##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 20-F
 
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 Commission file number 1-13522
 
 China Yuchai International Limited
 (Exact Name of Registrant as Specified in Its Charter)
 
 Not Applicable
    
    Bermuda(Translation of Registrants Name
    
    (Jurisdiction of Incorporation orInto English)
    
    Organization)
 16 Raffles Quay #26-00
Hong Leong Building
Singapore 048581
65-6220-8411
(Address and Telephone Number of Principal Executive Offices)
 
 Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Name of Each Exchange on WhichTitle of Each Class
    
    RegisteredCommon Stock, par value US$0.10 pershare
    
    The New York Stock Exchange
 Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act
None
(Title of Class)
 
    o þ
 o þ
  o þ
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  U.S. GAAP þ
    
    International Financial Reporting Standards as issued o
by the International Accounting Standards Board
    
    Other o
 o þ
 o þ
   o o




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##### 



TABLE OF CONTENTS
 CHINA YUCHAI INTERNATIONAL LIMITED
 PageCertain Definitions and Supplemental InformationCautionary Statements with respect to Forward-Looking StatementsPart IItem 1.
    
    Identity of Directors, Senior Management and Advisers.
    
    4Item 2.
    
    Offer Statistics and Expected Timetable.
    
    4Item 3.
    
    Key Information.
    
    4Item 4.
    
    Information on the Company.
    
    22Item 4A.
    
    Unresolved Staff Comments.
    
    43Item 5.
    
    Operating and Financial Review and Prospects.
    
    43Item 6.
    
    Directors, Senior Management and Employees.
    
    63Item 7.
    
    Major Shareholders and Related Party Transactions.
    
    72Item 8.
    
    Financial Information.
    
    76Item 9.
    
    The Offer and Listing.
    
    77Item 10.
    
    Additional Information.
    
    79Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    93Item 12.
    
    Description of Securities Other Than Equity Securities.
    
    95Part IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies.
    
    95Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds.
    
    95Item 15.
    
    Controls and Procedures.
    
    95Item 16A.
    
    Audit Committee Financial Expert.
    
    99Item 16B.
    
    Code of Ethics.
    
    99Item 16C.
    
    Principal Accountants Fees and Services.
    
    100Item 16D.
    
    Exemptions from the Listing Standards for Audit Committees.
    
    101Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
    
    101Item 16F.
    
    Change in
Registrants Certifying Accountant.
    
    101Item 16G.
    
    Corporate Governance.
    
    101Part IIIItem 17.
    
    Financial Statements.
    
    101Item 18.
    
    Financial Statements.
    
    101Item 19.
    
    Exhibits.
    
    102Signatures
    
    104Exhibit Index
    
    105Consolidated Financial Statements
    
    F-1EX-8.1 Subsidiaries of the RegistrantEX-12.1 Certifications furnished pursuant to Section 302 of the Sarbanes-Oxley ActEX-13.1 Certifications furnished pursuant to Section 906 of the Sarbanes-Oxley Act.
  1




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Certain Definitions and Supplemental Information
      Cautionary Statements with Respect to Forward-Looking Statements
  
    
    political, economic and social conditions in China, including the Chinese governments
specific policies with respect to foreign investment, economic growth, inflation and the
availability of credit, particularly to the extent such current or future conditions and
policies affect the truck and diesel engine industries and markets in China, our diesel engine
customers, the demand, sales volume and sales prices for our diesel engines and our levels of
accounts receivable;
    
    the effects of unfavourable economic and market conditions and the current volatility in
stock markets around the world adversely impacting the entire financial industry and capital
markets resulting in a worldwide economic slowdown, on our business, operating results and
growth rates;
    
    the effects of competition in the diesel engine market on the demand, sales volume and sales
prices for our diesel engines;
 2




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
    
    the effects of existing material weaknesses in our internal control over financial reporting
and our ability to implement and maintain effective internal control over financial reporting;
    
    our ability to collect and control our levels of accounts receivable;
    
    our dependence on the Dongfeng Automobile Company and other major diesel truck manufacturers
controlled by or affiliated with the Dongfeng Automobile Company;
    
    our ability to successfully manufacture and sell our 4108, 4110, 4110Q, 4112, 4F, 4G, 6105,
6108, 6112, 6L/6M (formerly referred to as 6113) heavy-duty diesel engines and any new
products;
    
    our ability to finance our working capital and capital expenditure requirements, including
obtaining any required external debt or other financing;
    
    the effects of inflation on our financial condition and results of operations, including the
effects on Yuchais costs of raw materials and parts and labor costs;
    
    our ability to successfully implement the Reorganization Agreement, as amended by the
Cooperation Agreement (both as defined in Item 4. Information on the Company  History and
Development  Reorganization Agreement) (See Item 4. Information on the Company  History
and Development  Cooperation Agreement);
    
    our ability to control Yuchai and consolidate Yuchais financial results;
    
    the effects of Chinas political, economic and social conditions on our financial condition,
results of operations, business or prospects;
    
    the effects of uncertainties in the Chinese legal system, which could limit the legal
protection available to foreign investors, including with respect to the enforcement of
foreign judgments in China;
    
    the effects of adverse economic conditions in consumer spending patterns and its impact on
the demand for the TCL groups consumer electronics products;
    
    the effects of our disagreement with the other major shareholders of TCL over the running of
TCL groups operations and its proposed change in its strategy from consumer electronics to
real estate and related infrastructure investment in the pan-Asian region;
    
    the ability of TCL to obtain shareholders and regulatory approvals for, and successfully
implement, its announced strategy of repositioning its principal business from consumer
electronics distribution to real estate and related infrastructure investment in the pan-Asian
region;
    
    the effects of changes to the international, regional and economic climate and market
conditions in countries where the HLGE groups hospitality operations are located, as well as
related global economic trends that adversely impact the travel and tourism industries;
    
    the outbreak of communicable diseases, such as the recent Influenza A (H1N1) virus and the
Avian flu, if not contained, and its potential effects on the operations of the HLGE group and
its business in the hospitality industry; and
    
    the impact of terrorism, terrorist events, airline strikes, hostilities between countries or
increased risk of natural disasters or viral epidemics that may affect travel patterns and
reduce the number of travelers and tourists to the HLGE groups hospitality operations.
 3




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##### Table of Contents



PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
  
 ITEM 3. KEY INFORMATION.
 Selected Financial Data
      4




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Year ended December 31,2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    

US$(1)Selected
Consolidated
Statement of
Income Data:Revenues, net
    
    
    5,582,095
    
    
    
    5,816,740
    
    
    
    6,920,528
    
    
    
    9,556,303
    
    
    
    10,384,022
    
    
    
    1,519,398Gross profit
    
    
    1,575,209
    
    
    
    1,143,383
    
    
    
    1,272,121
    
    
    
    1,944,718
    
    
    
    1,822,502
    
    
    
    266,670Research and
development costs
    
    
    (136,960
    )
    
    
    (123,793
    )
    
    
    (167,653
    )
    
    
    (153,146
    )
    
    
    (177,370
    )
    
    
    (25,953
    )Provision for
uncollectible loans
to a related party
    
    
    
    
    
    
    (202,950
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income
    
    
    779,929
    
    
    
    26,020
    
    
    
    304,479
    
    
    
    841,556
    
    
    
    603,907
    
    
    
    88,364Other
income/(expense),
Net
    
    
    5,682
    
    
    
    25,449
    
    
    
    38,856
    
    
    
    53,554
    
    
    
    43,261
    
    
    
    6,329Equity in
income/(loss), net
of affiliates
    
    
    
    
    
    
    (6,032
    )
    
    
    (22,449
    )
    
    
    14,048
    
    
    
    (36,573
    )
    
    
    (5,351
    )Earnings / (loss)
before income taxes
and minority
Interests
    
    
    753,854
    
    
    
    (25,090
    )
    
    
    203,395
    
    
    
    783,914
    
    
    
    463,622
    
    
    
    67,837Income taxes
    
    
    (105,165
    )
    
    
    (10,148
    )
    
    
    (30,466
    )
    
    
    (68,518
    )
    
    
    (110,531
    )
    
    
    (16,173
    )Income / (loss)
before minority
Interests
    
    
    648,689
    
    
    
    (35,238
    )
    
    
    172,929
    
    
    
    715,396
    
    
    
    353,091
    
    
    
    51,644Minority interests
in (income) /
losses of
Consolidated
Subsidiaries
    
    
    (157,292
    )
    
    
    2,947
    
    
    
    (61,645
    )
    
    
    (189,927
    )
    
    
    (100,641
    )
    
    
    (14,726
    )Net income / (loss)
    
    
    491,397
    
    
    
    (32,291
    )
    
    
    111,284
    
    
    
    525,469
    
    
    
    252,450
    
    
    
    36,938Basic and diluted
earnings / (loss)
per common share
    
    
    13.90
    
    
    
    (0.89
    )
    
    
    2.99
    
    
    
    14.10
    
    
    
    6.77
    
    
    
    0.99Weighted average
number of shares
    
    
    35,340
    
    
    
    36,460
    
    
    
    37,268
    
    
    
    37,268
    
    
    
    37,268
    
    
    
    37,268
 5




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As of December 31,2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    US$(1)(in thousands)Selected
Consolidated
Balance Sheet Data:Working capital(2)
    
    
    1,402,226
    
    
    
    823,324
    
    
    
    457,449
    
    
    
    1,028,732
    
    
    
    1,027,660
    
    
    
    150,368Property, plant and
equipment, net
    
    
    1,158,931
    
    
    
    1,440,712
    
    
    
    1,795,405
    
    
    
    2,158,246
    
    
    
    2,149,290
    
    
    
    314,485Trade accounts and
bills receivable,
net
    
    
    875,565
    
    
    
    1,178,853
    
    
    
    1,480,918
    
    
    
    3,107,785
    
    
    
    2,537,681
    
    
    
    371,315Short-term bank
loans
    
    
    430,000
    
    
    
    812,835
    
    
    
    1,009,134
    
    
    
    819,164
    
    
    
    1,068,675
    
    
    
    156,369Trade accounts
payable
    
    
    1,089,717
    
    
    
    1,800,443
    
    
    
    2,132,798
    
    
    
    2,509,962
    
    
    
    2,612,928
    
    
    
    382,326
 As of December 31,2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    US$(1)(in thousands)Total assets
    
    
    5,384,248
    
    
    
    6,679,630
    
    
    
    7,961,357
    
    
    
    9,579,184
    
    
    
    9,712,678
    
    
    
    1,421,166Long-term bank
loans
    
    
    100,000
    
    
    
    50,000
    
    
    
    675,454
    
    
    
    767,929
    
    
    
    254,529
    
    
    
    37,243Minority interests
    
    
    724,311
    
    
    
    654,687
    
    
    
    693,296
    
    
    
    849,527
    
    
    
    974,046
    
    
    
    142,524Total stockholders
equity
    
    
    2,483,084
    
    
    
    2,566,263
    
    
    
    2,728,399
    
    
    
    3,294,465
    
    
    
    3,430,825
    
    
    
    502,000
 Year ended December 31,2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    

US$(1)(in thousands)Selected
Consolidated
Statement of Cash
Flows Data:Net cash provided
by operating
activities
    
    
    589,608
    
    
    
    234,770
    
    
    
    634,146
    
    
    
    84,554
    
    
    
    632,686
    
    
    
    92,575Capital
expenditures(3)
    
    
    552,902
    
    
    
    515,359
    
    
    
    323,781
    
    
    
    265,258
    
    
    
    480,333
    
    
    
    70,282
 
 (1)
    
    The Companys functional currency is the U.S. dollar and its reporting currency is Renminbi.
The functional currency of Yuchai is Renminbi. Translation of amounts
from Renminbi to U.S. dollars is solely for the convenience of the reader. Translation of amounts from Renminbi to
U.S. dollars has been made at the rate of Rmb 6.8343 = US$1.00, the rate quoted by the
Peoples Bank of China at the close of business on June 15, 2009. No representation is made
that the Renminbi amounts could have been, or could be, converted into U.S. dollars at that
rate or at any other rate prevailing on June 15, 2009 or any other date. The rate quoted
by the Peoples Bank of China at the close of business on
December 31, 2008 was Rmb 6.8346 =
US$1.00.(2)
    
    Current assets less current liabilities.(3)
    
    Purchase of property, plant and equipment and payment for construction in progress. 6




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Dividends
      Dividend paid by YuchaiFinancial
    
    Dividend paid by the Companyto its shareholders in the financial
year
    
    to the
Company(1)for the financial yearYear
    
    (per share)
    
    (in thousands)2004
    
    Nil
    
    Rmb 231,309 (US$27,906)(2)2005
    
    US$0.39
    
    Rmb 72,282 (US$9,039)(3)2006
    
    US$0.02 (4)
    
    Rmb 72,284 (US$9,598) (5)2007
    

US$0.10(6)
    
    Rmb 108,313 (US$15,811) (7)2008
    
US$0.10(8)
    
    Nil
 
 (1)
    
    Dividends paid by Yuchai to us, as well as to other shareholders of Yuchai, were declared in
Renminbi and paid in US dollars (as shown in parentheses) based on the exchange rates at local
designated foreign exchange banks on the respective payment dates. For dividends paid for
2004, 2005, 2006 and 2007, the exchange rate used was Rmb 8.2765 =
US$1.00, Rmb 7.9967 = US$1.00, Rmb 7.5310 = US$1.00 and Rmb 6.8357 =
US$1.00 respectively.(2)
    
    The dividend declared for 2004 by Yuchai was paid to us in 2005 following the execution of
the Reorganization Agreement (as defined in Item 4. Information on the Company-History and
Development-Reorganization Agreement).(3)
    
    On June 26, 2006, Yuchai declared a dividend to all shareholders in respect of the fiscal
year ended December 31, 2005 and the amount attributable to the Company was Rmb 72.3 million.
We received this dividend on July 28, 2006.(4)
    
    On December 4, 2006, we declared an interim dividend of US$0.02 per ordinary share to all
shareholders in respect of the fiscal year ended December 31, 2006. This dividend was paid to
the shareholders on December 28, 2006.(5)
    
    The dividend declared for 2006 by Yuchai was paid to us on September 17, 2007.(6)
    
    On September 28, 2007, we declared a second interim dividend of US$0.10 per ordinary share
amounting to US$3.7 million to all shareholders in respect of the fiscal year ended December
31, 2006. This dividend was paid to the shareholders on October 24, 2007.(7)
    
    The dividend declared for 2007 by Yuchai was paid to us on August 22, 2008.(8)
    
    On August 25, 2008, we declared an interim dividend of US$0.10 per ordinary share amounting
to US$3.7 million to all shareholders in respect of the fiscal year ended December 31, 2007.
This dividend was paid to the shareholders on September 19, 2008. 7




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Historical Exchange Rate Information
    Noon
Buying
Rate(1)(Rmb per US$1.00)Period
    
    High
    
    
    LowDecember 2008
    
    
    6.8842
    
    
    
    6.8225January 2009
    
    
    6.8403
    
    
    
    6.8225February 2009
    
    
    6.8470
    
    
    
    6.8241March 2009
    
    
    6.8438
    
    
    
    6.8240April 2009
    
    
    6.8361
    
    
    
    6.8180May 2009
    
    
    6.8326
    
    
    
    6.8176June 2009
    
    
    6.8371
    
    
    
    6.8264
 Noon
Buying
Rate(1)(Rmb per US$1.00)Period
    
    Period End
    

Average(2)
    
    High
    
    Low2004
    
    
    8.2765
    
    
    
    8.2768
    
    
    
    8.2774
    
    
    
    8.27642005
    
    
    8.0702
    
    
    
    8.1734
    
    
    
    8.2765
    
    
    
    8.07022006
    
    
    7.8041
    
    
    
    7.9579
    
    
    
    8.0702
    
    
    
    7.80412007
    
    
    7.2946
    
    
    
    7.5806
    
    
    
    7.8127
    
    
    
    7.29462008
    
    
    6.8225
    
    
    
    6.9193
    
    
    
    7.2946
    
    
    
    6.78002009
(through June 15, 2009)
    
    
    6.8361
    
    
    
    6.8325
    
    
    
    6.8470
    
    
    
    6.8176
 8




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(1)
    
    The noon buying rate in New York for cable transfers payable in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York. Since April 1994, the
noon buying rate has been based on the rate quoted by the PBOC. As
a result, since April 1994, the noon buying rate and the PBOC rate have been substantially
similar. The PBOC rate at the end of 2007 was Rmb 7.2946, compared
with RMB 7.5806 for the noon buying rate (average) for the year ended December 31, 2007. The PBOC rate at the end of 2008 was Rmb 6.8346, compared
with Rmb 6.9193 for the noon buying rate (average) for the year ended December 31, 2008.(2)
    
    Determined by averaging the rates on the last business day of each month during the relevant
period. Risk Factors
 Risks relating to our shares and share ownership
 Our controlling shareholders interests may differ from those of our other shareholders.
  We may experience a change of control as a result of sale or disposal of shares of our Common Stock
by our controlling shareholders.
   9




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The market price for our Common Stock may be volatile.
  
    
    our interim operating results;
    
    the availability of raw materials used in our engine production, particularly steel and cast
iron;
    
    the publics reaction to our press releases and announcements and our filings with the
Securities and Exchange Commission;
    
    changes in financial estimates or recommendations by stock market analysts regarding us, our
competitors or other companies that investors may deem comparable;
    
    operating and stock price performance of our competitors or other companies that investors
may deem comparable;
    
    changes in general economic conditions, especially the impact of the global financial crisis
on economic growth;
    
    future sales of our Common Stock in the public market, or the perception that such sales
could occur; or
    
    the announcement by us or our competitors of a significant acquisition.
  Risks relating to our company and our business
 The diesel engine business in China is dependent in large part on the performance of the Chinese
and the global economy, as well as Chinese government policy. As a result, our financial condition,
results of operations, business and prospects could be adversely affected by slowdowns in the
Chinese and the global economy, as well as Chinese government policies affecting our business.
   10




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(Source: China Automotive Industry Newsletter
for 2006 and 2007) (Source: China Automotive Industry Newsletter for 2008)
 Our financial condition, results of operations, business and prospects may be adversely affected if
we are unable to implement the Reorganization Agreement and the Cooperation Agreement.
  11




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We have and may continue to experience disagreements and difficulties with the Chinese shareholders
in Yuchai.
  12




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We have identified material weaknesses in our internal control over financial reporting and cannot
assure you that additional material weaknesses will not be identified in the future. Our failure to
implement and maintain effective internal control over financial reporting could result in material
misstatements in our financial statements which could require us to restate financial statements in
the future, or cause us not to be able to provide timely financial information, which may cause
investors to lose confidence in our reported financial information and have a negative effect on
our stock price.
   Our exposure to the Dongfeng Group has had, and could continue to have, a material adverse effect
on our business, financial condition and results of operation.
    13




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Competition in China from other diesel engine manufacturers may adversely affect our financial
condition, results of operations, business or prospects.
  
    
    improvements in competitors products;
    
    increased production capacity of competitors;
    
    increased utilization of unused capacity by competitors; and
    
    price competition.
      14




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Our financial condition, results of operations, business or prospects may be adversely affected to
the extent we are unable to continue our sales growth.
   
    
    obtaining the necessary supplies, including the availability of raw materials;
    
    hiring and training skilled production workers and management personnel;
    
    manufacturing and delivering products for increased orders in a timely manner;
    
    maintaining quality standards and prices;
    
    controlling production costs; and
    
    obtaining adequate funding on commercially reasonable terms for future growth.
  If we are not able to continuously improve our existing engine products and develop new diesel
engine products or successfully enter into other market segments, we may become less competitive,
and our financial condition, results of operations, business and prospects will be adversely
affected.
  15




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We may be unable to obtain sufficient financing to fund our capital requirements which could limit
our growth potential.
  We could be exposed to the impact of interest rates and foreign currency movements with respect to
our future borrowings. In addition, a devaluation of the Renminbi will increase the Renminbi cost
of repaying our foreign currency denominated indebtedness and, therefore, could adversely affect
our financial condition, results of operations, business or prospects.
   If Chinas inflation increases or the prices of energy or raw materials increase, we may not be
able to pass the resulting increased costs to our customers and this may adversely affect our
profitability or cause us to suffer operating losses.
  16




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We may be adversely affected by environmental regulations.
   Our insurance coverage may not be adequate to cover risks related to our production and other
operations.
  Risks
relating to Mainland China
  Adverse changes in the economic policies of the Chinese government could have a material adverse
effect on the overall economic growth of Mainland China, which could reduce the demand for our
products and adversely affect our competitive position.
  17




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Adverse economic developments in China or elsewhere in the Asian region could have a material
adverse effect on our financial condition, results of operations, business or prospects.
  The Chinese legal system embodies uncertainties which could limit the legal protection available to
foreign investors.
   We may not freely convert Renminbi into foreign currency, which could limit our ability to obtain
sufficient foreign currency to satisfy our foreign currency requirements or to pay dividends to
shareholders.
  18




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##### Table of Contents



Outbreaks of infectious diseases, such as the recent Influenza A (H1N1) virus, severe acute
respiratory syndrome (SARS) and the Avian flu, in various parts of China and other countries may
materially and adversely affect our business and operations, as well as our financial condition and
results of operations.
  Risks relating to our investments in HLGE and TCL
  The HLGE groups hotel ownership and management business may be adversely affected by risks
inherent in the hotel industry.
   19




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##### Table of Contents




    
    changes to the international, regional and local economic climate and market conditions
(including, but not limited to; changes to regional and local populations, changes in travel
patterns and preferences, and oversupply of or reduced demand for hotel rooms that may result
in reduced occupancy levels and performance for the hotels it operates);
    
    changes to the political, economic, legal or social environments of the countries in which
the HLGE group operates (including developments with respect to inflation, interest rates,
currency fluctuations, governmental policies, real estate laws and regulations, taxation, fuel
costs, expropriation, including the impact of the current global financial crisis);
    
    increased threat of terrorism, terrorist events, airline strikes, hostilities between
countries or increased risk of natural disasters or viral epidemics that may affect travel
patterns and reduce the number of travelers and tourists;
    
    changes in laws and governmental regulations (including those relating to the operation of
hotels, preparation and sale of food and beverages, occupational health and safety working
conditions and laws and regulations governing its relationship with employees);
    
    competition from other international, regional and independent hotel companies, some of which
may have greater name recognition and financial resources than the HLGE group (including
competition in relation to hotel room rates, convenience, services or amenities offered);
    
    losses arising out of damage to the HLGE groups hotels, where such losses may not be covered
by the insurance policies maintained by the HLGE group;
    
    increases in operating costs due to inflation, labor costs (including the impact of
unionization), workers compensation and health-care related costs, utility costs, insurance
and unanticipated costs such as acts of nature and their consequences;
    
    fluctuations in foreign currencies arising from the HLGE groups various currency exposures;
    
    dependence on leisure travel and tourism;
    
    the outbreak of communicable diseases, such as the Influenza A (H1N1) virus and the Avian
flu, which if not contained, could potentially adversely affect the operations of the HLGE
group and its business in the hospitality industry; and
    
    adverse effects of a downturn in the hospitality industry.
  The hospitality business is a regulated business.
  20




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##### Table of Contents



TCL groups proposed new strategy of repositioning its principal business from consumer electronics
distribution to real estate and related infrastructure investment in pan-Asian region may not be
successful.
  The TCL groups principal business involves the distribution of third party branded and proprietary
branded consumer electronic products with operations mainly in the PRC (including Hong Kong). This
business is highly competitive and faces significant competition from other renowned brands.
    21




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##### Table of Contents



Both the HLGE group and the TCL group may need to raise additional capital.
  The HLGE group may be unable to raise sufficient funds to pay their debt obligations to us.
  
