##### 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, 2009
 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
 (Exact name of Registrant as specified in its charter)
 
 Cayman Islands
(Jurisdiction of incorporation or organization)
 15th Floor, Block A, Guoren Building
Keji Central 3rd Road
Hi-Tech Park, Nanshan District
Shenzhen 518057, Peoples Republic of China
(Address of principal executive offices)
 Rong Yu, Chief Financial Officer
15th Floor, Block A, Guoren Building
Keji Central 3rd Road
Hi-Tech Park, Nanshan District
Shenzhen 518057, Peoples Republic of China
Telephone: (86 755) 2663-7600
Facsimile: (86 755) 2654-6999 ext. 0017
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
  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, 2009, 590,137,125 ordinary shares, par value US$0.00002 per share.
  o þ
  o þ
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  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
    
    
    1PART I
    
    
    
    
    2Item 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    2Item 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    2Item 3.
    
    KEY INFORMATION
    
    
    2Item 4.
    
    INFORMATION ON THE COMPANY
    
    
    19Item 4A.
    
    UNRESOLVED STAFF COMMENTS
    
    
    35Item 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    35Item 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    54Item 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    61Item 8.
    
    FINANCIAL INFORMATION
    
    
    62Item 9.
    
    THE OFFER AND LISTING
    
    
    63Item 10.
    
    ADDITIONAL INFORMATION
    
    
    64Item 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    68Item 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    68PART II
    
    
    
    
    69Item 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    69Item 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    69Item 15.
    
    CONTROLS AND PROCEDURES
    
    
    69Item 16.
    
    RESERVED
    
    
    72Item 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    72Item 16B.
    
    CODE OF ETHICS
    
    
    72Item 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    72Item 16D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    72Item 16E.
    
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    72Item 16F.
    
    CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    73Item 16G.
    
    CORPORATE GOVERNANCE
    
    
    73PART III
    
    
    
    
    73Item 17.
    
    FINANCIAL STATEMENTS
    
    
    73Item 18.
    
    FINANCIAL STATEMENTS
    
    
    73Item 19.
    
    EXHIBITS
    
    
    74Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1
   i




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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 and demand from domestic base station
equipment manufacturers;
    
    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 wireless coverage products or base
station RF products;
    
    risks associated with possible defects and errors in our wireless coverage products or
base station 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.
 
 SUPPLEMENTAL INFORMATION
    1




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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
 A. Selected Financial Data
    2




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##### Table of Contents



Year ended December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands, except for per share and number of shares data)Consolidated statements of
operations informationRevenues
    
    
    716,270
    
    
    
    832,795
    
    
    
    979,302
    
    
    
    984,657
    
    
    
    1,602,943
    
    
    
    234,832Cost of revenues
    
    
    (328,064
    )
    
    
    (437,040
    )
    
    
    (611,436
    )
    
    
    (751,367
    )
    
    
    (1,223,973
    )
    
    
    (179,313
    )Gross profit
    
    
    388,206
    
    
    
    395,755
    
    
    
    367,866
    
    
    
    233,290
    
    
    
    378,970
    
    
    
    55,519Other revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,344
    
    
    
    490Operating expensesResearch and
development costs
    
    
    (30,616
    )
    
    
    (47,671
    )
    
    
    (56,525
    )
    
    
    (70,232
    )
    
    
    (59,899
    )
    
    
    (8,775
    )Sales and distribution
expenses
    
    
    (91,489
    )
    
    
    (112,948
    )
    
    
    (126,816
    )
    
    
    (138,524
    )
    
    
    (180,525
    )
    
    
    (26,447
    )General and
administrative expenses
    
    
    (41,057
    )
    
    
    (55,944
    )
    
    
    (68,498
    )
    
    
    (127,028
    )
    
    
    (81,506
    )
    
    
    (11,941
    )Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,589
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    (163,162
    )
    
    
    (216,563
    )
    
    
    (251,839
    )
    
    
    (363,373
    )
    
    
    (321,930
    )
    
    
    (47,163
    )Operating income/(loss)
    
    
    225,044
    
    
    
    179,192
    
    
    
    116,027
    
    
    
    (130,083
    )
    
    
    60,384
    
    
    
    8,846Other income/(expense)Interest income
    
    
    3,213
    
    
    
    19,186
    
    
    
    22,313
    
    
    
    31,257
    
    
    
    40,997
    
    
    
    6,006Interest expense
    
    
    (36,105
    )
    
    
    (28,026
    )
    
    
    (35,347
    )
    
    
    (54,844
    )
    
    
    (56,766
    )
    
    
    (8,316
    )Investment income
    
    
    159
    
    
    
    238
    
    
    
    318
    
    
    
    4,873
    
    
    
    
    
    
    
    Foreign currency
exchange gain/(loss)
    
    
    5,584
    
    
    
    (9,875
    )
    
    
    (18,791
    )
    
    
    (10,418
    )
    
    
    (211
    )
    
    
    (31
    )Grant income
    
    
    16,732
    
    
    
    7,670
    
    
    
    7,355
    
    
    
    15,209
    
    
    
    6,322
    
    
    
    926Total other
income/(expense)
    
    
    (10,417
    )
    
    
    (10,807
    )
    
    
    (24,152
    )
    
    
    (13,923
    )
    
    
    (9,658
    )
    
    
    (1,415
    )Income/(loss) before
income tax expense
    
    
    214,627
    
    
    
    168,385
    
    
    
    91,875
    
    
    
    (144,006
    )
    
    
    50,726
    
    
    
    7,431Income tax expense
    
    
    (26,097
    )
    
    
    (18,277
    )
    
    
    (10,321
    )
    
    
    (3,157
    )
    
    
    (18,068
    )
    
    
    (2,647
    )Net income/(loss)
    
    
    188,530
    
    
    
    150,108
    
    
    
    81,554
    
    
    
    (147,163
    )
    
    
    32,658
    
    
    
    4,784Net (income)/loss
attributable to
noncontrolling interests
    
    
    (7,086
    )
    
    
    (1,267
    )
    
    
    982
    
    
    
    796
    
    
    
    14
    
    
    
    2Net income/(loss)
attributable to the equity
shareholders of China
GrenTech Corporation
Limited, or GrenTech
    
    
    181,444
    
    
    
    148,841
    
    
    
    82,536
    
    
    
    (146,367
    )
    
    
    32,672
    
    
    
    4,786Dividends, accretion to
redemption value and
foreign currency rate
movements on mandatorily
redeemable convertible
preference shares
    
    
    (2,428
    )
    
    
    (549
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income/(loss)
attributable to the equity
shareholders of GrenTech
    
    
    179,016
    
    
    
    148,292
    
    
    
    82,536
    
    
    
    (146,367
    )
    
    
    32,672
    
    
    
    4,786Net income/(loss) per
share attributable to the
equity shareholders of
GrenTech:Basic
    
    
    0.38
    
    
    
    0.25
    
    
    
    0.13
    
    
    
    (0.24
    )
    
    
    0.05
    
    
    
    0.01Diluted
    
    
    0.36
    
    
    
    0.25
    
    
    
    0.13
    
    
    
    (0.24
    )
    
    
    0.05
    
    
    
    0.01Weighted average number of
ordinary shares:Basic
    
    
    466,365,500
    
    
    
    584,580,799
    
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    595,536,733
    
    
    
    595,536,733Diluted
    
    
    500,000,000
    
    
    
    593,150,684
    
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    604,781,041
    
    
    
    604,781,041Total cash dividend
declared to ordinary
shareholders
    
    
    29,653
    
    
    
    7,609
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Year ended December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Consolidated balance sheet
informationCash and cash equivalents
    
    
    128,608
    
    
    
    467,423
    
    
    
    316,778
    
    
    
    293,353
    
    
    
    469,454
    
    
    
    68,775Pledged time deposits
    
    
    76,250
    
    
    
    238,618
    
    
    
    259,786
    
    
    
    122,368
    
    
    
    103,035
    
    
    
    15,095Accounts receivable, net
    
    
    537,321
    
    
    
    747,859
    
    
    
    925,838
    
    
    
    728,260
    
    
    
    892,149
    
    
    
    130,701Inventories
    
    
    370,136
    
    
    
    434,406
    
    
    
    542,094
    
    
    
    520,619
    
    
    
    771,236
    
    
    
    112,987Total current assets
    
    
    1,172,072
    
    
    
    1,948,407
    
    
    
    2,107,691
    
    
    
    1,779,666
    
    
    
    2,352,667
    
    
    
    344,668Property, plant and
equipment, net
    
    
    120,356
    
    
    
    161,503
    
    
    
    225,069
    
    
    
    412,259
    
    
    
    444,578
    
    
    
    65,131Construction in progress
    
    
    
    
    
    
    7,100
    
    
    
    134,637
    
    
    
    2,816
    
    
    
    3,961
    
    
    
    580Long-term accounts receivable
    
    
    162,032
    
    
    
    268,957
    
    
    
    389,505
    
    
    
    551,210
    
    
    
    452,191
    
    
    
    66,246Total assets
    
    
    1,475,469
    
    
    
    2,415,834
    
    
    
    2,997,299
    
    
    
    2,838,970
    
    
    
    3,337,347
    
    
    
    488,924Short-term bank loans
    
    
    160,614
    
    
    
    336,050
    
    
    
    456,050
    
    
    
    480,207
    
    
    
    613,378
    
    
    
    89,860Total current liabilities
    
    
    738,551
    
    
    
    866,435
    
    
    
    1,249,081
    
    
    
    1,266,617
    
    
    
    1,755,819
    
    
    
    257,228Long-term bank loans
    
    
    167,053
    
    
    
    
    
    
    
    150,000
    
    
    
    130,000
    
    
    
    110,000
    
    
    
    16,115Total liabilities
    
    
    905,604
    
    
    
    866,435
    
    
    
    1,405,019
    
    
    
    1,401,369
    
    
    
    1,870,498
    
    
    
    274,029Mandatorily redeemable
convertible preference
shares
    
    
    45,441
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total shareholders equity
    
    
    552,161
    
    
    
    1,549,399
    
    
    
    1,592,280
    
    
    
    1,437,601
    
    
    
    1,466,849
    
    
    
    214,895
 Year ended December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Consolidated cash
flow informationNet cash (used
in)/provided by
operating
activities
    
    
    (112,611
    )
    
    
    (114,778
    )
    
    
    (120,228
    )
    
    
    5,056
    
    
    
    90,731
    
    
    
    13,292Net cash (used
in)/provided by
investing
activities
    
    
    (20,900
    )
    
    
    (243,150
    )
    
    
    (294,437
    )
    
    
    28,113
    
    
    
    (45,338
    )
    
    
    (6,642
    )Net cash (used
in)/provided by
financing
activities
    
    
    (40,813
    )
    
    
    708,514
    
    
    
    272,619
    
    
    
    (52,085
    )
    
    
    130,919
    
    
    
    19,180Cash and cash
equivalents at the
end of year
    
    
    128,608
    
    
    
    467,423
    
    
    
    316,778
    
    
    
    293,353
    
    
    
    469,454
    
    
    
    68,775
  3




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Exchange Rate Information
   Noon buying ratePeriod
    
    Period end
    
    
    Average (1)
    
    
    High
    
    
    Low(RMB per US$1.00)2005
    
    
    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
    
    
    
    6.78002009
    
    
    6.8259
    
    
    
    6.8295
    
    
    
    6.8470
    
    
    
    6.8176December
    
    
    6.8259
    
    
    
    6.8275
    
    
    
    6.8299
    
    
    
    6.82442010 January
    
    
    6.8268
    
    
    
    6.8269
    
    
    
    6.8295
    
    
    
    6.8258February
    
    
    6.8258
    
    
    
    6.8285
    
    
    
    6.8330
    
    
    
    6.8258March
    
    
    6.8258
    
    
    
    6.8262
    
    
    
    6.8270
    
    
    
    6.8254April
    
    
    6.8247
    
    
    
    6.8256
    
    
    
    6.8275
    
    
    
    6.8229May
    
    
    6.8305
    
    
    
    6.8275
    
    
    
    6.8310
    
    
    
    6.8245June (through June 18, 2010)
    
    
    6.8267
    
    
    
    6.8298
    
    
    
    6.8323
    
    
    
    6.8267
  
 (1)
    
    Annual averages are calculated from month-end rates. Monthly averages are calculated using the
average of the daily rates during the relevant period. B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use Of Proceeds
  D. Risk Factors
 Risks Relating to Our Company
 We derive a significant portion of our revenues from the three principal telecommunications
operators in China, and our revenues could decline significantly if any of them reduces its
purchases of our wireless coverage products and services.
   4




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Because we have limited bargaining leverage with the three principal telecommunications operators
in China, some contractual terms and market practices are materially adverse to our interest.
  Changes in the procurement policies by our major customers may adversely affect our revenue and
profit margin on our wireless coverage products.
   5




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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.
      
    
    44% of the contract value due upon the signing of the contract and the issuance of the
completion certificate or delivery certificate,
    
    an additional 35% due upon the issuance of the preliminary inspection certificate,
    
    a further 17% due upon the issuance of the final inspection certificate, and
    
    the final 4% due upon the expiration of our warranty period.
    6




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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.
    7




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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 2G and 3G network coverage in the
near future, the profitability and future prospects of our business and our liquidity could be
materially and adversely affected.
  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.
   8




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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;
    
    revolving 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.
  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;
    
    pricing;
    
    scope and flexibility of product offering;
  9




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
    
    after-sale service capability; and
    
    relationships with wireless operators and base station equipment manufacturers.
  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.
   For our standalone service contracts and bundled sale contracts, we hire third parties to carry out
some of the initial installation of the wireless coverage products. We are liable for the failure
or inadequacy of their services, and may be vulnerable to the loss and unavailability of their
services.
   10




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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.
   If we lose certain government tax concessions, our profitability may be materially and adversely
affected.
    11




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##### Table of Contents



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.
   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.
   12




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##### Table of Contents



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 25.3%;
    
    Drag Investments Limited (majority-owned by Professor Kunjie Zhuang, a director and a
technology consultant) with 9.5%; and
    
    Heng Xing Yue Investments Limited (partially-owned by Rong Yu, a director and our chief
financial officer) with 6.1%.
  
    
    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.
   13




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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.
     14




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##### 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.
      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.
   15




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##### Table of Contents



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.
  Changes in foreign exchange regulation in China may affect our ability to pay dividends in foreign
currencies.
   16




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##### Table of Contents



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.
   We may be subject to acts of God, acts of war and epidemics which are beyond our control and which
may cause damage, loss or disruption to our business.
   17




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##### Table of Contents



PRC regulations relating to offshore investment activities by PRC residents may limit our ability
to acquire PRC companies and adversely affect our business and prospects.
   All participants in our existing equity compensation plan who are PRC citizens may be required to
register with SAFE. We may also face regulatory uncertainties that could restrict our ability to
adopt additional equity compensation plans for our directors, employees and other parties under PRC
law.
   We may incur substantial increases in labor cost due to the promulgation of the new labor contract
law.
   18




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##### Table of Contents



Item 4. INFORMATION ON THE COMPANY
 HISTORY AND DEVELOPMENT
   
 
 (1)
    
    The remaining 1% interest in Shenzhen Lingxian is owned by Ms. Xiujun Zhang, an employee of
ours.    19




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##### 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
     20




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##### Table of Contents



BUSINESS
 Overview
     21




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##### Table of Contents



Our Wireless Coverage Products and Services
  Wireless Coverage Products
   2G Networks .
 3G Networks .
 
    
    Indoor Coverage. In order to achieve effective coverage and distribution in
indoor environments, such as high-rise buildings, underground areas and elevators, we use
antennas, couplers, trunk amplifiers, repeaters and other accessories to construct a
complete indoor coverage distribution system that enables evenly distributed emissions of
radio signals from the base stations to cover the entire facility. Our indoor coverage
products support various transmission protocols, such as GSM networks (1,800 MHz and 900
MHz), CDMA, TD-SCDMA, CDMA2000 and WCDMA. We also provide point of interface, or POI,
products that are capable of supporting multiple protocols simultaneously, which offers
effective coverage platform solutions in subways, indoor stadiums and other large indoor
facilities.
    
    Outdoor Coverage. We design our outdoor coverage products to provide wireless
coverage in specified geographic and topographic regions. Depending on the particular
coverage requirements, our outdoor coverage products may consist of antennas and repeaters
and other accessories to transmit and extend radio signals from base stations to blind and
weak spots
or areas where network coverage does not exist or is weak. Our outdoor coverage products
are typically used in areas such as highways, railways, subways and tunnels.
  22




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##### Table of Contents



Our Services
  Design Services
 Installation of Wireless Coverage Products
 Project Warranties
 Our Sales Cycle
  Standalone equipment contracts
  Bidding Process
  
    
    research and development capabilities;
  23




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##### Table of Contents




    
    quality of products in terms of performance, functionality and reliability;
    
    pricing;
    
    overall financial strength and operational scale; and
    
    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
 Warranty Period.
 Standalone service contracts
  Bidding Process
  
    
    pricing;
    
    project design, installation and after sales services capacities;
    
    overall financial strength and operational scale; and
    
    grading of quality certificate.
  Design and Installation
  24




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##### Table of Contents



Contract Signing
 Inspection and Warranty Period
 Payment
 Bundled sale contracts
  Bidding Process
  
    
    research and development capabilities;
    
    quality of products in terms of performance, functionality and reliability;
    
    pricing;
    
    range and standards of services to be provided, including after-sale services
    
    project design, installation and after sales services capacities;
    
    overall financial strength and operational scale; and
    
    grading of quality certificate.
 Delivery and Installation
 Contract Signing
 Inspection and Warranty Period
  25




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##### Table of Contents



Payment
 Selected Completed Projects
  Project
    
    Location
    
    Customer
    
    Completion dateIndoor coverageNew CCTV Main Building
    
    Beijing
    
    China Mobile group
    
    December 2009Guangzhou West Tower
    
    Guangzhou
    
    China Mobile group
    
    October 2009Qiao Xiang Village
    
    Shenzhen
    
    China Telecom group
    
    June 2009Diwang Building
    
    Shenzhen
    
    China Unicom group
    
    September 2009New World Center
    
    Wuhan
    
    China Unicom group
    
    September 2009Baoli World Trade Center Phase II
    
    Guangzhou
    
    China Mobile group
    
    April 2009Citibank Tower
    
    Shanghai
    
    China Unicom group
    
    May 2009PRC Environmental Protection Ministry Office Building
    
    Beijing
    
    China Netcom group
    
    June 2009Shanghai Information Building (Information Center)
    
    Shanghai
    
    China Unicom group
    
    June 2009China Petroleum Building
    
    Shanghai
    
    China Unicom group
    
    May 2009New World Plaza
    
    Shanghai
    
    China Mobile group
    
    November 2009Wanda Plaza
    
    Shanghai
    
    China Telecom group
    
    November 2009Outdoor coverageShanya Nantian Farm Mang San Village
    
    Shanya
    
    China Unicom group
    
    November 2009Wu Su Xi Jiao Biology Area
    
    Kuitun
    
    China Mobile group
    
    June 2009Zunyi Railway Tunnel Phase II
    
    Zunyi
    
    China Mobile group
    
    June 2009Zunren Highway Tunnel
    
    Zunyi
    
    China Mobile group
    
    July 2009Longtoujin Tunnel
    
    Xingyi
    
    China Unicom group
    
    November 2009Pinzitou Tunnel
    
    Xinyi
    
    China Unicom group
    
    November 2009Shexingpo Tunnel
    
    Xinyi
    
    China Unicom group
    
    November 2009Guanlan Jade Bay
    
    Shenzhen
    
    China Unicom group
    
    April 2009Xili College Town
    
    Shenzhen
    
    China Unicom group
    
    July 2009Wutong Mountain North
    
    Shenzhen
    
    China Unicom group
    
    September 2009Bijia Mountain Park
    
    Shenzhen
    
    China Unicom group
    
    April 2009
 Our Base Station RF Products
  Base Station RF Parts and Components
    26




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##### Table of Contents




    
    We first go through stringent certification processes to become a certified supplier of
base station equipment manufacturers. Each base station 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 base station equipment manufacturer
customers and conduct product development according to the customer specifications. All of
our base station RF parts 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 261 types of base station RF parts and
components for various base station equipment manufacturer customers.
    
