year ended December 31, 2007
    
    
    11,866
    
    
    
    (1,545
    )
    
    
    10,321Year ended December 31, 2008
    
    
    12,608
    
    
    
    (9,451
    )
    
    
    3,157Year ended December 31, 2008 (US$000)
    
    
    1,848
    
    
    
    (1,385
    )
    
    
    463
  2006
    
    
    2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    US$000Income/(loss) before income tax expense
and minority
interests:- PRC
    
    
    167,717
    
    
    
    105,567
    
    
    
    (130,458
    )
    
    
    (19,122
    )- Non-PRC
    
    
    668
    
    
    
    (13,692
    )
    
    
    (13,548
    )
    
    
    (1,986
    )Income/(loss) before income tax expense
and minority
interests
    
    
    168,385
    
    
    
    91,875
    
    
    
    (144,006
    )
    
    
    (21,108
    )Computed expected tax expense/(benefit)
    
    
    25,258
    
    
    
    13,781
    
    
    
    (36,002
    )
    
    
    (5,277
    )Non-decuctible
impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    4,138
    
    
    
    607Non-deductible entertainment expenses
    
    
    4,756
    
    
    
    4,405
    
    
    
    4,051
    
    
    
    594Non-deductible cost of investment
    
    
    
    
    
    
    
    
    
    
    4,963
    
    
    
    727Non-deductible settlement discount
    
    
    
    
    
    
    
    
    
    
    1,893
    
    
    
    277Non-deductible share-based compensation
    
    
    
    
    
    
    
    
    
    
    575
    
    
    
    84Non-deductible bad debts expenses
    
    
    
    
    
    
    
    
    
    
    15,165
    
    
    
    2,223Other non-deductible expenses
    
    
    705
    
    
    
    885
    
    
    
    506
    
    
    
    74Research & development bonus deduction
    
    
    
    
    
    
    
    
    
    
    (4,073
    )
    
    
    (597
    )Non-taxable income
    
    
    (36
    )
    
    
    (48
    )
    
    
    (48
    )
    
    
    (7
    )Tax rate differential
    
    
    331
    
    
    
    2,385
    
    
    
    15,002
    
    
    
    2,198Tax holiday
    
    
    (13,602
    )
    
    
    (11,048
    )
    
    
    
    
    
    
    Change in valuation allowance
    
    
    865
    
    
    
    4,526
    
    
    
    320
    
    
    
    47Effect on change in enacted tax rate
    
    
    
    
    
    
    (4,565
    )
    
    
    
    
    
    
    Effect on change in tax rate on deferred
tax assets
    
    
    
    
    
    
    
    
    
    
    (3,333
    )
    
    
    (487
    )Actual income tax expense
    
    
    18,277
    
    
    
    10,321
    
    
    
    3,157
    
    
    
    463
  F-33




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (6)
    
    Income Tax Expense (continued)
  2006
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Decrease in net income per share
available
to ordinary shareholders:- Basic
    
    
    0.02
    
    
    
    0.02
    
    
    
    
    
    
    
    - Diluted
    
    
    0.02
    
    
    
    0.02
    
    
    
    
    
    
    
    
  RMB000
    
    
    US$0002009
    
    
    
    
    
    
    2010
    
    
    759
    
    
    
    1112011
    
    
    1,862
    
    
    
    2732012
    
    
    197
    
    
    
    292013
    
    
    1,661
    
    
    
    2434,479
    
    
    
    656
  F-34




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (6)
    
    Income Tax Expense (continued)
  2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    US$000Deferred tax assetsAccounts receivables
    
    
    5,497
    
    
    
    
    
    
    
    Revenue recognition
    
    
    2,474
    
    
    
    5,062
    
    
    
    742Accrual
    
    
    
    
    
    
    858
    
    
    
    126Warranty Provision
    
    
    2,220
    
    
    
    2,479
    
    
    
    363Inventories
    
    
    36
    
    
    
    8,430
    
    
    
    1,236Tax loss carryforwards
    
    
    2,780
    
    
    
    1,037
    
    
    