 ITEM 4. INFORMATION ON THE COMPANY.
 History and Development
 The Company
   22




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##### Table of Contents




    
    Through our 76.4% interest in Yuchai, we primarily conduct our manufacturing and sale of
diesel engines which are mainly distributed in the PRC market;
    
    As of June 1, 2009, we had a 45.4% equity interest in HLGE. The HLGE group is engaged in
hospitality and property development activities conducted mainly in the PRC and Malaysia; and
    
    As of June 1, 2009, we had a 34.4% equity interest in TCL.
   23




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##### Table of Contents



Yuchai
       24




---



##### Table of Contents



Reorganization Agreement
   25




---



##### Table of Contents



Cooperation Agreement
       Products and Product Development-Yuchai
  26




---



##### Table of Contents



Emission Standard
  New Products
            27




---



##### Table of Contents



SeriesTrucks
    
    YC4D, YC4E, YC4F, YC4G, YC6A, YC6G,
YC6KBus
    
    YC6M Mono-fuel, YC6M, YC6L, YC6J, YC6J mono-fuel, YC6GConstruction
    
    YC4B, YC4F, YC6J125G, YC6M, YC4108G/ZG, YC6108G/ZGAgriculture
    
    YC4AT, YC4BT, YC6AT, YC6BT, YC4BT,
YC4F, YC6C, YC6T, YC4WMarine
    
    YC6112, YC6015/08, YC4108C, YC6M, YC6A/6BG-Drive
    
    YC4D, YC6A190D(A8100), YC6A225D(A8500), YC6B125D, YC6B145D, YC6B180D, YC6B150D, YC6M, YC6T600L
 Light-Duty Diesel Engines
 4-Series Light-Duty Diesel Engines
  
    
    The 4108 engine was launched in the market in 2001 based on the 6105 and the 6108 engines.
The 4108 engine is designed for light trucks and passenger vehicles and commercial production
of the 4108 engine began in 2001.
 28




---



##### Table of Contents




    
    The 4112 engine was primarily based on the 6112 engine and is designed for use in light to
medium-duty cargo trucks and buses. The 4112 engine also features a low emission level. Commercial production of the 4112 engine began in late 2001.
    
    The YC4F/YC4G engine is a four-cylinder, four-stroke engine with a rated power ranging from
90 to 115 PS. The 4F/4G diesel engines were developed based on technologies from Germany and
Japan for mini buses, trucks and passenger cars. Trial production of 4F engines commenced in
mid-2004.
    
    The YC4D/YC4E engine is a four-cylinder, four-stroke engine with a rated power ranging from
120 to 180 PS. The YC4D diesel engine was co-developed by Yuchai and Germany FEV, and
features lower emission, lower fuel & oil consumption, lower noise, higher reliability, lower
price and better upgrading potential. TheYC4E series diesel engine was developed on the basis
of the YC6G series diesel engine with a displacement of 7.8 liters through stroke-shortening
and bore-reducing which maintains advantages aids over the YC6G series diesel engines and
features by higher dynamic characteristics, easier operation and
maintenance, and is to be used for
high-speed and light-duty vehicles.
  YC4W Passenger Car Diesel Engine
  Medium-Duty Diesel Engines
 6105 Medium-Duty Diesel Engines
  6108 Medium-Duty Diesel Engines
   29




---



##### Table of Contents



YC6A
  YC6G
  YC6J
  YC6J/YC6G CNG/LPG
  Heavy-Duty Diesel Engines
 6112 Heavy-Duty Diesel Engines
    6L Heavy-Duty Diesel Engines
  30




---



##### Table of Contents



6M Heavy-Duty Diesel Engines
  Industrial Engines
  Other Products
 Diesel Power Generators
  Special Vehicles
  Diesel Engine Parts
  Sales
  31




---



##### Table of Contents



2006
    
    2007
    
    2008% of
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    % ofRevenues,
    
    Revenues,
    
    Units
    
    Revenues,
    
    Revenues,
    
    Units
    
    Revenues,
    
    Revenues,
    
    Unitsnet
    
    net
    
    Sold
    
    net
    
    net
    
    Sold
    
    net
    
    net
    
    SoldRmb (in thousands)
    
    
    
    
    
    Rmb (in thousands)
    
    
    
    
    
    Rmb (in thousands)Diesel engines6105
    
    
    1,705,399
    
    
    
    24.6
    %
    
    
    66,627
    
    
    
    2,132,590
    
    
    
    22.3
    %
    
    
    80,567
    
    
    
    2,202,856
    
    
    
    21.2
    %
    
    
    75,6336108
    
    
    991,190
    
    
    
    14.3
    %
    
    
    45,562
    
    
    
    1,424,391
    
    
    
    14.9
    %
    
    
    64,248
    
    
    
    1,491,211
    
    
    
    14.4
    %
    
    
    61,7346112
    
    
    725,288
    
    
    
    10.5
    %
    
    
    14,150
    
    
    
    643,373
    
    
    
    6.7
    %
    
    
    12,741
    
    
    
    623,459
    
    
    
    6.0
    %
    
    
    11,8306L
    
    
    98,060
    
    
    
    1.4
    %
    
    
    1,526
    
    
    
    312,268
    
    
    
    3.3
    %
    
    
    5,079
    
    
    
    579,568
    
    
    
    5.6
    %
    
    
    8,9046M
    
    
    267,657
    
    
    
    3.9
    %
    
    
    6,654
    
    
    
    564,909
    
    
    
    5.9
    %
    
    
    14,296
    
    
    
    452,397
    
    
    
    4.4
    %
    
    
    11,2354-Series
    
    
    2,222,531
    
    
    
    32.1
    %
    
    
    148,941
    
    
    
    3,258,449
    
    
    
    34.1
    %
    
    
    206,558
    
    
    
    3,534,245
    
    
    
    34.0
    %
    
    
    202,798Diesel power
generators &
others
    
    
    910,403
    
    
    
    13.2
    %
    
    
    123
    
    
    
    1,220,323
    
    
    
    12.8
    %
    
    
    188
    
    
    
    1,500,286
    
    
    
    14.4
    %
    
    
    1466,920,528
    
    
    
    100.0
    %
    
    
    283,583
    
    
    
    9,556,303
    
    
    
    100.0
    %
    
    
    383,677
    
    
    
    10,384,022
    
    
    
    100.0
    %
    
    
    372,280
  Production
   32




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##### Table of Contents



2004
    
    2005
    
    2006
    
    2007
    
    2008% of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % oftotal
    
    
    
    
    
    total
    
    
    
    
    
    total
    
    
    
    
    
    total
    
    
    
    
    
    totalUnits
    
    units
    
    Units
    
    units
    
    Units
    
    units
    
    Units
    
    units
    
    Units
    
    unitsDiesel Engines:6105
    
    
    55,910
    
    
    
    24.4
    %
    
    
    70,052
    
    
    
    29.2
    %
    
    
    66,439
    
    
    
    23.9
    %
    
    
    82,345
    
    
    
    21.4
    %
    
    
    72,779
    
    
    
    21.8
    %6108
    
    
    62,394
    
    
    
    27.2
    %
    
    
    35,627
    
    
    
    14.8
    %
    
    
    39,057
    
    
    
    14.1
    %
    
    
    66,526
    
    
    
    17.3
    %
    
    
    61,169
    
    
    
    18.3
    %6112
    
    
    27,410
    
    
    
    12.0
    %
    
    
    15,990
    
    
    
    6.7
    %
    
    
    14,358
    
    
    
    5.2
    %
    
    
    12,996
    
    
    
    3.4
    %
    
    
    11,954
    
    
    
    3.6
    %6L
    
    
    1,444
    
    
    
    0.6
    %
    
    
    1,008
    
    
    
    0.4
    %
    
    
    1,366
    
    
    
    0.5
    %
    
    
    5,618
    
    
    
    1.5
    %
    
    
    9,025
    
    
    
    2.7
    %6M
    
    
    1,594
    
    
    
    0.7
    %
    
    
    5,991
    
    
    
    2.5
    %
    
    
    7,331
    
    
    
    2.6
    %
    
    
    15,830
    
    
    
    4.1
    %
    
    
    11,492
    
    
    
    3.4
    %4-Series
    
    
    80,458
    
    
    
    35.1
    %
    
    
    111,393
    
    
    
    46.4
    %
    
    
    149,347
    
    
    
    53.7
    %
    
    
    201,204
    
    
    
    52.3
    %
    
    
    168,058
    
    
    
    50.2
    %Total
    
    
    229,210
    
    
    
    100.0
    %
    
    
    240,061
    
    
    
    100.0
    %
    
    
    277,898
    
    
    
    100.0
    %
    
    
    384,519
    
    
    
    100.0
    %
    
    
    334,477
    
    
    
    100.0
    %
 33




---



##### Table of Contents



Procurement
  Engine Block
  Pump
  Raw Materials
  Imports
   Quality Assurance, Control & Safety
  34




---



##### Table of Contents



Manufacturing Capacity Expansions
  Research and Development
  Future Products
   Sales, Marketing and Services
 Sales and Marketing
   35




---



##### Table of Contents



Export Sales
  2006
    
    2007
    
    2008% of
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    % ofSales
    
    Sales
    
    Unit
    
    Sales
    
    Sales
    
    Unit
    
    Sales
    
    Sales
    
    UnitRevenue
    
    Revenue
    
    Sales
    
    Revenue
    
    Revenue
    
    Sales
    
    Revenue
    
    Revenue
    
    SalesRmb
    
    
    
    
    
    
    
    
    
    Rmb
    
    
    
    
    
    
    
    
    
    Rmb(in thousands)
    
    
    
    
    
    
    
    
    
    (in thousands)
    
    
    
    
    
    
    
    
    
    (in thousands)Total Domestic Sales
    
    
    6,893,551
    
    
    
    99.6
    %
    
    
    282,516
    
    
    
    9,533,767
    
    
    
    99.8
    %
    
    
    382,810
    
    
    
    10,352,114
    
    
    
    99.7
    %
    
    
    371,243Total Export Sales
    
    
    26,977
    
    
    
    0.4
    %
    
    
    1,067
    
    
    
    22,536
    
    
    
    0.2
    %
    
    
    867
    
    
    
    31,908
    
    
    
    0.3
    %
    
    
    1,0376,920,528
    
    
    
    100.0
    %
    
    
    283,583
    
    
    
    9,556,303
    
    
    
    100.0
    %
    
    
    383,677
    
    
    
    10,384,022
    
    
    
    100.0
    %
    
    
    372,280
    36




---



##### Table of Contents



Customer Service
    Trademarks
  Competition
   37




---



##### Table of Contents



38




---



##### Table of Contents



The HLGE group
   Investment holding activities
  Hospitality operations
  
    
    Hotel Equatorial ShanghaiHotel Equatorial Shanghai is located in the heart of Shanghai. The property has more than 500
saleable guest rooms which have all been fully refurbished over the last 18 months and a new
lounge. Other facilities comprise six food and beverage outlets, ballroom space and a health
club.
    
    Copthorne Hotel QingdaoThe property is located in the commercial district of Qingdao. The property has approximately 450
saleable guest rooms, and has restaurants and bars, ballrooms and function rooms, entertainment
facilities, offices and retail space.
    
    Changning Equatorial Serviced ApartmentsThe property comprises a 16-storey building located in the downtown Shanghai. The property has
approximately 125 apartment units, a self-service launderette, meeting rooms and a business
centre. In September 2008, the business operation was temporarily closed for major renovations
and is anticipated to re-open at the end of September 2009.
    
    Hotel Equatorial Cameron
  Renovation and maintenance
 39




---



##### Table of Contents



The TCL group
  Third party branded products
  Proprietary branded products
  Distribution network
  Competition
  Other businesses
  40




---



##### Table of Contents



Organizational Structure
  
 41




---



##### Table of Contents



Regulatory and Related Matters
 Governance, Operation and Dissolution of Yuchai
  force majeure
  42




---



##### Table of Contents



Property, Plant and Equipment
  Environmental Matters
   
 ITEM 4A. UNRESOLVED STAFF COMMENTS.
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
   43




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##### Table of Contents



Business Expansion and Diversification Plan
  Thakral Corporation Ltd (TCL)
 
    
    The first step in implementing this plan occurred in March 2005 when through our wholly-owned
subsidiary, Venture Delta, we acquired a 15.0% equity interest in TCL for a consideration of
approximately S$30.9 million. In September 2005, Venture Delta acquired an additional 1.0%
equity interest in TCL for a consideration of S$1.4 million. As a result, we held a 16.0%
stake in TCL as of December 31, 2005.
    
    In February 2006, we increased our interest in TCL to 19.4% through an acquisition by Venture
Delta of ordinary shares and convertible bonds of TCL pursuant to a rights issue by TCL for an
aggregate cash consideration of approximately S$49.4 million (approximately US$36.3 million).
Venture Delta converted all of its TCL convertible bonds into TCL ordinary shares in August
2006 and, as a result of the conversion, triggered the mandatory conditional cash offers under
The Singapore Code on Take-over and Mergers for all of the TCL ordinary shares and TCL bonds
which Venture Delta did not already own, control or agree to acquire. The mandatory offers
lapsed on October 20, 2006 and no securities were purchased by Venture Delta.
    
    As of December 31, 2006, our interest in TCL was 36.6% of TCLs outstanding ordinary shares
and our aggregate investment in TCL amounted to approximately S$81.7 million (approximately
US$60.0 million), before taking into account dividends and interest income of approximately
S$1.9 million (approximately US$1.4 million), in the aggregate, earned from these investments.
    
    On September 2,
2008, Venture Delta transferred 1,000,000
ordinary shares, representing 0.04% interest in TCL to Grace Star.
    
    As of December 31, 2008, our interest in TCL was 34.4% of TCLs outstanding ordinary shares and
our aggregate investment in TCL amounted to approximately S$81.7 million (approximately US$60.0
million), before taking into account dividends and interest income of approximately S$1.9 million
(approximately US$1.4 million), in the aggregate, earned from
these investments. As of June 1, 2009, our
interest in TCL remained unchanged.
    
    We continue to account for our investment in TCL using the equity method and we have
continued to reflect our proportionate share of the TCL groups results in our consolidated
statement of operations since March 2005.
 HL Global Enterprises Limited (formerly known as HLG Enterprise Limited) (HLGE)
 
    
    In February 2006, through the following wholly-owned subsidiaries, we also acquired debt and
equity securities in HLGE for an aggregate consideration of approximately S$132.0 million
(approximately US$96.7 million):(a)
    
    Grace Star acquiredi.
    
    191,413,465 ordinary shares representing approximately 29.1% of the total number of HLGEs
ordinary shares at that time,ii.
    
    15,376,318 Series A redeemable convertible preference shares in the capital of HLGE, or the
Existing HLGE RCPS A. The Existing HLGE RCPS A is mandatorily redeemable by HLGE upon the
disposal of certain properties and upon any new issue of HLGE ordinary shares with the purpose
of raising funds for the redemption of Existing HLGE RCPS A. Any outstanding Existing HLGE
RCPS A will be mandatorily redeemed in March 2015. The Existing HLGE RCPS A can also be
converted into ordinary shares at the conversion ratio of 1:1 upon the passing of a special
resolution at a meeting of the holders of Existing HLGE RCPS A at any time prior to March
2015.iii.
    
    107,634,237 Series B redeemable convertible preference shares in the capital of HLGE, or the
Existing HLGE RCPS B (and together with the Existing HLGE RCPS A, the Existing HLGE
RCPS). The Existing HLGE RCPS B is neither mandatorily redeemable nor redeemable at the option
of the Company. Any Existing HLGE RCPS B, which are not redeemed prior to March
 44




---



##### Table of Contents



2010, are
mandatorily converted to ordinary shares at the conversion ratio of 1:1 in March 2010. The
Existing HLGE RCPS B are redeemable upon the disposal of certain properties and upon any new
issue of HLGE ordinary shares with the purpose of raising funds for the redemption of Existing
HLGE RCPS B. The Existing HLGE RCPS B can also be converted into ordinary shares at the
conversion ratio of 1:1 upon the passing of a special resolution at a meeting of the holders of
Existing HLGE RCPS B at any time prior to March 2010.(b)
    
    Venture Lewis acquired approximately S$129.4 million (approximately US$95.1 million) in
principal amount of outstanding secured non-convertible bonds issued by HLGE, or the Existing
HLGE Bonds.
    
    In June and December of 2006, HLGE partially redeemed a portion of Existing HLGE RCPS A and
Existing HLGE RCPS B as required by the terms of the preference share agreement as a result of
the disposals of certain assets. The proceeds from the partial redemptions amounted to
approximately S$2.4 million (approximately US$1.6 million) and resulted in a reduction in the
number of Existing HLGE RCPS that we held through  Grace Star from 123,010,555 to 113,159,191.
    
    In July 2006, pursuant to a rights issue by HLGE, through Grace Star and Venture Lewis,
respectively, we were allotted 196,201,374 non-redeemable convertible cumulative preference shares, or the New HLGE NCCPS, and S$130,800,917 in principal amount of zero coupon unsecured
non-convertible bonds due 2009 in HLGE, or the New HLGE Bonds, for an aggregate consideration
of approximately S$135.0 million (approximately US$99.0 million). In conjunction with the
allotment, the Existing HLGE Bonds were redeemed by HLGE at their principal value of S$129.4
million. At settlement, the aggregate consideration payable by the Company to HLGE of S$134.7
million was partially offset against S$129.4 million payable by HLGE to the Company, and the
balance of S$5.3 million (approximately US$3.9 million) was paid by the Company in cash.
    
    In November 2006, Grace Star converted all of its 196,201,374 New HLGE NCCPS into HLGE
ordinary shares resulting in an increase in its equity interest in HLGE from 29.1% to 45.4%
thereby triggering the mandatory conditional cash offers under The Singapore Code on Take-over
and Mergers for all the HLGE ordinary shares, the Existing HLGE RCPS and the New HLGE NCCPS
which Grace Star did not already own, control or agree to acquire. The mandatory offers lapsed
on December 27, 2006 and no securities were purchased by Grace Star.
    
    As of December 31, 2006, we held through Grace Star  (i) 387,614,839 HLGE ordinary shares, representing
approximately 45.4% of the total number of HLGE ordinary shares; (ii) 113,159,191 Existing
HLGE RCPS; and through Venture Lewis (iii) S$130,800,917 in principal amount of the New HLGE Bonds. Our aggregate
investment in HLGE to-date amounted to approximately S$136.9 million (approximately US$100.6
million), before taking into account previous interest income earned from these investments
and partial redemption of the Existing HLGE RCPS of approximately S$6.7 million (approximately
US$4.9 million) in aggregate.
    
    On June 19, 2007, HLGE made a partial redemption of the New HLGE Bonds. The principal amount
redeemed was approximately S$17.9 million (approximately US$13.2 million) and resulted in a
reduction in the principal amount of the New HLGE Bonds that we held
through Venture Lewis from S$130,800,917 to
S$112,886,727. The Company had engaged an independent professional valuer, to value the
financial instruments acquired as at June 19, 2007 (before redemption) and as at December 31,
2007. The fair value is determined by discounting the expected payments to the valuation date
using a discount rate commensurate with the risk of the payments.
    
    As of December 31, 2007, we held through Grace Star  (i) 387,614,839 HLGE ordinary shares, representing
approximately 45.4% of the total number of HLGE ordinary shares; (ii) 13,957,233 Existing
HLGE RCPS A; (iii) 99,201,958 Existing HLGE RCPS B; and through
Venture Lewis (iv) S$112,886,727 in principal amount
of the New HLGE Bonds. Our aggregate investment in HLGE to-date amounted to approximately
S$136.5 million (approximately US$100.6 million), before taking into account previous interest
income earned from these investments and partial redemption of the Existing HLGE RCPS of
approximately S$6.7 million (approximately US$4.9 million) in aggregate.
    
    In April 2008, HLGE made an additional partial redemption of the Existing HLGE RCPS B. The
redemption amount we received amounted to approximately S$0.98 million (approximately US$0.7
million) on April 30, 2008 and resulted in a reduction in the number of Existing HLGE RCPS
that we held through  Grace Star  from 113,159,191 to 107,186,403.
 45




---



##### Table of Contents




    
    In June 2008, HLGE made another partial redemption of the New HLGE Bonds. The principal
amount redeemed was approximately S$25.9 million (approximately
US$17.7 million) and resulted
in a reduction in the principal amount of the New HLGE Bonds that we
held through Venture Lewis from S$112,886,727
to S$87,010,673.We account for our investment in HLGE ordinary shares using the equity method and have reflected
our proportionate share of the HLGE groups results in our consolidated statement of operations
since February 2006.
    