    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 Subsystems
  Production
 Production Facilities
   Capacity
    
    
    UtilizationType of products
    
    (sets per month)
    
    
    (sets per month)Wireless coverage products
    
    
    10,000
    
    
    
    8,182Base station RF products
    
    
    45,000
    
    
    
    40.568
 Production Process
   27




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##### Table of Contents




    
    integrated circuit board processing;
    
    covering and welding;
    
    manufacturing and assembly;
    
    testing; and
    
    quality control.
   Quality Control
  Quality Control for Raw Materials
 Quality Control During Production
 Final Testing Before Delivery
 Testing at Customer Site
 Warranty
  28




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##### 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 base station 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 31,2007
    
    
    2008
    
    
    2009(RMB)
    
    
    (%)
    
    
    (RMB)
    
    
    (%)
    
    
    (RMB)
    
    
    (US$)
    
    
    (%)(in millions, except for percentages)Wireless coverage products:China Unicom group
    
    
    377.8
    
    
    
    38.6
    
    
    
    244.5
    
    
    
    24.8
    
    
    
    518.2
    
    
    
    75.9
    
    
    
    32.3China Mobile group
    
    
    317.7
    
    
    
    32.4
    
    
    
    390.3
    
    
    
    39.6
    
    
    
    390.9
    
    
    
    57.3
    
    
    
    24.4China Telecom group
    
    
    49.6
    
    
    
    5.1
    
    
    
    75.4
    
    
    
    7.7
    
    
    
    241.2
    
    
    
    35.3
    
    
    
    15.0China Netcom group(1)
    
    
    20.5
    
    
    
    2.1
    
    
    
    4.7
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    Overseas customers
    
    
    11.6
    
    
    
    1.2
    
    
    
    8.1
    
    
    
    0.8
    
    
    
    17.1
    
    
    
    2.5
    
    
    
    1.1Others
    
    
    28.6
    
    
    
    2.9
    
    
    
    40.1
    
    
    
    4.1
    
    
    
    28.6
    
    
    
    4.2
    
    
    
    1.8Subtotal
    
    
    805.8
    
    
    
    82.3
    
    
    
    763.1
    
    
    
    77.5
    
    
    
    1,196.0
    
    
    
    175.2
    
    
    
    74.6Base station RF products:Equipment manufacturers
    
    
    173.5
    
    
    
    17.7
    
    
    
    221.6
    
    
    
    22.5
    
    
    
    406.9
    
    
    
    59.6
    
    
    
    25.4Total
    
    
    979.3
    
    
    
    100.0
    
    
    
    984.7
    
    
    
    100.0
    
    
    
    1,602.9
    
    
    
    234.8
    
    
    
    100.0
 
 (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;
    
    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.
   31




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##### Table of Contents



Property
 Owned Property
   Leased Property
  Intellectual Property Rights
    32




---



##### Table of Contents



Insurance
  Employees
  Number ofemployeesManagement and administrative
    
    
    213Research and development
    
    
    269Production and quality control
    
    
    921Project design and technical service
    
    
    2,384Sales and marketing
    
    
    426Total
    
    
    4,213
     Legal Proceedings
  Industry Regulation in China
   33




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##### Table of Contents



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.
   Our Compliance with Regulations
    34




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##### Table of Contents



Item 4A. UNRESOLVED STAFF COMMENTS
  
 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
     35




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##### 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.
   36




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##### Table of Contents



Liquidity Concern Arising out of Our Accounts Receivable Cycle and Revenue Cycle
   37




---



##### Table of Contents



Significant Quarterly Fluctuations of Our Results of Operations
   38




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##### Table of Contents



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 31,2007
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009(in thousands of RMB)Revenues
    
    
    31,286
    
    
    
    203,024
    
    
    
    273,214
    
    
    
    471,778
    
    
    
    71,389
    
    
    
    186,341
    
    
    
    212,478
    
    
    
    514,449
    
    
    
    285,293
    
    
    
    423,214
    
    
    
    394,852
    
    
    
    499,584Cost of revenues
    
    
    (18,300
    )
    
    
    (120,378
    )
    
    
    (165,634
    )
    
    
    (307,124
    )
    
    
    (49,420
    )
    
    
    (124,216
    )
    
    
    (149,635
    )
    
    
    (428,096
    )
    
    
    (212,179
    )
    
    
    (317,326
    )
    
    
    (289,641
    )
    
    
    (404,827
    )Gross profit
    
    
    12,986
    
    
    
    82,646
    
    
    
    107,580
    
    
    
    164,654
    
    
    
    21,969
    
    
    
    62,125
    
    
    
    62,843
    
    
    
    86,353
    
    
    
    73,114
    
    
    
    105,888
    
    
    
    105,211
    
    
    
    94,757Other revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425
    
    
    
    1,255
    
    
    
    1,664Operating expenses:Research and
development costs
    
    
    (13,201
    )
    
    
    (14,326
    )
    
    
    (13,286
    )
    
    
    (15,712
    )
    
    
    (15,328
    )
    
    
    (17,815
    )
    
    
    (15,477
    )
    
    
    (21,612
    )
    
    
    (13,333
    )
    
    
    (12,557
    )
    
    
    (16,485
    )
    
    
    (17,524
    )Sales and
distribution expenses
    
    
    (28,599
    )
    
    
    (31,854
    )
    
    
    (33,636
    )
    
    
    (32,727
    )
    
    
    (28,810
    )
    
    
    (31,014
    )
    
    
    (26,841
    )
    
    
    (51,859
    )
    
    
    (33,715
    )
    
    
    (44,705
    )
    
    
    (43,199
    )
    
    
    (58,906
    )General and
administrative
expenses
    
    
    (13,405
    )
    
    
    (15,655
    )
    
    
    (14,473
    )
    
    
    (24,965
    )
    
    
    (14,158
    )
    
    
    (18,225
    )
    
    
    (17,816
    )
    
    
    (76,829
    )
    
    
    (15,071
    )
    
    
    (19,442
    )
    
    
    (16,989
    )
    
    
    (30,004
    )Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,589
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    (55,205
    )
    
    
    (61,835
    )
    
    
    (61,395
    )
    
    
    (73,404
    )
    
    
    (58,296
    )
    
    
    (67,054
    )
    
    
    (60,134
    )
    
    
    (177,889
    )
    
    
    (62,119
    )
    
    
    (76,704
    )
    
    
    (76,673
    )
    
    
    (106,434
    )Operating (loss)/income
    
    
    (42,219
    )
    
    
    20,811
    
    
    
    46,185
    
    
    
    91,250
    
    
    
    (36,327
    )
    
    
    (4,929
    )
    
    
    2,709
    
    
    
    (91,536
    )
    
    
    10,995
    
    
    
    29,609
    
    
    
    29,793
    
    
    
    (10,013
    )Other (expense)/income
Interest income
    
    
    2,456
    
    
    
    1,776
    
    
    
    2,525
    
    
    
    15,556
    
    
    
    5,472
    
    
    
    4,764
    
    
    
    4,482
    
    
    
    16,539
    
    
    
    10,024
    
    
    
    7,984
    
    
    
    6,749
    
    
    
    16,240Interest expense
    
    
    (6,062
    )
    
    
    (6,525
    )
    
    
    (8,398
    )
    
    
    (14,362
    )
    
    
    (13,242
    )
    
    
    (13,990
    )
    
    
    (15,349
    )
    
    
    (12,263
    )
    
    
    (13,978
    )
    
    
    (14,565
    )
    
    
    (14,708
    )
    
    
    (13,515
    )Investment income
    
    
    
    
    
    
    318
    
    
    
    
    
    
    
    
    
    
    
    296
    
    
    
    
    
    
    
    
    
    
    
    4,577
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency
exchange (loss)/gain
    
    
    (2,788
    )
    
    
    (2,941
    )
    
    
    (4,369
    )
    
    
    (8,693
    )
    
    
    (7,029
    )
    
    
    (2,904
    )
    
    
    (974
    )
    
    
    489
    
    
    
    (27
    )
    
    
    (675
    )
    
    
    329
    
    
    
    162Grant income
    
    
    120
    
    
    
    3,310
    
    
    
    1,000
    
    
    
    2,925
    
    
    
    2,030
    
    
    
    91
    
    
    
    110
    
    
    
    12,978
    
    
    
    324
    
    
    
    1,342
    
    
    
    3,736
    
    
    
    920Total other
(expense)/income
    
    
    (6,274
    )
    
    
    (4,062
    )
    
    
    (9,242
    )
    
    
    (4,574
    )
    
    
    (12,473
    )
    
    
    (12,039
    )
    
    
    (11,731
    )
    
    
    22,320
    
    
    
    (3,657
    )
    
    
    (5,914
    )
    
    
    (3,894
    )
    
    
    3,807(Loss)/income before
income tax
(expense)/benefit
    
    
    (48,493
    )
    
    
    16,749
    
    
    
    36,943
    
    
    
    86,676
    
    
    
    (48,800
    )
    
    
    (16,968
    )
    
    
    (9,022
    )
    
    
    (69,216
    )
    
    
    7,338
    
    
    
    23,695
    
    
    
    25,899
    
    
    
    (6,206
    )Income tax
(expense)/benefit
    
    
    3,441
    
    
    
    (1,360
    )
    
    
    (3,816
    )
    
    
    (8,586
    )
    
    
    7,046
    
    
    
    (277
    )
    
    
    363
    
    
    
    (10,289
    )
    
    
    (1,030
    )
    
    
    (10,383
    )
    
    
    (5,772
    )
    
    
    (883
    )Net (loss)/income
    
    
    (45,052
    )
    
    
    15,389
    
    
    
    33,127
    
    
    
    78,090
    
    
    
    (41,754
    )
    
    
    (17,245
    )
    
    
    (8,659
    )
    
    
    (79,505
    )
    
    
    6,308
    
    
    
    13,312
    
    
    
    20,127
    
    
    
    (7,089
    )Net loss/(income)
attributable to
noncontrolling
interests
    
    
    241
    
    
    
    784
    
    
    
    (5
    )
    
    
    (38
    )
    
    
    226
    
    
    
    202
    
    
    
    227
    
    
    
    141
    
    
    
    (3
    )
    
    
    (3
    )
    
    
    6
    
    
    
    14Net (loss)/income
attributable to the
equity shareholders of
GrenTech
    
    
    (44,811
    )
    
    
    16,173
    
    
    
    33,122
    
    
    
    78,052
    
    
    
    (41,528
    )
    
    
    (17,043
    )
    
    
    (8,432
    )
    
    
    (79,364
    )
    
    
    6,305
    
    
    
    13,309
    
    
    
    20,133
    
    
    
    (7,075
    )As ofMarch 31,
    
    
    June 30,
    
    
    Sept 30,
    
    
    Dec 31,
    
    
    March 31,
    
    
    June 30,
    
    
    Sept 30,
    
    
    Dec 31,
    
    
    March 31,
    
    
    June 30,
    
    
    Sept 30,
    
    
    Dec 31,2007
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009(in thousands of RMB)Cash and cash equivalents
    
    
    290,346
    
    
    
    303,642
    
    
    
    205,319
    
    
    
    316,778
    
    
    
    216,193
    
    
    
    43,089
    
    
    
    67,954
    
    
    
    293,353
    
    
    
    116,733
    
    
    
    149,514
    
    
    
    49,009
    
    
    
    469,454Pledged time deposits
    
    
    212,319
    
    
    
    228,065
    
    
    
    213,208
    
    
    
    259,786
    
    
    
    216,602
    
    
    
    188,817
    
    
    
    131,999
    
    
    
    122,368
    
    
    
    127,656
    
    
    
    182,567
    
    
    
    91,286
    
    
    
    103,035Accounts receivable, net
    
    
    720,433
    
    
    
    806,760
    
    
    
    938,746
    
    
    
    925,838
    
    
    
    890,095
    
    
    
    960,019
    
    
    
    959,887
    
    
    
    728,260
    
    
    
    911,156
    
    
    
    931,487
    
    
    
    956,612
    
    
    
    892,149Long-term accounts
receivable
    
    
    247,728
    
    
    
    281,830
    
    
    
    312,217
    
    
    
    389,505
    
    
    
    369,329
    
    
    
    341,675
    
    
    
    387,573
    
    
    
    551,210
    
    
    
    524,936
    
    
    
    585,622
    
    
    
    612,276
    
    
    
    452,191Short-term bank loans
    
    
    333,550
    
    
    
    426,050
    
    
    
    436,050
    
    
    
    456,050
    
    
    
    506,050
    
    
    
    429,925
    
    
    
    448,083
    
    
    
    480,207
    
    
    
    423,965
    
    
    
    560,886
    
    
    
    586,159
    
    
    
    613,378Long-term debt
    
    
    
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    130,000
    
    
    
    130,000
    
    
    
    130,000
    
    
    
    130,000
    
    
    
    110,000
    
    
    
    110,000
    
    
    
    110,000
  39




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##### Table of Contents



FINANCIAL OVERVIEW
 Revenues
   Year ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in millions, except for percentages)Wireless coverage solutionsSale of wireless coverage products
    
    
    575.3
    
    
    
    58.7
    
    
    
    499.0
    
    
    
    50.7
    
    
    
    781.9
    
    
    
    114.5
    
    
    
    48.8Installation services
    
    
    223.5
    
    
    
    22.8
    
    
    
    277.9
    
    
    
    28.2
    
    
    
    469.5
    
    
    
    68.8
    
    
    
    29.3Base station RF products
    
    
    173.6
    
    
    
    17.7
    
    
    
    221.6
    
    
    
    22.5
    
    
    
    407.0
    
    
    
    59.6
    
    
    
    25.4Write back/(provision) for settlement discounts
    
    
    4.3
    
    
    
    0.5
    
    
    
    (13.8
    )
    
    
    (1.4
    )
    
    
    (55.5
    )
    
    
    (8.1
    )
    
    
    (3.5
    )Others
    
    
    2.6
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    979.3
    
    
    
    100.0
    
    
    
    984.7
    
    
    
    100.0
    
    
    
    1,602.9
    
    
    
    234.8
    
    
    
    100.0
 Wireless Coverage Products and Services
 Base station RF products
 Cost of Revenues
   Year ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in millions, except for percentages)Cost of hardware
    
    
    459.8
    
    
    
    75.2
    
    
    
    565.2
    
    
    
    75.2
    
    
    
    915.9
    
    
    
    134.2
    
    
    
    74.8Cost of services
    
    
    151.6
    
    
    
    24.8
    
    
    
    186.2
    
    
    
    24.8
    
    
    
    308.1
    
    
    
    45.1
    
    
    
    25.2Total
    
    
    611.4
    
    
    
    100.0
    
    
    
    751.4
    
    
    
    100.0
    
    
    
    1,224.0
    
    
    
    179.3
    
    
    
    100.0
 Cost of Hardware
 Cost of Services
 Operating Expenses
  Year ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in millions, except for percentages)Research and development costs
    
    
    56.5
    
    
    
    22.4
    
    
    
    70.3
    
    
    
    19.3
    
    
    
    59.9
    
    
    
    8.8
    
    
    
    18.6Sales and distribution expenses
    
    
    126.8
    
    
    
    50.4
    
    
    
    138.5
    
    
    
    38.1
    
    
    
    180.5
    
    
    
    26.5
    
    
    
    56.1General and administrative expenses
    
    
    68.5
    
    
    
    27.2
    
    
    
    127.0
    
    
    
    35.0
    
    
    
    81.5
    
    
    
    11.9
    
    
    
    25.3Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    27.6
    
    
    
    7.6
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    251.8
    
    
    
    100.0
    
    
    
    363.4
    
    
    
    100.0
    
    
    
    321.9
    
    
    
    47.2
    
    
    
    100.0
  40




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##### Table of Contents



Research and Development Costs
 Sales and Distribution Expenses
 General and Administrative Expenses
 Impairment of Goodwill
 Interest Expense
    Year ended December 31,2007
    
    
    2008
    
    
    2009(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Bank loan interest
    
    
    24,345
    
    
    
    35,186
    
    
    
    35,156
    
    
    
    5,150Receivable discounting fee (1)
    
    
    7,753
    
    
    
    13,521
    
    
    
    15,660
    
    
    
    2,294Financial charges on bills financing
    
    
    1,192
    
    
    
    1,763
    
    
    
    2,990
    
    
    
    438Others (2)
    
    
    2,057
    
    
    
    4,374
    
    
    
    2,960
    
    
    
    434Total
    
    
    35,347
    
    
    
    54,844
    
    
    
    56,766
    
    
    
    8,316
 
 (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 as compared to 2007 was due to expected delay in collection which would require further
discounting on the sale of accounts receivable. The increase of receivable discounting fee in
2009 as compared to 2008 was due to an increase in accounts receivable sold during 2009.(2)
    
    Others mainly consist of bank fees.  41




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##### Table of Contents



Income Tax Expense
  Noncontrolling interest
  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;
    
    collectibility is reasonably assured; and
    
    we have an enforceable legal right to receive the contractually specified amount in cash
attributable to the product sale.
   42




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##### Table of Contents



Year ended December 31,2007
    
    
    2008
    
    
    2009(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Balance at beginning of year
    
    
    14,982
    
    
    
    10,657
    
    
    
    24,425
    
    
    
    3,578(Reversal)/provided during the year
    
    
    (4,325
    )
    
    
    13,768
    
    
    
    55,500
    
    
    
    8,131Amount utilized
    
    
    
    
    
    
    
    
    
    
    (26,301
    )
    
    
    (3,853
    )Balance at end of year
    
    
    10,657
    
    
    
    24,425
    
    
    
    53,624
    
    
    
    7,856
 Allowance for Doubtful Accounts
 Year ended December 31,2007
    
    
    2008
    
    
    2009(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Balance at beginning of year
    
    
    6,177
    
    
    
    22,354
    
    
    
    25,323
    
    
    
    3,710Derecognized on disposal of subsidiaries
    
    
    
    
    
    
    (11,017
    )
    
    
    
    
    
    
    Bad debt expense
    
    
    16,177
    
    
    
    57,574
    
    
    
    11,916
    
    
    
    1,746Written back during the year
    
    
    
    
    
    
    
    
    
    
    (653
    )
    
    
    (96
    )Written off during the year
    
    
    
    
    
    
    (43,588
    )
    
    
    
    
    
    
    Balance at end of year
    
    
    22,354
    
    
    