    152Total gross deferred tax assets
    
    
    13,007
    
    
    
    17,866
    
    
    
    2,619Less: valuation allowances
    
    
    (5,181
    )
    
    
    (729
    )
    
    
    (107
    )7,826
    
    
    
    17,137
    
    
    
    2,512Deferred tax liabilitiesProperty, plant and equipment
    
    
    (5,604
    )
    
    
    (4,752
    )
    
    
    (697
    )Lease prepayments
    
    
    (334
    )
    
    
    
    
    
    
    Total gross deferred tax liabilities
    
    
    (5,938
    )
    
    
    (4,752
    )
    
    
    (697
    )Net deferred tax assets
    
    
    1,888
    
    
    
    12,385
    
    
    
    1,815
  F-35




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (6)
    
    Income Tax Expense (continued)
  2006
    
    
    2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    US$000Balance at the beginning of
year
    
    
    
    
    
    
    865
    
    
    
    5,181
    
    
    
    759Charge to statement of
operations
    
    
    865
    
    
    
    4,526
    
    
    
    320
    
    
    
    47Effect of change in tax rate
    
    
    
    
    
    
    (210
    )
    
    
    124
    
    
    
    19Disposal of subsidiaries
(Note19)
    
    
    
    
    
    
    
    
    
    
    (4,896
    )
    
    
    (717
    )Balance at the end of year
    
    
    865
    
    
    
    5,181
    
    
    
    729
    
    
    
    107
   F-36




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (6)
    
    Income Tax Expense (continued)
     F-37




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (7)
    
    Property, Plant and Equipment, net and Construction in Progress
  2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    US$000Buildings
    
    
    35,327
    
    
    
    258,058
    
    
    
    37,825Equipment and machinery
    
    
    215,157
    
    
    
    169,152
    
    
    
    24,793Motor vehicles
    
    
    27,611
    
    
    
    17,961
    
    
    
    2,633Office equipment and computer software
    
    
    34,652
    
    
    
    45,336
    
    
    
    6,645312,747
    
    
    
    490,507
    
    
    
    71,896Accumulated depreciation
    
    
    (87,678
    )
    
    
    (78,248
    )
    
    
    (11,470
    )225,069
    
    
    
    412,259
    
    
    
    60,426Construction in progress
    
    
    134,637
    
    
    
    2,816
    
    
    
    413359,706
    
    
    
    415,075
    
    
    
    60,839
  (8)
    
    Lease Prepayments, net
 2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    US$000Prepaid land use rights
    
    
    91,838
    
    
    
    85,078
    
    
    
    12,470Accumulated amortization
    
    
    (2,155
    )
    
    
    (2,954
    )
    
    
    (433
    )89,683
    
    
    
    82,124
    
    
    
    12,037
     F-38




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (9)
    
    Investment Securities
  (10)
    
    Intangible Assets, net
 2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    US$000Patent
    
    
    375
    
    
    
    3,260
    
    
    
    478Accumulated amortization
    
    
    (338
    )
    
    
    (1,445
    )
    
    
    (212
    )37
    
    
    
    1,815
    
    
    
    266
   RMB000
    
    
    US$0002009
    
    
    1,630
    
    
    
    2392010
    
    
    185
    
    
    
    272011
    
    
    
    
    
    
    2012
    
    
    
    
    
    
    2013
    
    
    
    
    
    
    1,815
    
    
    
    266
  F-39




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (11)
    
    Goodwill
  2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    US$000Balance at the beginning of year
    
    
    8,216
    
    
    
    38,247
    
    
    
    5,606Addition (Note 18)
    
    
    30,031
    
    
    
    
    
    
    
    Disposal (Note 19)
    
    
    
    
    
    
    (10,658
    )
    
    
    (1,562
    )Impairment
    
    
    
    
    
    
    (27,589
    )
    
    
    (4,044
    )Balance at the end of year
    
    
    38,247
    
    
    
    
    
    
    
    
   (12)
    
    Accrued Expenses and Other Payables
  2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    US$000Amounts collected on sold accounts receivable
on behalf of financial institutions (Note 3)
    