    Assuming the full conversion of the Existing HLGE RCPS held by Grace Star, which would
trigger the full conversion of the Existing HLGE RCPS by the other holders of the Existing
HLGE RCPS, and assuming that none of the other holders of the New HLGE NCCPS convert their New
HLGE NCCPS, our equity interest in HLGE would increase from 45.4% as of December 31, 2008 to
51.5%. In the event we obtain a majority of the voting equity interest in HLGE, we would
likely have to consolidate HLGE in our financial statements.
 
    
    On February 18, 2009, we announced the entry into a loan agreement by our wholly-owned
subsidiary, Venture Lewis with HLGE to refinance the New HLGE Bonds due to mature on July
3, 2009. Under the terms of the loan agreement, on the maturity date
of the New HLGE Bonds, HLGE
will fully redeem the New HLGE Bonds held by all minority New HLGE
Bondholders and pay to Venture Lewis a
portion of the principal and gross redemption yield. The remaining amount due to Venture
Lewis on the maturity date would be refinanced through an unsecured loan arrangement with
a one-year term, renewable by mutual agreement between the parties on an annual basis. An option for HLGE to
undertake a partial redemption of the New HLGE Bonds on a pro-rata basis prior to the maturity date
was included in the loan agreement. On February 19, 2009, HLGE
announced an early partial redemption of the new HLGE Bonds on a pro-rata basis of up to S$9.0 million in
principal amount of the outstanding New HLGE Bonds and on March 23, 2009,
HLGE effected payment to all bondholders. The principal amount
redeemed of approximately S$8.96 million (approximately
US$6.1 million)
to us had resulted in a reduction in the principal amount of the New
HLGE Bonds that we held through Venture Lewis from S$87,010,673 to
S$78,053,577. See Item 3. Key Information  Risk Factors 
Risks relating to our investments in HLGE and TCL  The HLGE Group may be unable to raise
sufficient funds to pay their debt obligations to us.
 Overview
   46




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47




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Critical Accounting Policies
   48




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
    
    allowances for doubtful accounts and loans receivable;
    
    realization of the carrying value of inventories;
    
    product warranty obligations;
    
    recoverability of the carrying values of equity method investments and other investments;
    
    realization of deferred tax assets; and
    
    impairment of long-lived assets.
 Allowances for doubtful accounts
   December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$(in thousands)Balance at
beginning of year
    
    
    69,047
    
    
    
    90,365
    
    
    
    64,893
    
    
    
    9,495Add:Charge/(credit) to
Consolidated
statements of
Operations
    
    
    21,582
    
    
    
    (11,008
    )
    
    
    33,487
    
    
    
    4,900Less: Written off
    
    
    (264
    )
    
    
    (14,464
    )
    
    
    (2,346
    )
    
    
    (343
    )Balance at end of
Year
    
    
    90,365
    
    
    
    64,893
    
    
    
    96,034
    
    
    
    14,052
  49




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Realization of the carrying value of inventories
   Product warranty obligations
   December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$(in thousands)Balance at
beginning of year
    
    
    142,126
    
    
    
    163,701
    
    
    
    194,898
    
    
    
    28,518Add: Provision
charged to
Consolidated
statements of
Operations
    
    
    200,892
    
    
    
    233,838
    
    
    
    215,544
    
    
    
    31,538Less: Amounts
Utilized
    
    
    (179,317
    )
    
    
    (202,641
    )
    
    
    (221,843
    )
    
    
    (32,460
    )Balance at end of
year
    
    
    163,701
    
    
    
    194,898
    
    
    
    188,599
    
    
    
    27,596
 50




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Recoverability of carrying values of equity method investments and other investments
    Realization of deferred tax assets
   51




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Impairment of long-lived assets, other than goodwill
   
    
    Yuchai Hotel and Guilin office buildings
    Rmb 46.0 million (US$6.7 million); and
    
    Other plant and equipments
    Rmb 23.9 million (US$3.5 million)
 52




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Results of Operations
  Percentage of Net RevenuesYear Ended December 31,2006
    
    2007
    
    2008Revenues, net
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    81.6
    %
    
    
    79.6
    %
    
    
    82.4
    %Gross profit
    
    
    18.4
    %
    
    
    20.4
    %
    
    
    17.6
    %Research and
development costs
    
    
    2.4
    %
    
    
    1.6
    %
    
    
    1.7
    %Selling, general
and administrative
(SG&A) expenses
    
    
    11.5
    %
    
    
    10.0
    %
    
    
    10.0
    %Operating income
    
    
    4.4
    %
    
    
    8.9
    %
    
    
    5.8
    %Interest expense
    
    
    1.7
    %
    
    
    1.3
    %
    
    
    1.4
    %Equity in net
income/(losses) of affiliates,
net of tax
    
    
    0.3
    %
    
    
    
    
    
    
    (0.4
    %)Other income, net
    
    
    0.5
    %
    
    
    0.6
    %
    
    
    0.4
    %Earnings before income taxes
and minority
interest
    
    
    2.9
    %
    
    
    8.2
    %
    
    
    4.5
    %Income taxes
    
    
    (0.4
    )%
    
    
    (0.7
    )%
    
    
    (1.1
    )%Income before minority
interests
    
    
    2.5
    %
    
    
    7.5
    %
    
    
    3.4
    %Minority interests
in income of consolidated
subsidiaries
    
    
    (0.9
    )%
    
    
    (2.0
    )%
    
    
    (1.0
    )%Net income
    
    
    1.6
    %
    
    
    5.5
    %
    
    
    2.4
    %
 2008 Compared to 2007
     53




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2007 Compared to 2006
   54




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55




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Inflation
  Seasonality
  Liquidity and Capital Resources
  56




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For Year ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$(in thousands)Net cash provided
by operating
activities
    
    
    634,146
    
    
    
    84,554
    
    
    
    632,686
    
    
    
    92,575Net cash used in
Investing
activities
    
    
    (1,289,944
    )
    
    
    (168,503
    )
    
    
    (261,776
    )
    
    
    (38,303
    )Net cash
provided/(used in)
financing
activities
    
    
    670,640
    
    
    
    (135,061
    )
    
    
    (193,161
    )
    
    
    (28,264
    )Effect of foreign
currency exchange
on cash and cash
equivalents
    
    
    (5,104
    )
    
    
    (5,978
    )
    
    
    (5,257
    )
    
    
    (769
    )Net
increase/(decrease)
in cash and cash
equivalents
    
    
    9,738
    
    
    
    (224,988
    )
    
    
    172,492
    
    
    
    25,239
     57




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Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    1 Year
    
    1-3 Years
    
    4-5 Years
    
    5 YearsRmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb(in millions)Short-term debt(1)
    
    
    1,083.8
    
    
    
    1,083.8
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt(1)
    
    
    257.5
    
    
    
    78.1
    
    
    
    179.4
    
    
    
    
    
    
    
    Purchase
obligations regarding capital expenditures
    
    
    1,524.5
    
    
    
    1,524.5
    
    
    
    
    
    
    
    
    
    
    
    Operating lease commitments
    
    
    20.7
    
    
    
    9.3
    
    
    
    11.4
    
    
    
    
    
    
    
    Total
    
    
    2,886.5
    
    
    
    2,695.7
    
    
    
    190.8
    
    
    
    
    
    
    
    
 
 (1)
    
    Includes contractual interest payments Capital Expenditures 
   Off-Balance Sheet Arrangements
   59




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Research and Development
  Recently Issued Accounting Standards
   No. 141(R) No. 141(R)
      60




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FSP FAS 141(R)-1
    61




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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
 Directors and Executive Officers of the Company
   Year First Elected orAppointed DirectorName
    
    Position
    
    or OfficerTEO Tong
Kooi(1)(2)
(5)(6)
    
    President and Director
    
    
    2004SAW Boo Guan (6)
    
    Director
    
    
    2009GAN Khai Choon (1) (5)
    
    Director
    
    
    1995KWEK Leng Peck(1)(3)
    
    Director
    
    
    1994NEO Poh Kiat (1)(3)(4)
    
    Director
    
    
    2005TAN Aik-Leang(1)(4)
    
    Director
    
    
    2005Matthew RICHARDS(3)(4)
    
    Director
    
    
    2006YAN Ping(1)
    
    Director
    
    
    2007ZHANG Shi Yong(1)
    
    Director
    
    
    2007
 Year First Elected orAppointed DirectorName
    
    Position
    
    or OfficerHOH Weng Ming
    
    Chief Financial Officer
    
    
    2008FOO Shing Mei Deborah
    
    General Counsel
    
    
    2007Ira Stuart OUTERBRIDGE
III
    
    Secretary
    
    
    2001
 
 Mr. Tan Wan Hong resigned as Chief Operating Officer of
the Company on May 11, 2009.(1)
    
    Also a Director of Yuchai. 63




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(2)
    
    Also a Director of TCL.(3)
    
    Member of the Compensation Committee.(4)
    
    Member of the Audit Committee.(5)
    
    Also a Director of HLGE.(6)
    
    As announced on June 22, 2009, Mr. Saw Boo Guan will be assuming the role of President from
Mr. Teo Tong Kooi on August 1, 2009 who will remain
as a non-executive director of the Company.      64




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Audit Committee
  Compensation Committee
  Directors and Executive Officers of Yuchai
   Year First Elected orAppointed DirectorName
    
    Position
    
    Position or OfficerYAN Ping(1)
    
    Chairman of the Board of Directors
    
    
    2005LI Tiansheng
    
    Director and General Manager
    
    
    2001GAN Khai Choon(1)(4)
    
    Director
    
    
    2007KWEK Leng Peck(1)
    
    Director
    
    
    2005NEO Poh Kiat(1)
    
    Director
    
    
    2008TAN Aik-Leang(1)
    
    Director
    
    
    2005TEO Tong Kooi(1)(2)(4)
    
    Director
    
    
    2004HOH Weng Ming
    
    Director
    
    
    2008YUAN Xucheng
    
    Director
    
    
    2003GU Tangsheng
    
    Assistant to Chairman and Director
    
    
    2005ZHANG Shi Yong(1) (3)
    
    Director
    
    
    2007ZENG Shi Qiang
    
    Assistant Director
    
    
    1999SU
Peng Cooper (5)
    
    Company Secretary
    
    
    2009
 66




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Year First Elected orAppointed DirectorName
    
    Position
    
    Position or OfficerKEAN
Chia Yee Alex(6)
    
    Chief Business Official
    
    
    2008TAY Hui Boon Kelly(6)
    
    Financial Controller
    
    
    2008LEE See Bee Patrick (6)
    
    Vice President, International Sales
    
    
    2009WU Qiwei
    
    Deputy General Manager
    
    
    2006YAN Jie
    
    Deputy General Manager
    
    
    2003LI Cheng Jie
    
    Deputy General Manager
    
    
    2007QIN Xiaohong
    
    Chief Accountant
    
    
    2007SHEN Jie
    
    General Engineer
    
    
    2002
 
 *
    
    Mr TAN Wan Hong resigned as Deputy Chairman of the Board of
Directors on May 11, 2009.(1)
    
    Also a Director of the Company.(2)
    
    Also a Director of TCL.(3)
    
    Resigned as Company Secretary of Yuchai on March 18, 2009.(4)
    
    Also a Director of HLGE.(5)
    
    Appointed Company Secretary of Yuchai on March 18,
2009.(6)
    
    Secondees of the Company, whose salaries and expenses are paid by the Company.         67




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Yuchai
   68




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69




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Compensation
 Company
    Yuchai
   70




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Employees
    71




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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. Major Shareholders
   Identity of Person or Group
    
    Number
    
    Percentage (%)Hong Leong Asia Ltd(1)
    
    
    7,913,769
    
    
    
    21.2
    %The Yulin City Government(2)
    
    
    6,709,322
    
    
    
    18.0
    %Shah Capital Management (3)
    
    
    2,178,000
    
    
    
    5.8
    %Tai Tak
Industries Pte. Ltd.(4)
    
    
    1,927,673
    
    
    
    5.2
    %
 
 (1)
    
    Information based upon a report on Schedule 13D jointly filed by Hong Leong Asia and its
wholly-owned subsidiaries, Hong Leong China, HL Technology, Flite Technology Industries Pte
Ltd and Lydale Pte Ltd, with the SEC on July 19, 2002, as amended on September 10, 2003,
October 7, 2003, October 15, 2003 and December 1, 2003, and other information provided by Hong
Leong Asia to the Company. Hong Leong Asia is the beneficial owner of and exercises control
over the 7,913,769 shares of Common Stock or approximately 21.2% of the total number of shares
of Common Stock and the special share held by its wholly-owned subsidiaries, HL Technology and
Well Summit Investments Limited. See also Related Party Transactions  Shareholders
Agreement. Other than as described under Item 3. Key Information  Risk Factors  Risks
relating to our company and our business  We may experience a change of control as a result
of offerings of shares by our controlling shareholders and  The Special Share, we are not
aware of any arrangement which may, at a subsequent date, result in a change of control of the
Company.(2)
    
    Information based on a report on Schedule 13D filed by Coomber, Goldman, Zhong Lin and the
State Holding Company, with the SEC on December 16, 2002, as amended on June 23, 2003, July 9,
2003, December 23, 2003, March 15, 2004, February 15, 2005, April 18, 2005, August 9, 2006 and
September 29, 2006. Based on Amendment No. 4 to the Schedule 13D filed by Coomber and others
with the SEC on December 23, 2003, Coomber is a wholly-owned subsidiary of Goldman, which is
indirectly owned and controlled by Yulin City Municipal Government, or Yulin City Government,
in Guangxi Zhuang Autonomous Region, PRC. Accordingly, the Yulin City Government is the
ultimate beneficial owner of the 6,709,322 shares of the Companys Common Stock held of record
by Coomber.(3)
    
    Information based on a report on Schedule 13D filed by Shah Capital Management with the SEC
on November 24, 2008 and as amended on December 31, 2008.(4)
    
    Information based on a report on Schedule 13G jointly
filed by Tai Tak Industries Pte. Ltd. and
its affiliate, Tai Tak Securities Pte Ltd, with the SEC on March 7, 2005 and as amended on
June 20, 2005.  72




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The Special Share
    Related Party Transactions
 Shareholders Agreement
  73




---



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Registration Rights Agreement
  Reorganization Agreement and Cooperation Agreement
   Other Transactions
  74




---



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75




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ITEM 8. FINANCIAL INFORMATION.
 Consolidated Financial Statements
  Legal Proceedings
  Proceedings with Yuchai
    76




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Other Legal Proceedings
   
 ITEM 9. THE OFFER AND LISTING.
   US$
    
    US$Period
    
    High
    
    Low2003
    
    
    37.24
    
    
    
    4.402004
    
    
    34.00
    
    
    
    9.852005
    
    
    14.47
    
    
    
    7.022006
    
    
    10.00
    
    
    
    4.532007
    
    
    13.85
    
    
    
    6.872008
    
    
    11.98
    
    
    
    2.492009
(through June 30, 2009)
    
    
    8.65
    
    
    
    3.35
 77




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##### Table of Contents



US$
    
    US$Period
    
    High
    
    Low2006 First Quarter
    
    
    9.81
    
    
    
    6.812006 Second Quarter
    
    
    10.00
    
    
    
    6.262006 Third Quarter
    
    
    7.46
    
    
    
    4.532006 Fourth Quarter
    
    
    8.40
    
    
    
    5.422007 First Quarter
    
    
    9.45
    
    
    
    6.872007 Second Quarter
    
    
    11.88
    
    
    
    7.822007 Third Quarter
    
    
    12.75
    
    
    
    7.182007 Fourth Quarter
    
    
    13.85
    
    
    
    8.802008 First Quarter
    
    
    10.22
    
    
    
    7.072008 Second Quarter
    
    
    11.98
    
    
    
    8.282008 Third Quarter
    
    
    11.66
    
    
    
    7.112008 Fourth Quarter
    
    
    7.69
    
    
    
    2.492009 First Quarter
    
    
    5.49
    
    
    
    3.172009 Second Quarter
    
    
    8.89
    
    
    
    4.48
 US$
    
    US$Period
    
    High
    
    LowMay 2008
    
    
    11.98
    
    
    
    9.00June 2008
    
    
    11.62
    
    
    
    9.71July 2008
    
    
    10.23
    
    
    
    8.24August 2008
    
    
    11.66
    
    
    
    8.62September 2008
    
    
    10.57
    
    
    
    7.11October 2008
    
    
    7.69
    
    
    
    4.00November 2008
    
    
    5.50
    
    
    
    2.49December 2008
    
    
    4.44
    
    
    
    3.50January 2009
    
    
    4.94
    
    
    
    3.50February 2009
    
    
    4.52
    
    
    
    3.17March 2009
    
    
    5.49
    
    
    
    3.31April 2009
    
    
    7.88
    
    
    
    4.48May 2009
    
    
    8.89
    
    
    
    7.11June 2009
    
    
    8.79
    
    
    
    6.81
 78




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ITEM 10. ADDITIONAL INFORMATION.
  Memorandum of Association and Bye-Laws
 Corporate Governance
    Standard for US Domestic Listed
    
    China Yuchai International LimitedsCompanies
    
    PracticeDirector IndependenceA majority of the board must consist of
independent directors.
    
    Three of our
Nine directors,
Messrs. Neo Poh Kiat, Tan Aik-Leang
and Matthew Richards are
independent within the meaning of
the NYSE standards.Independence is defined by various
criteria including the absence of a
material relationship between director
and the listed company. Directors who are
employees, are
 79




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##### Table of Contents



Standard for US Domestic Listed
    
    China Yuchai International LimitedsCompanies
    
    Practiceimmediate family of the
chief executive officer or receive over
$120,000 per year in direct compensation
from the listed company are not
independent. Directors who are employees
of or otherwise affiliated through
immediate family with the listed
companys independent auditor are also
not independent.The non-management directors of each
company must meet at
regularly scheduled
executive sessions without management.
    
    Our non-management directors do
not meet periodically without
management directors.Audit CommitteeListed companies must have an audit
committee that satisfies the
requirements of Rule 10A-3 under the
Exchange Act. The
rule requires that the audit committee
(i) be comprised entirely of independent
directors; (ii) be directly responsible
for the appointment, compensation,
retention and oversight of the
independent auditor; (iii) adopt
procedures for the receipt and treatment
of complaints with respect to accounting,
internal accounting controls or auditing
matters; (iv) be authorized to engage
independent counsel and other advisors it
deems necessary in performing its duties;
and (v) be given sufficient funding by
the company to compensate the independent
auditors and other advisors as well as
for the payment of ordinary
administrative expenses incurred by the
committee.
    
    Our audit committee meets the
requirements of Rule 10A-3 under the
Exchange Act.The audit committee must consist of at
least three members, and each member meets
the independence requirements of both
the NYSE rules and Rule 10A-3 under the
Exchange Act.
    
    Our audit committee currently
consists of three members, each of
whom meets the independence
requirements of both
the NYSE rules and Rule 10A-3 under
the Exchange Act.The audit committee must have a written
charter that addresses the committees
purpose and responsibilities.
    
    Our audit committee has a charter
outlining the committees purpose
and responsibilities, which are
similar in scope to those required
of US companies.
 80




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##### Table of Contents



Standard for US Domestic Listed
    
    China Yuchai International LimitedsCompanies
    
    PracticeAt a minimum, the committees purpose
must be to assist the board in the
oversight of the integrity of the
companys financial statements, the
companys compliance with legal and
regulatory requirements, the independent
auditors qualifications and independence
and the performance of the companys
internal audit function and independent
auditors.
The audit committee is also required to
review the independent auditing firms
annual report describing the firms
internal quality
control procedures, any material issues
raised by the most recent internal
quality control review or peer review of
the firm, or by any recent governmental
inquiry or investigation, and any steps
taken to address such issues.
 Standard for US Domestic Listed
    
    China Yuchai International LimitedsCompanies
    
    PracticeThe audit committee is also required to
assess the auditors independence by
reviewing all relationships between the
company and its auditor. It must establish
the companys hiring guidelines for employees
and former employees of the independent
auditor.
The committee must also discuss the companys
annual audited financial statements and
quarterly financial statements with
management and the independent auditors, the
companys earnings press releases, as well as
financial information and earnings guidance
provided to analysts and rating agencies, and
policies with respect to risk assessment and
risk management. It must also meet
separately, periodically, with management,
the internal auditors and the independent
auditors.Each listed company must disclose whether
its board of directors has identified an Audit
Committee Financial Expert, and if not the
reasons why the board has not done so.
    
    The Board of Directors has identified
Mr. Tan Aik-Leang as our Audit
Committee Financial Expert.
 81




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##### Table of Contents



Standard for US Domestic Listed
    
    China Yuchai International LimitedsCompanies
    
    PracticeEach listed company must have an internal
audit function.
    
    We are a holding company and the
majority of business is done at our
main subsidiary, Guangxi Yuchai
Machinery Company Limited (Yuchai).
Our group transactions, fees and
expenses are reviewed by the
Internal Audit Department of Hong
Leong Asia. In addition, Yuchai
maintains an independent internal
audit function, headed by an internal
audit manager who reports to the Audit
Committee of Yuchais Board which
approves the audit plans, reviews
significant audit issues and monitors
corrective actions taken by management.Compensation CommitteeListed companies must have a compensation
committee composed entirely of independent
board members as defined by the NYSE listing
standards.
    
    Our compensation committee currently
has three members, two of whom are
independent within the meaning of the
NYSE standards.The committee must have a written charter
that addresses its purpose and
responsibilities.These responsibilities include (i)
reviewing and approving corporate goals and
objectives relevant to CEO compensation; (ii)
evaluating CEO performance and compensation
in light
of such goals and objectives for the CEO;
(iii) based on such evaluation, reviewing and
approving CEO compensation levels; (iv)
recommending to the board non-CEO
compensation, incentive compensation plans
and equity-based plans; and (v) producing a
report on executive compensation as required
by the SEC to be included in the companys
annual proxy statement or annual report. The
committee must also conduct an annual
performance self-evaluation.
    