    25,323
    
    
    
    36,586
    
    
    
    5,360
 Inventories
   43




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Allowance for Warranties
 Impairment of Long-lived Assets
 Recoverability of the carrying amount of goodwill
    44




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##### Table of Contents



Results of Operations
  Year ended December 31,2007
    
    
    2008
    
    
    2009(%)
    
    
    (%)
    
    
    (%)Revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of revenues
    
    
    (62.4
    )
    
    
    (76.3
    )
    
    
    (76.4
    )Gross profit
    
    
    37.6
    
    
    
    23.7
    
    
    
    23.6Other revenue
    
    
    
    
    
    
    
    
    
    
    0.2Operating expenses:Research and development costs
    
    
    (5.8
    )
    
    
    (7.1
    )
    
    
    (3.7
    )Sales and distribution expenses
    
    
    (12.9
    )
    
    
    (14.1
    )
    
    
    (11.3
    )General and administrative expenses
    
    
    (7.0
    )
    
    
    (12.9
    )
    
    
    (5.1
    )Impairment of goodwill
    
    
    
    
    
    
    (2.8
    )
    
    
    Total operating expenses
    
    
    (25.7
    )
    
    
    (36.9
    )
    
    
    (20.1
    )Operating income/(loss)
    
    
    11.9
    
    
    
    (13.2
    )
    
    
    3.7Other (expense)/income:Interest income
    
    
    2.3
    
    
    
    3.2
    
    
    
    2.6Interest expense
    
    
    (3.6
    )
    
    
    (5.6
    )
    
    
    (3.5
    )Investment income
    
    
    
    
    
    
    0.5
    
    
    
    Foreign currency exchange loss
    
    
    (1.9
    )
    
    
    (1.1
    )
    
    
    Grant income
    
    
    0.7
    
    
    
    1.5
    
    
    
    0.4Total other expense
    
    
    (2.5
    )
    
    
    (1.4
    )
    
    
    (0.5
    )Income/(loss) before income tax expense
    
    
    9.4
    
    
    
    (14.6
    )
    
    
    3.2Income tax expense
    
    
    (1.1
    )
    
    
    (0.3
    )
    
    
    (1.2
    )Net income/(loss)
    
    
    8.3
    
    
    
    (14.9
    )
    
    
    2.0Net loss attributable to noncontrolling interests
    
    
    0.1
    
    
    
    0.1
    
    
    
    Net income/(loss) attributable to the equity shareholders of GrenTech
    
    
    8.4
    
    
    
    (14.8
    )
    
    
    2.0
 2009 compared to 2008
 Revenues
 Cost of Revenues
 Gross Profit
 Research and Development Costs
 Sales and Distribution Expenses
  45




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##### Table of Contents



General and Administrative Expenses
 Impairment of Goodwill
 Operating Income
 Other Income/Expenses
 Income Tax Expense
 Noncontrolling interest
 Net Income
 2008 compared to 2007
 Revenues
 Cost of Revenues
 Gross Profit
  46




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##### Table of Contents



Research and Development Costs
 Sales and Distribution Expenses
 General and Administrative Expenses
 Impairment of Goodwill
 Operating Loss
 Other Income/Expenses
 Income Tax Expense
 Noncontrolling interest
 Net Loss
 Liquidity and Capital Resources
   47




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##### Table of Contents



Year ended December 31,2007
    
    
    2008
    
    
    2009(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Net cash (used in)/provided by operating activities
    
    
    (120,228
    )
    
    
    5,056
    
    
    
    90,731
    
    
    
    13,292Net cash (used in)/provided by investing activities
    
    
    (294,437
    )
    
    
    28,113
    
    
    
    (45,338
    )
    
    
    (6,642
    )Net cash provided by/(used in) financing activities
    
    
    272,619
    
    
    
    (52,085
    )
    
    
    130,919
    
    
    
    19,180Cash and cash equivalents at the end of year
    
    
    316,778
    
    
    
    293,353
    
    
    
    469,454
    
    
    
    68,775
    Accounts Receivable and Receivable Selling
   48




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##### Table of Contents



As of December 31, 2009(RMB)
    
    
    (US$)
    
    
    (%)(in millions, except for percentages)China Unicom group
    
    
    503.4
    
    
    
    73.8
    
    
    
    37.3China Mobile group
    
    
    431.7
    
    
    
    63.2
    
    
    
    32.0China Telecom group
    
    
    190.0
    
    
    
    27.8
    
    
    
    14.1Others
    
    
    225.4
    
    
    
    33.0
    
    
    
    16.6Total
    
    
    1,350.5
    
    
    
    197.8
    
    
    
    100
  As of December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in millions, except for percentages)Less than one year
    
    
    831.1
    
    
    
    63.1
    
    
    
    571.9
    
    
    
    45.8
    
    
    
    773.9
    
    
    
    113.4
    
    
    
    57.3Between one to two years
    
    
    275.4
    
    
    
    20.8
    
    
    
    392.1
    
    
    
    31.4
    
    
    
    232.4
    
    
    
    34.0
    
    
    
    17.2Between two to three years
    
    
    153.8
    
    
    
    11.7
    
    
    
    184.4
    
    
    
    14.8
    
    
    
    236.7
    
    
    
    34.7
    
    
    
    17.5Over three years
    
    
    57.6
    
    
    
    4.4
    
    
    
    100.8
    
    
    
    8.0
    
    
    
    107.5
    
    
    
    15.7
    
    
    
    8.0Total
    
    
    1,317.9
    
    
    
    100.0
    
    
    
    1,249.2
    
    
    
    100.0
    
    
    
    1,350.5
    
    
    
    197.8
    
    
    
    100.0
  As of December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in millions, except for percentages)Contractually due
    
    
    505.3
    
    
    
    38.3
    
    
    
    632.1
    
    
    
    50.6
    
    
    
    622.2
    
    
    
    91.1
    
    
    
    46.1Non-contractually due
    
    
    812.6
    
    
    
    61.7
    
    
    
    617.1
    
    
    
    49.4
    
    
    
    728.3
    
    
    
    106.7
    
    
    
    53.9Total
    
    
    1,317.9
    
    
    
    100.0
    
    
    
    1,249.2
    
    
    
    100.0
    
    
    
    1,350.5
    
    
    
    197.8
    
    
    
    100.0
      49




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##### Table of Contents



Inventories
   As of December 31,2007
    
    
    2008
    
    
    2009(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(in thousands)Raw materials
    
    
    137,723
    
    
    
    163,589
    
    
    
    205,608
    
    
    
    30,122Work in progress
    
    
    14,014
    
    
    
    15,539
    
    
    
    8,055
    
    
    
    1,180Finished goods
    
    
    390,357
    
    
    
    341,491
    
    
    
    557,573
    
    
    
    81,685Total
    
    
    542,094
    
    
    
    520,619
    
    
    
    771,236
    
    
    
    112,987
   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
    
    
    526,938
    
    
    
    77,197
    
    
    
    94.5
    
    
    
    8,055
    
    
    
    1,180
    
    
    
    100.0
    
    
    
    205,608
    
    
    
    30,122
    
    
    
    100.0
    
    
    
    740,601
    
    
    
    108,499
    
    
    
    96.0One to two years
    
    
    30,635
    
    
    
    4,488
    
    
    
    5.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,635
    
    
    
    4,488
    
    
    
    4.0Over two years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    557,573
    
    
    
    81,685
    
    
    
    100.0
    
    
    
    8,055
    
    
    
    1,180
    
    
    
    100.0
    
    
    
    205,608
    
    
    
    30,122
    
    
    
    100.0
    
    
    
    771,236
    
    
    
    112,987
    
    
    
    100.0
  50




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##### Table of Contents



Borrowings
     Capital Expenditure and Contractual Commitments
   As of December 31, 2009Payment Due by PeriodTotal
    
    
    Less than 1 Year
    
    
    1-3 Years
    
    
    After 3 YearsRMB
    
    
    US$
    
    
    RMB
    
    
    US$
    
    
    RMB
    
    
    US$
    
    
    RMB
    
    
    US$(in millions)Short-term bank loans
    
    
    585.0
    
    
    
    85.7
    
    
    
    585.0
    
    
    
    85.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt
    
    
    152.2
    
    
    
    22.3
    
    
    
    28.1
    
    
    
    4.1
    
    
    
    52.1
    
    
    
    7.6
    
    
    
    72.0
    
    
    
    10.6Bills payable
    
    
    220.3
    
    
    
    32.3
    
    
    
    220.3
    
    
    
    32.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease commitments
    
    
    5.9
    
    
    
    0.9
    
    
    
    5.2
    
    
    
    0.8
    
    
    
    0.7
    
    
    
    0.1
    
    
    
    
    
    
    
    Other capital commitments
    
    
    1.2
    
    
    
    0.2
    
    
    
    1.2
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrecognized income tax benefit
    
    
    69.7
    
    
    
    10.2
    
    
    
    69.7
    
    
    
    10.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual
obligations
    
    
    1,034.3
    
    
    
    151.6
    
    
    
    909.5
    
    
    
    133.3
    
    
    
    52.8
    
    
    
    7.7
    
    
    
    72.0
    
    
    
    10.6
  51




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##### Table of Contents



Off-Balance Sheet Arrangements and Contingent Liabilities
      Inflation
  Quantitative and Qualitative Disclosure about Market Risk
 Foreign Exchange Risk
 Interest Rate Risk
 Credit Risk
 Corporate Structure
   52




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##### Table of Contents



Taxation
    Recent Accounting Pronouncements
 FASB ASC Subtopic 810-10 Noncontrolling Interest
  FASB ASC Subtopic 605-25 (Emerging Issues Task Force Issue No. 08-1 (EITF 08-1))
   53




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##### Table of Contents



ASU 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets
(FASB Statement No. 166, Accounting for Transfers of Financial Assetsan amendment of FASB
Statement No. 140)
   
 Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 Directors and senior management
  Directors and Executive Officers(1)
    
    Age
    
    PositionYingjie Gao
    
    
    54
    
    
    Chairman of the board and chief executive officerRong Yu
    
    
    45
    
    
    Director and chief financial officerKunjie Zhuang
    
    
    73
    
    
    DirectorQi Wang
    
    
    44
    
    
    Director and vice presidentCuiming Shi
    
    
    69
    
    
    Independent directorXiaohu You
    
    
    47
    
    
    Independent directorKin Kwong Mak
    
    
    48
    
    
    Independent director (audit committee financial expert)Qingchang Liu
    
    
    42
    
    
    Vice president
 
 (1)
    
    Mr. Liping Mao resigned from the board of directors of our company effective September 21, 2009
for personal reasons. Yingjie Gao
 Rong Yu
 Kunjie Zhuang
 Qi Wang
  54




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##### Table of Contents



Cuiming Shi
 Xiaohu You
 Kin Kwong Mak
 Qingchang Liu
  Board of Directors
  Audit Committee
   55




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##### Table of Contents




    
    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;
    
    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
  56




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##### Table of Contents




    
    monitoring compliance with our code of business conduct and ethics, including reviewing
the adequacy and effectiveness of our procedures to ensure proper compliance.
 Duties of Directors
  Employment and Service Agreements
    Compensation
   Indemnification
   57




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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.
  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.
 Maximum Number of Shares
    Price of Shares
   58




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##### Table of Contents



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.
 Rights on Takeover/Winding-Up
   Alteration of the Share Option Scheme
  Employees
  Share Ownership
  
    
    each of our executive officers and directors;
  59




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##### Table of Contents




    
    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 beneficially owned (1)(2)Name
    
    Number of Shares
    
    
    %Directors and executive officers(3)Yingjie Gao (4)
    
    
    149,151,325
    
    
    
    25.3Rong Yu (5)
    
    
    61,729,675
    
    
    
    10.5Kunjie Zhuang (6)
    
    
    56,110,500
    
    
    
    9.5Cuiming Shi
    
    
    
    
    
    
    Xiaohu You
    
    
    
    
    
    
    Kin Kwong Mak
    
    
    
    
    
    
    Qi Wang (7)(9)
    
    
    6,960,096
    
    
    
    1.2Qingchang Liu
    
    
    
    
    
    
    All current directors and executive officers as a group (8 persons)
    
    
    273,951,596
    
    
    
    46.5Principal shareholdersGuoren Industrial Developments Limited (4)
    
    
    149,151,325
    
    
    
    25.3Well Sino Enterprises Limited (5)(9)
    
    
    61,729,675
    
    
    
    10.5Leakey Investments Limited (8)(9)
    
    
    61,605,675
    
    
    
    10.4Drag Investments Limited (6)
    
    
    56,110,500
    
    
    
    9.5Heng Xing Yue Investments Limited (9)
    
    
    36,062,675
    
    
    
    6.1Wells Fargo & Company (10)
    
    
    91,443,500
    
    
    
    15.5
 
 (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 589,524,625 ordinary
 shares outstanding as of April 30, 2010, as well as the ordinary shares underlying share
options exercisable by such person within 60 days of April 30, 2010.(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 149,151,325
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, 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 149,151,325 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. On
August 31, 2009, Guoren Industrial Development Limited adopted a Rule10b5-1 Trading Plan.
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 January 19, 2010.(5)
    
    Ms. Rong Yu, our director and chief financial officer, beneficially owns 61,729,675 ordinary
 shares, which are held indirectly through Heng Xing Yue Investments Limited and through her
wholly-owned company, Well Sino Enterprises Limited, which holds 35.2% of the outstanding
 shares of Heng Xing Yue Investments Limited. Heng Xing Yue Investments Limited is the record
holder of 36,062,675 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. Wells Sino Enterprises Limited is a British Virgin Islands investment holding
company and is the record holder of 25,667,000 ordinary shares in our share capital. Ms. Rong
Yu is the sole director of Wells Sino Enterprises Limited. 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 15, 2010.(6)
    
    Professor Kunjie Zhuang, our director, beneficially owns 56,110,500 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 15th Floor, Block A,
Guoren Building, Keji Central 3rd Road, Nanshan District, Shenzhen 518057, 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. Professor Kunjie Zhuang and Mr. Haifan Zhuang are
both
directors of Drag Investments Limited. 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 January 15, 2010.
  60




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##### Table of Contents



(7)
    
    Mr. Qi Wang, our director and vice president, beneficially owns 6,960,096 ordinary shares,
which are held indirectly through Heng Xing Yue Investments Limited.(8)
    
    Leakey Investment Limited, a British Virgin Islands investment holding company wholly-owned
by Ms. Yin Huang, beneficially owns 61,605,675 ordinary shares, of which 25,543,000 ordinary
 shares are held directly by Leakey Investment Limited and 36,062,675 are held indirectly
through Heng Xing Yue Investments Limited. Leakey Investment Limited holds 35.2% of the
outstanding shares of Heng Xing Yue Investments Limited. 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. Ms. Ying Huang is the sole director of Leakey Investments Limited. The business
address of Ms. Ying Huang is Flat 22B, 22F, Block A, Phase 3, Jinxiu Garden, Oct Nanshan,
Shenzhen, Peoples Republic of China. 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 15, 2010.(9)
    
    Heng Xing Yue Investments Limited, a British Virgin Islands investment holding company with
its business address at 15th Floor, Block A, Guoren Building, Keji Central 3rd Road, Nanshan
District, Shenzhen 518057, Peoples Republic of China, is the record holder of 36,062,675
ordinary shares. Ms. Rong Yu and Ms. Yin Huang are directors of Heng Xing Yue Investments
Limited. Heng Xing Yue Investments Limited is held by various shareholders including Wells
Sino Enterprises Limited as to 35.2%, Leakey Investment Limited as to 35.2% and Talenthome
Management Limited, a company incorporated under the laws of the British Virgin Islands and
wholly-owned by Mr. Qi Wang, as to 19.3%. 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 15, 2010.(10)
    
    Represents 91,443,500 ordinary shares (in the form of ADSs) held by Wells Fargo & Company,
which is a Delaware company with its business address at 420 Montgomery Street, San Francisco,
California 94163, U.S.A. This share information is based upon a report on Form 13F-HR/A filed
by Wells Fargo & Company with the U.S. Securities and Exchange Commission on May 28, 2010.
 
 Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 MAJOR SHAREHOLDERS
  RELATED PARTY TRANSACTIONS
 Share-based compensation
  Our Related-Party Transaction Policies
  Divestiture of Network Coverage Module Manufacturing Subsidiaries, Lake Communication and Lake
Microwave
   61




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Establishment of Shenzhen GrenTech IOT Network Corporation Limited
  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;
    
    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.
   62




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##### Table of Contents



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
    
    
    
    0.782009
    
    
    6.47
    
    
    
    0.90QuarterlyFirst 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
    
    
    
    0.90Second Quarter, 2009
    
    
    4.00
    
    
    
    1.33Third Quarter, 2009
    
    
    6.47
    
    
    
    2.80Forth Quarter, 2009
    
    
    5.78
    
    
    
    3.42First Quarter, 2010
    
    
    4.69
    
    
    
    2.96MonthlyDecember 2009
    
    
    3.85
    
    
    
    3.42January 2010
    
    
    4.69
    
    
    
    3.14February 2010
    
    
    3.57
    
    
    
    2.96March 2010
    
    
    4.18
    
    
    
    3.10April 2010
    
    
    3.15
    
    
    
    2.35May 2010
    
    
    2.48
    
    
    
    1.79
  63




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##### Table of Contents



Item 10. ADDITIONAL INFORMATION
 SHARE CAPITAL
  MEMORANDUM AND ARTICLES OF ASSOCIATION
  MATERIAL CONTRACTS
  EXCHANGE CONTROLS
   TAXATION
  Cayman Islands Taxation
  PRC Taxation
   64




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##### Table of Contents



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;
    
    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.
   
    
    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.
    65




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##### Table of Contents



U.S. Holders
 Taxation of Dividends and Other Distributions on the Shares or ADSs
    Taxation of Disposition of Shares or ADSs
  Passive Foreign Investment Company
     66




---



##### Table of Contents



Information Reporting and Backup Withholding
  DIVIDENDS AND PAYING AGENTS
  STATEMENT BY EXPERTS
  DOCUMENTS ON DISPLAY
  SUBSIDIARY INFORMATION
   67




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##### Table of Contents



Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 A.
    
    Debt SecuritiesNot applicable.B.
    
    Warrants and RightsNot applicable.C.
    
    Other SecuritiesNot applicable.D.
    
    American Depositary Shares
 Fees and charges our ADS holders may have to pay
  Persons depositing or withdrawing shares must pay:
    
    For:Up to US$0.05 per ADS
    
       Issuance of ADSs, including issuances resulting from a
distribution of ordinary shares or rights or other property   Cancellation or withdrawals of ADSs   Distribution of ADSs pursuant to stock dividends, free
stock distributions or exercise of rights   Distributions of securities other than ADSs or rights to
purchase additional ADSsUp to US$0.02 per ADS
    
       Distributions of cash dividends or other cash distributions   Annual depositary servicesUS$1.5 per certificate presented for transfer
    
       Transfer of American depositary receipts, or ADRsTaxes and other governmental charges the
depositary or the custodian have to pay on any
ADS or ordinary shares underlying an ADS, for
example, stock transfer taxes, stamp duty or
withholding taxes
    
       As necessaryAny charges, fees or expenses incurred
by the depositary or its agents for
servicing the deposited securities
    
       As necessary
  68




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##### Table of Contents



Fees and other payments made by the depositary to us
  
 PART II
 
 Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  USE OF PROCEEDS
     
 Item 15. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
    69




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##### Table of Contents



Managements Annual Report on Internal Control over Financial Reporting
   
    
    Insufficient competent accounting personnel in applying U.S. GAAP in  our financial reporting processWe do not have sufficient competent accounting personnel with sound U.S. GAAP knowledge
and experience for our financial reporting process to ensure our financial statements
are prepared in a timely manner.
   Remediation Plan
  
    
    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.
 