    
    76,623
    
    
    
    27,735
    
    
    
    4,065Allowance for product warranties (Note 13)
    
    
    12,328
    
    
    
    12,395
    
    
    
    1,817Accruals for salaries and welfare
    
    
    10,469
    
    
    
    14,969
    
    
    
    2,194Receipts in advance
    
    
    88,764
    
    
    
    23,355
    
    
    
    3,423Value-Added Tax (VAT) payable
    
    
    97,484
    
    
    
    111,284
    
    
    
    16,311Business and other taxes payable
    
    
    20,182
    
    
    
    24,746
    
    
    
    3,627Staff deposits
    
    
    6,938
    
    
    
    218
    
    
    
    32Consideration payable for acquisition of Kaige
    
    
    10,000
    
    
    
    
    
    
    
    Construction fee payable
    
    
    
    
    
    
    24,333
    
    
    
    3,567Others
    
    
    17,977
    
    
    
    8,449
    
    
    
    1,238340,765
    
    
    
    247,484
    
    
    
    36,274
  F-40




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (13)
    
    Allowance for Product Warranties
  2006
    
    
    2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    US$000Balance at beginning of year
    
    
    11,794
    
    
    
    12,308
    
    
    
    12,328
    
    
    
    1,807Amount charged to expense
    
    
    8,240
    
    
    
    10,483
    
    
    
    8,697
    
    
    
    1,275Amount utilized
    
    
    (7,726
    )
    
    
    (10,463
    )
    
    
    (8,630
    )
    
    
    (1,265
    )Balance at end of year
    
    
    12,308
    
    
    
    12,328
    
    
    
    12,395
    
    
    
    1,817
 (14)
    
    Short-Term Bank Loans
  2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    US$000- Unsecured
    
    
    296,050
    
    
    
    425,000
    
    
    
    62,294- Secured
    
    
    160,000
    
    
    
    55,207
    
    
    
    8,092456,050
    
    
    
    480,207
    
    
    
    70,386
    F-41




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (14)
    
    Short-Term Bank Loans (continued)
  (15)
    
    Long-Term Bank Loan
   (16)
    
    Mandatorily Redeemable Convertible Preference Shares
    F-42




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (17)
    
    Shareholders equity
 Registered capital
   Ordinary shares
     F-43




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (17)
    
    Shareholders equity (continued)
  (18)
    
    Acquisitions
 (a)
    
    Acquisition of the entire equity interest of Kaige and its wholly owned subsidiary,
Kaixuan
   (b)
    
    Acquisition of the additional 20% equity interest of Lake Communication
    F-44




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (18)
    
    Acquisitions (continued)
 The Company considers the above acquisitions in aggregate were not material to
the Companys financial position or results of operations for the periods
presented.
 (19)
    
    Dispositions
 Disposition of the entire equity interest in Lake Communication and Lake Microwave
     F-45




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (20)
    
    Share-based compensation
    March
    
    
    December2008
    
    
    2008options
    
    
    optionsFair value of shares on grant date
    
    US$ 0.11 per ordinary share
    
    
    US$ 0.03 per ordinary shareExpected volatility
    
    
    65.7
    %
    
    
    94.7
    %Expected dividends
    
    Nil
    
    
    NilExpected term (in years)
    
    
    3.5
    
    
    
    3.5Risk-free rate
    
    
    2.4
    %
    
    
    1.5
    %
    F-46




---



##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (20)
    
    Share-based compensation (continued)
    (21)
    
    Revenues
  2006
    
    
    2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    US$000Sale of wireless coverage products
    
    
    686,826
    
    
    
    577,971
    
    
    
    498,928
    
    
    
    73,130Installation services of
wireless coverage products
    
    
    108,867
    
    
    
    223,461
    
    
    
    277,931
    
    
    
    40,738RF parts and components
    
    
    32,027
    
    
    
    173,545
    
    
    
    221,566
    
    
    
    32,476827,720
    
    
    
    974,977
    
    
    
    998,425
    
    
    
    146,344Write back of/(provision for)
settlement discounts
    
    
    5,075
    
    
    