    Our compensation committee reviews
among other things the Companys
general compensation structure, and
reviews, recommends or approves
executive appointments, compensation
and benefits of directors and executive
officers, subject to ratification by the
Board of Directors, and supervises the
administration of our employee benefit
plans, if any.Nominating/Corporate GovernanceCommitteeListed companies must have a
nominating/corporate governance committee
composed entirely of independent board
members.
    
    We do not have a nominating/corporate
governance committee. However, certain
responsibilities of this committee are
undertaken by our Compensation
Committee, such as the review and
approval of executive appointments and
all other functions are performed by
the Board of Directors.
 82




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##### Table of Contents



Standard for US Domestic Listed
    
    China Yuchai International LimitedsCompanies
    
    PracticeThe committee must have a written charter that
addresses its purpose and responsibilities,
which include (i) identifying qualified
individuals to become board members; (ii)
selecting, or recommending that the board
select, the director nominees for the next
annual meeting of shareholders; (iii)
developing and recommending to the board a set
of corporate governance principles applicable
to the company; (iv) overseeing the evaluation
of the board and management; and (v) conducting
an annual performance evaluation of the
committee.Equity-Compensation PlansShareholders must be given the opportunity to
vote on all equity-compensation plans and
material revisions thereto, with limited
exceptions.
    
    We intend to have our shareholders
approve equity-compensation plans.Corporate Governance GuidelinesListed companies must adopt and disclose
corporate governance guidelines.
    
    We have formally adopted various
corporate governance guidelines, including
Code of Business Conduct and Ethics
(described below); Audit Committee
Charter; Whistle-blowing Policy; Insider
Trading Policy; and Disclosure Controls
and Procedures.Code of Business Conduct and EthicsAll listed companies, US and foreign, must
adopt and disclose a code of business conduct
and ethics for directors, officers and
employees, and promptly disclose any amendment
to or waivers of the code for directors or
executive officers.
    
    We adopted a Code of Business Conduct
and Ethics Policy in May 2004, which was
revised on December 9, 2008. The text of
the Code is posted on our internet website
at
http://www.cyilimited.com/invest_govt.asp.
We intend to promptly disclose any
amendment to or waivers of the Code
for directors or executive officers.
 83




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##### Table of Contents



Directors
 Director Interests and Voting
  (a)
    
    a resolution regarding granting any security or indemnity for any money lent or obligation
incurred by such Director at the request, or for the benefit, of the Company or any of our
subsidiaries (or a company of which we are a beneficially wholly-owned subsidiary);(b)
    
    a resolution regarding granting any security or indemnity to any third party for a debt or
obligation which is owed by the Company or any of our subsidiaries (or a company of which we
are a beneficially wholly-owned subsidiary) to the third party, for which such Director has
assumed responsibility in whole or in part under a guarantee or indemnity;(c)
    
    a resolution about an offer of shares, debentures or other securities of the Company or any
of its subsidiaries (or a company of which we are a beneficially wholly-owned subsidiary) for
subscription or purchase in which such Director is to be a participant in the underwriting or
sub-underwriting of the offer;(d)
    
    a resolution about any proposal involving any other company in which such Director is
interested, whether directly or indirectly and whether as an officer or shareholder or
otherwise, provided that such Director is not the holder of, or directly or indirectly
beneficially interested in, 5% or more of (i) any class of the equity share capital of such
company or in any third company through which such Directors interest is derived or (ii) the
voting rights in that company;(e)
    
    any contract, arrangement or proposal for the benefit of our employees under which such
Director benefits in a similar manner as the employees and does not receive any privileges or
advantages not provided to the employees; or(f)
    
    any proposal in which such Director is interested in the same manner as other holders of our shares or our debentures or our other securities or any of our subsidiaries by virtue only of
such Directors interest in our shares or our debentures or our other securities or any of our
subsidiaries.
  Remuneration and Pensions
   84




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##### Table of Contents



Borrowing Powers
  Qualification of Directors
  Rights of Holders of shares of Common Stock
  
    
    be entitled, on a show of hands, to one vote and, on a poll, to one vote per share;
    
    be entitled to such dividends as the Board of Directors of the Company may from time to time
declare;
    
    in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary
or for the purpose of the reorganization or otherwise or upon any distribution of capital, be
entitled to a return of the amount paid up on the Common Stock and thereafter to the surplus
assets of the Company; and
    
    generally, be entitled to enjoy all the rights attaching to shares.
  Rights of Holder of the Special Share
  
    
    to elect six Directors of the Company and to remove Directors so appointed; and
    
    no shareholder resolution, whether ordinary or special resolution, may be passed without the
affirmative vote of the holder of the Special Share.
   85




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Modification of Shareholders Rights
 pari passu
 Annual General and Special General Meetings
   Limitations on Rights to Own Securities
  inter alia
  86




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Exchange Controls
 Bermuda Exchange Controls
   China Exchange Controls
     87




---



##### Table of Contents



Taxation
 Bermuda Taxation
   Peoples Republic of China Taxation
  Taxation of Dividends from Yuchai
  88




---



##### Table of Contents



Taxation of Disposition of Yuchai Shares
   Income Tax
     89




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##### Table of Contents



Value-Added Tax
   United States Federal Income Taxation
  
    
    a financial institution,
    
    a dealer in securities,
    
    a trader in securities that elects to use a mark-to-market method of accounting for its
securities holdings,
 90




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##### Table of Contents




    
    a tax-exempt organization,
    
    an insurance company,
    
    a person liable for alternative minimum tax,
    
    a person that actually or constructively owns 10% or more of the voting stock of the Company,
    
    a person that owns shares through a partnership or other pass-through entity,
    
    a person that holds shares as part of a straddle or a hedging or conversion transaction, or
    
    a person whose functional currency is not the US dollar.
   
    
    a citizen or resident of the United States,
    
    a US domestic corporation,
    
    an estate the income of which is subject to United States federal income tax regardless of
its source, or
    
    a trust, if a United States court can exercise primary supervision over the trusts
administration and one or more United States persons are authorized to control all substantial
decisions of the trust.
 US Holders should consult their own tax advisor regarding the United States federal, state and
local and other tax consequences of owning and disposing of shares in their particular
circumstances.
 Taxation of Dividends
   91




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##### Table of Contents



Taxation of Capital Gains
  PFIC Rules
  
    
    at least 75% of its gross income is passive income, or
    
    at least 50% of the value of its assets (based on an average of the quarterly values of the
assets during a taxable year) is attributable to assets that produce or are held for the
production of passive income (the asset test).
   
    
    the excess distribution or gain will be allocated ratably over the US Holders holding period
for the shares;
 92




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##### Table of Contents




    
    the amount allocated to the current taxable year, and any taxable year prior to the first
taxable year in which the Company is treated as a PFIC, will be treated as ordinary income;
and
 
    
    the amount allocated to each other year will be subject to tax at the highest tax rate in
effect for that year and the interest charge generally applicable to underpayments of tax will
be imposed on the resulting tax attributable to each such year.
   Documents on Display
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  93




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##### Table of Contents



As of December 31, 2007
    
    As of December 31, 20082009
    
    2010
    
    2011
    
    Total carrying
    
    Estimated fair
    
    Total carrying
    
    Estimated fairExpected maturity dates
    
    Amount
    

value(1)
    
    Amount
    

value(1)Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb(in thousands, except interest rate)Floating rate debt:(i) Short-term bank
loans denominated in Rmb
    
    
    833,000
    
    
    
    
    
    
    
    
    
    
    
    819,164
    
    
    
    819,164
    
    
    
    833,000
    
    
    
    833,000(ii) Weighted average
interest rate(2)
    
    
    4.35
    %
    
    
    
    
    
    
    
    
    
    
    4.03
    %
    
    
    
    
    
    
    4.35
    %
    
    
    Short-term bank
loans denominated in S$
    
    
    235,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    235,675
    
    
    
    235,675Weighted average
interest rate(2)
    
    
    2.15
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.15
    %
    
    
    (iii) Long-term bank
loans denominated in Rmb
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,000
    
    
    
    85,000
    
    
    
    
    
    
    
    Weighted average
interest rate(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.85
    %
    
    
    
    
    
    
    
    
    
    
    (iv) Long-term bank
loans denominated in US$
    
    
    
    
    
    
    176,756
    
    
    
    
    
    
    
    575,361
    
    
    
    575,361
    
    
    
    176,756
    
    
    
    176,756Weighted average
interest rate(2)
    
    
    
    
    
    
    1.38
    %
    
    
    
    
    
    
    3.00
    %
    
    
    
    
    
    
    1.38
    %
    
    
    (v) Long-term bank
loans denominated in S$
    
    
    77,773
    
    
    
    
    
    
    
    
    
    
    
    107,568
    
    
    
    107,568
    
    
    
    77,773
    
    
    
    77,773Weighted average
interest rate(2)
    
    
    2.13
    %
    
    
    
    
    
    
    
    
    
    
    3.24
    %
    
    
    
    
    
    
    2.13
    %
    
    
    
 
 (1)
    
    Fair value was estimated based on the floating interest rates applicable to similar loan
instruments.(2)
    
    Weighted average interest rate is calculated based on the interest rates applicable to
individual bank loans outstanding as of December 31, 2007 and 2008.   Gross unrealized
    
    Carrying value
    
    Carrying valueInitial fair value
    
    holding gains
    
    (Fair value)
    
    (Fair value)Rmb
    
    Rmb
    
    Rmb
    
    US$(in thousands)Unsecured bonds of HLGE
    
    
    355,830
    
    
    
    43,086
    
    
    
    398,916
    
    
    
    58,371RCPS A of HLGE
    
    
    8,513
    
    
    
    8,165
    
    
    
    16,678
    
    
    
    2,440364,343
    
    
    
    51,251
    
    
    
    415,594
    
    
    
    60,811
   Carrying value
    
    Carrying value(Fair value)
    
    (Fair value)Rmb
    
    US $(in thousands)Due after one year through five
years
    
    
    398,916
    
    
    
    58,371Due after five years through
ten years
    
    
    16,678
    
    
    
    2,440
 94




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##### Table of Contents



Value as atNumber of
    
    31 Decembershares
    
    2008Rmb(in thousands)TCL
    
    
    898,990,352
    
    
    
    265,811HLGE
    
    
    387,614,839
    
    
    
    119,314
  
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
  
 ITEM
15. CONTROLS AND PROCEDURES
 A. Evaluation of Disclosure Controls and Procedures
   B. Managements Assessment of Internal Control over Financial Reporting
      95




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##### Table of Contents



Insufficient knowledge and resources on U.S. generally accepted accounting principles (U.S. GAAP)
  Financial statement closing process
  Segregation of Duties in BOKE system
   96




---



##### Table of Contents



C. Remediation Measures to address Material Weaknesses identified in 2008
    Insufficient knowledge and resources on U.S. generally accepted accounting principles
  Financial statement closing process
  97




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##### Table of Contents



Segregation of Duties in BOKE system
  D. Remediation Measures to address Material Weaknesses identified in 2007
   Equity method accounting
  Related party transactions
   Inventory data maintenance
  98




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##### Table of Contents




    
    Independent checks to ensure accurate and complete input of purchase prices in the SAP
system, based on approved purchase orders and contracts;
    
    Purchase orders, material issuance, man hour costs and production overheads costs entered
in the SAP system are independently checked against source documents;
    
    Information on the Goods Received Notes is reconciled to the records in the SAP system to
ensure accurate and complete recording of goods purchased;
    
    Inventory master data maintained in the SAP system is independently checked against source
documents;
    
    All purchase returns are reviewed and approved by authorized personnel.
 Selling price maintenance
  Information technology
  Provision for warranty costs
  Approvals and authorizations
    E. Report of Independent Registered Public Accounting Firm on internal Controls
  F. Changes in Internal Control over Financial Reporting
  
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
  
 ITEM 16B. CODE OF ETHICS.
 http://www.cyilimited.com/invest_govt.asp
 99




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##### Table of Contents



ITEM 16C. PRINCIPAL ACCOUNTANTS FEES AND SERVICES.
  Audit fees
    
    Audit-related fees
    
    Tax fees
    
    Others
    
    TotalRmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb(in thousands)2007
    
    
    12,986
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,9862008
    
    
    29,008
    (1)
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    29,062
    (1)
 
 Note(1)
    
    Included fees billed by KPMG for the years 2006 and 2007  Audit fees
  Audit-related fees
   100




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##### Table of Contents



ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
  
 ITEM 16F.
CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
  
 ITEM 16G. CORPORATE GOVERNANCE
  
 PART III
 
 ITEM 17. FINANCIAL STATEMENTS.
  
 ITEM 18. FINANCIAL STATEMENTS.
 Index to Financial Statements
 China Yuchai International Limited
 Reports of Independent Registered Public Accounting Firms
    
    F-2Consolidated
Statements of Income for years ended December 31, 2006, 2007
and 2008
    
    F-5Consolidated
Balance Sheets as of December 31, 2007 and 2008
    
    F-6Consolidated
Statements of Shareholders Equity and Comprehensive
Income/(Loss) for years ended December 31, 2006, 2007 and 2008
    
    F-8Consolidated
Statements of Cash Flows for years ended December 31, 2006, 2007
and 2008
    
    F-10Notes
to the Consolidated Financial Statements for years ended
December 31, 2006, 2007 and 2008
    
    F-12
 101




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##### Table of Contents



ITEM 19. EXHIBITS.
  1.1
    
    Memorandum of Association of China Yuchai International Limited or the Registrant
(incorporated herein by reference to Amendment No. 1 to the Registration Statement on Form
F-1, filed by the Registrant on December 8, 1994 (File No. 33-86162), or the Form F-1).1.2
    
    Bye-laws of the Registrant (incorporated herein by reference to the Form F-1).3.1
    
    Subscription and Shareholders Agreement of Diesel Machinery (BVI) Limited, dated November
9, 1994, among Diesel Machinery (BVI) Limited, Hong Leong Asia Ltd., or Hong Leong Asia, and
China Everbright Holdings Company Limited, or China Everbright Holdings (incorporated herein
by reference to Amendment no. 2 to the Registration Statement on Form F-1, filed by the
Registrant on December 14, 1994 (File No. 33-86162)).3.2
    
    Supplemental Subscription and Shareholders Agreement, dated January 21, 2002, between
China Everbright Holdings and Hong Leong Asia (incorporated herein by reference to the Annual
Report on Form 20-F for fiscal year ended December 31, 2001, filed by the Registrant on June
25, 2002 (File No. 001-013522), or Form 20-F FY2001).3.3
    
    Second Supplemental Subscription and Shareholders Agreement, dated May 17, 2002, between
China Everbright Holdings and Hong Leong Asia (incorporated herein by reference to the Form
20-F FY2001).4.1
    
    Contract for the Subscription of Foreign Common shares in Guangxi Yuchai Machinery
Company Limited, or Yuchai, and Conversion from a Joint Stock Limited Company into a
Sino-Foreign Joint Stock Limited Company, dated April 1, 1993, among Yuchai, Guangxi Yuchai
Machinery Holdings Company, Hong Leong Technology Systems (BVI) Ltd., Cathay Clemente Diesel
Holdings Limited, Goldman Sachs Guangxi Holdings (BVI) Ltd., Tsang & Ong Nominees (BVI) Ltd.
and Youngstar Holdings Limited with amendments, dated May 27, 1994 and October 10, 1994
(incorporated herein by reference to the Form F-1).4.2
    
    Subscription and Transfer Agreement (with Shareholders Agreement), dated April 1993,
among Cathay Clemente (Holdings) Limited, GS Capital Partners L.P., Sun Yuan Overseas Pte
Ltd., HL Technology Systems Pte Ltd and Coomber Investments Limited (incorporated herein by
reference to the Registration Statement on Form F-1, filed by the Registrant on November 9,
1994 (File No. 33-86162)).4.3
    
    Amended and Restated Shareholders Agreement, dated as of November 9, 1994 among The
Cathay Investment Fund, Limited, GS Capital Partners L.P., HL Technology Systems Pte Ltd, Hong
Leong Asia Ltd., Coomber Investments Limited, China Everbright Holdings Company Limited,
Diesel Machinery (BVI) Limited, owners of shares formerly held by Sun Yuan Overseas (BVI) Ltd.
and the Registrant (incorporated herein by reference to the Form F-1).4.4
    
    Form of Amended and Restated Registration Right Agreement, dated as of November 9, 1994,
among The Cathay Investment Fund, Limited, GS Capital Partners L.P., HL Technology Systems Pte
Ltd, Coomber Investments Limited, owners of shares
formerly held by Sun Yuan Overseas (BVI) Ltd. and the Registrant (incorporated herein by
reference to Amendment No. 3 to the Registration Statement on Form F-1, filed by the Registrant
on December 15, 1994 (File No. 33-86162)).4.5
    
    Form of Subscription Agreement between the Registrant and its wholly-owned subsidiaries
named therein and Yuchai (incorporated herein by reference to Amendment No. 2 to the
Registration Statement on Form F-1, filed by the Registrant on December 14, 1994 (File no.
33-86162)).4.6
    
    Form of Term Loan Agreement between the Registrant and Yuchai (incorporated herein by
reference to Amendment No. 2 to the Registration Statement on Form F-1, filed by the
Registrant on December 14, 1994 (File No. 33-86162)).
 102




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##### Table of Contents



4.7
    
    Share Purchase and Subscription Agreement, dated as of November 9, 1994, between the
Registrant, China Everbright Holdings Company Limited and Coomber Investments Limited
(incorporated herein by reference to the Form F-1).4.8
    
    Form of indemnification agreement entered into by the Registrant with its officers and
directors (incorporated herein by reference to the Annual Report on Form 20-F for fiscal year
ended December 31, 2003, filed by the Registrant on June 29, 2004, or Form 20-F FY2003).4.9
    
    Agreement between the Registrant and Yuchai, dated July 19, 2003 (incorporated herein by
reference to the Form 20-F FY2003).4.10
    
    Reorganization Agreement between the Company, Coomber and Yuchai, dated April 7, 2005
(incorporated herein by reference to the Current Report on Form 6-K filed by the Registrant on
April 7, 2005 (File No. 001-13522)).4.11
    
    Reorganization Agreement Amendment (No. 1) between the Registrant, Coomber and Yuchai,
dated December 2, 2005 (incorporated herein by reference to the Current Report on Form 6-K
filed by the Registrant on December 6, 2005 (File No. 001-13522)).4.12
    
    Reorganization Agreement Amendment (No. 2) between the Registrant, Coomber and Yuchai,
dated November 30, 2006 (incorporated herein by reference to the Current Report on Form 6-K
filed by the Registrant on November 30, 2006 (File No. 001-13522)).4.13
    
    Cooperation Agreement among the Registrant, Yuchai, Coomber and Guangxi Yuchai Machinery
Group Company Limited, dated June 30, 2007 (incorporated herein by reference to the Current
Report on Form 6-K filed by the Registrant on July 5, 2007 (File No. 001-13522)).8.1
    
    Subsidiaries of the Registrant. (Filed herewith)12.1
    
    Certifications furnished pursuant to Section 302 of the Sarbanes-Oxley Act. (Filed
herewith)13.1
    
    Certifications furnished pursuant to Section 906 of the Sarbanes-Oxley Act. (Filed
herewith)
  103




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##### Table of Contents



SIGNATURES
  CHINA YUCHAI INTERNATIONAL LIMITEDBy:
    /s/ Teo Tong KooiName:
    Teo Tong KooiTitle:
    President and Director July 15
 104




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##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    Description of Exhibit1.1
    
    Memorandum of Association of China Yuchai International Limited or
the Registrant (incorporated herein by reference to Amendment No. 1
to the Registration Statement on Form F-1, filed by the Registrant
on December 8, 1994 (File No. 33-86162), or the Form F-1).1.2
    
    Bye-laws of the Registrant (incorporated herein by reference to the
Form F-1).3.1
    
    Subscription and Shareholders Agreement of Diesel Machinery (BVI)
Limited, dated November 9, 1994, among Diesel Machinery (BVI)
Limited, Hong Leong Asia Ltd., or Hong Leong Asia, and China
Everbright Holdings Company Limited, or China Everbright Holdings
(incorporated herein by reference to Amendment no. 2 to the
Registration Statement on Form F-1, filed by the Registrant on
December 14, 1994 (File No. 33-86162)).3.2
    
    Supplemental Subscription and Shareholders Agreement, dated January
21, 2002, between China Everbright Holdings and Hong Leong Asia
(incorporated herein by reference to the Annual Report on Form 20-F
for fiscal year ended December 31, 2001, filed by the Registrant on
June 25, 2002 (File No. 001-013522), or Form 20-F FY2001).3.3
    
    Second Supplemental Subscription and Shareholders Agreement, dated
May 17, 2002, between China Everbright Holdings and Hong Leong Asia
(incorporated herein by reference to the Form 20-F FY2001).4.1
    
    Contract for the Subscription of Foreign Common shares in Guangxi
Yuchai Machinery Company Limited, or Yuchai, and Conversion from a
Joint Stock Limited Company into a Sino-Foreign Joint Stock Limited
Company, dated April 1, 1993, among Yuchai, Guangxi Yuchai
Machinery Holdings Company, Hong Leong Technology Systems (BVI)
Ltd., Cathay Clemente Diesel Holdings Limited, Goldman Sachs
Guangxi Holdings (BVI) Ltd., Tsang & Ong Nominees (BVI) Ltd. and
Youngstar Holdings Limited with amendments, dated May 27, 1994 and
October 10, 1994 (incorporated herein by reference to the Form
F-1).4.2
    
    Subscription and Transfer Agreement (with Shareholders Agreement),
dated April 1993, among Cathay Clemente (Holdings) Limited, GS
Capital Partners L.P., Sun Yuan Overseas Pte Ltd., HL Technology
Systems Pte Ltd and Coomber Investments Limited (incorporated
herein by reference to the Registration Statement on Form F-1,
filed by the Registrant on November 9, 1994 (File No. 33-86162)).4.3
    