    
    Recruit more competent and experienced internal control personnel to assist our company
to review and improve our internal control policies and to remediate significant
deficiencies identified by us.
   70




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##### Table of Contents



Attestation Report of the Registered Public Accounting Firm
 
          
 Changes in Internal Control over Financial Reporting
   71




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Item 16. RESERVED
 
 Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 Item 16B. CODE OF ETHICS
  
 Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Audit Fees
    
    
    Audit-Related Fees
    
    
    Tax Fees
    
    
    Other Fees(in millions of RMB)2008
    
    
    5.2
    
    
    
    
    
    
    
    
    
    
    
    2009
    
    
    5.5
    
    
    
    
    
    
    
    
    
    
    
    
  
 Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 ApproximateTotal Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dollar Value ofAmerican
    
    
    
    
    
    
    
    
    
    Total Number of
    
    
    ADSs that MayDepositary
    
    
    
    
    
    Average Price
    
    
    ADSs Purchased
    
    
    Yet Be PurchasedShares
    
    
    Average Price
    
    
    Paid Per
    
    
    as Part of Publicly
    
    
    Under thePeriod
    
    Purchased(1)
    
    
    Paid Per ADS
    
    
    ADS(2)
    
    
    Announced Plans
    
    
    ProgramsUS$
    
    
    RMB
    
    
    or Programs
    
    
    US$January 1 through January 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    February 1 through February 29, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    March 1 through March 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    April 1 through April 30, 2009
    
    
    137,536
    
    
    
    1.7932
    
    
    
    12.2260
    
    
    
    1,058,385
    
    
    
    2,683,006May 1 through May 31, 2009
    
    
    118,429
    
    
    
    2.5650
    
    
    
    17.5133
    
    
    
    1,176,814
    
    
    
    2,379,236June 1 through June 30, 2009
    
    
    140,735
    
    
    
    2.9819
    
    
    
    20.3670
    
    
    
    1,317,549
    
    
    
    8,959,578July 1 through July 31, 2009
    
    
    76,966
    
    
    
    3.1729
    
    
    
    21.6769
    
    
    
    1,394,515
    
    
    
    8,715,372August 1 through August 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 1 through September 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    October 1 through October 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    November 1 through November 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    December 1 through December 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,394,515
    
    
    
    4.5067
    
    
    
    31.2064
    
    
    
    1,394,515
 
 (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 rate US$ toPeriod
    
    Period ended
    
    
    RMBApril 1 through April 30, 2009
    
    April 30, 2009
    
    
    6.8180May 1 through May 31, 2009
    
    May 31, 2009
    
    
    6.8278June 1 through June 30, 2009
    
    June 30, 2009
    
    
    6.8302July 1 through July 31, 2009
    
    July 31, 2009
    
    
    6.8319
 
 (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 were authorized to
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 did not have an expiration
date and could be modified or discontinued at any time by our board of directors.On June 4, 2009, we announced a second share repurchase program authorized by our board of
directors. Under the terms of the approved share repurchase program, we may repurchase up to
US$7.0 million worth of our issued and outstanding ADSs from time to time in open-market
transactions on NASDAQ. This share repurchase program does not have an expiration date and may
be modified or discontinued at any time by our board of directors. This share repurchase
program supersedes the previous share repurchase program announced on September 21, 2007.  72




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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
   73




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##### Table of Contents



Item 19. EXHIBITS
 Exhibit No.
    
    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 agreement (4)4.3
    
    Share option scheme (5)8.1
    
    List of subsidiaries11.1
    
    Code of ethics (6)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 Annual Report on Form 20-F for the fiscal year ended
December 31, 2008 filed with the SEC on June 30, 2009.(5)
    
    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.(6)
    
    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.  74




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##### Table of Contents



SIGNATURE
  China GrenTech Corporation Limited/s/ Rong YuName:
    Rong YuTitle:
    Chief Financial Officer   75




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##### Table of Contents



INDEX TO THE FINANCAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets as of December 31, 2008 and 2009
    
    
    F-2Consolidated Statements of Operations for the years ended
December 31, 2007, 2008 and 2009
    
    
    F-3Consolidated Statements of Shareholders Equity for the years ended December 31,
2007, 2008 and 2009
    
    
    F-4Consolidated Statements of Cash Flows for the years ended December 31, 2007,
2008 and 2009
    
    
    F-5Notes to the Consolidated Financial Statements
    
    
    F-7




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
       
  F-1




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Consolidated Balance Sheets
as of December 31, 2008 and 2009
 Note
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    USDAssetsCurrent assetsCash and cash equivalents
    
    
    
    
    
    
    293,353
    
    
    
    469,454
    
    
    
    68,775Pledged bank deposits
    
    
    3
    
    
    
    122,368
    
    
    
    103,035
    
    
    
    15,095Accounts receivable, net
    
    
    4
    
    
    
    728,260
    
    
    
    892,149
    
    
    
    130,701Inventories
    
    
    5
    
    
    
    520,619
    
    
    
    771,236
    
    
    
    112,987Prepaid expenses and other current assets
    
    
    6
    
    
    
    97,668
    
    
    
    81,835
    
    
    
    11,989Deferred tax assets
    
    
    7
    
    
    
    17,137
    
    
    
    34,958
    
    
    
    5,121Deferred tax charges
    
    
    
    
    
    
    261
    
    
    
    
    
    
    
    Total current assets
    
    
    
    
    
    
    1,779,666
    
    
    
    2,352,667
    
    
    
    344,668Property, plant and equipment, net
    
    
    8
    
    
    
    412,259
    
    
    
    444,578
    
    
    
    65,131Construction in progress
    
    
    8
    
    
    
    2,816
    
    
    
    3,961
    
    
    
    580Lease prepayments, net
    
    
    9
    
    
    
    82,124
    
    
    
    80,422
    
    
    
    11,782Intangible assets, net
    
    
    10
    
    
    
    1,815
    
    
    
    186
    
    
    
    27Prepayment for fixed assets
    
    
    
    
    
    
    9,080
    
    
    
    3,342
    
    
    
    490Long-term accounts receivable
    
    
    4
    
    
    
    551,210
    
    
    
    452,191
    
    
    
    66,246Total assets
    
    
    
    
    
    
    2,838,970
    
    
    
    3,337,347
    
    
    
    488,924LiabilitiesCurrent liabilitiesShort-term bank loans
    
    
    13
    
    
    
    480,207
    
    
    
    613,378
    
    
    
    89,860Current portion of long-term bank loan
    
    
    14
    
    
    
    20,000
    
    
    
    20,000
    
    
    
    2,930Accounts payable
    
    
    
    
    
    
    361,317
    
    
    
    490,750
    
    
    
    71,895Bills payable
    
    
    
    
    
    
    110,599
    
    
    
    220,329
    
    
    
    32,278Accrued expenses and other payables
    
    
    11
    
    
    
    247,484
    
    
    
    304,299
    
    
    
    44,581Amounts due to related parties
    
    
    21
    (a)
    
    
    9,648
    
    
    
    34,000
    
    
    
    4,981Income tax payable
    
    
    
    
    
    
    37,362
    
    
    
    73,063
    
    
    
    10,703Total current liabilities
    
    
    
    
    
    
    1,266,617
    
    
    
    1,755,819
    
    
    
    257,228Long-term bank loan
    
    
    14
    
    
    
    130,000
    
    
    
    110,000
    
    
    
    16,115Deferred tax liabilities
    
    
    7
    
    
    
    4,752
    
    
    
    4,679
    
    
    
    686Total liabilities
    
    
    
    
    
    
    1,401,369
    
    
    
    1,870,498
    
    
    
    274,029Shareholders equityOrdinary shares US$0.00002 par value; 2,500,000,000 shares authorized, 625,000,000 issued as of December 31,
2008 and 2009 respectively; 601,978,775 and 590,137,125 outstanding as of December 31, 2008 and 2009
respectively
    
    
    
    
    
    
    103
    
    
    
    103
    
    
    
    15Contributed surplus
    
    
    
    
    
    
    856,670
    
    
    
    861,646
    
    
    
    126,232Statutory reserves
    
    
    26
    
    
    
    142,158
    
    
    
    148,697
    
    
    
    21,784Retained earnings
    
    
    
    
    
    
    470,860
    
    
    
    496,993
    
    
    
    72,810Treasury stock at cost, 23,021,225 shares and 34,862,875 shares as of December 31, 2008 and 2009 respectively
    
    
    26
    
    
    
    (36,544
    )
    
    
    (44,930
    )
    
    
    (6,582
    )Total equity attributable to China Grentech Corporation Limited
    
    
    
    
    
    
    1,433,247
    
    
    
    1,462,509
    
    
    
    214,259Noncontrolling interests
    
    
    
    
    
    
    4,354
    
    
    
    4,340
    
    
    
    636Total shareholders equity
    
    
    
    
    
    
    1,437,601
    
    
    
    1,466,849
    
    
    
    214,895Total liabilities and shareholders equity
    
    
    
    
    
    
    2,838,970
    
    
    
    3,337,347
    
    
    
    488,924
   F-2




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Consolidated Statements of Operations
for the years ended December 31, 2007, 2008 and 2009
 Note
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    USDRevenues
    
    
    18
    
    
    
    979,302
    
    
    
    984,657
    
    
    
    1,602,943
    
    
    
    234,832Cost of revenues
    
    
    
    
    
    
    (611,436
    )
    
    
    (751,367
    )
    
    
    (1,223,973
    )
    
    
    (179,313
    )Gross profit
    
    
    
    
    
    
    367,866
    
    
    
    233,290
    
    
    
    378,970
    
    
    
    55,519Other revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,344
    
    
    
    490Operating expenses:Research and development costs
    
    
    
    
    
    
    (56,525
    )
    
    
    (70,232
    )
    
    
    (59,899
    )
    
    
    (8,775
    )Sales and distribution expenses
    
    
    
    
    
    
    (126,816
    )
    
    
    (138,524
    )
    
    
    (180,525
    )
    
    
    (26,447
    )General and administrative expenses
    
    
    
    
    
    
    (68,498
    )
    
    
    (127,028
    )
    
    
    (81,506
    )
    
    
    (11,941
    )Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    (27,589
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    
    
    
    
    (251,839
    )
    
    
    (363,373
    )
    
    
    (321,930
    )
    
    
    (47,163
    )Operating income (loss)
    
    
    
    
    
    
    116,027
    
    
    
    (130,083
    )
    
    
    60,384
    
    
    
    8,846Other income (expense)Interest income
    
    
    
    
    
    
    22,313
    
    
    
    31,257
    
    
    
    40,997
    
    
    
    6,006Interest expense
    
    
    
    
    
    
    (35,347
    )
    
    
    (54,844
    )
    
    
    (56,766
    )
    
    
    (8,316
    )Investment income
    
    
    
    
    
    
    318
    
    
    
    4,873
    
    
    
    
    
    
    
    Foreign currency exchange loss
    
    
    
    
    
    
    (18,791
    )
    
    
    (10,418
    )
    
    
    (211
    )
    
    
    (31
    )Grant income
    
    
    
    
    
    
    7,355
    
    
    
    15,209
    
    
    
    6,322
    
    
    
    926Total other expense
    
    
    
    
    
    
    (24,152
    )
    
    
    (13,923
    )
    
    
    (9,658
    )
    
    
    (1,415
    )Income (loss) before income tax expense
    
    
    
    
    
    
    91,875
    
    
    
    (144,006
    )
    
    
    50,726
    
    
    
    7,431Income tax expense
    
    
    7
    
    
    
    (10,321
    )
    
    
    (3,157
    )
    
    
    (18,068
    )
    
    
    (2,647
    )Net income (loss)
    
    
    
    
    
    
    81,554
    
    
    
    (147,163
    )
    
    
    32,658
    
    
    
    4,784Net loss attributable to
noncontrolling interests
    
    
    
    
    
    
    982
    
    
    
    796
    
    
    
    14
    
    
    
    2Net income (loss) attributable to
China GrenTech Corporation Limited
    
    
    
    
    
    
    82,536
    
    
    
    (146,367
    )
    
    
    32,672
    
    
    
    4,786Earning (loss) per share- Basic
    
    
    20
    
    
    
    0.13
    
    
    
    (0.24
    )
    
    
    0.05
    
    
    
    0.01- Diluted
    
    
    20
    
    
    
    0.13
    
    
    
    (0.24
    )
    
    
    0.05
    
    
    
    0.01Weighted average number of ordinaryshares outstanding:- Basic
    
    
    20
    
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    595,536,733
    
    
    
    595,536,733- Diluted
    
    
    20
    
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    604,781,041
    
    
    
    604,781,041
   F-3




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Consolidated Statements of Shareholders Equity
for the years ended December 31, 2007, 2008 and 2009
 Equityattributable toChina GrenTech
    
    
    
    
    
    
    TotalNumber of
    
    
    
    
    
    
    Contributed
    
    
    Statutory
    
    
    Retained
    
    
    Treasury
    
    
    Corporation
    
    
    Noncontrolling
    
    
    shareholdersNote
    
    
    shares
    
    
    Amount
    
    
    surplus
    
    
    reserves
    
    
    earnings
    
    
    stock
    
    
    Limited
    
    
    interests
    
    
    equityRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBBalance as of Jaunary 1, 2007
    
    
    
    
    
    
    625,000,000
    
    
    
    103
    
    
    
    853,476
    
    
    
    132,403
    
    
    
    544,446
    
    
    
    
    
    
    
    1,530,428
    
    
    
    18,971
    
    
    
    1,549,399Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,536
    
    
    
    
    
    
    
    82,536
    
    
    
    (982
    )
    
    
    81,554Share repurchased during the year
    
    
    
    
    
    
    (10,936,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,447
    )
    
    
    (26,447
    )
    
    
    
    
    
    
    (26,447
    )Appropriation to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,674
    
    
    
    (13,674
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of 20% additional equity
intestest in a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,226
    )
    
    
    (12,226
    )Balance as of December 31, 2007
    
    
    
    
    
    
    614,064,000
    
    
    
    103
    
    
    
    853,476
    
    
    
    146,077
    
    
    
    613,308
    
    
    
    (26,447
    )
    
    
    1,586,517
    
    
    
    5,763
    
    
    
    1,592,280Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (146,367
    )
    
    
    
    
    
    
    (146,367
    )
    
    
    (796
    )
    
    
    (147,163
    )Share repurchased during the year
    
    
    26
    
    
    
    (12,085,225
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,097
    )
    
    
    (10,097
    )
    
    
    
    
    
    
    (10,097
    )Share-based compensation, net of nil tax
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    3,194
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,194
    
    
    
    
    
    
    
    3,194Appropriation to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,511
    
    
    
    (2,511
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Disposal of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,430
    )
    
    
    6,430
    
    
    
    
    
    
    
    
    
    
    
    (613
    )
    
    
    (613
    )Balance as of December 31, 2008
    
    
    
    
    
    
    601,978,775
    
    
    
    103
    
    
    
    856,670
    
    
    
    142,158
    
    
    
    470,860
    
    
    
    (36,544
    )
    
    
    1,433,247
    
    
    
    4,354
    
    
    
    1,437,601Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,672
    
    
    
    
    
    
    
    32,672
    
    
    
    (14
    )
    
    
    32,658Share repurchased during the year
    
    
    26
    
    
    
    (11,841,650
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,386
    )
    
    
    (8,386
    )
    
    
    
    
    
    
    (8,386
    )Share-based compensation, net of nil tax
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    4,976
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,976
    
    
    
    
    
    
    
    4,976Appropriation to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,539
    
    
    
    (6,539
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as of December 31, 2009
    
    
    
    
    
    
    590,137,125
    
    
    
    103
    
    
    
    861,646
    
    
    
    148,697
    
    
    
    496,993
    
    
    
    (44,930
    )
    
    
    1,462,509
    
    
    
    4,340
    
    
    
    1,466,849Balance as of December 31,
2009  US$
    
    
    
    
    
    
    
    
    
    15
    
    
    
    126,232
    
    
    
    21,784
    
    
    
    72,810
    
    
    
    (6,582
    )
    
    
    214,259
    
    
    
    636
    
    
    
    214,895
   F-4




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 2007, 2008 and 2009
 Note
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    USDCash flow from operating activitiesNet income (loss)
    
    
    
    
    
    
    81,554
    
    
    
    (147,163
    )
    
    
    32,658
    
    
    
    4,784Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Loss on disposal of property, plant and equipment
    
    
    
    
    
    
    308
    
    
    
    390
    
    
    
    1,524
    
    
    
    223Depreciation of property, plant and equipment
    
    
    19
    
    
    
    29,004
    
    
    
    32,327
    
    
    
    30,685
    
    
    
    4,495Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    27,589
    
    
    
    
    
    
    
    Amortization of lease prepayments and intangible assets
    
    
    
    
    
    
    1,216
    
    
    
    3,356
    
    
    
    3,332
    
    
    
    488Allowance for doubtful accounts
    
    
    4
    
    
    
    16,177
    
    
    
    57,574
    
    
    
    11,263
    
    
    
    1,650Deferred tax benefit
    
    
    
    
    
    
    (5,141
    )
    
    
    (9,451
    )
    
    
    (17,894
    )
    
    
    (2,621
    )Deferred tax charges
    
    
    
    
    
    
    3,596
    
    
    
    (261
    )
    
    
    261
    
    
    
    38Foreign currency exchange losses
    
    
    
    
    
    
    18,791
    
    
    
    10,418
    
    
    
    211
    
    
    
    31Share-based compensation
    
    
    17
    
    
    
    
    
    
    
    3,194
    
    
    
    4,976
    
    
    
    729Net gain from disposal of equity interests in subsidiaries
    
    
    16
    
    
    
    
    
    
    
    (4,556
    )
    
    
    
    
    
    
    Changes in operating assets and liabilities, net of effects
of an acquisition and disposition of subsidiaries:Accounts receivable
    
    
    
    
    
    
    (380,865
    )
    
    
    (132,065
    )
    
    
    (102,963
    )
    
    
    (15,084
    )Inventories
    
    
    
    
    
    
    (104,373
    )
    
    
    13,442
    
    
    
    (250,617
    )
    
    
    (36,716
    )Prepaid expenses and other current assets
    
    
    
    
    
    
    1,061
    
    
    
    (64,186
    )
    
    
    15,838
    
    
    
    2,206Accounts payable
    
    
    
    
    
    
    142,652
    
    
    
    195,957
    
    
    
    129,434
    
    
    
    18,962Amounts due to related parties
    
    
    
    
    
    
    
    
    
    
    9,648
    
    
    
    24,352
    
    
    
    3,568Bills payable
    
    
    
    
    
    
    6,640
    
    
    
    36,470
    
    
    
    109,730
    
    
    
    16,076Accrued expenses and other payables
    
    
    
    
    