    4,325
    
    
    
    (13,768
    )
    
    
    (2,019
    )832,795
    
    
    
    979,302
    
    
    
    984,657
    
    
    
    144,325
  F-47




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (22)
    
    Depreciation
  2006
    
    
    2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    US$000Cost of revenues
    
    
    14,366
    
    
    
    18,951
    
    
    
    16,949
    
    
    
    2,484Research and development
costs
    
    
    2,504
    
    
    
    3,834
    
    
    
    6,937
    
    
    
    1,017Sales and distribution
expenses
    
    
    2,104
    
    
    
    3,361
    
    
    
    3,462
    
    
    
    507General and administrative
expenses
    
    
    3,076
    
    
    
    2,858
    
    
    
    4,979
    
    
    
    73022,050
    
    
    
    29,004
    
    
    
    32,327
    
    
    
    4,738
 (23)
    
    Net Income/(loss) available to Ordinary Shareholders
 2006
    
    
    2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    US$000Net income/(loss) available to ordinary shareholders
    
    
    148,292
    
    
    
    82,536
    
    
    
    (146,367
    )
    
    
    (21,454
    )Denominator for basic net income available to
ordinary shareholders:Weighted average number of ordinary
shares outstanding
    
    
    584,580,799
    
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    610,158,841Basic net income/(loss) per share available to
ordinary shareholders
    
    
    0.25
    
    
    
    0.13
    
    
    
    (0.24
    )
    
    
    (0.04
    )Net income/(loss) available to ordinary shareholders
    
    
    148,292
    
    
    
    82,536
    
    
    
    (146,367
    )
    
    
    (21,454
    )Dividend, accretion to redemption value
and foreign exchange currency rate
movements
on mandatorily redeemable convertible
preference shares
    
    
    549
    
    
    
    
    
    
    
    
    
    
    
    Diluted net income/(loss) available to ordinary shareholders
    
    
    148,841
    
    
    
    82,536
    
    
    
    (146,367
    )
    
    
    (21,454
    )Denominator for diluted net income/(loss) available to
ordinary shareholders:Weighted average number of ordinary shares
outstanding
    
    
    584,580,799
    
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    610,158,841Weighted average number of mandatorily
redeemable convertible preference shares
    
    
    8,569,885
    
    
    
    
    
    
    
    
    
    
    
    593,150,684
    
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    610,158,841Diluted net income/(loss) per share available to
ordinary shareholders
    
    
    0.25
    
    
    
    0.13
    
    
    
    (0.24
    )
    
    
    (0.04
    )
   F-48




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (24)
    
    Related Party Transactions
  2006
    
    
    2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    US$000Acquisition of additional
20% equity share of Lake
Communication (Note 18)
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    Payment for rental (Note)
    
    
    960
    
    
    
    
    
    
    
    
    
    
    
    Disposition of 100% equity
share of Lake Communication
(Note 19)
    
    
    
    
    
    
    
    
    
    
    86,130
    
    
    
    12,624Disposition of 80% equity
share of Lake Microwave
(Note 19)
    
    
    
    
    
    
    
    
    
    
    870
    
    
    
    128
   (25)
    
    Pension and Other Post Retirement Benefits
   F-49




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (26)
    
    Fair Value of Financial Instruments
    (27)
    
    Business and Credit Concentrations
  2006
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    2008RMB000
    
    
    %
    
    
    RMB000
    
    
    %
    
    
    RMB000
    
    
    %
    
    
    US$000China Unicom Group
    
    
    298,693
    
    
    
    36
    
    
    
    377,785
    
    
    
    39
    
    
    
    244,455
    
    
    
    24
    
    
    
    33,512China Mobile Group
    
    
    277,098
    
    
    
    33
    
    
    
    317,735
    
    
    
    32
    
    
    
    390,266
    
    
    
    40
    
    
    
    53,501China Telecom Group
    
    
    89,169
    
    
    
    11
    
    
    
    49,636
    
    
    
    5
    
    
    
    75,440
    
    
    
    8
    
    
    