    Amended and Restated Shareholders Agreement, dated as of November
9, 1994 among The Cathay Investment Fund, Limited, GS Capital
Partners L.P., HL Technology Systems Pte Ltd, Hong Leong Asia Ltd.,
Coomber Investments Limited, China Everbright Holdings Company
Limited, Diesel Machinery (BVI) Limited, owners of shares formerly
held by Sun Yuan Overseas (BVI) Ltd. and the Registrant
(incorporated herein by reference to the Form F-1).4.4
    
    Form of Amended and Restated Registration Right Agreement, dated as
of November 9, 1994, among The Cathay Investment Fund, Limited, GS
Capital Partners L.P., HL Technology Systems Pte Ltd, Coomber
Investments Limited, owners of shares formerly held by Sun Yuan
Overseas (BVI) Ltd. and the Registrant (incorporated herein by
reference to Amendment No. 3 to the Registration Statement on Form
F-1, filed by the Registrant on December 15, 1994 (File No.
33-86162)).4.5
    
    Form of Subscription Agreement between the Registrant and its
wholly-owned subsidiaries named therein and Yuchai (incorporated
herein by reference to Amendment No. 2 to the Registration
Statement on Form F-1, filed by the Registrant on December 14, 1994
(File no. 33-86162)).4.6
    
    Form of Term Loan Agreement between the Registrant and Yuchai
(incorporated herein by reference to Amendment No. 2 to the
Registration Statement on Form F-1, filed by the Registrant on
December 14, 1994 (File No. 33-86162)).4.7
    
    Share Purchase and Subscription Agreement, dated as of November 9,
1994, between the Registrant, China Everbright Holdings Company
Limited and Coomber Investments Limited (incorporated herein by
reference to the Form F-1).4.8
    
    Form of indemnification agreement entered into by the Registrant
with its officers and directors (incorporated herein by reference
to the Annual Report on Form 20-F for fiscal year ended December
31, 2003, filed by the Registrant on June 29, 2004, or Form 20-F
FY2003).4.9
    
    Agreement between the Registrant and Yuchai, dated July 19, 2003
(incorporated herein by reference to the Form 20-F FY2003).
 105




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit4.10
    
    Reorganization Agreement between the Company, Coomber and Yuchai,
dated April 7, 2005 (incorporated herein by reference to the
Current Report on Form 6-K filed by the Registrant on April 7, 2005
(File No. 001-13522)).4.11
    
    Reorganization Agreement Amendment (No. 1) between the Registrant,
Coomber and Yuchai, dated December 2, 2005 (incorporated herein by
reference to the Current Report on Form 6-K filed by the Registrant
on December 6, 2005 (File No. 001-13522)).4.12
    
    Reorganization Agreement Amendment (No. 2) between the Registrant,
Coomber and Yuchai, dated November 30, 2006 (incorporated herein by
reference to the Current Report on Form 6-K filed by the Registrant
on November 30, 2006 (File No. 001-13522)).4.13
    
    Cooperation Agreement among the Registrant, Yuchai, Coomber and
Guangxi Yuchai Machinery Group Company Limited, dated June 30, 2007
(incorporated herein by reference to the Current Report on Form 6-K
filed by the Registrant on July 5, 2007 (File No. 001-13522)).8.1
    
    Subsidiaries of the Registrant. (Filed herewith)12.1
    
    Certifications furnished pursuant to Section 302 of the
Sarbanes-Oxley Act. (Filed herewith)13.1
    
    Certifications furnished pursuant to Section 906 of the
Sarbanes-Oxley Act. (Filed herewith)
  106




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##### Table of Contents



CHINA YUCHAI INTERNATIONAL LIMITED
 AND SUBSIDIARIES
 CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006, 2007 AND 2008
 Index to Financial Statements
 China Yuchai International Limited
 Reports of Independent Registered Public Accounting Firms
    
    F-2Consolidated
Statements of Income for years ended December 31, 2006, 2007 and 2008
    
    F-5Consolidated Balance Sheets as of December 31, 2007 and 2008
    
    F-6Consolidated
Statements of Shareholders Equity and Comprehensive Income/ (Loss) for
years ended December 31, 2006, 2007 and 2008
    
    F-8Consolidated Statements of Cash Flows for years ended December 31, 2006,
2007 and 2008
    
    F-10Notes
to the Consolidated Financial Statements for years ended
December 31, 2006, 2007 and 2008
    
    F-12
 F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED
 PUBLIC ACCOUNTING FIRM
 Report of Independent Registered Public Accounting Firm
 The Board of Directors and Shareholders of China Yuchai International Limited
        
 F-2




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED
 PUBLIC ACCOUNTING FIRM
 Report of Independent Registered Public Accounting Firm
 The Board of Directors and Shareholders of China Yuchai International Limited
     
 F-3




---



##### Table of Contents



REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       
 F-4




---



##### Table of Contents



CHINA YUCHAI INTERNATIONAL LIMITED AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF INCOME
 FOR YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 (Rmb and US$ amounts expressed in thousands, except per share data)
 Years ended December 31,Note
    
    2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Revenues, net(a)
    
    

3(k),27
    
    
    
    6,920,528
    
    
    
    9,556,303
    
    
    
    10,384,022
    
    
    
    1,519,398Cost of goods sold(a)
    
    
    4, 27
    
    
    
    (5,648,407
    )
    
    
    (7,611,585
    )
    
    
    (8,561,520
    )
    
    
    (1,252,728
    )Gross profit
    
    
    
    
    
    
    1,272,121
    
    
    
    1,944,718
    
    
    
    1,822,502
    
    
    
    266,670Research and development costs
    
    
    3(m)
    
    
    
    (167,653
    )
    
    
    (153,146
    )
    
    
    (177,370
    )
    
    
    (25,953
    )Selling, general and
administrative expenses(a)
    
    
    3(m), 3(n),4,14,27
    
    
    
    (801,830
    )
    
    
    (951,589
    )
    
    
    (1,041,225
    )
    
    
    (152,353
    )Gain on transfer of land use
rights to a related party
    
    
    27
    
    
    
    1,841
    
    
    
    1,573
    
    
    
    
    
    
    
    Operating income
    
    
    
    
    
    
    304,479
    
    
    
    841,556
    
    
    
    603,907
    
    
    
    88,364Interest expense
    
    
    6, 26
    
    
    
    (117,491
    )
    
    
    (125,244
    )
    
    
    (146,973
    )
    
    
    (21,505
    )Equity in income/(loss) of affiliates, net of tax
    
    
    17
    
    
    
    (22,449
    )
    
    
    14,048
    
    
    
    (36,573
    )
    
    
    (5,351
    )Other income, net(a)
    
    
    7
    
    
    
    38,856
    
    
    
    53,554
    
    
    
    43,261
    
    
    
    6,329Earnings before income
taxes and minority interests
    
    
    
    
    
    
    203,395
    
    
    
    783,914
    
    
    
    463,622
    
    
    
    67,837Income taxes
    
    
    8
    
    
    
    (30,466
    )
    
    
    (68,518
    )
    
    
    (110,531
    )
    
    
    (16,173
    )Income before
minority interests
    
    
    
    
    
    
    172,929
    
    
    
    715,396
    
    
    
    353,091
    
    
    
    51,664Minority interests in income of consolidated subsidiaries
    
    
    
    
    
    
    (61,645
    )
    
    
    (189,927
    )
    
    
    (100,641
    )
    
    
    (14,726
    )Net income
    
    

3(l)
    
    
    
    111,284
    
    
    
    525,469
    
    
    
    252,450
    
    
    
    36,938
 Years ended December 31,Note
    
    2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Earnings per common shareBasic
    
    
    3(l)
    
    
    
    2.99
    
    
    
    14.10
    
    
    
    6.77
    
    
    
    0.99Diluted
    
    
    3(l)
    
    
    
    2.99
    
    
    
    14.10
    
    
    
    6.77
    
    
    
    0.99Weighted average number of sharesBasic
    
    
    3(l)
    
    
    
    37,267,673
    
    
    
    37,267,673
    
    
    
    37,267,673
    
    
    
    37,267,673Diluted
    
    
    3(l)
    
    
    
    37,267,673
    
    
    
    37,267,673
    
    
    
    37,267,673
    
    
    
    37,267,673
 (a)
    
    Includes the following income and expenses resulting from transactions with related parties
in addition to those indicated above (see Notes 5 and 26)
 2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Revenues, net
    
    
    86,652
    
    
    
    94,901
    
    
    
    215,064
    
    
    
    31,468Cost of goods sold
    
    
    (592,535
    )
    
    
    (573,926
    )
    
    
    (1,030,887
    )
    
    
    (150,840
    )Selling, general and administrative expenses
    
    
    (124,376
    )
    
    
    (149,964
    )
    
    
    (209,036
    )
    
    
    (30,586
    )Other income, net
    
    
    10,622
    
    
    
    11,664
    
    
    
    4,224
    
    
    
    618
  F-5




---



##### Table of Contents



CHINA YUCHAI INTERNATIONAL LIMITED AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2007 AND 2008  (Rmb and US$ amounts expressed in thousands, except per share data)
 As of December 31,Note
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$ASSETSCurrent assetsCash and cash equivalents
    
    
    31(g)
    
    
    
    520,945
    
    
    
    693,436
    
    
    
    101,464Trade accounts and bills receivable, net
    
    
    9
    
    
    
    3,107,785
    
    
    
    2,537,681
    
    
    
    371,315Amounts due from related parties
    
    
    10, 26
    
    
    
    143,652
    
    
    
    139,267
    
    
    
    20,378Loans receivable from a related party, net
    
    
    5
    
    
    
    2,050
    
    
    
    
    
    
    
    Loans to customers, net
    
    
    11
    
    
    
    3,361
    
    
    
    156
    
    
    
    23Inventories
    
    
    12
    
    
    
    1,647,025
    
    
    
    2,250,030
    
    
    
    329,226Prepaid expenses
    
    
    
    
    
    
    31,752
    
    
    
    106,585
    
    
    
    15,596Other receivables, net
    
    
    13
    
    
    
    97,074
    
    
    
    181,699
    
    
    
    26,586Income taxes recoverable
    
    
    
    
    
    
    27,990
    
    
    
    46,296
    
    
    
    6,775Deferred income taxes
    
    
    8
    
    
    
    114,361
    
    
    
    125,788
    
    
    
    18,405Total current assets
    
    
    
    
    
    
    5,695,995
    
    
    
    6,080,938
    
    
    
    889,768Property, plant and equipment, net
    
    
    14, 32
    
    
    
    2,158,246
    
    
    
    2,149,290
    
    
    
    314,485Construction in progress
    
    
    15
    
    
    
    184,921
    
    
    
    252,872
    
    
    
    37,000Lease prepayments
    
    
    16, 32
    
    
    
    168,002
    
    
    
    158,681
    
    
    
    23,218Investments in affiliates
    
    
    17
    
    
    
    505,009
    
    
    
    392,386
    
    
    
    57,414Other investments
    
    
    17
    
    
    
    615,201
    
    
    
    446,430
    
    
    
    65,323Goodwill
    
    
    3(n)
    
    
    
    218,311
    
    
    
    212,636
    
    
    
    31,113Deferred income taxes
    
    
    8
    
    
    
    33,499
    
    
    
    19,445
    
    
    
    2,845Total assets
    
    
    
    
    
    
    9,579,184
    
    
    
    9,712,678
    
    
    
    1,421,166LIABILITIES, MINORITY INTERESTS AND
SHAREHOLDERS EQUITYCurrent liabilitiesShort-term bank loans
    
    
    18(a)
    
    
    
    819,164
    
    
    
    1,068,675
    
    
    
    156,369Amount due to holding company
    
    
    26
    
    
    
    5,278
    
    
    
    451
    
    
    
    66Amounts due to related parties
    
    
    5, 10, 26
    
    
    
    380,521
    
    
    
    204,910
    
    
    
    29,983Trade accounts payable
    
    
    
    
    
    
    2,509,962
    
    
    
    2,612,928
    
    
    
    382,325Income taxes payable
    
    
    
    
    
    
    5,663
    
    
    
    10,998
    
    
    
    1,609Deferred gain
    
    
    5
    
    
    
    
    
    
    
    202,950
    
    
    
    29,696Accrued expenses and other liabilities
    
    
    19
    
    
    
    946,675
    
    
    
    937,084
    
    
    
    137,115Deferred
income taxes liabilities
    
    
    8
    
    
    
    
    
    
    
    15,282
    
    
    
    2,236Total current liabilities
    
    
    
    
    
    
    4,667,263
    
    
    
    5,053,278
    
    
    
    739,399Long-term bank loans
    
    
    18(b)
    
    
    
    767,929
    
    
    
    254,529
    
    
    
    37,243Total liabilities
    
    
    
    
    
    
    5,435,192
    
    
    
    5,307,807
    
    
    
    776,642
 F-6




---



##### Table of Contents



CHINA YUCHAI INTERNATIONAL LIMITED AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER, 2007 AND 2008 (CONTINUED)  (Rmb and US$ amounts expressed in thousands, except per share data)
 As of December 31,Note
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Total liabilities
    
    
    
    
    5,435,192
    
    
    
    5,307,807
    
    
    
    776,642Minority interests
    
    
    
    
    849,527
    
    
    
    974,046
    
    
    
    142,524Shareholders equityCommon shares
    
    
    
    
    31,945
    
    
    
    31,945
    
    
    
    4,674Ordinary sharesUS$0.10 par
value:authorized
100,000,000 shares;
issued and outstanding 37,267,673 shares
at December 31, 2007 and 2008Special shareUS$0.10 par value:authorized 1 share;
issued and outstanding 1 share
at December 31, 2007 and 2008
    
    1Contributed surplus
    
    
    
    
    1,692,251
    
    
    
    1,692,251
    
    
    
    247,611Statutory reserves
    
    21
    
    
    270,339
    
    
    
    287,473
    
    
    
    42,063Accumulated other comprehensive income, net
    
    
    
    
    154,580
    
    
    
    49,335
    
    
    
    7,219Retained earnings
    
    
    
    
    1,145,350
    
    
    
    1,369,821
    
    
    
    200,433Total
shareholders equity
    
    
    
    
    3,294,465
    
    
    
    3,430,825
    
    
    
    502,000Total liabilities, minority
interests and shareholders equity
    
    
    
    
    9,579,184
    
    
    
    9,712,678
    
    
    
    1,421,166
  F-7




---



##### Table of Contents



CHINA YUCHAI INTERNATIONAL LIMITED AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
AND COMPREHENSIVE INCOME/(LOSS)
 FOR YEARS ENDED
DECEMBER 31, 2006, 2007 AND 2008  (Rmb and US$ amounts expressed in thousands, except per share data)
 Accumulatedother
    
    TotalCommon
    
    Contributed
    
    Statutory
    
    Retained
    
    comprehensive
    
    shareholdersNote
    

shares
    
    surplus
    
    reserves
    
    earnings
    
    income
    
    equityRmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    RmbBalance at January 1, 2006
    
    
    
    
    
    
    31,945
    
    
    
    1,692,251
    
    
    
    266,586
    
    
    
    546,630
    
    
    
    28,851
    
    
    
    2,566,2632006Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,284
    
    
    
    
    
    
    
    111,284Net unrealized
gains on investment
securities, net of nil tax(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,840
    
    
    
    56,840Net unrealized gains on investment
securities held by an affiliate, net
of nil tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,201
    
    
    
    3,201Foreign currency translation
adjustments, net of nil tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,249
    )
    
    
    (3,249
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168,076Transfer to statutory reserves
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    (1,000
    )
    
    
    
    
    
    
    Dividend declared (US$0.02 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,940
    )
    
    
    
    
    
    
    (5,940
    )Balance at December 31, 2006
    
    
    
    
    
    
    31,945
    
    
    
    1,692,251
    
    
    
    267,586
    
    
    
    650,974
    
    
    
    85,643
    
    
    
    2,728,399
  F-8




---



##### Table of Contents



CHINA YUCHAI INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
AND COMPREHENSIVE INCOME/(LOSS)
FOR YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008  (Rmb and US$ amounts expressed in thousands, except per share data)
 Accumulatedother
    
    TotalCommon
    
    Contributed
    
    Statutory
    
    Retained
    
    comprehensive
    
    shareholdersNote
    

shares
    
    surplus
    
    reserves
    
    earnings
    
    income
    
    equityRmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb2007Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    525,469
    
    
    
    
    
    
    
    525,469Net
unrealized gains on
investment securities, net
of nil tax (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,612
    
    
    
    80,612Net unrealized
gains on investment
securities held by
an affiliate, net
of nil tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,283
    
    
    
    13,283Foreign currency
translation
adjustments, net of
nil tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,958
    )
    
    
    (24,958
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    594,406Transfer to
statutory reserves
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    2,753
    
    
    
    (2,753
    )
    
    
    
    
    
    
    Dividend declared
(US$0.10 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,340
    )
    
    
    
    
    
    
    (28,340
    )Balance at December 31, 2007
    
    
    
    
    
    
    31,945
    
    
    
    1,692,251
    
    
    
    270,339
    
    
    
    1,145,350
    
    
    
    154,580
    
    
    
    3,294,4652008Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,450
    
    
    
    
    
    
    
    252,450Net unrealized
loss on investment
securities, net of
nil tax (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,696
    )
    
    
    (26,696
    )Net unrealized
loss on investment
securities held by
an affiliate, net
of nil tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80,196
    )
    
    
    (80,196
    )Foreign currency
translation
adjustments, net of
nil tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,647
    
    
    
    1,647Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147,205Transfer to
statutory reserves
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    17,134
    
    
    
    (2,093
    )
    
    
    
    
    
    
    15,041Dividend declared
(US$0.10 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,886
    )
    
    
    
    
    
    
    (25,886
    )Balance at December
31, 2008
    
    
    
    
    
    
    31,945
    
    
    
    1,692,251
    
    
    
    287,473
    
    
    
    1,369,821
    
    
    
    49,335
    
    
    
    3,430,825Balance at December
31, 2008 (in US$)
    
    
    
    
    
    
    4,674
    
    
    
    247,611
    
    
    
    42,063
    
    
    
    200,433
    
    
    
    7,219
    
    
    
    502,000(a) Components of
net unrealized
gains on investment
securities:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    
    2007
    
    
    
    2008Unrealized holding
gains arising
during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,332
    
    
    
    98,090
    
    
    
    10,235Redemption of
investment
securities in an
affiliate taken to
net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,550
    )
    
    
    (17,478
    )
    
    
    (36,931
    )Investment in
affiliate upon
conversion (Note
17(b)(i))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,942
    )
    
    
    
    
    
    
    Net unrealized
gains/(loss) on investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,840
    
    
    
    80,612
    
    
    
    (26,696
    )(b) Components
of foreign currency translation adjustments2006
    
    
    
    2007
    
    
    
    2008Balance as
at January 1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,018
    )
    
    
    (13,267
    )
    
    
    (38,225
    )Foreign
currency translation adjustments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,249
    )
    
    
    (24,958
    )
    
    
    1,647Balance as
at December 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,267
    )
    
    
    (38,225
    )
    
    
    (36,578
    )(c) Net
unrealized gains/(loss) on investment securities2006
    
    
    
    2007
    
    
    
    2008Balance as
at January 1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,840
    
    
    
    137,452Net
unrealized gain/(loss) on investment securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,840
    
    
    
    80,612
    
    
    
    (26,696
    )Balance as
at December 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,840
    
    
    
    137,452
    
    
    
    110,756(d) Net
unrealized gains/(loss) on investment securities held by an affiliate2006
    
    
    
    2007
    
    
    
    2008Balance as
at January 1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,869
    
    
    
    42,070
    
    
    
    55,353Net
realized gains/(loss) on investment securities held by an
affiliate, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,201
    
    
    
    13,283
    
    
    
    (80,196
    )Balance as
at December 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,070
    
    
    
    55,353
    
    
    
    (24,843
    )85,643
    
    
    
    154,580
    
    
    
    49,335
  F-9




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##### Table of Contents



CHINA YUCHAI INTERNATIONAL LIMITED AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008  (Rmb and US$ amounts expressed in thousands)
 Years ended December 31,2006
    
    2007
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Cash provided by operating activitiesNet income
    
    
    111,284
    
    
    
    525,469
    
    
    
    252,450
    
    
    
    36,938Adjustments
to reconcile net income to net cash provided
by operating activities: Depreciation and amortization of property, plant and equipment
    
    
    142,860
    
    
    
    223,304
    
    
    
    266,621
    
    
    
    39,012 Lease prepayment charged to expense
    
    
    3,328
    
    
    
    4,702
    
    
    
    8,647
    
    
    
    1,265 Impairment of property, plant and equipment
    
    
    2,346
    
    
    
    781
    
    
    
    69,931
    
    
    
    10,232 Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    5,675
    
    
    
    830 Loss on disposal of property, plant and equipment
    
    
    1,598
    
    
    
    5,926
    
    
    
    4,008
    
    
    
    587 Gain on transfer of land use rights to a related party
    
    
    (1,841
    )
    
    
    (1,573
    )
    
    
    
    
    
    
    
Deferred income tax (benefit)/expenses
    
    
    (19,996
    )
    
    
    34,637
    
    
    
    2,627
    
    
    
    384
Provision for losses/(recoveries) on guarantees
    
    
    (7,410
    )
    
    
    (4,237
    )
    
    
    2,777
    
    
    
    406
Equity in losses/(income) of affiliates, net of tax
    
    
    21,261
    
    
    
    (14,048
    )
    
    
    36,573
    
    
    
    5,351 Minority interests
    
    
    61,645
    
    
    
    189,927
    
    
    
    100,641
    
    
    
    14,726 Gain on redemption of other investments
    
    
    (28,457
    )
    
    
    (17,478
    )
    
    
    (19,198
    )
    
    
    (2,809
    ) Loss on dilution of investments in affiliates
    
    
    1,188
    
    
    
    2,591
    
    
    
    
    
    
    
     Net loss/(gain) on changes in fair value of embedded derivatives
    
    
    3,617
    
    
    
    (6,139
    )
    
    
    5,519
    
    
    