    
    66,370
    
    
    
    (38,012
    )
    
    
    62,240
    
    
    
    9,232Income tax payable
    
    
    
    
    
    
    2,782
    
    
    
    10,385
    
    
    
    35,701
    
    
    
    5,231Net cash (used in) provided by operating activities
    
    
    
    
    
    
    (120,228
    )
    
    
    5,056
    
    
    
    90,731
    
    
    
    13,292Cash flow from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (193,117
    )
    
    
    (100,138
    )
    
    
    (64,671
    )
    
    
    (9,474
    )Purchase of land use rights
    
    
    
    
    
    
    (75,890
    )
    
    
    
    
    
    
    
    
    
    
    Decrease (increase) in pledged time deposits
    
    
    
    
    
    
    (31,359
    )
    
    
    132,695
    
    
    
    19,333
    
    
    
    2,832Acquisition of a subsidiary, net of cash acquired
    
    
    
    
    
    
    5,842
    
    
    
    
    
    
    
    
    
    
    
    Disposal of subsidiaries, net of cash disposed
    
    
    
    
    
    
    
    
    
    
    (4,479
    )
    
    
    
    
    
    
    Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    87
    
    
    
    35
    
    
    
    
    
    
    
    Net cash (used in) provided by investing activities
    
    
    
    
    
    
    (294,437
    )
    
    
    28,113
    
    
    
    (45,338
    )
    
    
    (6,642
    )Cash flow from financing activitiesPayment for repurchase of ordinary shares
    
    
    
    
    
    
    (26,447
    )
    
    
    (10,097
    )
    
    
    (8,386
    )
    
    
    (1,229
    )Principal payments of short-term bank loans
    
    
    
    
    
    
    (612,050
    )
    
    
    (930,550
    )
    
    
    (805,000
    )
    
    
    (117,933
    )Proceeds from short-term bank loans
    
    
    
    
    
    
    882,050
    
    
    
    937,450
    
    
    
    945,000
    
    
    
    138,444Proceeds from  (remittance of) collection of sold accounts receivable on behalf of financial institutions, net
    
    
    
    
    
    
    58,862
    
    
    
    (48,888
    )
    
    
    (695
    )
    
    
    (102
    )Dividends paid to noncontrolling interests
    
    
    
    
    
    
    (3,800
    )
    
    
    
    
    
    
    
    
    
    
    Dividends paid to ordinary shareholders
    
    
    
    
    
    
    (25,996
    )
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    
    
    
    
    272,619
    
    
    
    (52,085
    )
    
    
    130,919
    
    
    
    19,180Effect of foreign currency exchange rate change on cash
    
    
    
    
    
    
    (8,599
    )
    
    
    (4,509
    )
    
    
    (211
    )
    
    
    (31
    )Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (150,645
    )
    
    
    (23,425
    )
    
    
    176,101
    
    
    
    25,799Cash and cash equivalents:At beginning of year
    
    
    
    
    
    
    467,423
    
    
    
    316,778
    
    
    
    293,353
    
    
    
    42,976At end of year
    
    
    
    
    
    
    316,778
    
    
    
    293,353
    
    
    
    469,454
    
    
    
    68,775
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China GrenTech Corporation Limited and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 2007, 2008 and 2009
 2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    USDSupplemental Disclosures of Cash Flow Information:Cash paid during the year for:Income tax
    
    
    8,251
    
    
    
    2,485
    
    
    
    
    
    
    
    Interest expense, net of interest capitalized
    
    
    32,829
    
    
    
    50,310
    
    
    
    59,387
    
    
    
    8,700Significant non-cash transactions:Acquisition of additional equity interest in a subsidiary
by transfer of accounts receivable
    
    
    29,628
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of a subsidiary by transfer of
accounts receivable
    
    
    47,866
    
    
    
    
    
    
    
    
    
    
    
    Payable for purchase of property, plant and equipment
    
    
    
    
    
    
    24,333
    
    
    
    19,597
    
    
    
    2,871
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China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (1)
    
    Principal Activities and Basis of Presentation
 Principal ActivitiesChina GrenTech Corporation Limited (the Company, formerly known as Powercom Holdings
Limited) and its subsidiaries (hereinafter, collectively referred to as the Group) are
principally engaged in the manufacture and sale of wireless coverage products and services in
the Peoples Republic of China (the PRC). The Group derives substantially all of its
revenues from China United Telecommunications Corporation and its affiliates (the China
Unicom Group), China Mobile Communications Corporation and its affiliates (the China Mobile
Group) and China Telecom Corporation Limited and its affiliates (the China Telecom Group).
At December 31, 2009, the China Unicom Group, the China Mobile Group and the China Telecom
Group were the only three licensed wireless communication operators in the PRC (Note 24).Basis of PresentationThe Company was incorporated in the Cayman Islands and was established on December 3,
2003. As of December 31, 2009, the Companys subsidiaries are as follows:
 Place
    
    Attributableof incorporation
    
    equityor
    
    interestName of company
    
    establishment
    
    held
    
    Principal activitiesGrenTech (BVI) Limited
    
    BVI
    
    
    100
    %
    
    Investment holdingShenzhen GrenTech Co., Ltd.(Shenzhen
GrenTech)
    
    PRC
    
    
    100
    %
    
    Technical
development,
manufacturing and
sales of
telecommunication
products in the PRCShenzhen Lingxian Technology Co.,
Ltd. (Shenzhen Lingxian)
    
    PRC
    
    
    99
    %
    
    Technical
development of
software used for
the Groups
telecommunication
productsShenzhen Radio Frequency Technology
Co., Ltd (RF Technology)
    
    PRC
    
    
    100
    %
    
    DormantShenzhen Radio Frequency Communication Co.,
Ltd (RF Communication)
    
    PRC
    
    
    100
    %
    
    Manufacturing and
sales of radio
frequency based
products in the PRC
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 Place
    
    Attributableof incorporation
    
    equityor
    
    interestName of company
    
    establishment
    
    held
    
    Principal activitiesShenzhen Kaige
Communication Co., Ltd
(Kaige)
    
    PRC
    
    
    100
    %
    
    Investment holdingShenzhen Kaixuan
Communication Co., Ltd
(Kaixuan)
    
    PRC
    
    
    100
    %
    
    Provision of installation
services on telecommunication products
in the PRCPT. GrenTech. Indonesia
(Indonesia)
    
    Indonesia
    
    
    100
    %
    
    Sales of telecommunication
products and provision of related
installation services in Indonesia
 In 2008, the Group disposed its entire equity interest in Quanzhou Lake Communication Company
Limited (Lake Communication) and Quanzhou Lake Microwave Company Limited (Lake Microwave)
(Note 16).
 In September, 2009, the Group deregistered one of its subsidiaries, Nanjing GrenTech Communication
Research Centre (Nanyan), which was a research and development (R&D) company. After the
deregistration of Nanyan, the assets, liabilities and related
operations  were transferred to the Groups other PRC subsidiaries.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and PracticesThe accompanying consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles (US GAAP).This basis of accounting differs in certain material respects from that used for the
preparation of the books of account of the Companys principal subsidiaries, which are
prepared in accordance with the accounting principles and the relevant financial regulations
applicable to enterprises limited by shares as established by the Ministry of Finance of the
PRC (PRC GAAP), the accounting standards used in the country of their domicile. The
accompanying consolidated financial statements reflect necessary adjustments not recorded in
the books of account of the Companys subsidiaries to present them in conformity with US GAAP.
 (a)
    
    Principles of ConsolidationThe consolidated financial statements include the financial statements of the Company
and its subsidiaries. All significant intercompany balances and transactions have been
eliminated on consolidation.(b)
    
    Foreign Currency TransactionsThe Company and its subsidiaries functional currency is the Renminbi (RMB) except for
PT. GrenTech Indonesia.Transactions denominated in currencies other than RMB are translated into RMB at the
exchange rates quoted by the Peoples Bank of China (the PBOC) prevailing at the dates
of the transactions. Monetary assets and liabilities denominated in foreign currencies
are translated into using the applicable exchange rates quoted by the PBOC at the
balance sheet dates. The RMB resulting exchange differences are recorded as other
income or expense in the consolidated statements of operations.PT. GrenTech Indonesias assets and liabilities are translated into RMB using the
exchange rate on the balance sheet date. Revenues and expenses of PT. GrenTech
Indonesia are translated into RMB at average rates prevailing during the reporting
period. Gains and losses resulting from translation of PT. GrenTech Indonesias
financial statements into RMB are recorded as a separate component of accumulated other
comprehensive income within equity, which was nil as of each balance sheet date.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (b)
    
    Foreign Currency Transactions (continued)For the convenience of the readers, the December 31, 2009 RMB amounts included in the
accompanying consolidated financial statements have been translated into USD at the rate
of USD1.00 = RMB6.8259, being the noon buying rate in effect on December 31, 2009 as set
forth in the H.10 statistical release of the U.S. Federal Reserve Board. No
representation is made that the RMB amounts could have been, or could be, converted into
USD at that rate or at any other rate on December 31, 2009, or at any other date.Since RMB is not a fully convertible currency, all foreign exchange transactions
involving RMB must take place either through the PBOC or other institutions authorized
to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange
transactions are the rates of exchange quoted by the PBOC, which are determined largely
by supply and demand.The Group has foreign currency cash deposits denominated in USD amounted to USD3,067,000
as of December 31, 2009, and any change of the value of the RMB against USD would cause
an exchange gain or loss to the Group. In addition, any devaluation of the RMB against
the USD would consequently have an adverse effect on the financial performance and asset
values of the Group when measured in terms of USD.(c)
    
    Use of EstimatesThe preparation of the consolidated financial statements in accordance with US GAAP
requires management of the Group to make a number of estimates and assumptions relating
to the reported amount of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the reported
amounts of revenue and expenses during the period. Actual results could differ from
those estimates. Significant items subject to such estimates and assumptions include the
recoverability of the carrying amount of property, plant and equipment, lease
prepayments and intangibles assets; the collectibility of accounts receivable; the
realizability of deferred tax assets and inventories; the fair value of share-based
compensation; the useful lives and salvage values of property and equipment; and the
accruals for tax uncertainties and other contingencies. These estimates are often based
on complex judgements and assumptions that management believes to be reasonable but are
inherently uncertain and unpredictable. Changes in facts and circumstances may result in
revised estimates.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (d)
    
    Cash and Cash EquivalentsCash and cash equivalents consist of cash on hand and in bank, including certificates of
deposit with initial terms of less than three months. Cash deposits that are restricted
as to withdrawal or pledged as security, are disclosed separately on the face of the
consolidated balance sheet, and not included in the total cash for the purpose of the
consolidated statements of cash flows.As at December 31, 2008 and 2009, the Group had foreign currency cash deposits
denominated in USD of USD3,067,000 (equivalent to RMB20,924,000) and USD1,890,000
(equivalent to RMB12,901,000), respectively.(e)
    
    Accounts ReceivableAccounts receivable are stated at the historical carrying amount, net of an allowance
for doubtful accounts. The allowance for doubtful accounts is the Groups best estimate
of the amount of probable credit losses in the Groups existing accounts receivable. The
Group determines the allowance based on historical write-off experience, customer
specific facts and economic conditions. Allowance for doubtful accounts is charged to
general and administrative expenses in the consolidated statements of operations.Outstanding account balances are reviewed individually for collectibility. Account
balances are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. The Companys
subsidiaries in the PRC are required to comply with local tax requirements on the
write-offs of doubtful accounts, which allow for the deductibility of such write-offs
only when sufficient evidence is available to prove the debtors inability to make
payments. For financial reporting purposes, the Group generally records write-offs of
doubtful accounts at the same time the local tax requirements for the write-offs are
met. As a result, there are generally time lags between the time when an allowance for
doubtful accounts is provided and the time the doubtful accounts and the related
allowance are written off.The Groups off-balance-sheet credit exposure consists primarily of receivables sold to
financial institutions that are subject to limited recourse (Note 3).
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (f)
    
    InventoriesInventories are stated at the lower of cost or market. Cost is determined using the
weighted average cost method. Cost of work in progress and finished goods comprises
direct materials, direct production cost and an allocated proportion of production
overheads based on normal capacity.Deferred installation costs related to costs incurred for installation of wireless
coverage products for which the related inspection certificates have not been issued are
capitalized as inventory. The deferred installation costs are charged to cost of
revenues in the same period that the revenue attributable to the installation service is
recognized.(g)
    
    Property, Plant and EquipmentProperty, plant, and equipment are stated at cost less accumulated depreciation and
impairment. Depreciation of property, plant and equipment is calculated based on the
straight-line method (after taking into account the assets estimated salvage value)
over the estimated useful lives of the assets as follows:
 YearsBuildings
    
    
    20-56Equipment and machinery
    
    
    5-10Motor vehicles
    
    
    5-10Office equipment and computer software
    
    
    5-10
 Interest expense and other direct costs incurred related to the construction of
property, plant and equipment are capitalized. The capitalization of the costs of a
qualifying asset commences when expenditures for the asset have been made, activities
that are necessary to get the asset ready for its intended use are in progress and costs
are being incurred. The capitalization period ends when the asset is substantially
completed and ready for its intended use.No depreciation is provided in respect of construction in progress.(h)
    
    Lease PrepaymentsLease prepayments represent the cost of land use rights in the PRC. Land use rights are
carried at cost and amortized on a straight-line basis over the period of rights of
50-70 years.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (i)
    
    Goodwill and Other Intangible AssetsGoodwill is reviewed for impairment at least annually in accordance with the provisions
of Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) Topic 350, Intangibles  Goodwill and Other(Statement No.142, Goodwill and
Other Intangible Assets). The goodwill impairment test is a two-step test. Under the
first step, the fair value of a reporting unit is compared with its carrying value
(including goodwill). If the fair value of the reporting unit is less than its carrying
value, an indication of goodwill impairment exists for the reporting unit and the Group
must perform step two of the impairment test (measurement). Under step two, an
impairment loss is recognized for any excess of the carrying amount of the reporting
units goodwill over the implied fair value of that goodwill. The implied fair value of
goodwill is determined by allocating the fair value of the reporting unit in a manner
similar to a purchase price allocation and the residual fair value after this allocation
is the implied fair value of the reporting unit goodwill. Fair value of the reporting
unit is determined using a discounted cash flow analysis. If the fair value of the
reporting unit exceeds its carrying value, step two does not need to be performed.In 2008, the economic downturn had adversely affected the Groups market capitalization.
The fair value of the reporting unit based on the Companys
market capitalization indicated that its goodwill was fully impaired. Accordingly, the Group recognized impairment loss of goodwill amounting to
RMB27,589,000 for the year ended December 31, 2008.Intangible assets with determinable useful lives consist of registered patents that are
amortized on a straight-line basis over the estimated useful life of 2 years.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (j)
    
    Impairment of Long-Lived AssetsIn accordance with Impairment or Disposal of Long-Lived Assets Subsections of FASB ASC
Subtopic 360-10, Property, Plant and Equipment  Overall(FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets),long-lived assets,
including property, plant and equipment, and intangible assets with determinable useful
lives, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.Recoverability of long-lived assets to be held and used is measured by a comparison of
the carrying amount of an asset to the estimated undiscounted future cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its estimated
future undiscounted cash flows, an impairment charge is recognized to the extent that
the carrying amount of the asset exceeds the fair value of the asset. Fair value is
determined through various valuation techniques including discounted cash flow models,
quoted market values and third-party independent appraisals, as considered necessary.(k)
    
    Revenue RecognitionThe Group derives revenues principally from the provision and sale of wireless coverage
products and related installation services, and the sale of radio frequency (RF) parts
and components. Revenue is recognized when delivery has occurred or the services have
been rendered, persuasive evidence of an arrangement exists, the price to the buyer is
fixed or determinable and collectibility is reasonably assured. These criteria as they
apply to the sale of wireless coverage products and related installation services, and
RF-based parts and components are as follows:Wireless coverage productsThe Group recognizes revenues from the sale of wireless coverage products when i) the
buyer has executed and signed a sales and purchase contract, which specifies the price,
payment terms, and the wireless coverage products to be delivered; ii) the wireless
coverage products have been delivered to the buyer and the buyer has signed an
acceptance document that indicates the buyers acceptance of the functionality,
specifications, and performance of the delivered wireless coverage products (the
acceptance document); iii) the risk and rewards of ownership and title of the
delivered wireless coverage products have been transferred to the buyer; iv) the Group
has an enforceable legal right to receive the contractually specified amount in cash and
such right is not contingent upon the Groups delivery of additional items, meeting
other specified performance condition; and v)  the Group has no
remaining performance obligation.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (k)
    
    Revenue Recognition (continued)The customers are generally required to pay a range of 70% to 80% of the contract amount
either upon signing of the sales and purchase contract or the
acceptance document, with the remaining 20% to 30% of the  contract amount upon the customers issuance of the final inspection
certificate or the expiration of the warranty period.RF-based parts and componentsThe Group recognizes revenues from the sale of RF parts and components when the risk and
rewards of ownership and title to the products have been transferred to the buyer, which
is at the point of time when the RF-based parts and components have been delivered to
the buyer and the buyer has signed an acceptance document.Installation servicesThe Group recognizes revenue from the provision of installation service when i) the
services have been rendered; ii) the buyer has issued a preliminary inspection
certificate, which indicates the buyers acceptance of the installation services
provided; iii) the Group has an enforceable legal right to receive the contractually
specified amount in cash and such right is not contingent upon the buyers issuance of a
final inspection certificate; and iv) the Groups remaining obligation is considered
inconsequential or perfunctory.The customers are generally required to pay i) a range of 30% to 50% of the contract
amount either upon signing of the installation service contract and the Group has
completed the installation, ii) a range of 20% to 50% (cumulative
contract amount of 70% to 80%) of the contract amount upon issuance
of the preliminary inspection certificate,  iii) the remaining contract amount upon the issuance of
the final inspection certificate or the expiration of the warranty period.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (k)
    
    Revenue Recognition (continued)Bundled sale arrangementsIn certain cases, the Group enters into bundled sale arrangement where it sells wireless
coverage products with the related installation services. The bundled sale arrangement
consists of two revenue-generating activities, or deliverables, which are i) sale of wireless coverage products and ii) provision of installation services. Pursuant to
FASB ASC Topic 605-25 Revenue Recognition  Multiple-Element Arrangements(Emerging
Issues Task Force Issue No. 00-21,Revenue Arrangements with Multiple Deliverables),
the wireless coverage products sale and related installation services are accounted for
as separate units of accounting for the following reasons: i) the wireless coverage
product has standalone value as it is sold separately by the Group; ii) objective and
reliable evidence of the fair value for the installation services exists as evidenced by
the amount charged by the Group and other independent third parties; and iii) there are
no refund rights in these arrangements. As objective and reliable evidence of fair value
exists for both the wireless coverage products and installation services, the
appropriate revenue recognition convention is separately applied to each of the two
deliverables.The arrangement consideration is allocated to each deliverable in the arrangement based
on their relative fair values. Revenue attributable to the sale of the wireless coverage
products element is recognized when the revenue recognition criteria for the sale of
wireless coverage products specified above are met. Revenue attributable to the
installation service element of the contract is recognized when the revenue recognition
criteria for the provision of installation services are met.For bundled sale contracts, the customers are generally required to pay i) a range of
30% to 60% of the total contract consideration either upon signing of the sales and
purchase contract or the signing the acceptance document, ii) a range
of 30% to 60% (cumulative total contract consideration of 60% to 90%) of
the total contract consideration upon issuance of the preliminary
inspection certificate,  iii) a range of 10% to 30% of the total contract consideration upon the
issuance of the final inspection certificate and iv) a range of zero to 10% of the
contract sum upon the expiration of the warranty period.Sales of wireless coverage products and services made under
these payment terms, provided that the above criteria for revenue recognition are met,
are recognized as revenue due to: i) the Groups history of successfully collecting
amounts due under the original payment terms without making significant concessions on
payments; and ii) the Groups enforceable legal right to receive the contractually
specified amount in cash attributable to the element of the contract that has been
delivered, and the Groups intent to enforce this right, when considered necessary.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (k)
    