    10,342The Companys RF based products customer  Customer A
    
    
    10,412
    
    
    
    1
    
    
    
    123,076
    
    
    
    13
    
    
    
    58,941
    
    
    
    6
    
    
    
    8,080The Companys RF based products customer  Customer B
    
    
    
    
    
    
    
    
    
    
    37,088
    
    
    
    4
    
    
    
    102,253
    
    
    
    10
    
    
    
    14,018
  F-50




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (27)
    
    Business and Credit Concentrations (continued)
   2007
    
    
    2008
    
    
    2008RMB000
    
    
    RMB000
    
    
    US$000China Unicom Group Current portion
    
    
    345,538
    
    
    
    234,823
    
    
    
    34,419 Long-term portion
    
    
    182,969
    
    
    
    253,169
    
    
    
    37,108528,507
    
    
    
    487,992
    
    
    
    71,527China Mobile Group Current portion
    
    
    229,328
    
    
    
    223,797
    
    
    
    32,803 Long-term portion
    
    
    149,714
    
    
    
    228,038
    
    
    
    33,424379,042
    
    
    
    451,835
    
    
    
    66,227China Telecom Group Current portion
    
    
    87,297
    
    
    
    96,366
    
    
    
    14,125 Long-term portion
    
    
    29,059
    
    
    
    48,026
    
    
    
    7,039116,356
    
    
    
    144,392
    
    
    
    21,164The Companys RF based products customer  Customer A Current portion
    
    
    102,136
    
    
    
    49,451
    
    
    
    7,248 Long-term portion
    
    
    
    
    
    
    
    
    
    
    102,136
    
    
    
    49,451
    
    
    
    7,248The Companys RF based products customer  Customer B Current portion
    
    
    8,569
    
    
    
    1,463
    
    
    
    214 Long-term portion
    
    
    
    
    
    
    
    
    
    
    8,569
    
    
    
    1,463
    
    
    
    2141,134,610
    
    
    
    1,135,133
    
    
    
    166,380
  F-51




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (28)
    
    Commitments and Contingencies
 (i)
    
    Operating lease commitments
  RMB000
    
    
    US$0002009
    
    
    4,796
    
    
    
    6572010
    
    
    422
    
    
    
    582011
    
    
    80
    
    
    
    112012
    
    
    30
    
    
    
    42013
    
    
    
    
    
    
    5,328
    
    
    
    730
  (ii)
    
    Capital commitments
  (iii)
    
    Loan guarantees
  (iv)
    
    Contingencies
   F-52




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##### Table of Contents



China GrenTech Corporation Limited and subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2006, 2007 and 2008
 (29)
    
    China GrenTech Corporation Limited (Parent Company)
      F-53




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description of Exhibit1.1
    
    
    Amended and restated memorandum and articles of association of the Registrant (1)2.1
    
    
    Form of share certificate (1)2.2
    
    
    Form of deposit agreement, including form of American Depositary Receipt (2)4.1
    
    
    Contract for grant of land use right of Shenzhen Municipality (3)4.2
    
    
    Translation of share transfer agreement for Lake Communication Limited by and
between Shenzhen GrenTech Company Limited and Zhuang Haifan dated December 17,
2008 and related disposition of liabilities agreement4.3
    
    
    Share option scheme (4)8.1
    
    
    List of subsidiaries11.1
    
    
    Code of ethics (5)12.1
    
    
    CEO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
    
    
    CFO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
    
    
    CEO and CFO certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated by reference to our Registration Statement on Form F-1 (File No. 333-132381)
filed with the SEC in connection with our global offering in November 2004.(2)
    
    Incorporated by reference to our Registration Statement on Form F-6 (File No. 333-132385)
filed with the SEC with respect to American Depositary Shares representing our ordinary
shares.(3)
    
    Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended
December 31, 2007 filed with the SEC on July 15, 2008.(4)
    
    Incorporated by reference to our Registration Statement on Form F-1 (File No. 333-132381)
filed with the SEC in connection with our global offering in November 2004.(5)
    
    Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended
December 31, 2006 filed with the SEC on May 4, 2007.