    808
Exchange loss/(gain) on financing activities
    
    
    38,388
    
    
    
    38,622
    
    
    
    (31,207
    )
    
    
    (4,566
    ) Bad debt expense/(credit)
    
    
    21,582
    
    
    
    (11,008
    )
    
    
    33,487
    
    
    
    4,900Decrease/(increase) in assets Inventories
    
    
    103,252
    
    
    
    (81,842
    )
    
    
    (603,005
    )
    
    
    (88,232
    ) Amounts due from related parties, net
    
    
    77,401
    
    
    
    52,088
    
    
    
    33,774
    
    
    
    4,942 Trade
accounts and bills receivable, net
    
    
    (323,647
    )
    
    
    (1,615,859
    )
    
    
    536,617
    
    
    
    78,518 Prepaid expenses
    
    
    44,345
    
    
    
    62,225
    
    
    
    (74,833
    )
    
    
    (10,950
    ) Other receivables, net
    
    
    (4,417
    )
    
    
    50,804
    
    
    
    (76,816
    )
    
    
    (11,240
    ) Loans to customers, net
    
    
    (3,582
    )
    
    
    8,125
    
    
    
    3,205
    
    
    
    469 Income taxes recoverable/(payable), net
    
    
    32,885
    
    
    
    (13,366
    )
    
    
    (12,971
    )
    
    
    (1,898
    )Increase/(decrease) in liabilities Trade accounts payable
    
    
    332,355
    
    
    
    377,164
    
    
    
    102,966
    
    
    
    15,065 Accrued expenses and other liabilities
    
    
    25,236
    
    
    
    271,687
    
    
    
    (4,296
    )
    
    
    (628
    ) Amount due to holding company
    
    
    (1,075
    )
    
    
    2,052
    
    
    
    (10,507
    )
    
    
    (1,537
    )Net cash provided by operating activities
    
    
    634,146
    
    
    
    84,554
    
    
    
    632,685
    
    
    
    92,573Cash flow from investing activitiesPurchase of property, plant and equipment and construction in
progress (includes interest capitalized)
    
    
    (323,781
    )
    
    
    (265,258
    )
    
    
    (432,423
    )
    
    
    (63,272
    )Proceeds from disposal of property, plant and equipment
    
    
    2,134
    
    
    
    5,236
    
    
    
    36,975
    
    
    
    5,410Proceeds from disposal of land use rights
    
    
    2,394
    
    
    
    2,125
    
    
    
    
    
    
    
    Purchase of investments
    
    
    (923,101
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from disposal of other investments
    
    
    
    
    
    
    773
    
    
    
    5,025
    
    
    
    735Acquisition of subsidiaries
    
    
    
    
    
    
    
    
    
    
    (870
    )
    
    
    (127
    )Prepayments
for land use right
    
    
    (59,497
    )
    
    
    (31
    )
    
    
    
    
    
    
    Proceeds from redemption of investment securities
    
    
    11,907
    
    
    
    88,652
    
    
    
    129,517
    
    
    
    18,951Net cash used in investing activities
    
    
    (1,289,944
    )
    
    
    (168,503
    )
    
    
    (261,776
    )
    
    
    (38,303
    )Cash flow from financing activitiesProceeds from short-term bank loans
    
    
    974,978
    
    
    
    649,164
    
    
    
    1,093,528
    
    
    
    160,006
 F-10




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CHINA YUCHAI INTERNATIONAL LIMITED AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008  (Rmb and US$ amounts expressed in thousands)
 Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Proceeds from long-term bank loans
    
    
    687,473
    
    
    
    197,044
    
    
    
    
    
    
    
    Repayments of
short-term and long
term bank loans
    
    
    (962,835
    )
    
    
    (933,533
    )
    
    
    (1,284,686
    )
    
    
    (187,976
    )Dividends
paid by subsidiaries to minority shareholders
    
    
    (23,036
    )
    
    
    (22,316
    )
    
    
    (33,471
    )
    
    
    (4,898
    )Dividends
paid to shareholders
    
    
    (5,940
    )
    
    
    (28,340
    )
    
    
    (25,886
    )
    
    
    (3,788
    )Capital contributions from minority interests
    
    
    
    
    
    
    2,920
    
    
    
    57,354
    
    
    
    8,392Net cash provided by/(used in)financing activities
    
    
    670,640
    
    
    
    (135,061
    )
    
    
    (193,161
    )
    
    
    (28,264
    )Effect of foreign currency exchange on cash and cash
equivalents
    
    
    (5,104
    )
    
    
    (5,978
    )
    
    
    (5,257
    )
    
    
    (769
    )Net increase/(decrease) in cash and cash equivalents
    
    
    9,738
    
    
    
    (224,988
    )
    
    
    172,491
    
    
    
    25,239Cash and cash equivalents at beginning of year
    
    
    736,195
    
    
    
    745,933
    
    
    
    520,945
    
    
    
    76,225Cash and cash equivalents at end of year
    
    
    745,933
    
    
    
    520,945
    
    
    
    693,436
    
    
    
    101,464
 Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Supplemental disclosures of cash flow informationCash paid during the year for: Interest, net of amount capitalized
    
    
    117,491
    
    
    
    125,860
    
    
    
    122,745
    
    
    
    17,960Income taxes
    
    
    21,012
    
    
    
    47,247
    
    
    
    106,335
    
    
    
    15,559
 Significant non-cash investing and financing transactions
     F-11




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CHINA YUCHAI INTERNATIONAL LIMITED AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008  (Rmb and US$ amounts expressed in thousands, except per share data)
 1 Background and principal activities
       F-12




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2 General
 Basis of presentation
  3 Summary of significant accounting policies and practices
 (a) Principles of consolidation
  (b) Cash and cash equivalents
  (c) Trade accounts receivable, loans receivable and bills receivable, net
     F-13




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##### Table of Contents



(d) Inventories
  (e) Property, plant and equipment, net
  Buildings
    
    30 to 40 yearsMachinery and equipment
    
    5 to 15 yearsOffice and computer equipment
    
    4 to 5 yearsLeasehold improvements
    
    Shorter of estimated useful life or remaining lease term
   (f) Lease prepayments
  (g) Guarantees
  (h) Investments
 Affiliates
   F-14




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##### Table of Contents



Other investments
     (i) Foreign currency transactions and translation
    (j) Income taxes
    (k) Revenue recognition
 (i) Product sales
  F-15




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##### Table of Contents



(ii) Guarantee fee income
  (l) Earnings per share
  Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Net income attributable to
common
shares
    
    
    111,284
    
    
    
    525,469
    
    
    
    252,450
    
    
    
    36,938Earnings per share Weighted average common shares
outstanding during the yearBasic
    
    
    37,267,673
    
    
    
    37,267,673
    
    
    
    37,267,673
    
    
    
    37,267,673Diluted
    
    
    37,267,673
    
    
    
    37,267,673
    
    
    
    37,267,673
    
    
    
    37,267,673 Earnings per common shareBasic
    
    
    2.99
    
    
    
    14.10
    
    
    
    6.77
    
    
    
    0.99Diluted
    
    
    2.99
    
    
    
    14.10
    
    
    
    6.77
    
    
    
    0.99
  (m) Advertising, research and development costs
   (n) Goodwill
  (o) Product warranty
  (p) Use of estimates
  F-16




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##### Table of Contents



(q) Impairment of long-lived assets, other than goodwill
   
    
    Yulin Hotel and Guilin office buildings (see Note 32)
Rmb 46.0 million (US$6.7 million)
    
    Other plants and equipments Rmb 23.9 million
(US$3.5 million)
 (r) Fair value measurements
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Observable inputs other than quoted prices included in level 1, such as
quoted prices for similar assets and liabilities in active markets; quoted prices for
identical or similar assets and liabilities in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data.
    
    Level 3  Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities. This includes certain
pricing models, discounted cash flow methodologies and similar techniques that use
significant unobservable inputs.
     (s) Commitments and contingencies
  (t) Defined contribution plans
  (u) Leases
  F-17




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##### Table of Contents



(v) Recently issued accounting standards
     Determination of the Useful Life of Intangible
Assets Goodwill and Other Intangible Assets
  , Equity Method
Investment Accounting Consideration
    FSP FAS 141(R)-1
  F-18




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##### Table of Contents



4 Depreciation and amortization, sales commissions, and shipping and handling expenses
  Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Cost of goods sold
    
    
    94,215
    
    
    
    163,909
    
    
    
    193,062
    
    
    
    28,249Selling, general and
administrative expenses
    
    
    48,645
    
    
    
    59,395
    
    
    
    73,559
    
    
    
    10,763142,860
    
    
    
    223,304
    
    
    
    266,621
    
    
    
    39,012
  Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Selling, general and
administrative expenses
    
    
    32,172
    
    
    
    58,719
    
    
    
    59,129
    
    
    
    8,652
  Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Selling, general and
administrative expenses
    
    
    116,570
    
    
    
    154,807
    
    
    
    156,100
    
    
    
    22,841
 5 Provision for uncollectible loans to a related party and subsequent contingent recovery
    F-19




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
    
    Taking actions to force YMCL to liquidate;
    
    Retaining portions of future dividends declared by Yuchai and payable to State Holding
Company until the guarantee obligations are fulfilled; and
    
    Commencing legal action against YMCL and possibly the Chinese Shareholders.
   F-20




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##### Table of Contents



Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Balance at beginning of year
    
    
    202,950
    
    
    
    202,950
    
    
    
    202,950
    
    
    
    29,696Less: Reclassified to deferred gain
    
    
    
    
    
    
    
    
    
    
    (202,950
    )
    
    
    (29,696
    )Balance at end of year
    
    
    202,950
    
    
    
    202,950
    
    
    
    
    
    
    
    
 6 Interest cost
  Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Interest cost capitalized
    
    
    18,057
    
    
    
    12,367
    
    
    
    11,500
    
    
    
    1,683Interest cost charged to
consolidated statements of
operations
    
    
    117,491
    
    
    
    125,244
    
    
    
    146,973
    
    
    
    21,505Total interest cost incurred
    
    
    135,548
    
    
    
    137,611
    
    
    
    158,473
    
    
    
    23,188
 7 Other income, net
  Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Interest income
    
    
    47,124
    
    
    
    54,205
    
    
    
    37,784
    
    
    
    5,529Foreign exchange
(loss)/gain, net
    
    
    (41,940
    )
    
    
    (37,172
    )
    
    
    10,412
    
    
    
    1,523Dividend income
from other
investments
    
    
    
    
    
    
    4,897
    
    
    
    
    
    
    
    Rental income
    
    
    1,766
    
    
    
    1,499
    
    
    
    188
    
    
    
    27Loss on dilution of
equity interests in
affiliates
    
    
    (1,188
    )
    
    
    (2,591
    )
    
    
    
    
    
    
    Gain on redemption
of other
investments (Note
17(b)(ii))
    
    
    28,457
    
    
    
    17,478
    
    
    
    19,198
    
    
    
    2,809Net gain/(loss) on
changes in fair
value of embedded
derivatives (Note 17(b))
    
    
    (3,617
    )
    
    
    6,139
    
    
    
    (5,366
    )
    
    
    (785
    )Others, net
    
    
    8,254
    
    
    
    9,099
    
    
    
    (18,955
    )
    
    
    (2,774
    )38,856
    
    
    
    53,554
    
    
    
    43,261
    
    
    
    6,329
 8 Income taxes
 Bermuda tax
   F-21




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PRC income tax
        Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$PRC
    
    
    292,359
    
    
    
    845,239
    
    
    
    495,408
    
    
    
    72,489Non-PRC
    
    
    (88,964
    )
    
    
    (61,325
    )
    
    
    (31,786
    )
    
    
    (4,652
    )Total
    
    
    203,395
    
    
    
    783,914
    
    
    
    463,622
    
    
    
    67,837
  Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$PRCCurrent tax expense
    
    
    50,462
    
    
    
    33,881
    
    
    
    92,622
    
    
    
    13,552Deferred tax
expense/(benefit)
    
    
    (19,996
    )
    
    
    34,637
    
    
    
    17,909
    
    
    
    2,62130,466
    
    
    
    68,518
    
    
    
    110,531
    
    
    
    16,173
 F-22




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##### Table of Contents



Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Computed tax expense
    
    
    30,509
    
    
    
    117,587
    
    
    
    69,543
    
    
    
    10,175Adjustments resulting from: Non-deductible expenses related to errors
correction
    
    
    7,795
    
    
    
    
    
    
    
    
    
    
    
     Non-deductible expenses
    
    
    4,053
    
    
    
    8,411
    
    
    
    17,861
    
    
    
    2,614 Effect of change in tax law on allowance
for doubtful loans to a related party (see Note (ii))
    
    
    
    
    
    
    27,650
    
    
    
    
    
    
    
     Tax credits on purchase of property, plant
and equipment
    
    
    (6,895
    )
    
    
    (70,877
    )
    
    
    
    
    
    
     Tax credits on purchase of property, plant
and equipment forfeited
    
    
    
    
    
    
    8,861
    
    
    
    
    
    
    
     Tax credits for R& D expense (see Note (i))
    
    
    (10,386
    )
    
    
    (11,877
    )
    
    
    (10,169
    )
    
    
    (1,488
    ) Change in valuation allowance
    
    
    (6,492
    )
    
    
    (34,699
    )
    
    
    739
    
    
    
    108 Tax rate differential
    
    
    11,882
    
    
    
    18,314
    
    
    
    2,048
    
    
    
    300 Underprovision in respect of prior years
    
    
    
    
    
    
    
    
    
    
    4,683
    
    
    
    685
Withholding tax expense
    
    
    
    
    
    
    
    
    
    
    15,282
    
    
    
    2,236 Other
    
    
    
    
    
    
    5,148
    
    
    
    10,544
    
    
    
    1,543Actual tax expense
    
    
    30,466
    
    
    
    68,518
    
    
    
    110,531
    
    
    
    16,173
 
 Notes:(i)
    
    In 2006 and 2007, amounts mainly represent tax credits relating to the purchase of domestic equipment for
approved research and development costs. For 2008, amounts represent
tax credits relating to 50% super deduction for approved research and
development costs.(ii)
    
    Amount pertains to the elimination of the deferred tax asset
previously recognized on a loan loss provision to a related party
(see Note 5), which is no longer considered to be deductible
temporary difference due to a change in the CIT law in 2007.  December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Trade accounts receivable
    
    
    31,836
    
    
    
    23,953
    
    
    
    3,505Inventories
    
    
    19,124
    
    
    
    30,203
    
    
    
    4,419Property, plant and equipment
    
    
    31,407
    
    
    
    8,483
    
    
    
    1,241Accrued expenses and other liabilities
    
    
    68,381
    
    
    
    83,689
    
    
    
    12,245Tax losses carried forward
    
    
    1,152
    
    
    
    3,685
    
    
    
    539Total gross deferred tax assets
    
    
    151,900
    
    
    
    150,013
    
    
    
    21,949Less: Valuation allowance (see Note (i))
    
    
    4,040
    
    
    
    4,780
    
    
    
    699Net deferred tax assets
    
    
    147,860
    
    
    
    145,233
    
    
    
    21,250
 F-23




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Note: (i) An analysis of the valuation allowance for 2007 and 2008 is as follows: December 312007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Balance at beginning of year
    
    
    38,739
    
    
    
    4,040
    
    
    
    591Less:Reduction in valuation allowance for
forfeited unused tax credits
    
    
    (8,861
    )
    
    
    
    
    
    
    Realization of deferred tax assets
in the current year
    
    
    (25,838
    )
    
    
    
    
    
    
    Allowance made during the year
    
    
    
    
    
    
    740
    
    
    
    108Balance at end of year
    
    
    4,040
    
    
    
    4,780
    
    
    
    699
  December 312007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Net deferred tax assets comprise:Current portion
    
    
    114,361
    
    
    
    125,788
    
    
    
    18,405Non-current portion
    
    
    33,499
    
    
    
    19,445
    
    
    
    2,845147,860
    
    
    
    145,233
    
    
    
    21,250December 312007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Current
deferred tax liability
    
    
    
    
    
    
    15,282
    
    
    
    2,236
      F-24




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##### Table of Contents



9 Trade accounts and bills receivable, net
  December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Trade accounts receivable
    
    
    732,682
    
    
    
    492,876
    
    
    
    72,118Less: Allowance for doubtful accounts
    
    
    (64,893
    )
    
    
    (96,034
    )
    
    
    (14,052
    )667,789
    
    
    
    396,842
    
    
    
    58,066Bills receivable
    
    
    2,439,996
    
    
    
    2,140,839
    
    
    
    313,2493,107,785
    
    
    
    2,537,681
    
    
    
    371,315
  December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Balance at beginning of year
    
    
    69,047
    
    
    
    90,365
    
    
    
    64,893
    
    
    
    9,495Add:Charge (credit) to
consolidated statements of
income
    
    
    21,582
    
    
    
    (11,008
    )
    
    
    33,487
    
    
    
    4,900Less:Written off
    
    
    (264
    )
    
    
    (14,464
    )
    
    
    (2,346
    )
    
    
    (343
    )Balance at end of year
    
    
    90,365
    
    
    
    64,893
    
    
    
    96,034
    
    
    
    14,052
   10 Amounts due from/(to) related parties
 December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Amounts due from:SHC & subsidiaries
    
    
    88,207
    
    
    
    48,163
    
    
    
    7,047YMCL & subsidiaries
    
    
    10,992
    
    
    
    52
    
    
    
    8Automobile
Accessories Company
    
    
    16,467
    
    
    
    81,276
    
    
    
    11,892Others
    
    
    27,986
    
    
    
    9,776
    
    
    
    1,431Due within one year
    
    
    143,652
    
    
    
    139,267
    
    
    
    20,378
  December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US $Balance at beginning of year
    
    
    
    
    
    
    33,170
    
    
    
    29,307
    
    
    
    4,288Add:Charge to consolidated
statements of income in
current year
    
    
    33,170
    
    
    
    
    
    
    
    
    
    
    
    Less:Written off
    
    
    
    
    
    
    (3,863
    )
    
    
    (4,699
    )
    
    
    (688
    )Balance at end of year
    
    
    33,170
    
    
    
    29,307
    
    
    
    24,608
    
    
    
    3,600
 F-25




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##### Table of Contents



December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Amounts due to:SHC & subsidiaries
    
    
    183,595
    
    
    
    140,980
    
    
    
    20,628YMCL & subsidiaries
    
    
    191,184
    
    
    
    20,070
    
    
    
    2,937Others
    
    
    5,742
    
    
    
    43,860
    
    
    
    6,418Due within one year
    
    
    380,521
    
    
    
    204,910
    
    
    
    29,983
   11 Loans to customers, net
  12 Inventories
  December 312007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Raw materials
    
    
    942,798
    
    
    
    1,653,267
    
    
    
    241,907Work in progress
    
    
    17,647
    
    
    
    17,072
    
    
    
    2,498Finished goods
    
    
    686,580
    
    
    
    579,691
    
    
    
    84,8211,647,025
    
    
    
    2,250,030
    
    
    
    329,226
  F-26




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##### Table of Contents



13 Other receivables, net
  December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$VAT recoverable
    
    
    8,063
    
    
    
    70,390
    
    
    
    10,300Staff loans
    
    
    3,406
    
    
    
    2,044
    
    
    
    299Staff advances
    
    
    4,665
    
    
    
    (454
    )
    
    
    (66
    )Amounts due
under guarantee contracts, net (see Note 23(d))
    
    
    10,440
    
    
    
    3,173
    
    
    
    464Land deposit
    
    
    5,000
    
    
    
    5,000
    
    
    
    732Interest receivable from affiliates
    
    
    50,599
    
    
    
    61,422
    
    
    
    8,987Other
deposits
    
    
    
    
    
    
    10,000
    
    
    
    1,463Others
    
    
    14,901
    
    
    
    30,124
    
    
    
    4,40797,074
    
    
    
    181,699
    
    
    
    26,586
 14 Property, plant and equipment, net
  December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Buildings, including leasehold
improvements
    
    
    1,096,622
    
    
    
    1,191,037
    
    
    
    174,273Machinery and equipment
    
    
    2,426,938
    
    
    
    2,525,240
    
    
    
    369,495Office and computer equipment
    
    
    106,995
    
    
    
    103,458
    
    
    
    15,1383,630,555
    
    
    
    3,819,735
    
    
    
    558,906Less: Accumulated depreciation
    
    
    (1,471,528
    )
    
    
    (1,647,755
    )
    
    
    (241,101
    )Less:
Impairment loss
    
    
    (781
    )
    
    
    (22,690
    )
    
    
    (3,320
    )Property, plant and equipment, net
    
    
    2,158,246
    
    
    
    2,149,290
    
    
    
    314,485
  December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Loss on disposal of property,
plant and equipment
    
    
    1,598
    
    
    
    5,926
    
    
    
    4,008
    
    
    
    587
 15 Construction in progress
  December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Diesel engine production line and
facilities projects
    
    
    86,543
    
    
    
    91,241
    
    
    
    13,350Factories auxiliary facilities
    
    
    47,068
    
    
    
    55,918
    
    
    
    8,182Second foundry
    
    
    12,034
    
    
    
    78,536
    
    
    
    11,491Others
    
    
    39,276
    
    
    
    48,152
    
    
    
    7,046Less:
Impairment loss
    
    
    
    
    
    
    (20,975
    )
    
    
    (3,069
    )184,921
    
    
    
    252,872
    
    
    
    37,000
 F-27




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##### Table of Contents



16 Lease prepayments
  December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Gross payments for land use rights
    
    
    203,127
    
    
    
    228,720
    
    
    
    33,466Less: Amounts charged to expense
    
    
    (35,125
    )
    
    
    (43,773
    )
    
    
    (6,405
    )Less:
Impairment loss
    
    
    
    
    
    
    (26,266
    )
    
    
    (3,843
    )Lease prepayments
    
    
    168,002
    
    
    
    158,681
    
    
    
    23,218
  17 Investments
 (a) Investments as of December 31, 2007 and 2008 are summarized as follows:
 December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Investments in
affiliates under
the equity method (see Note 17(b))
    
    
    505,009
    
    
    
    392,386
    
    
    