    Revenue Recognition (continued)The portion of the contract amount recognized as revenue in excess of the amounts
received under the contract payment terms is recorded in accounts receivable in the
accompanying consolidated balance sheets. The portion of the amounts received under the
contract payment terms in excess of the revenue recognized is recorded as deferred
income and included in accrued expenses and other payables in the accompanying
consolidated balance sheets. Amounts due under the contract terms beyond one year are
classified as long term accounts receivable and are discounted at the prevailing
borrowing rate announced by the Peoples Bank of China.Provisions for estimated settlement discounts provided to customers are recorded as a
reduction of revenue when such discounts are offered. The provision for estimated
settlement discounts, which is based on historical settlement data and current
expectation, is the Groups best estimate of the amount of discounts to be utilized by
its customers.Revenue is stated net of value added taxes (VAT), sales tax and surcharge, sales
returns, trade discounts and allowances. In the PRC, VAT of 17% on invoice amount is
collected in respect of the sales of goods on behalf of the tax authorities. The VAT
collected is not revenue of the Group; instead the amount is recorded as a liability on
the balance sheet until such VAT is paid to the tax authorities.Other revenue represents rental income from the operating lease which is recognized in
the consolidated statement of operations on a straight-line basis over the lease term
unless another systematic and rational allocation basis is more representative of the
time pattern in which the leased property is physically employed. Lease incentives
granted are recognized in the consolidated statements of operations as an integral part
of the aggregate net lease payments receivable.(l)
    
    Allowance for product warrantiesUnder most wireless coverage product sales contracts, the Group provides free repairs
and replacement for defective parts and free maintenance of installed
wireless coverage system for duration of 12 months to 36 months after the
commencement of the warranty period. The Group records a provision for estimated future
costs to be incurred during the warranty period in the same period that revenue is
recognized. Allowances for warranties are recorded as cost of revenues and are
established on an individual basis. The estimates reflect historic trends of warranty
costs adjusted for specific conditions that may arise and the number of contracts under
warranty at each financial year-end.
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China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (m)
    
    Cost of RevenuesCost of revenues consists primarily of material costs, payroll compensation,
installation costs, depreciation, estimated warranty, rentals and related expenses,
which are directly attributable to the production of products and rendering of services.
Write-down of inventory to lower of cost or market is also recorded in cost of revenues
in the consolidated statements of operations.(n)
    
    Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and tax loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. A valuation allowance is provided to reduce the amount of
deferred tax assets if it is considered more likely than not that some portion or all of
the deferred tax assets will not be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the consolidated statements of
operations in the period that includes the enactment date.On January 1, 2007, the Group adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48), included in FASB ASC Subtopic 740-10  Income
Taxes  Overall, which clarifies the accounting for uncertain tax positions and
requires that an entity recognizes in the consolidated financial statements the impact
of a tax position, if that position is more likely than not of being sustained upon
examination, based on the technical merits of the position. Recognized income tax
positions are measured at the largest amount that is greater than 50% likely of being
realized. Changes in recognition or measurement are reflected in the period in which
the change in judgement occurs. The Group has elected to classify interest and
penalties related to unrecognized tax benefits, if and when required, as part of income
tax expense in the consolidated statements of operations.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (o)
    
    Advertising and Research and Development CostsAdvertising and research and development costs are expensed as incurred. Advertising
costs included in sales and distribution expenses amounted to RMB35,000, RMB49,000 and
RMB15,000 (USD2,000) for the years ended December 31, 2007, 2008 and 2009, respectively.
Research and development costs consist primarily of the remuneration of research and
development staff, depreciation and maintenance expenses of research and development
equipment, material costs and rental expenses for premises used for research and
development.(p)
    
    Freight CostsThe Group records freight costs relating to the transportation of the raw materials to
the Groups warehouse in cost of revenues and records all other outbound freight costs
in sales and distribution expenses. For the years ended December 31, 2007, 2008, and
2009, freight costs included in cost of revenues were RMB3,691,000, RMB4,026,000 and
RMB8,243,000 (USD1,208,000), respectively, and freight costs included in sales and
distribution expenses were RMB3,790,000, RMB5,284,000 and RMB7,429,000 (USD1,088,000),
respectively.(q)
    
    Bills PayableBills payable represent bills issued by financial institutions to the Groups vendors.
The Groups vendors receive payments from the financial institutions upon maturity of
the bills and the Group is obliged to repay the face value of the bills to the financial
institutions. Interest is charged at the prevailing bank borrowing rate on the
outstanding balances of the bills paid by the financial institution and is recorded as
interest expense when incurred.(r)
    
    Government GrantsReceipts of government grants to encourage research and development activities which are
unconditional and non-refundable are recognized as grant income in the accompanying
consolidated statements of operations upon receipt.(s)
    
    Commitments and ContingenciesLiabilities for loss contingencies arising from claims, assessments, litigation, fines
and penalties and other sources are recorded when it is probable that a liability has
been incurred and the amount of the assessment can be reasonably estimated.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (t)
    
    Earnings per ShareBasic earnings per share is computed by dividing net income by the weighted average
number of common stock outstanding during the year. Diluted earnings per share is
computed by dividing net income by the weighted average number of common and dilutive
potential common shares outstanding during the year. Dilutive potential common shares
consist of common shares issuable upon the exercise of stock options, including
performance shares and warrants.(u)
    
    Share-Based PaymentsA share option scheme was established on August 25, 2005 (the 2005 Scheme) which
allows the Company to grant options to its employees to acquire ordinary shares of the
Company. The Group accounts for share-based payments under the provision of FASB ASC
718, Compensation  Stock Compensation. ASC 718 requires all share based payment
transactions with employees, such as share options, to be measured based on the
grant-date fair value of the equity instrument issued and recognized as compensation
expense over the requisite service period. Under this method, compensation cost related
to employee share options or similar equity instruments is measured based on the fair
value of the award at the date of grant and is recognized over the period during which
an employee is required to provide service in exchange for the award, which generally is
the vesting period, if any. On March 14 and December 23, 2008, the Company granted an
aggregate of 38,000,000 share options under the 2005 Scheme to certain directors and
employees of the Group (Note 17). No share option was granted in 2009.Share-based compensation expense of Nil, RMB3,194,000 and RMB4,976,000 (USD729,000) for
the years ended December 31, 2007, 2008 and 2009, respectively. Since share-based
compensation is not tax deductible in the PRC, no related tax benefit has been
recognized.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (v)
    
    Segment ReportingPursuant to FASB ASC 280  Segment Reporting, the Group uses the management approach in
determining operating segments. The management approach considers the internal
reporting used by the Groups chief operating decision maker to make decisions about the
allocation of resources to the segment and assess its performance. For the periods
presented, the Group has determined it has only one operating segment which is the
manufacture and sale of communication products in the PRC.The Group operates and manages its business solely in the PRC and all of its customers
are located in the PRC, and therefore, no geographical information is presented.(w)
    
    Fair value measurementsOn January 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value
Measurements, included in ASC Topic 820, Fair Value Measurements and Disclosures,for
fair value measurements of financial assets and financial liabilities and for fair value
measurements of nonfinancial items that are recognized or disclosed at fair value in the
financial statements on a recurring basis. ASC Topic 820 defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities required or permitted
to be recorded at fair value, the Company considers the principal or most advantageous
market in which it would transact and it considers assumptions that market participants
would use when pricing the asset or liability. ASC Topic 820 also establishes a
framework for measuring fair value and expands disclosures about fair value
measurements.ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. ASC Topic 820 establishes three levels of inputs that may be used to measure fair
value. The hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the lowest
priority to measurements involving significant unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy are as follows:Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date.
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China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (w)
    
    Fair value measurements (continued)Level 2 inputs are inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.Level 3 inputs are unobservable inputs for the asset or liability.
The level in the fair value hierarchy within which a fair value measurement in its
entirety falls is based on the lowest level input that is significant to the fair value
measurement in its entirety.On January 1, 2009, the Group adopted the provision of ASC Topic 820 (Statement 157) to
fair value measurements of nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the consolidated financial statements on a
non-recurring basis.(x)
    
    Recently Issued Accounting StandardsFASB ASC Subtopic 810-10 Noncontrolling interestOn January 1, 2009, the Company adopted Statement of Financial Accounting Standards No.
160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB
No. 51, included in FASB ASC Subtopic 810-10, Consolidations  Overall(ASC Subtopic
810-10), which requires certain changes to the presentation of the financial
statements. This amendment requires noncontrolling interest (previously referred to as
minority interest) to be reclassified to equity in the consolidated balance
sheets and consolidated net income to be adjusted to include the net income attributable
to the noncontrolling interest in the consolidated statements of operations. The
presentation and disclosure requirements of ASC Subtopic 810-10 are applied
retrospectively. Other than the change in presentation of noncontrolling interest, the
adoption of ASC Subtopic 810-10 had no impact on the Companys financial condition,
results of operations or cash flows.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (x)
    
    Recently Issued Accounting Standards (continued)FASB ASC Subtopic 605-25 (Emerging Issues Task Force Issue No. 08-1 (EITF 08-1))In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (EITF Issue No. 08-1,
Revenue Arrangements with Multiple Deliverables). ASU 2009-13 amends ASC 605-25 to
eliminate the requirement that all undelivered elements have vendor specific objective
evidence of selling price (VSOE) or third party evidence of selling price (TPE)
before an entity can recognize the portion of an overall arrangement fee that is
attributable to items that already have been delivered. In the absence of VSOE and TPE
for one or more delivered or undelivered elements in a multiple-element arrangement,
entities will be required to estimate the selling prices of those elements. The overall
arrangement fee will be allocated to each element (both delivered and undelivered items)
based on their relative selling prices, regardless of whether those selling prices are
evidenced by VSOE or TPE or are based on the entitys estimated selling price.
Application of the residual method of allocating an overall arrangement fee between
delivered and undelivered elements will no longer be permitted upon adoption of ASU
2009-13. Additionally, the new guidance will require entities to disclose more
information about their multiple-element revenue arrangements. ASU 2009-13 is effective
prospectively for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. Early adoption is permitted. Management
expects that the adoption of ASU2009-13 will not have a material impact on the Companys
financial position, results of operations and cash flows.ASU 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial
Assets (FASB Statement No. 166, Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140)The FASB issued ASU 2009-16, Transfers and Servicing(Topic 860): Accounting for
Transfers of Financial Assets(FASB Statement No. 166, Accounting for Transfers of
Financial Assetsan amendment of FASB Statement No. 140) in December 2009. ASU 2009-16
removes the concept of a qualifying special-purpose entity (QSPE) from ASC Topic 860,
Transfers and Servicing, and the exception from applying ASC 810-10 to QSPEs, thereby
requiring transferors of financial assets to evaluate whether to consolidate transferees
that previously were considered QSPEs. Transferor-imposed constraints on transferees
whose sole purpose is to engage in securitization or asset-backed financing activities
are evaluated in the same manner under the provisions of the ASU as transferor-imposed
constraints on QSPEs were evaluated under the provisions of Topic 860 prior to the
effective date of the ASU when determining
whether a transfer of financial assets qualifies for sale accounting.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (2)
    
    Summary of Significant Accounting Policies and Practices (continued)
 (x)
    
    Recently Issued Accounting Standards (continued)The ASU also clarifies the Topic 860 sale-accounting criteria pertaining to legal
isolation and effective control and creates more stringent conditions for reporting a
transfer of a portion of a financial asset as a sale. The ASU is effective for periods
beginning after December 15, 2009. Early adoption is permitted. The Group expects that
the adoption of ASU 2009-16 will not have a material impact on its consolidated
financial statements.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (3)
    
    Pledged Time DepositsPledged time deposits at December 31, 2008 and 2009 consist of the following:
 2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    USD000Pledged deposits with financial institutions for security on:- accounts receivable sold (Note (a))
    
    
    30,361
    
    
    
    33,209
    
    
    
    4,865- bills payable (Note (b))
    
    
    37,007
    
    
    
    69,826
    
    
    
    10,230- short-term bank loans (Note (b))
    
    
    55,000
    
    
    
    
    
    
    
    122,368
    
    
    
    103,035
    
    
    
    15,095
 (a)
    
    In its ordinary course of business, the Group enters into 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, 2008 and RMB500
million (USD73 million) as of December 31, 2009). Accounts receivable are sold at a
discount, the rate of 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
receivables sold are subject to certain limited recourse provisions. The Group 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 customer. The cash in the restricted bank account
is released to the Group 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. During the years ended December 31, 2007, 2008 and 2009, the
Group sold accounts receivable of RMB200,440,000, RMB202,178,000 and RMB371,604,000
(USD54,440,000) and received proceeds from the sale of the accounts receivable of
RMB192,687,000, RMB188,422,000 and RMB355,944,000 (USD52,146,000), respectively. Pursuant
to the FASB ASC Topic 860, Transfers and Servicing(SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities),the Group
surrendered control over the accounts receivable sold to the financial institutions, and
accordingly, the accounts receivable were derecognized from the balance sheet on their
respective dates of the transfer. Discount from the sale of accounts receivable of
RMB7,753,000, RMB13,521,000 and RMB15,660,000 (USD2,294,000), respectively, was included
in interest expense for the years ended December 31, 2007, 2008 and 2009. The Company has
not experienced any significant losses under the recourse provisions during the three-year
period ended December 31, 2009.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (3)
    
    Pledged Time Deposits (continued)
 (a)
    
    As of December 31, 2008 and 2009, accounts receivable sold to financial institutions
that have not been repaid by the Groups customers amounted to RMB292,202,000 and
RMB318,548,000 (USD46,668,000), respectively.Pursuant to the sales agreements with the financial institutions, the Group is
responsible for servicing the accounts receivable sold until the expiration of the sales
agreements. The service obligations primarily consist of serving notice to customers and
collecting the cash on behalf of the financial institutions and remitting the cash to the
financial institutions by a specified time. No servicing obligation was recorded at the
date of sale as the amount was considered to be immaterial. As of December 31, 2008 and
2009, an amount of RMB27,735,000 and RMB27,040,000 (USD3,961,000), respectively, had been
collected by the Group pending transfer to the financial institutions, and are included
in accrued expenses and other payables in the accompanying consolidated balance sheets.(b)
    
    The Group 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.
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China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (4)
    
    Accounts Receivable, net
 Accounts receivable at December 31, 2008 and 2009 consist of the following:
 2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    USD000Accounts receivable net of
allowances for estimated settlement
discounts of RMB24,425 and RMB53,624
respectively as of December 31, 2008 and
2009
    
    
    1,249,250
    
    
    
    1,350,552
    
    
    
    197,857Less: Allowance for doubtful accounts
    
    
    (25,323
    )
    
    
    (36,586
    )
    
    
    (5,360
    )1,223,927
    
    
    
    1,313,966
    
    
    
    192,497Long term accounts receivable, net
    
    
    (551,210
    )
    
    
    (452,191
    )
    
    
    (66,246
    )672,717
    
    
    
    861,775
    
    
    
    126,251Bills receivable
    
    
    55,543
    
    
    
    30,374
    
    
    
    4,450Short term accounts receivable, net
    
    
    728,260
    
    
    
    892,149
    
    
    
    130,701
 An analysis of the settlement discounts account for 2007, 2008 and 2009 is as
follows:
 2007
    
    
    2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    USD000Balance at beginning of year
    
    
    14,982
    
    
    
    10,657
    
    
    
    24,425
    
    
    
    3,578Utilization during the year
    
    
    
    
    
    
    
    
    
    
    (26,301
    )
    
    
    (3,853
    )(Reversal of
provision)/provision during the
year
    
    
    (4,325
    )
    
    
    13,768
    
    
    
    55,500
    
    
    
    8,131Balance at end of year
    
    
    10,657
    
    
    
    24,425
    
    
    
    53,624
    
    
    
    7,856
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China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (4)
    
    Accounts Receivable, net (continued)Accounts receivable due beyond one-year are classified as long-term accounts receivable in
the accompanying consolidated balance sheets and discounted at the applicable discount rate
at the time of the receivable is recorded. For the years ended December 31, 2008 and 2009,
the weighted average discount rates were 6.85% and 5.31% per annum, respectively. Long term
accounts receivable are stated after the deduction of unearned interest of RMB45,183,000 and
RMB31,821,000 (USD4,662,000), respectively, as of December 31, 2008 and 2009.
 An analysis of the allowance for doubtful accounts for 2007, 2008 and 2009 is as follows:
 2007
    
    
    2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    USD000Balance at beginning of year
    
    
    6,177
    
    
    
    22,354
    
    
    
    25,323
    
    
    
    3,710Derecognized on disposal of
subsidaries
    
    
    
    
    
    
    (11,017
    )
    
    
    
    
    
    
    Charged to Statements of
Operations
    
    
    16,177
    
    
    
    57,574
    
    
    
    11,916
    
    
    
    1,746Written back during the year
    
    
    
    
    
    
    
    
    
    
    (653
    )
    
    
    (96
    )Written off during the year
    
    
    
    
    
    
    (43,588
    )
    
    
    
    
    
    
    Balance at end of year
    
    
    22,354
    
    
    
    25,323
    
    
    
    36,586
    
    
    
    5,360
 Accounts receivable balances written off during the year ended December 31, 2008 were
related to aged receivables due from certain non-operator customers, who have encountered
financial difficulties caused by the adverse market conditions. No accounts receivable
balances was written off during the year ended December 31, 2009.
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China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (5)
    
    Inventories
 Inventories at December 31, 2008 and 2009 consist of the following:
 2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    USD000Raw materials
    
    
    163,589
    
    
    
    205,608
    
    
    
    30,122Work-in-progress
    
    
    15,539
    
    
    
    8,055
    
    
    
    1,180Finished goods
    
    
    341,491
    
    
    
    557,573
    
    
    
    81,685520,619
    
    
    
    771,236
    
    
    
    112,987
 Included in finished goods are i) wireless coverage products delivered to customers
sites which have not been accepted by the customers; and ii) deferred installation costs
related to costs incurred for installation of wireless coverage products for which the related
preliminary inspection certificates have not been issued at the respective balance sheet
dates. As at December 31, 2008 and 2009, deferred installation costs amounted to
RMB54,215,000 and RMB97,931,000 (USD14,347,000), respectively.
 Inventories were written down by RMB Nil, RMB41,952,000 and RMB16,055,000 (USD2,352,000) and
charged to cost of revenues during 2007, 2008 and 2009 respectively. The write down of
inventory during the years ended December 31, 2008 and 2009 was mainly related to obsolete
inventories that are no longer suitable for future network construction, due to rapid
advancement in wireless coverage technology and the rollout of large scale 3G network
constructions.
 (6)
    
    Prepaid expenses and other current assets
 Prepaid expenses and other current assets consist of the following:
 2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    USD000Deposits
    
    
    13,204
    
    
    
    14,430
    
    
    
    2,114Prepayment for purchase of raw material
    
    
    34,539
    
    
    
    40,687
    
    
    
    5,961Advances to employees
    
    
    36,285
    
    
    
    15,468
    
    
    
    2,266Prepayment for installation costs to subcontractors
    
    
    8,298
    
    
    
    8,984
    
    
    
    1,316Others
    
    
    5,342
    
    
    
    2,266
    
    
    
    332Total prepaid expenses and other current assets
    
    
    97,668
    
    
    
    81,835
    
    
    
    11,989
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China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (7)
    
    Income Tax Expense
 Cayman Islands and British Virgin Islands TaxesUnder the current laws of the Cayman Islands and British Virgin Islands, the Company and
GrenTech (BVI) Limited are not subject to tax on income or capital gains. In addition, upon
payments of dividends by the Company and GrenTech (BVI) Limited, no Cayman Islands or British
Virgin Islands withholding tax is imposed.PRC Tax
 Prior to January 1, 2008, the general PRCs statutory income tax rate was 33%. Shenzhen
GrenTech, Shenzhen Lingxian, Kaige, Kaixuan and RF Technology were established in the Shenzhen
Special Economic Zone and were entitled to the preferential income tax rate of 15%.
Furthermore, Shenzhen GrenTech and Shenzhen Lingxian were granted an additional 50% relief
from the preferential income tax rate of 15% and were subject to a reduced income tax rate of
7.5% for 2007. In addition, as a foreign investment enterprise (FIE) established in the
coastal open economic area, Lake Microwave was subject to income tax at a rate of 27% for
2007.
  F-30




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (7)
    
    Income Tax Expense (continued)
 On March 16, 2007, the Fifth Plenary Session of the Tenth National Peoples Congress passed
the Corporate Income Tax Law of the PRC (new tax law), which unified the income tax rate to
25% for all enterprises. The new tax law was effective as of January 1, 2008. The new tax
law also provides a 5-year transition period from its effective date for those enterprises
which were established before March 16, 2007 and which were entitled to a preferential lower
tax rate under the then effective tax laws and regulations. The transitional tax rates are
18%, 20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011 and 2012 onwards, respectively. Further,
entities that qualified as Advance and New Technology Enterprise (ANTE) under the new tax
law are entitled to a preferential income tax rate of 15%. However, the recognition criteria
and procedures for ANTE under the new tax law were not issued until April 2008. Under the new
tax law, Shenzhen Lingxian, Kaige and Kaixuan are subject to the transitional tax rates of
18%, 20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011 and 2012 onwards, respectively. RF
Communication and RF Technology were established after March 16, 2007 and therefore are
subject to income tax at 25% beginning on January 1, 2008. Lake Microwave and Lake
Communication were subject to income tax at 25% for 2008 prior to their disposal by the Group
during December 2008 (Note 16).As of December 31, 2008, Shenzhen GrenTech had not completed all the procedures required under
the new tax law that would entitle it to the ANTE preferential tax rate of 15%. In March 2009,
Shenzhen GrenTech obtained the ANTE certificate that entitles it to the preferential income
tax rate of 15% under the new tax law retroactively from January 1, 2008 to December 31, 2010.
Thereafter, Shenzhen GrenTech is subject to income tax at 24% for 2011 and at 25% from 2012
onwards.The Groups income tax expense consists of the following:
 PRC Income tax expense/(benefit)
    
    Current
    
    
    Deferred
    
    
    TotalRMB000
    
    
    RMB000
    
    
    RMB000Year ended December 31, 2007
    
    
    11,866
    
    
    
    (1,545
    )
    
    
    10,321Year ended December 31, 2008
    
    
    12,608
    
    
    
    (9,451
    )
    
    
    3,157Year ended December 31, 2009
    
    
    35,701
    
    
    
    (17,633
    )
    
    
    18,068(USD000)
    
    
    5,230
    
    
    
    (2,583
    )
    
    
    2,647
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (7)
    
    Income Tax Expense (continued)Income tax expense reported in the consolidated statements of operations differs from the
amount computed by applying the PRC income tax rate of 15% (the applicable tax rate of the
Companys principal subsidiaries) for 2007 and 25% for 2008 and 2009 for the following
reasons:
 2007
    
    
    2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    USD000Income (loss) before income tax expense:- PRC
    
    
    105,567
    
    
    
    (130,458
    )
    
    
    62,870
    
    
    
    9,211- Non-PRC
    
    
    (13,692
    )
    
    
    (13,548
    )
    
    
    (12,144
    )
    
    
    (1,780
    )Income (loss) before income tax expense
    
    
    91,875
    
    
    
    (144,006
    )
    
    
    50,726
    
    
    
    7,431Computed expected tax expense/(benefit)
    
    
    13,781
    
    
    
    (36,002
    )
    
    
    12,681
    
    
    
    1,858Non-deductible expenses:Impairment of goodwill
    
    
    
    
    
    
    4,138
    
    
    
    
    
    
    
    Entertainment expenses
    
    
    4,405
    
    
    
    4,051
    
    
    
    4,098
    
    
    
    600Settlement discounts on accounts receivables
    
    
    
    
    
    
    1,893
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    575
    
    
    
    746
    
    
    
    109Bad debt expenses for accounts receivables
    
    
    
    
    
    
    15,165
    
    
    
    1,916
    
    
    
    281Bad debt expenses for other receivables
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    19Others
    
    
    885
    
    
    
    506
    
    
    
    
    
    
    
    Gain on disposal of investment
    
    
    
    
    
    
    4,963
    
    
    
    
    
    
    
    Additional deduction for research & development
expenses
    
    
    
    
    
    
    (4,073
    )
    
    
    (5,063
    )
    
    
    (742
    )Change in deductibility of settlement discounts on accounts receivables
    
    
    
    
    
    
    
    
    
    
    (3,664
    )
    
    
    (537
    )Non-taxable income
    
    
    (48
    )
    
    
    (48
    )
    
    
    
    
    
    
    Tax rate differential
    
    
    2,385
    
    
    
    15,002
    
    
    
    2,852
    
    
    
    419Tax holiday
    
    
    (11,048
    )
    
    
    
    
    
    
    
    
    
    
    Change in valuation allowance
    
    
    4,526
    
    
    
    320
    
    
    
    832
    
    
    
    122Effect of change in enacted tax rate / tax status
    
    
    (4,565
    )
    
    
    
    
    
    
    4,070
    
    
    
    596Effect of change in tax rate on deferred tax assets
    
    
    
    
    
    
    (3,333
    )
    
    
    (400
    )
    
    
    (59
    )Actual income tax expense
    
    
    10,321
    
    
    
    3,157
    
    
    
    18,068
    
    
    
    2,647
 If the Companys subsidiaries were not in the tax holiday periods, the income tax expense
would be increased by RMB11,048,000 and RMB Nil and RMB Nil(USD Nil) for the years ended
December 31, 2007, 2008 and 2009, respectively and the earnings per share available to
ordinary shareholders for such periods would be decreased as follows.
 2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    USDDecrease in earnings per share attributable to
the equity shareholders of the Company:- Basic
    
    
    0.02
    
    
    
    
    
    
    
    
    
    
    
    - Diluted
    
    
    0.02
    
    
    
    
    
    
    
    
    
    
    
    
  F-32




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (7)
    
    Income Tax Expense (continued)As of December 31, 2009, the Group has unused tax losses of RMB4,107,000 (USD601,000), of
which RMB50,000 and RMB4,057,000, if unused, will expire in 2013 and 2014, respectively.The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and liabilities as of December 31, 2008 and 2009 are presented below:
 2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    USD000Deferred tax assets  CurrentAccounts receivable
    
    
    
    
    
    
    8,044
    
    
    
    1,178Deferred income
    
    
    5,062
    
    
    
    11,317
    
    
    
    1,659Accrual
    
    
    858
    
    
    
    2,801
    
    
    
    410Warranty provision
    
    
    2,479
    
    
    
    3,734
    
    
    
    546Inventories
    
    
    8,430
    
    
    
    9,062
    
    
    
    1,328Tax loss carryforwards
    
    
    1,037
    
    
    
    842
    
    
    
    123Total gross deferred tax assets
    
    
    17,866
    
    
    
    35,800
    
    
    
    5,244Less: valuation allowance
    
    
    (729
    )
    
    
    (842
    )
    
    
    (123
    )17,137
    
    
    
    34,958
    
    
    
    5,121Deferred tax liabilities  Non-currentProperty, plant and equipment
    
    
    (4,752
    )
    
    
    (4,679
    )
    
    
    (686
    )Total gross deferred tax liabilities
    
    
    (4,752
    )
    
    
    (4,679
    )
    
    
    (686
    )Net deferred tax assets
    
    
    12,385
    
    
    
    30,279
    
    
    
    4,435
  F-33




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (7)
    
    Income Tax Expense (continued)An analysis of the valuation allowance for 2007, 2008 and 2009 is as follows:
 2007
    
    
    2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    USD000Balance at the beginning of year
    
    
    865
    
    
    
    5,181
    
    
    
    729
    
    
    
    107Charged to statements of operations
    
    
    4,526
    
    
    
    320
    
    
    
    832
    
    
    
    122Effect of change in tax rate
    
    
    (210
    )
    
    
    124
    
    
    
    
    
    
    
    Disposal of subsidiaries (Note16)
    
    
    
    
    
    
    (4,896
    )
    
    
    
    
    
    
    Deregistration of a subsidiary
    
    
    
    
    
    
    
    
    
    
    (719
    )
    
    
    (106
    )Balance at the end of year
    
    
    5,181
    
    
    
    729
    
    
    
    842
    
    
    
    123
 In assessing the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible and
tax loss carryforwards are utilizable. Management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income, and tax planning strategies in making this
assessment. Based upon an assessment of the level of historical taxable income and
projections for future taxable income over the periods in which the deferred tax assets are
deductible or can be utilized, management believes that the deferred tax assets, net of the
valuation allowance, as of December 31, 2008 and 2009, are more likely than not to be
realized. The amount of the deferred tax assets considered realizable, however, could be
reduced in the near term if estimates of future taxable income are reduced.The new tax law and its relevant regulations also impose a withholding tax at 10%, unless
reduced by a tax treaty, for dividends distributed by a PRC-resident enterprise to its
immediate holding company outside the PRC for earnings accumulated beginning on January 1,
2008. Undistributed earnings generated prior to January 1, 2008 are exempt from such
withholding tax. The Company has not provided for income taxes on undistributed earnings, if
any, of its subsidiaries as of December 31, 2008 and 2009 since these earnings are intended to
be reinvested indefinitely in the overseas jurisdictions. As of December 31, 2008 and 2009,
the undistributed earnings that the Company intends to reinvest indefinitely, and for which no
deferred tax liability was recognized, were RMB26,674,000 and RMB88,828,000 (USD13,013,000),
respectively. As of December 31, 2008 and 2009, the unrecognized deferred tax liabilities
related to the undistributed earnings subject to withholding tax were RMB2,667,000 and
RMB8,883,000 (USD1,301,000), respectively.
  F-34




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (7)
    
    Income Tax Expense (continued)A reconciliation of the beginning and ending amount of unrecognized tax benefits in the PRC
for the years ended December 31, 2007, 2008 and 2009 is as follows:
 2007
    
    
    2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    USD000Balance as at Januray 1
    
    
    25,964
    
    
    
    37,830
    
    
    
    37,360
    
    
    
    5,473Additions based on tax positions related to the current year
    
    
    11,866
    
    
    
    10,123
    
    
    
    32,319
    
    
    
    4,735Reductions due to disposal of subsidiaries
    
    
    
    
    
    
    (10,593
    )
    
    
    
    
    
    
    Balance as at December 31, 2009
    
    
    37,830
    
    
    
    37,360
    
    
    
    69,679
    
    
    
    10,208
 Included in the balance of unrecognized tax benefits as of December 31, 2009 are
potential benefits of RMB69.7 million (US$10.2 million), if recognized, would affect the
effective tax rate. Unrecognized tax benefits represent differences between revenue
recognition based on a cash basis which is acceptable by the local
tax authorities and revenue recognition on an accrual basis
 which is in line with the relevant tax regulations. The Group is currently
unable to provide an estimate of a range of the total amount of unrecognized tax benefits that
is reasonably possible to change significantly within the next twelve months. During the year,
the Group had an increase of RMB32.3 million (US$4.7 million) to its current year unrecognized
tax benefits. No interest and penalty expenses were recorded as of January 1, 2007 and for
each of the years ended December 31, 2007, 2008 and 2009.According to the PRC Tax Administration and Collection Law, the statute of limitation is three
years if the underpayment of taxes is due to computational errors made by the taxpayer or the
withholding agent. The statute of limitation is extended to five years under special
circumstances where the underpayment of taxes is more than RMB100,000 (USD14,657). In the case
of transfer pricing issues, the statute of limitation is ten years. There is no statute of
limitation in the case of tax evasion. The PRC income tax returns for the Companys PRC
subsidiaries for years beginning in 2004 are open to examination by the PRC state and local
tax authorities.
  F-35




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (8)
    
    Property, Plant and Equipment, net and Construction in Progress
 Property, plant and equipment, net consist of the following:
 2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    USD000Buildings
    
    
    258,058
    
    
    
    288,563
    
    
    
    42,275Equipment and machinery
    
    
    169,152
    
    
    
    195,364
    
    
    
    28,621Motor vehicles
    
    
    17,961
    
    
    
    17,349
    
    
    
    2,542Office equipment and computer software
    
    
    45,336
    
    
    
    49,479
    
    
    
    7,248490,507
    
    
    
    550,755
    
    
    
    80,686Accumulated depreciation
    
    
    (78,248
    )
    
    
    (106,177
    )
    
    
    (15,555
    )412,259
    
    
    
    444,578
    
    
    
    65,131Construction in progress
    
    
    2,816
    
    
    
    3,961
    
    
    
    580415,075
    
    
    
    448,539
    
    
    
    65,711
 Interest capitalization for the years ended December 31, 2007, 2008 and 2009 were
RMB4,802,000, and RMB11,894,000 and RMB Nil respectively.
  F-36




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (9)
    
    Lease Prepayments, net
 2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    USD000Prepaid land use rights
    
    
    85,078
    
    
    
    85,078
    
    
    
    12,464Accumulated amortization
    
    
    (2,954
    )
    
    
    (4,656
    )
    
    
    (682
    )82,124
    
    
    
    80,422
    
    
    
    11,782
 Lease prepayment at December 31, 2009 represented the land use rights for a piece of
land located in Shenzhen High-Tech Industry Park (SHTIP) and a piece of land located in
Shenzhen Longgang.The prepaid land use right located in SHTIP has been pledged to banks as collateral for bank
loans with a balance of RMB150,000,000 and 130,000,000(USD19,045,000) as of December 31,
2008 and 2009, respectively (Note 14). The prepaid land use right located in Longgang has
been pledged to Bank of China as collateral for short-term bank loan facilities, bills
facilities and receivable selling facilities (Note13).Amortization expense for the years ended December 31, 2007, 2008 and 2009 were RMB1,178,000,
RMB1,874,000 and RMB1,702,000 (USD249,000), respectively.
 (10)
    
    Intangible Assets, net
 2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    USD000Patent
    
    
    3,260
    
    
    
    3,260
    
    
    
    478Accumulated amortization
    
    
    (1,445
    )
    
    
    (3,074
    )
    
    
    (451
    )1,815
    
    
    
    186
    
    
    
    27
 Amortization expense for the years ended December 31, 2007, 2008 and 2009 were
RMB38,000, RMB1,482,000 and RMB1,629,000 (USD239,000) respectively.The estimated amortization expense of intangible assets for the next five years is as follows:
 RMB000
    
    
    USD0002010
    
    
    186
    
    
    
    272011
    
    
    
    
    
    
    2012
    
    
    
    
    
    
    2013
    
    
    
    
    
    
    2014
    
    
    
    
    
    
    186
    
    
    
    27
  F-37




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (11)
    
    Accrued Expenses and Other Payables
 Accrued expenses and other payables at December 31, 2008 and 2009 consist of the following:
 2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    USD000Amounts collected on sold accounts receivable
on behalf of financial institutions (Note 3(a))
    
    
    27,735
    
    
    
    27,040
    
    
    
    3,961Allowance for product warranties (Note 12)
    
    
    12,395
    
    
    
    23,283
    
    
    
    3,411Accruals for salaries and welfare
    
    
    14,969
    
    
    
    15,914
    
    
    
    2,331Receipts in advance
    
    
    23,355
    
    
    
    71,346
    
    
    
    10,452Value-Added Tax (VAT) payable
    
    
    111,284
    
    
    
    110,031
    
    
    
    16,120Business and other taxes payable
    
    
    24,746
    
    
    
    28,981
    
    
    
    4,246Staff deposits
    
    
    218
    
    
    
    217
    
    
    
    32Payable for purchase of property, plant and equipment
    
    
    24,333
    
    
    
    19,597
    
    
    
    2,871Others
    
    
    8,449
    
    
    
    7,890
    
    
    
    1,156247,484
    
    
    
    304,299
    
    
    
    44,580
  F-38




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (12)
    
    Allowance for Product Warranties
 An analysis of the allowance for product warranties for 2007, 2008 and 2009 is as
follows:
 2007
    
    
    2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    USD000Balance at beginning of year
    
    
    12,308
    
    
    
    12,328
    
    
    
    12,395
    
    
    
    1,816Amount charged to expense
    
    
    10,483
    
    
    
    8,697
    
    
    
    24,377
    
    
    
    3,571Amount utilized
    
    
    (10,463
    )
    
    
    (8,630
    )
    
    
    (13,489
    )
    
    
    (1,976
    )Balance at end of year
    
    
    12,328
    
    
    
    12,395
    
    
    
    23,283
    
    
    
    3,411
  F-39




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (13)
    
    Short-Term Bank Loans
 Short-term bank loans outstanding, which are all denominated in Renminbi, are as follows:
 2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    USD000- Unsecured
    
    
    425,000
    
    
    
    333,378
    
    
    
    48,840- Secured
    
    
    55,207
    
    
    
    280,000
    
    
    
    41,020480,207
    
    
    
    613,378
    
    
    
    89,860
 During the years ended December 31, 2008 and 2009, the Group entered into various loan
agreements with commercial banks with terms ranging from three months to one year to finance
its working capital. The weighted average interest rate of short-term bank loans outstanding
as of December 31, 2008 and 2009 were 6.66% and 5.27% per annum, respectively.The Group has available undrawn committed bank loan facilities and bills financing facilities
amounting to RMB149 million (USD22 million) and RMB94 million (USD14 million), respectively,
as of December 31, 2009. In addition, the Group has unutilized facilities where it can sell
accounts receivable up to RMB154 million (USD23 million) as of December 31, 2009.The Group is required to maintain certain financial ratios and minimum amounts of
consolidated net worth under the terms of one of the short term loan agreements. The Group
has been in compliance with these covenants throughout the term of the loan.
 (14)
    