    57,414Other investments
in debt and equity
securities of
affiliates(see Note
17 (e))
    
    
    615,201
    
    
    
    446,430
    
    
    
    65,3231,120,210
    
    
    
    838,816
    
    
    
    122,737
 (b) Investments in affiliates accounted for using the equity method as of December 31, 2007 and
2008 are as follows:
 December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Listed:TCL (see Note (i))
    
    
    387,930
    
    
    
    265,811
    
    
    
    38,894HLGE (see Note (ii))
    
    
    112,648
    
    
    
    119,314
    
    
    
    17,458Unlisted:Others (see Note (iii))
    
    
    4,431
    
    
    
    7,261
    
    
    
    1,062505,009
    
    
    
    392,386
    
    
    
    57,414
  
 Notes:(i)
    
    The Company acquired 264,000,000 shares and 17,795,664 shares of TCLs ordinary shares on
March 23, 2005 and September 5, 2005, representing 15.0% and 1.0% interests of the enlarged
share capital of TCL at a consideration of Singapore dollars (S$) 30,880,000 (Rmb152,133)
and S$1,400,000 (Rmb6,890) respectively. As a result, the Company held a 16.0% equity interest
in TCL as of December 31, 2005. F-28




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##### Table of Contents



In February 2006, the Company acquired an additional 3.4% interest in TCL and S$52,933,440
principal amount of convertible bonds of TCL pursuant to a rights issue by TCL for an aggregate
cash consideration of S$49.4 million (Rmb243,230). The total purchase consideration has been
allocated to the ordinary shares, the bond host instrument and the embedded conversion option
based on their respective fair values of S$7 million (Rmb34,626), S$33.3 million (Rmb163,924)
and S$9.1 million (Rmb44,680). The Company has separately accounted for the conversion option
as an embedded derivative instrument subject to fair value adjustment through earnings. The
remaining host instrument of the convertible bonds has been accounted for as an
available-for-sale debt security through August 2006, at which time the Company exercised its
option and converted the bonds into 529,334,400 ordinary shares of TCL.Immediately prior to the conversion, the fair value of the bond host instrument had increased
by S$3.3 million (Rmb20,942), which was reclassified from Accumulated other comprehensive
income/(loss) and included as a part of the cost of the additional equity interest in TCL
acquired as a result of the conversion. The decrease in fair value of the embedded conversion
option of S$1.2 million (Rmb5,662) has been recorded as a charge in the 2006 consolidated
statement of operations. The fair value of the embedded conversion option immediately prior to
the conversion of S$7.9 million (Rmb39,984) has also been included in the cost of the
additional interest in TCL. The conversion resulted in CYI increasing its interest in TCL by a
further 17.2%. As of December 31, 2006, the Companys equity interest in TCL was 36.6%.During the year ended 2007, the Company did not acquire new shares in TCL. However, as a result
of the conversion of convertible bonds into new ordinary shares by TCLs third party
bondholders, the Companys interest in TCL has been diluted to 34.4%. The loss in dilution was
Rmb2,591 (US$379).During the year ended 2008, the Company did not acquire new shares in TCL. As of December 31,
2008, the Company held 898,990,352 shares (2007: 898,990,352 shares) of TCLs ordinary shares.
As of December 31, 2007 and 2008, the Companys underlying equity in net assets of TCL exceeded
the carrying amount of its investment in TCL by Rmb66,063 and Rmb67,856 (US$9,929),
respectively, primarily related to the differences between the fair value and book value of
certain assets of TCL at the time of the respective acquisitions.The fair value, based on the quoted market price, of the TCL shares held by the Company was
S$80.9 million (Rmb405,560), S$49.4 million (Rmb 235,047) and S$53.9 million (Rmb255,033) as of
December 31, 2007, December 31, 2008 and June 30, 2009 respectively.The Company did not recognize an impairment charge pertaining to its investment in TCL in 2008
because the reduced fair value is believed to be not
other-than-temporary as a result of general market
conditions and the equity price increased subsequent to year end.(ii)
    
    On February 3, 2006, the Company acquired a portfolio of debt and equity securities of HLGE
for an aggregate purchase consideration of approximately S$132 million (Rmb653,178) from
several unrelated parties. The portfolio consisted of:     191,413,465 ordinary shares, representing 29.13% of the total issued and outstanding
ordinary shares of HLGE;     S$129,428,256 in principal amount of secured bonds (the Secured Bonds);     15,376,318 Series A mandatorily redeemable convertible preference shares of par value
S$0.05 each (RCPS A); and     107,634,237 Series B redeemable convertible preference shares of par value S$0.05 each
(RCPS B).With the investments in the ordinary shares of HLGE, the Company is able to exercise significant
influence over the operating and financing policies of HLGE. The investment in the ordinary shares
of HLGE has been accounted for under the equity method.The Secured Bonds were accounted for as available-for-sale securities. The Secured Bonds were due
to mature in March 2010, and the interest payable on the bonds was calculated based on the actual
net cashflows derived from the assets on which the bonds are secured. The secured bonds were
redeemed on July 4, 2006, as described below.The RCPS A are mandatorily redeemable by HLGE and are more akin to a debt instrument. As such, the
conversion option is not clearly and closely related to the host instrument and is therefore
accounted for separately as an embedded derivative instrument, subject to the fair value adjustment
through earnings. The RCPS A host instrument, other than the embedded conversion option, has been
accounted for as an available-for-sale debt security. F-29




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##### Table of Contents



RCPS A is redeemable upon the disposal of certain properties and upon any new issue of HLGE
ordinary shares with the purpose of raising funds for the redemption of RCPS A. Any outstanding
RCPS A will be mandatorily redeemed in March 2015. RCPS A can also be converted into ordinary
shares at the conversion ratio of 1:1 upon the passing of a special resolution at a meeting of the
holders of the RCPS A any time prior to March 2015.The RCPS B are neither mandatorily redeemable nor redeemable at the option of the Company and are
akin to an equity instrument. The embedded conversion option is deemed to be clearly and closely
related to the host instrument and as the RCPS Bs fair value is not readily determinable, the
instrument in its entirety has been accounted for under the cost method. RCPS B is redeemable upon
the disposal of certain properties and upon any new issue of HLGE ordinary shares with the purpose
of raising funds for the redemption of RCPS B.RCPS B which are not redeemed prior to March 2010, shall be mandatorily converted to ordinary
shares at the conversion ratio of 1:1 in March 2010. RCPS B can also be converted into ordinary
shares at the conversion ratio of 1:1 upon the passing of a special resolution at a meeting of the
holders of the RCPS B any time prior to March 2010.The aggregate purchase consideration of S$132 million was allocated to the above instruments based
on their respective fair values as follows: Fair valueS$000Secured bonds
    
    
    109,543RCPS A
    
    
    1,948RCPS AEmbedded equity derivatives
    
    
    137RCPS B
    
    
    7,221Ordinary shares
    
    
    12,766131,615
 In June and December of 2006, HLGE partially redeemed a portion of RCPS A and RCPS B as required by
the terms of the preference share agreement as a result of the disposals of certain assets. The
proceeds from the partial redemptions amounted to S$2.4 million (Rmb11,907), resulting in a gain of
S$1.7 million (Rmb8,907).On February 28, 2006, HLGE announced a proposed renounceable rights issue of zero coupon unsecured
non-convertible bonds due in July 2009 (the New Bonds) and non-redeemable convertible cumulative
preference shares in the capital of HLGE (the NCCPS) to raise funds for the purpose of redeeming
existing Secured Bonds and for working capital purposes. On July 4, 2006, in connection with the
rights issue, the Company was allotted 196,201,374 of NCCPS and S$130,800,917 in principal amount
of the New Bonds at a total consideration of S$135 million (Rmb677,010). In conjunction with the
allotment, the Secured Bonds were redeemed at their principal value of S$129.4 million.At the date of settlement, the fair value of the newly acquired NCCPS and New Bonds was S$8 million
and S$109.3 million, respectively, the sum of which exceeded the aggregate of the S$5.3 million
cash payment by the Company and the fair value of the Secured Bonds of S$109 million, resulting in
a net gain of approximately S$3 million. The gain primarily related to an unrealized gain of S$2.3
million (Rmb19,550) immediately prior to the redemption of the Secured Bonds, which had been
included in Accumulated other comprehensive income/ (loss) and was reclassified and included in
Other income, net upon redemption.The New Bonds have been accounted for as available-for-sale debt securities. The investment in
NCCPS, which does not have a readily determinable fair value, was accounted for using the cost
method. On November 15, 2006, the Company exercised its right to convert all of its 196,201,374
NCCPS into 196,201,374 new ordinary shares of HLGE. As a result of the conversion of the NCCPS, the
Companys interest in HLGE increased to 45.42% of the total issued and outstanding ordinary shares
of HLGE.On June 19, 2007, HLGE partially redeemed the New Bonds. The proceeds from the partial redemption
amounted to S$18.7 million (Rmb88,652), resulting in a gain of Rmb17,478 (US$2,557), from the
reclassification into earnings of previously unrealized gains that were included in Accumulated
Other Comprehensive Income. The principal amount of the New Bonds was S$130,800,917 before
redemption and S$112,886,727 after redemption.During the year ended 2007, the Company did not acquire new shares in HLGE. However, new ordinary
shares were issued by HLGE arising from the third partys conversion of the NCCPS, and the
Companys interest in HLGE has been diluted to 45.39% (2006: 45.42%). There was an insignificant
loss recognized in earnings in 2007 resulting from this dilution.In April 2008, HLGE made an additional partial redemption of the Existing HLGE RCPS B. The
redemption amount we received amounted to approximately S$0.98 million (US$0.7 million) and
resulted in a reduction in the number of Existing HLGE RCPS that held by the Company from
113,159,191 to 107,186,403.In June 2008, HLGE partially redeemed the New Bonds
resulting in a gain of Rmb 19,198 (US$2,809) (see Note 7). The principal amount redeemed was
approximately S$25.9 million (US$18.0 million) and resulted in a reduction in the principal amount
of the New HLGE Bonds held by the Company from S$112.9 million (US$78.5 million) to S$87.0 million
(US$60.5 million). The proceeds from the partial redemption amounted to S$28.5 million (US$19.8
million).As of December 31, 2008, the Company held 387,614,839 shares (2007: 387,614,839 shares) of HLGEs
ordinary shares. Assuming full conversion of the existing Preference Shares held by the Company
which would trigger the full conversion of the existing preference shares held by the other
holders, and assuming that none of the other holders of the NCCPS convert their NCCPS, the
Companys equity interest in HLGE would increase from 45.39% to 51.68%.As of December 31, 2007 and 2008, the Companys carrying value of its investments in HLGE exceeded
its underlying equity in HLGEs net assets by Rmb139,937 and Rmb140,859 (US$20,611), respectively,
primarily related to the differences between the fair value and book value of the certain assets
and liabilities of HLGE. These differences will be amortized over the respective periods consistent
with the manner in which the underlying assets and liabilities are depreciated or otherwise
accreted to HLGEs earnings, as adjustments to the Companys share of earnings or loss of HLGE.The fair value, based on the quoted market price, of the HLGE ordinary shares held by the Company
was S$89.2 million (Rmb446,874), S$21.3 million (Rmb101,344) and S$44.6 million (Rmb210,760) as of
December 31, 2007, December 31, 2008 and June 30, 2009 respectively.The Company did not recognize impairment charge pertaining to its investment in HLGE in 2008
because the reduced fair value is believed to be not
other-than-temporary as a result of general market
conditions and the equity price increased subsequent to year end.(iii)
    
    Represents the Companys interests in certain entities in the PRC in which the Company has
the ability to exercise significant influence in its financial and operating policy decisions,
but do not have the controlling financial interests. The Companys equity in net income of
these PRC entities amounts to Rmb1,761 (US$258). F-30




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##### Table of Contents



(c) Summarized consolidated financial information of TCL as of December 31, 2007 and 2008, and
the years ended December 31, 2006, 2007 and 2008 is as follows:
 December 31,
    
    December 31,
    
    December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Financial positionCurrent assets
    
    
    941,398
    
    
    
    847,905
    
    
    
    124,066Property, plant and equipment, net
    
    
    96,405
    
    
    
    51,040
    
    
    
    7,468Other assets
    
    
    407,627
    
    
    
    157,749
    
    
    
    23,082Total assets
    
    
    1,445,430
    
    
    
    1,056,694
    
    
    
    154,616Current liabilities
    
    
    102,736
    
    
    
    87,296
    
    
    
    12,773Long term debt
    
    
    1,549
    
    
    
    
    
    
    
    Total liabilities
    
    
    104,285
    
    
    
    87,296
    
    
    
    12,773Minority interests
    
    
    22,165
    
    
    
    18,561
    
    
    
    2,716Stockholders equity
    
    
    1,318,980
    
    
    
    950,837
    
    
    
    139,127Total liabilities, minority
interests and stockholders
equity
    
    
    1,445,430
    
    
    
    1,056,694
    
    
    
    154,616
 Year ended
    
    Year ended
    
    Year ended
    
    Year endedDecember 31, 2006
    
    December 31, 2007
    
    December 31, 2008
    
    December 31, 2008Rmb
    
    Rmb
    
    Rmb
    
    US$Statement of operationsRevenue
    
    
    1,225,028
    
    
    
    1,451,188
    
    
    
    1,898,730
    
    
    
    277,824Gross profit
    
    
    62,796
    
    
    
    88,446
    
    
    
    65,558
    
    
    
    9,592Operating profit/(loss)
    
    
    (97,426
)
    
    
    25,915
    
    
    
    (102,480
    )
    
    
    (14,995
    )Income tax credit/(expense)
    
    
    (9,089
    )
    
    
    (9,011
    )
    
    
    4,645
    
    
    
    680Income/(loss) before
minority interest
    
    
    (88,337
)
    
    
    16,904
    
    
    
    (97,835
    )
    
    
    (14,315
    )Minority interests in
income of consolidated
subsidiaries
    
    
    4,997
    
    
    
    (2,367
    )
    
    
    1,980
    
    
    
    290Net income/(loss)
    
    
    (83,340
    )
    
    
    14,537
    
    
    
    (95,855
    )
    
    
    (14,025
    )The Companys equity in
income/(loss) of TCL, net of tax
    
    
    (23,923
)
    
    
    5,925
    
    
    
    (31,788
    )
    
    
    (4,651
    )
 F-31




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##### Table of Contents



(d) Summarized
consolidated financial information of HLGE as of December 31,
2006, 2007 and 2008, and
for the years ended December 31, 2007 and 2008 is as follows:
 December 31,
    
    December 31,
    
    December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Financial positionCurrent assets
    
    
    356,135
    
    
    
    210,322
    
    
    
    30,774Property, plant and
equipment, net
    
    
    86,331
    
    
    
    85,683
    
    
    
    12,537Other assets
    
    
    303,193
    
    
    
    296,401
    
    
    
    43,370Total assets
    
    
    745,659
    
    
    
    592,406
    
    
    
    86,681Current liabilities
    
    
    51,850
    
    
    
    518,690
    
    
    
    75,895Non-current liabilities
    
    
    753,930
    
    
    
    121,182
    
    
    
    17,731Total liabilities
    
    
    805,780
    
    
    
    639,872
    
    
    
    93,626Stockholders deficit
    
    
    (60,121
    )
    
    
    (47,466
    )
    
    
    (6,945
    )Total liabilities and
stockholders deficit
    
    
    745,659
    
    
    
    592,406
    
    
    
    86,681
 Period from February
3,2006 to
    
    Year ended
    
    Year ended
    
    Year endedDecember 31, 2006
    
    December 31, 2007
    
    December 31, 2008
    
    December 31, 2008Rmb
    
    Rmb
    
    Rmb
    
    US$Statement of operationsRevenue
    
    
    37,110
    
    
    
    30,065
    
    
    
    20,766
    
    
    
    3,038Gross profit
    
    
    19,133
    
    
    
    18,009
    
    
    
    11,091
    
    
    
    1,623Operating profit/(loss)
    
    
    (2,556
)
    
    
    22,502
    
    
    
    (20,020
    )
    
    
    (2,929
    )Income tax credit/(expense)
    
    
    (265
    )
    
    
    (2,376
    )
    
    
    5
    
    
    
    1Income before minority interest
    
    
    (2,821
)
    
    
    20,126
    
    
    
    (20,015
    )
    
    
    (2,928
    )Equity in
income/(loss) of affiliates, net of tax
    
    
    (18,853
)
    
    
    8,751
    
    
    
    14,648
    
    
    
    2,143Net income
    
    
    (21,674
)
    
    
    28,877
    
    
    
    (5,367
    )
    
    
    (785
    )Income from
discontinued operations
    
    
    44,213

    
    
    
    
    
    
    
    
    
    
    The
Companys equity in income/(loss) of HLGE, net of tax
    
    
    1,395
    
    
    
    8,321
    
    
    
    (6,546
    )
    
    
    (958
    )
 F-32




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##### Table of Contents



(e) Other investments as of December 31, 2007 and 2008 not described above are summarized as
follows:
  Securities
   Fair Value Measurements on a Recurring Basis at December 31, 2008Level 1
    
    Level 2
    
    Level 3
    
    Level 3Rmb
    
    Rmb
    
    Rmb
    
    US$Unsecured bonds of HLGE
    
    
    
    
    
    
    
    
    
    
    398,916
    
    
    
    58,371RCPS A of HLGE
    
    
    
    
    
    
    
    
    
    
    17,216
    
    
    
    2,519
  Level 3 Financial AssetsDecember 31, 2008Unsecured
    
    RCPS A of
    
    Unsecured bonds of
    
    RCPS A ofbonds of HLGE
    
    HLGE
    
    HLGE
    
    HLGERmb
    
    Rmb
    
    US$
    
    US$Balance at January 1
    
    
    558,852
    
    
    
    20,119
    
    
    
    81,772
    
    
    
    2,944Total realized/unrealized gains/(losses)Included in earnings
    
    
    9,865
    
    
    
    (6,372
    )
    
    
    1,443
    
    
    
    (933
    )Included in other comprehensive income
    
    
    (40,235
    )
    
    
    3,469
    
    
    
    (5,887
    )
    
    
    508Redemptions
    
    
    (129,566
    )
    
    
    
    
    
    
    (18,597
    )
    
    
    Balance at December 31
    
    
    398,916
    
    
    
    17,216
    
    
    
    58,371
    
    
    
    2,519
  Fair Value Measurements usingLevel 1
    
    Level 2
    
    Level 3
    
    Level 3Rmb
    
    Rmb
    
    Rmb
    
    US$RCPS B of HLGE
    
    
    
    
    
    
    
    
    
    
    24,243
    
    
    
    3,547
  2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Available for sale securities, at fair value:Unsecured bonds
    
    
    558,852
    
    
    
    398,916
    
    
    
    58,371RCPS A
    
    
    12,736
    
    
    
    16,678
    
    
    
    2,440Embedded derivativesRCPS A  Embedded equity derivatives
    
    
    7,383
    
    
    
    538
    
    
    
    79Investment securities, at cost:Unquoted equitySecurities (see Note 3(r))
    
    
    6,255
    
    
    
    6,055
    
    
    
    886RCPS B
    
    
    29,975
    
    
    
    24,243
    
    
    
    3,547615,201
    
    
    
    446,430
    
    
    
    65,323
   Gross unrealized
    
    Carrying value
    
    Carrying valueInitial fair value
    
    holding gains
    
    (Fair value)
    
    (Fair value)Rmb
    
    Rmb
    
    Rmb
    
    US$Unsecured bonds of HLGE
    
    
    355,830
    
    
    
    43,086
    
    
    
    398,916
    
    
    
    58,371RCPS A of HLGE
    
    
    8,513
    
    
    
    8,165
    
    
    
    16,678
    
    
    
    2,440364,343
    
    
    
    51,251
    
    
    
    415,594
    
    
    
    60,811
  December 31,
    
    December 31,
    
    December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Due after one year through five years
    
    
    558,852
    
    
    
    398,916
    
    
    
    58,371Due after five years through ten years
    
    
    12,736
    
    
    
    16,678
    
    
    
    2,440
 18 Bank debt
   December 31,2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US$Renminbi denominated loans
    
    
    819,164
    
    
    
    833,000
    
    
    
    121,885Singapore dollars denominated loans
    
    
    
    
    
    
    235,675
    (d)
    
    
    34,484819,164
    
    
    
    1,068,675
    
    
    
    156,369
    F-33




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##### Table of Contents



(b) Long-term bank loans
  December 31,Interest rate atDecember 31,2008
    
    2007
    
    2008
    
    2008(per annum)
    
    Rmb
    
    Rmb
    
    US$US$ denominated loans (unless otherwise stated):Due in 2008 (multi-currency)
    
    
    
    
    
    
    457,787

(a)
    
    
    
    (c)
    
    
    Due in 2009 (multi-currency)
    
    
    2.13
    %
    
    
    
    
    
    
    77,773
    (a)&(e)
    
    
    11,380Due in 2010 (multi-currency)
    
    
    1.38
    %
    
    
    225,142
    
    
    
    176,756
    (f)
    
    
    25,863Due in 2010 (RMB denominated loans)
    
    
    
    
    
    
    85,000
    
    
    
    
    
    
    
    Total long-term bank loans outstanding
    
    
    
    
    
    
    767,929
    
    
    
    254,529
    
    
    
    37,243Less: Amounts due within one year included
under current liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amounts due after one year
    
    
    
    
    
    
    767,929
    
    
    
    254,529
    
    
    
    37,243
  
 Notes:(a)
    
    The debt is classified as long term because the Company has entered into a financing agreement
that clearly permits the Company to refinance the short-term obligation on a long term basis.(b)
    
    Unused commitments for total bank facilities was Rmb3,639,724 (US$532,567) as at December 31,
2008. The commitment fee incurred was Rmb138 (US$20).(c)
    