    Long-Term Bank Loan
 On May 22, 2007, Shenzhen GrenTech entered into a long term loan with China Construction Bank
(CCB), amounting to RMB150,000,000. The loan is to be repaid in four equal annual
instalment of RMB20,000,000, commencing on May 22, 2009 with a final payment of
RMB70,000,000 on May 21, 2013. Interest is paid to CCB on a monthly basis. The loan is
secured by the land use right acquired by the Group for the construction of its headquarters
in SHTIP (Note 9).The loan bears an interest rate of 95% of the annual benchmark borrowing rate assigned by the
Peoples Bank of China.
  F-40




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (15)
    
    Acquisitions
 (a)
    
    Acquisition of the entire equity interest of Kaige and its wholly owned subsidiary, KaixuanOn December 19, 2007, Shenzhen GrenTech entered into a sale and purchase agreement with an
independent third party, Huaming Investment Holdings Limited Company Limited (Huaming),
whereby Huaming agreed to sell the entire equity interest in Kaige and its wholly owned
subsidiary, Kaixuan to Shenzhen GrenTech for a consideration of RMB57,866,000. Shenzhen
GrenTech paid the consideration with RMB10,000,000 cash and certain accounts receivable with
an estimated fair value of RMB47,866,000. Following the acquisition of Kaige and Kaixuan, the
Group is able to provide installation services for wireless equipment on its own. The goodwill
of RMB19,373,000 recognized is attributable to the higher efficiency and potential cost
savings achieved through the vertical integration from the production to the installation
services of wireless products.The Group has accounted for the above acquisition under the purchase method. The results of
operations of Kaige and Kaixuan are consolidated and included in the financial statements of
the Company from the date of the acquisition which was December 25, 2007.(b)
    
    Acquisition of the additional 20% equity interest of Lake CommunicationOn December 19, 2007, Shenzhen GrenTech purchased the 20% noncontrolling interest of Lake
Communication from Mr. Zhuang Haifan (Zhuang), the then 20% noncontrollling interest
shareholder for a consideration RMB29,628,000. The consideration was paid by the transfer of
accounts receivable of Shenzhen GrenTech with a carrying amount of RMB29,628,000. Zhuang is
the son of Mr. Zhuang Kunjie, who was a director and the Chief Technology Officer of China
GrenTech at the date of acquisition.The Group has accounted for the acquisition of the additional equity interest under the
purchase method, which resulted in goodwill of RMB10,658,000 being recognized. As a result of the
acquisition of the 20% equity interest, Lake Communication became a wholly owned subsidiary of
Shenzhen GrenTech.The above acquisitions in aggregate were not material to the Groups financial position
or results of operations for the periods presented.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (16)
    
    Dispositions
 Disposition of the entire equity interest in Lake Communication and Lake MicrowaveOn December 17, 2008, Shenzhen GrenTech entered into a sale and purchase agreement with
Zhuang, to sell the entire equity interest in Lake Communication and its 80% equity interest
in Lake Microwave for a consideration of RMB101,330,000 and RMB870,000, respectively.On December 17, 2008, in connection with the sale, Shenzhen GrenTech entered into a debt
transfer agreement with Zhuang, in which Zhuang assumed the accounts payable obligation that
Shenzhen GrenTech owed to Lake Communication in the amount of RMB102,200,000 as a payment of
the consideration for the purchase of Lake Communication and Lake Microwave. The Group
recorded a net gain from the disposal of Lake Communication and Lake Microwave totalling
RMB4,556,000 in 2008. The gain from the disposal considered the goodwill of RMB10,658,000,
previously recognized in 2007 related to the acquisition of the additional 20% equity interest
of Lake Communication (Note 15 (b)). In addition, the gain also considered the waiver of
dividend receivable from Lake Communication, amounting to RMB15,200,000.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (17)
    
    Share-based compensation
 On March 14, 2008, the Company granted stock options (March 2008 options) to executives
and independent directors as well as various employees to purchase a total of 10,000,000
ordinary shares of the Company at an exercise price of USD0.21 per ordinary share. The
March 2008 options vest on March 14, 2010 and expire on March 14, 2013.On December 23, 2008, the Company granted another batch of stock options (December 2008
options) to several directors and employees to purchase a total of 28,000,000 ordinary
shares of the Company at an exercise price of USD0.04 per ordinary share. The December 2008
options vest on December 23, 2010 and expire on December 23, 2013.The fair value of March 2008 and December 2008 options awarded were estimated on the date of
grant using the Black-Scholes option pricing model based on the following assumptions:
 March 2008
    
    
    December 2008options
    
    
    optionsFair value of shares on grant date
    
    USD0.11
    
    USD0.03per ordinary
    
    per ordinaryshare
    
    shareExpected volatility
    
    
    65.7
    %
    
    
    94.7
    %Expected dividends
    
    Nil
    
    NilExpected term (in years)
    
    
    3.5
    
    
    
    3.5Risk-free rate
    
    
    2.4
    %
    
    
    1.5
    %
 Expected volatilities are based on the historical volatility of the Companys shares.
The Company uses historical data to estimate employee termination within the valuation
model. Expected dividend yields are based on historical dividends. The expected term of
options granted represents the period of time that options granted are expected to be
outstanding. The risk-free rate for periods within the contractual life of the options is
based on the U.S. Treasury yield curve in effect at the time of grant. Changes in these
subjective input assumptions could materially affect the fair value estimates.The weighted-average grant-date fair value of the March 2008 and December 2008 options
granted were RMB6,635,000 and RMB4,710,000, respectively. None of the options have been
vested or exercised during 2008 and 2009. No option was forfeited in 2008. During the year
ended December 31, 2009, 2,420,000 options of December 2008 options were forfeited. As of
December 31, 2009, 35,580,000 options were outstanding, none of which were exercisable.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (17)
    
    Share-based compensation (continued)
 The share-based compensation expense charged as general and administrative expenses during the
year ended December 31 2009 in respect of the March 2008 options and December 2008 options
were RMB2,801,000 (USD410,000) (2008: RMB3,170,000) and RMB2,175,000 (USD319,000) (2008:
RMB24,000) respectively.As of December 31, 2009, total unrecognized compensation cost related to unvested share
options outstanding amounted to RMB2,768,000 (USD406,000) (2008:RMB8,151,000), which is
expected to be recognized over a weighted-average period of 0.8 years (2008: 1.7 years).
 (18)
    
    Revenues
 The Group derives revenues from the sale of wireless coverage products and installation
services, either under a standalone sales contract; or a bundled wireless coverage product and
installation service contract and the sale of RF parts and components and RF-based wireless
access products. The components of revenues are as follows:
 2007
    
    
    2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    USD000Sale of wireless coverage
    
    
    577,971
    
    
    
    498,928
    
    
    
    781,973
    
    
    
    114,560Installation services of
wireless coverage products
    
    
    223,461
    
    
    
    277,931
    
    
    
    469,502
    
    
    
    68,782RF parts and components
    
    
    173,545
    
    
    
    221,566
    
    
    
    406,968
    
    
    
    59,621974,977
    
    
    
    998,425
    
    
    
    1,658,443
    
    
    
    242,963Reversal of provision/
(provision) for settlement
discounts
    
    
    4,325
    
    
    
    (13,768
    )
    
    
    (55,500
    )
    
    
    (8,131
    )979,302
    
    
    
    984,657
    
    
    
    1,602,943
    
    
    
    234,832
 (19)
    
    Depreciation
 Depreciation of property, plant and equipment is included in the following:
 2007
    
    
    2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    USD000Cost of revenues
    
    
    18,951
    
    
    
    16,949
    
    
    
    12,070
    
    
    
    1,768Research and development costs
    
    
    3,834
    
    
    
    6,937
    
    
    
    6,494
    
    
    
    951Sales and distribution expenses
    
    
    3,361
    
    
    
    3,462
    
    
    
    3,479
    
    
    
    510General and administrative expenses
    
    
    2,858
    
    
    
    4,979
    
    
    
    8,642
    
    
    
    1,26629,004
    
    
    
    32,327
    
    
    
    30,685
    
    
    
    4,495
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (20)
    
    Earnings (loss) per share
 2007
    
    
    2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    USD000Net income (loss) attributable to shareholders
of the Company
    
    
    82,536
    
    
    
    (146,367
    )
    
    
    32,672
    
    
    
    4,786Denominator:Weighted average number of ordinary
shares outstanding
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    595,536,733
    
    
    
    595,536,733Effect of stock options
    
    
    
    
    
    
    
    
    
    
    9,244,308
    
    
    
    9,244,308Weighted average number of diluted
shares outstanding
    
    
    624,624,852
    
    
    
    610,158,841
    
    
    
    604,781,041
    
    
    
    604,781,041Basic earnings (loss) per share
    
    
    0.13
    
    
    
    (0.24
    )
    
    
    0.05
    
    
    
    0.01Diluted earnings (loss) per share
    
    
    0.13
    
    
    
    (0.24
    )
    
    
    0.05
    
    
    
    0.01
 There were no dilutive ordinary shares outstanding during the years ended December 31,
2007 and 2008.
 (21)
    
    Related party transactions
 The principal related party transactions during the years ended December 31, 2007, 2008 and
2009 are as follows:
 2007
    
    
    2008
    
    
    2009
    
    
    2009RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    USD000Acquisition of additional
20% equity interest of
Lake Communication (Note
15)
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    Disposition of 100%
equity share of Lake
Communication (Note 16)
    
    
    
    
    
    
    86,130
    
    
    
    
    
    
    
    Disposition of 80% equity
share of Lake Microwave
(Note 16)
    
    
    
    
    
    
    870
    
    
    
    
    
    
    
    Purchases from Lake
Communication (Note (a))
    
    
    
    
    
    
    
    
    
    
    138,252
    
    
    
    20,254
 (a)
    
    The Company purchased RF components under normal business term from Lake
Communication, for its own manufacturing of wireless network products. Amounts due to
Lake Communication amounting to RMB9,648,000 and RMB 34,000,000 (USD4,981,000) as at
December 31, 2008 and 2009 respectively, were arose from the purchase of RF components.
The balance is repayable from 60 days to 90 days from date of billing.  F-45




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (22)
    
    Pension and Other Post Retirement Benefits
 Pursuant to the relevant PRC regulations, the Group is required to make contributions at a
rate 10% to 11% of employees salaries and wages to a defined contribution retirement scheme
organized by the local Social Security Bureau in respect of the retirement benefits for the
Companys employees in the PRC. The total amount of contributions of RMB11,982,000,
RMB16,844,000 and RMB18,894,000 (USD2,768,000) for the years ended December 31, 2007, 2008
and 2009 respectively, was charged to expenses in the accompanying consolidated statements
of operations. The Group has no other obligation to make payments in respect of retirement
benefits of the employees.
 (23)
    
    Fair Value of Financial Instruments
 The fair value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties. The carrying amount of
financial assets, such as cash and cash equivalents, short-term accounts receivable, bills
receivable, amounts due from related parties, accounts and bills payable, accrued expenses
and other payables, amounts due to related parties, approximates their fair values because
of the short maturity of these instruments. The carrying amount of short-term borrowings
approximates fair value determined based on the borrowing rates currently available for debt
securities with similar terms and maturities.Long term accounts receivable as of December 31, 2008 and 2009 were recorded in the
accompanying consolidated balance sheets at their present value based on a discount rate of
6.85% and 5.31% per annum respectively, which approximated the discount rate generally
available for discounting similar instruments with PRC banks. The carrying amount of long
term accounts receivable approximates their fair value.The fair value of long-term debt was estimated by discounting the future cash flows using
the borrowing rate for which financial institutions would charge borrowers with similar
credit ratings and remaining maturities. The carrying amount of long-term debt approximates
its fair value due to the interest rate on the long-term debt is not significantly different
from the borrowing rate used in the estimation of its fair value.
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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (24)
    
    Business and Credit Concentrations
 All of the Companys customers are located in the PRC. The following are customers that
individually comprise 10% or more of gross revenue for the years ended December 31, 2007, 2008
and 2009:
 2007
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    2009RMB000
    
    
    %
    
    
    RMB000
    
    
    %
    
    
    RMB000
    
    
    %
    
    
    USD000China Unicom Group
    
    
    377,785
    
    
    
    39
    
    
    
    244,455
    
    
    
    24
    
    
    
    518,246
    
    
    
    32
    
    
    
    75,923China Mobile Group
    
    
    317,735
    
    
    
    32
    
    
    
    390,266
    
    
    
    40
    
    
    
    390,902
    
    
    
    24
    
    
    
    57,267China Telecom Group
    
    
    49,636
    
    
    
    5
    
    
    
    75,440
    
    
    
    8
    
    
    
    241,198
    
    
    
    15
    
    
    
    35,336The Companys RF
based products
customer  Customer
A
    
    
    123,076
    
    
    
    13
    
    
    
    58,941
    
    
    
    6
    
    
    
    113,093
    
    
    
    7
    
    
    
    16,568The Companys RF
based products
customer  Customer
B
    
    
    37,088
    
    
    
    4
    
    
    
    102,253
    
    
    
    10
    
    
    
    137,588
    
    
    
    9
    
    
    
    20,157
 At December 31, 2008 and 2009, approximately 91% and 89% of gross accounts receivable,
respectively, were due from these customers. A termination in relationship in or a reduction
in orders from any one of these customers would have a material impact on the Groups results
of operations and financial condition. The Company performs ongoing credit evaluations of its
customers financial condition and, generally, requires no collateral from its customers.
  F-47




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##### Table of Contents



China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (24)
    
    Business and Credit Concentrations (continued)The gross accounts
receivables due from major customers, China Unicom Group, China Mobile Group
and China Telecom Group, and two of the Companys RF based products customers at December 31,
2008 and 2009, were as follows:
 2008
    
    
    2009RMB000
    
    
    RMB000China Unicom Group Current portion
    
    
    234,823
    
    
    
    318,477 Long-term portion
    
    
    253,169
    
    
    
    184,932487,992
    
    
    
    503,409China Mobile Group Current portion
    
    
    223,797
    
    
    
    287,671 Long-term portion
    
    
    228,038
    
    
    
    144,312451,835
    
    
    
    431,983China Telecom Group Current portion
    
    
    96,366
    
    
    
    99,655 Long-term portion
    
    
    48,026
    
    
    
    90,456144,392
    
    
    
    190,111The Companys RF based products customer  Customer A Current portion
    
    
    49,451
    
    
    
    28,580 Long-term portion
    
    
    
    
    
    
    49,451
    
    
    
    28,580The Companys RF based products customer  Customer B Current portion
    
    
    1,463
    
    
    
    50,529 Long-term portion
    
    
    
    
    
    
    1,463
    
    
    
    50,5291,135,133
    
    
    
    1,204,612
  F-48




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China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (25)
    
    Commitments and Contingencies
 (i)
    
    Operating lease commitmentsFuture minimum lease payments under non-cancelable operating leases as of December 31,
2009 are as follows:
 RMB000
    
    
    USD0002010
    
    
    5,203
    
    
    
    7622011
    
    
    636
    
    
    
    932012
    
    
    31
    
    
    
    52013
    
    
    
    
    
    
    2014
    
    
    
    
    
    
    5,870
    
    
    
    860
 For the years ended December 31, 2007, 2008 and 2009, total rental expenses for operating
leases were RMB18,910,000, RMB13,296,000 and RMB18,479,000 (USD2,707,000) respectively.(ii)
    
    Capital commitmentsCapital commitments for future purchase of property, plant and equipment as of December
31, 2009 was RMB1,219,000 (USD 179,000).(iii)
    
    Loan guaranteesAs at December 31, 2008, Shenzhen GrenTech provided guarantees for bank loans amounting
to RMB22,340,000 and RMB12,000,000 to Lake Communication and Lake Microwave,
respectively. These guarantees were entered into in October 2006, prior to the date the
Group disposed of its equity interest in Lake Communication and Lake Microwave. These
guarantees expired in August 2009 and September 2009 respectively.
As at December 31, 2009, the group did not provide any loan guarantee to any parties.(iv)
    
    ContingenciesIn the ordinary course of its business, the Group provides customers with one to three
years of warranty protection, under which the Group agrees to repair or replace defective
installed wireless coverage products at no additional cost to the customers. The
contracts
generally do not contain disclaimers or limitations on product liabilities for special,
consequential and incidental damages, nor does the Group typically cap the amounts the
customers may recover for damages. In addition, the Group does not currently maintain
any insurance for product liability or warranty claims. The failure of the Groups
installed wireless coverage products to operate properly and the potential damage from
malfunction of the Groups products could give rise to substantial liabilities under the
warranties and otherwise.
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China GrenTech Corporation Limited and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2007, 2008 and 2009
 (26)
    
    China GrenTech Corporation Limited (Parent Company)
 In accordance with the relevant PRC regulations, the Companys PRC subsidiaries may pay
dividends only out of their accumulated profits, if any, determined in accordance with PRC
GAAP. In addition, these subsidiaries are required to set aside at least 10% of their
respective accumulated profits each year, if any, to fund the statutory general reserve until
the balance of the reserve reaches 50% of their respective registered capital. The statutory
general reserves are not distributable in the form of cash dividends to the Company and can be
used to make up cumulative prior year losses, if any, and may be converted into share capital
by the issue of new shares to shareholders in proportion to their existing shareholdings, or
by increasing the par value of the shares currently held by them, provided that the reserve
balance after such issue is not less than 25% of the registered capitalFurthermore, certain subsidiaries were previously required to allocate 5% to 10% of the profit
after tax, determined in accordance with PRC GAAP, to the statutory public welfare fund, which
was restricted to be used for capital expenditures for staff welfare facilities owned by the
Company. In accordance with the new regulations which became effective January 1, 2006,
appropriation to the statutory public welfare fund is no longer required and the balance of
the statutory public welfare fund of RMB40,986,000 had been transferred to the statutory
general reserve on January 1, 2006.As of December 31, 2008 and 2009, an amount of RMB142,158,000 and RMB148,698,000
(USD21,784,000) were appropriated from retained earnings and set aside for statutory general
reserves respectively by the Companys PRC subsidiaries. A similar appropriation was made at
the Companys level.As of December 31, 2008 and 2009, the amount of restricted net assets of the Companys
subsidiaries, which may not be transferred to the Company in the forms of loans, advances or
cash dividends by the subsidiaries without the consent of a third party, was approximately 9%
and 13% respectively of the Companys consolidated net assets as discussed above. In
addition, the current foreign exchange control policies applicable in the PRC also restrict
the transfer of assets or dividends outside the PRC.On September 21, 2007, the Board of Directors of the Company authorized a share repurchase
program. The share repurchase program allows the Company from time to time and without an
expiration date, to repurchase up to US$8.0 million worth of its issued and outstanding ADSs
from the open market.On June 4, 2009, the Board of Directors of the Company authorized an amended share repurchase
program which allows the Company from time to time and without an expiration date, to
repurchase up to US$7.0 million worth of its issued and outstanding ADSs from the open market.
This share repurchase program supersedes the previous share repurchase program announced on
September 21, 2007.During the years ended December 31, 2007, 2008 and 2009, the Company purchased 10,936,000,
12,085,225 and 11,841,650 of its ordinary shares for a total purchase price of USD3,626,000
(equivalent to RMB26,447,000), USD1,480,000 (equivalent to RMB10,097,000) and USD1,228,000
(equivalent to RMB8,386,000), respectively.
  F-50