    US$50.0 million credit facility with Sumitomo Mitsui Banking Corporation, Singapore Branch
(Sumitomo):On September 7, 2005, in order to fund its business expansion plans, the Company entered into a
revolving credit facility agreement with Sumitomo with a committed aggregate value of US$50.0
million for a three years duration. Among other things, the terms of the facility require that Hong
Leong Asia Ltd. (HLA) retains ownership of the Companys special share and that the Company
remains a consolidated subsidiary of HLA. The terms of the facility also include certain financial
covenants with respect to the Companys tangible net worth (as defined in the agreement) as at June
30 and December 31 of each year not being less than US$120,000 and the ratio of the Companys total
net debt (as defined in the agreement) to tangible net worth as at June 30 and December 31 of each
year not exceeding 2.0 times, as well as negative pledge provisions and customary drawdown
requirements. At all times during the year ended December 31, 2007, the Company was in compliance
with these financial covenants. The Company has also undertaken to make available to Sumitomo,
within 180 days after the end of its financial year (beginning with financial year 2005), copies of
its audited consolidated accounts as at the end of and for that financial year. A waiver from
compliance with this undertaking in relation to the production of the 2006 and 2007 audited
consolidated accounts has been received from Sumitomo granting an extension of time until July 18,
2008 and September 30, 2008 respectively. On September 6, 2008, this credit facility with Sumitomo
expired and the bridging loan as stated in note (d) below was used to partially refinance this
facility which was fully repaid.(d)
    
    DBS S$50.0 million bridging loan:On August 28, 2008, the Company entered into a bridging loan agreement of up to S$50 million for a
12 months duration, with DBS Bank Ltd., (DBS) of Singapore, to partially re-finance the US$50m
revolving credit facility with Sumitomo Mitsui Banking Corporation, Singapore Branch which expired
on 6 September 2008. The new facility will also be used to finance the Companys long-term general
working capital requirements. The terms of the facility include certain financial covenants as well
as negative pledge and default provisions. The Company has also undertaken to make available to
DBS, within 180 days after the end of its financial year, copies of its audited consolidated
accounts as at the end of each financial year.
A waiver from compliance with this undertaking in relation
 to the production of 2008 audited consolidated accounts has
been received from the bank granting an extension of time until
August 31, 2009.(e)
    
    S$21.5 million credit facility with Bank of Tokyo-Mitsubishi, UFJ Ltd, Singapore Branch
(BOTM):On March 20, 2008, the Company entered into a new facility agreement with BOTM to re-finance the
existing revolving credit facility. The new unsecured, multi-currency revolving credit facility has
a committed aggregated value of S$21.5 million with a one F-34




---



##### Table of Contents



year duration. The new facility will be used to finance the Companys long-term general working
capital requirements. Among other things, the terms of the facility require that Hong Leong Asia
Ltd. (HLA) retains ownership of the Companys special share and that the Company remains a
consolidated subsidiary of HLA. The terms of the facility also include certain financial covenants
with respect to the Companys tangible net worth (as defined in the agreement) as at June 30 and
December 31 of each year not being less than US$120 million and the ratio of the Companys total
net debt (as defined in the agreement) to tangible net worth as at June 30 and December 31 of each
year not exceeding 2.0 times, as well as negative pledge provisions and customary drawdown
requirements. On March 19, 2009, this credit facility expired and the new facility with same bank
as stated in note 33(a) was used to refinance this facility which was
fully repaid. The Company has also undertaken to make available to
the bank, within 180 days after the end of its financial year, copies
of its audited consolidated accounts as at the end of and for that
financial year. A waiver from compliance with this undertaking in
relation to the production of the 2008 audited consolidated accounts
has been received from the bank granting an extension of time until
August 31, 2009.(f)
    
    US$40.0 million credit facility with Sumitomo:On March 30, 2007, the Company entered into an unsecured multi-currency revolving credit facility
agreement with Sumitomo for an aggregate of US$40.0 million to refinance the S$60.0 million
facility with Oversea  Chinese Banking Corporation Limited (OCBC) that was due to mature on July 26, 2007. The facility is available for three
years from the date of the facility agreement and will be utilized by the Company to finance its
long-term general working capital requirements. The terms of the facility require, among other
things, that HLA retains ownership of the special share and that the Company remains a principal
subsidiary (as defined in the facility agreement) of HLA. The terms of the facility also include
certain financial covenants with respect to the Companys tangible net worth (as defined in the
agreement) as at June 30 and December 31 of each year not being less than US$120 million and the
ratio of our total net debt (as defined in the agreement) to tangible net worth as at June 30 and
December 31 of each year not exceeding 2.0 times, as well as negative pledge provisions and
customary drawdown requirements. The Company has also undertaken to make available to the bank,
within 180 days after the end of its financial year (beginning with financial year 2007), copies of
its audited consolidated accounts as at the end of and for that
financial year. A waiver from compliance with this undertaking in
relation to the production of the 2008 audited consolidated accounts
has been received from the bank granting an extension of time
until August 31, 2009. 19 Accrued expenses and other liabilities
  December 31,2007
    
    
    2008
    
    
    2008Rmb
    
    
    Rmb
    
    
    US$Deposits from customers
    
    
    32,951
    
    
    
    58,161
    
    
    
    8,510Staff welfare payable (see Note (i))
    
    
    15,041
    
    
    
    
    
    
    
    Accrued
product warranty (see Note 20)
    
    
    194,898
    
    
    
    188,599
    
    
    
    27,596Wages payable
    
    
    153,270
    
    
    
    157,645
    
    
    
    23,067Management bonus payable (see Note (ii))
    
    
    94,312
    
    
    
    51,658
    
    
    
    7,559Payable for construction in progress
    
    
    67,707
    
    
    
    53,947
    
    
    
    7,894Accrued research and development expenses
    
    
    8,559
    
    
    
    7,707
    
    
    
    1,128Accrued advertising expense
    
    
    13,096
    
    
    
    9,447
    
    
    
    1,383Accrued legal fee and other professional fees
    
    
    14,298
    
    
    
    9,035
    
    
    
    1,322Accrued
expenses for litigation (see Notes 23(c))
    
    
    7,102
    
    
    
    7,247
    
    
    
    1,060Individual income tax withholding
    
    
    10,124
    
    
    
    6,481
    
    
    
    948VAT payable
    
    
    13,816
    
    
    
    4,847
    
    
    
    709Guarantee deposit
    
    
    10,000
    
    
    
    2,596
    
    
    
    380Accrued sales discount
    
    
    94,055
    
    
    
    142,800
    
    
    
    20,894Accrued interest
    
    
    2,133
    
    
    
    1,834
    
    
    
    268Other payables
    
    
    628
    
    
    
    588
    
    
    
    86
 F-35




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##### Table of Contents



December 31,2007
    
    
    2008
    
    
    2008Rmb
    
    
    Rmb
    
    
    US$Accrued retirement benefits
    
    
    5,747
    
    
    
    5,748
    
    
    
    841Other accruals and liabilities
    
    
    208,938
    
    
    
    228,744
    
    
    
    33,470946,675
    
    
    
    937,084
    
    
    
    137,115
 
 Note(i):
    
    Staff welfare payable is determined by Yuchais Board of Directors. The payable can be
applied towards the payment of special bonuses or collective welfare benefits to staff and
workers of Yuchai, such as staff dormitories and staff welfare
facilities. In 2008, the payable was transferred back to the
statutory Public Welfare Fund as the payable is no longer required
(see Note 21)(ii):
    
    Yuchai has a management bonus plan for its executives under which annual incentive bonuses
in an aggregate amount of 3.5% to 10% of Yuchais after-tax profit will be paid upon Yuchai
achieving the required budgeted after-tax profit as approved by Yuchais Board of Directors.
There are no benefits provided to the directors of the Company or Yuchai upon their
termination of employment. F-36




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##### Table of Contents



20 Accrued product warranty
  December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Balance at beginning of year
    
    
    142,126
    
    
    
    163,701
    
    
    
    194,898
    
    
    
    28,518Allowance
charged to consolidated statements of income
    
    
    200,892
    
    
    
    233,838
    
    
    
    215,544
    
    
    
    31,538Less: Amounts utilized
    
    
    (179,317
    )
    
    
    (202,641
    )
    
    
    (221,843
    )
    
    
    (32,460
    )Balance at end of year
    
    
    163,701
    
    
    
    194,898
    
    
    
    188,599
    
    
    
    27,596
 21 Statutory reserves
  December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Statutory general reserve (see Note (ii))Balance at January 1
    
    
    170,280
    
    
    
    171,280
    
    
    
    174,033
    
    
    
    25,465Transfer from retained earnings
    
    
    1,000
    
    
    
    2,753
    
    
    
    2,093
    
    
    
    306Balance at December 31
    
    
    171,280
    
    
    
    174,033
    
    
    
    176,126
    
    
    
    25,771Statutory public welfare fund (see Note (iii))Balance at January 1
    
    
    70,600
    
    
    
    70,600
    
    
    
    70,600
    
    
    
    10,330Transfer of
unutilized welfare fund back to reserve (see Note (iv))
    
    
    
    
    
    
    
    
    
    
    15,041
    
    
    
    2,201Balance at December 31
    
    
    70,600
    
    
    
    70,600
    
    
    
    85,641
    
    
    
    12,531General surplus reserveBalance at January 1 and December 31
    
    
    25,706
    
    
    
    25,706
    
    
    
    25,706
    
    
    
    3,761Total
    
    
    267,586
    
    
    
    270,339
    
    
    
    287,473
    
    
    
    42,063
 
 Notes:(i)
    
    In accordance with the relevant regulations in the PRC, Yuchai and its subsidiaries are
required to provide certain statutory reserves which are designated for specific purposes based on
the net income reported in the PRC GAAP financial statements. The reserves are not distributable in
the form of cash dividends (see Note 29).(ii)
    
    In accordance with the relevant regulations in the PRC, a 10% appropriation to the statutory
general reserve based on the net income reported in the PRC financial statements is required until
the balance reaches 50% of the authorized share capital of Yuchai and its subsidiaries. Statutory
general reserve can be used to make good previous years losses, if any, and may be converted into
share capital by the issue of new shares to stockholders 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 authorized share capital.(iii)
    
    Yuchai and its subsidiaries shall determine to transfer 5% to 10% of its net income reported
in the PRC financial statements to the statutory public welfare fund. There is no limit on the
amount that may be allocated to this fund. This fund can only be utilized on capital expenditure
for the collective welfare of Yuchai and its subsidiaries employees, such as the construction of
dormitories, canteen and other welfare facilities, and cannot be utilized to pay staff welfare
expenses. The transfer to this fund must be made before the distribution of a dividend to
stockholders. Since January 1, 2006, in accordance with the amended Companys policy, the
contribution to the fund ceased.(iv)
    
    In 2008, an amount of Rmb 15,041 was transferred back to the
Statutory Public Welfare Fund as the payable was no longer required
(see Note 19). F-37




---



##### Table of Contents



22 Commitments
  December 31,2008
    
    2008Rmb
    
    US$Authorized and contracted for:Improvement to existing production facilities
    
    
    1,524,526
    
    
    
    223,070
   Rmb
    
    US$2009
    
    
    9,318
    
    
    
    1,3632010
    
    
    5,137
    
    
    
    7522011
    
    
    3,283
    
    
    
    4802012 and thereafter
    
    
    2,945
    
    
    
    43120,683
    
    
    
    3,026
  December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Rental expense
    
    
    10,113
    
    
    
    10,780
    
    
    
    22,568
    
    
    
    3,302
 23 Contingencies
 (a) Product liability
  (b) Environmental liability
   F-38




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##### Table of Contents



(c) Dispute with Bank of China
     (d) Guarantees
     F-39




---



##### Table of Contents



December 312007
    
    2008
    
    2008Rmb
    
    Rmb
    
    US $Balance at beginning of year
    
    
    15,078
    
    
    
    10,841
    
    
    
    1,587Charged/(credited) to consolidated statements of operations
    
    
    (4,237
    )
    
    
    2,777
    
    
    
    406Balance at end of year
    
    
    10,841
    
    
    
    13,618
    
    
    
    1,993Balance allocated to:Allowance for uncollectible other receivables
    
    
    9,722
    
    
    
    12,209
    
    
    
    1,787Potential losses associated with the guarantees
    
    
    1,119
    
    
    
    1,409
    
    
    
    20610,841
    
    
    
    13,618
    
    
    
    1,993
 (e) Outstanding
bills receivables discounted
  (f) Outstanding letters of credit
  (g) Other outstanding litigation
  24 Dispute with State Holding Company
      F-40




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##### Table of Contents



25 Retirement and other postretirement benefits
    26 Other related party transactions
  Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Sales of diesel engines to State Holding
Company, its subsidiaries and affiliates
(see Note (i))
    
    
    20,923
    
    
    
    59,521
    
    
    
    215,064
    
    
    
    31,468Sales of raw materials to YMCL (see Note (i))
    
    
    65,729
    
    
    
    35,380
    
    
    
    
    
    
    
    Purchase of raw materials and supplies from
subsidiaries and affiliates of State Holding
Company (see Note (i))
    
    
    (377,129
    )
    
    
    (571,393
    )
    
    
    (1,030,887
    )
    
    
    (150,840
    )Purchase of raw materials and supplies from
YMCL (see Note (ii))
    
    
    (201,802
    )
    
    
    
    
    
    
    
    
    
    
    Processing fee to a subsidiary of YMCL (see Note
(iii))
    
    
    (13,604
    )
    
    
    (2,533
    )
    
    
    
    
    
    
    Delivery expense charged by a subsidiary of YMCL
(see Note (iii))
    
    
    (90,840
    )
    
    
    (115,500
    )
    
    
    (161,036
    )
    
    
    (23,563
    )General and administrative expenses charged by State Holding Company (see Note
(iv))
    
    
    (19,821
    )
    
    
    (21,447
    )
    
    
    (34,934
    )
    
    
    (5,112
    ) charged by HLA (see Note (v))
    
    
    (4,061
    )
    
    
    (12,471
    )
    
    
    (6,414
    )
    
    
    (939
    ) charged by an affiliate of HLA (see Note (vi))
    
    
    (9,654
    )
    
    
    (546
    )
    
    
    (6,652
    )
    
    
    (973
    )Interest earned from balance due from an
affiliate of HLA
    
    
    110
    
    
    
    116
    
    
    
    
    
    
    
    
 Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Gain on disposal of
land use rights to
a subsidiary of
State Holding
Company (See Note
(vii))
    
    
    1,841
    
    
    
    1,573
    
    
    
    
    
    
    
    
 
 Note:(i)
    
    Sale and purchase of raw materials, supplies, scraps and diesel engines to/from State Holding
Company, its subsidiaries and affiliates. Certain subsidiaries and affiliates of State Holding
Company have acted as suppliers of raw materials and supplies to the Company and certain subsidiaries of
State Holding Company have acted as sales agents of the Group. The State Holding Company also
purchased scraps from the Group. Management considers that these transactions were entered into in
the normal course of business and expects that these transactions will continue on normal
commercial terms.(ii)
    
    Purchase of raw materials, supplies and trucks from YMCL. F-41




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##### Table of Contents



From January 2005 to April 2006, subsidiaries of YMMC engaged in the sale of trucks which were
mainly supplied by and purchased from YMCL. YMCL has also become a supplier of raw materials and
supplies to the Group since 2005. Management considers that these transactions were entered into
in the normal course of business. In April 2006, the above procurement and distribution
arrangement between Yuchai and YMCL was stopped and YMCL sold the remaining inventory and some
ancillary fixed assets back to YMMC.(iii)
    
    Processing fee and delivery expense charged by YMCL and its subsidiaries The fee is
for the packaging and delivery of spare parts charged by YMCL, which were recorded in Cost of
goods sold and Selling, general and administrative expenses respectively. Management
considers that these transactions were entered into in the normal course of business and these
transactions continued on normal commercial terms. The packaging contract was terminated in
April 2006.(iv)
    
    General and administrative expenses charged by State Holding Company State Holding
Company charges Yuchai for certain general and administrative expenses in respect of rental of
certain office premises, property management services rendered by State Holding Company. The
expenses are charged to Yuchai and its subsidiaries by State Holding Company on an actual
incurred basis. Management believes that the expenses charged to Yuchai by State Holding Company
would not have been materially different on a stand-alone basis because Yuchai could provide
these services for itself at approximately the same amount.(v)
    
    Management fees, general and administrative expenses charged by HLA.(vi)
    
    General and administrative expenses charged by affiliates of
HLA. The fees mainly relate to office rental, secretarial fees,
insurance fees, professional and consultancy fees, and miscellaneous
office expenses.(vii)
    
    Gain on disposal of land use rights to a subsidiary of State Holding CompanyThe Group has disposed of certain land use rights with net book value of Rmb552 and
Rmb552 (US$81) to a subsidiary of the State Holding Company for a consideration of Rmb2,394 and Rmb2,125 (US$311) in the years ended December 31, 2006 and 2007 respectively.In addition to the above, Yuchai also entered into transactions with other PRC Government owned
enterprises. Management considers that these transactions were entered into in the normal course
of business and expects that these transactions will continue on normal commercial terms.
Balances with other PRC entities are excluded from this caption.Amounts due to the holding company comprise mainly general and administrative expenses charged
by the holding company in relation to the management, financial planning and control and other
services provided to Yuchai. The balance is unsecured, interest free and repayable on demand. 27 Segment information
    F-42




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##### Table of Contents



2006
    
    2007
    
    2008Yuchai
    
    TCL

    

HLGE



    
    Yuchai
    
    TCL
    
    HLGE
    
    Yuchai
    
    TCL
    
    HLGERmb
    
    Rmb

    
    Rmb


    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    Rmb
    
    RmbSegment revenue from
external customers
    
    
    6,920,528
    
    
    
    
    
    
    

    
    
    
    


    9,556,303
    
    
    
    
    
    
    
    
    
    
    
    10,384,022
    
    
    
    
    
    
    
    Interest income
    
    
    16,329
    
    
    
    
    
    
    

    
    
    
    

    3,139
    
    
    
    
    
    
    
    
    
    
    
    8,623
    
    
    
    
    
    
    
    Interest expense
    
    
    89,119
    
    
    
    
    
    
    

    
    
    
    

    99,504
    
    
    
    
    
    
    
    
    
    
    
    134,245
    
    
    
    
    
    
    
    Depreciation and
amortization
    
    
    146,188
    
    
    
    
    
    
    

    
    
    
    

    227,960
    
    
    
    
    
    
    
    
    
    
    
    275,268
    
    
    
    
    
    
    
    Impairment
loss of property, plant & equipment and goodwill
    
    
    2,346
    
    
    
    
    
    
    
    
    
    
    


    781
    
    
    
    
    
    
    
    
    
    
    
    75,605
    
    
    
    
    
    
    
    Equity in
income/(losses) of
affiliates, net of tax
    
    
    79
    
    
    
    
    
    
    

    
    
    
    


    (198
    )
    
    


    
    
    
    
    
    
    
    
    1,761
    
    
    
    
    
    
    
    Income tax
(expense)/credit
    
    
    (30,466
    )
    
    
    (9,089
    )
    
    

    (265
    )
    
    


    (68,518
    )
    
    


    (9,011
    )
    
    
    (2,376
    )
    
    
    (95,249
    )
    
    
    4,645
    
    
    
    5Segment profit / (loss)
    
    
    292,359
    
    
    
    (23,923
    )
    
    

    1,395
    
    
    


    845,239
    
    
    
    5,925
    
    
    
    8,321
    
    
    
    511,839
    
    
    
    (31,788
    )
    
    
    (6,546
    )Significant non-cash
items: Other adjustments
to provisions and
allowances
    
    
    98,352
    
    
    
    
    
    
    

    
    
    
    



    4,726
    
    
    
    
    
    
    
    
    
    
    
    88,467
    
    
    
    
    
    
    
    Segment assets
    
    
    6,479,886
    
    
    
    385,583
    
    
    


    117,360
    
    
    

    7,843,056
    
    
    
    387,930
    
    
    
    112,648
    
    
    
    8,525,205
    
    
    
    265,811
    
    
    
    119,315Total expenditures for
additions to
long-lived assets
    
    
    323,781
    
    
    
    
    
    
    
    
    
    
    


    536,660
    
    
    
    
    
    
    
    
    
    
    
    361,491
    
    
    
    
    
    
    
    
  2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Total segment profit
    
    
    269,831
    
    
    
    859,485
    
    
    
    473,505
    
    
    
    69,284Service fee to an
affiliate of HLA
(see Note 26)
    
    
    (9,654
    )
    
    
    (546
    )
    
    
    (6,652
    )
    
    
    (973
    )Other corporate
general and
administrative
expenses
    
    
    (56,782
    )
    
    
    (75,025
    )
    
    
    (3,231
    )
    
    
    (474
    )Consolidated
earnings/(loss) before
income taxes and
minority interests
    
    
    203,395
    
    
    
    783,914
    
    
    
    463,622
    
    
    
    67,837Total segment assets
    
    
    6,982,829
    
    
    
    8,343,634
    
    
    
    8,910,331
    
    
    
    1,303,766Corporate cash and cash equivalents
    
    
    100,990
    
    
    
    81,257
    
    
    
    77,764
    
    
    
    11,379Other investments (long-term)(a)
    
    
    633,837
    
    
    
    608,946
    
    
    
    440,375
    
    
    
    64,436Assets
acquired from Yulin Hotel Company (Note 32)
    
    
    
    
    
    
    272,397
    
    
    
    
    
    
    
    Other corporate assets(b)
    
    
    243,701
    
    
    
    272,950
    
    
    
    284,208
    
    
    
    41,585Consolidated total assets
    
    
    7,961,357
    
    
    
    9,579,184
    
    
    
    9,712,678
    
    
    
    1,421,166
 
 Note (a):
    
    includes HLGE unsecured bonds (Rmb398,916), RCPS A (Rmb17,216), RCPS B (Rmb24,243) (see Note 17(e)).Note (b):
    
    includes corporates property, plant and equipment, goodwill and other receivables. F-43




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##### Table of Contents



Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Revenues, net4F Light-Duty Diesel Engines
    
    
    264,335
    
    
    
    380,601
    
    
    
    583,978
    
    
    
    85,4484108 Light-Duty Diesel Engines
    
    
    941,657
    
    
    
    1,218,838
    
    
    
    1,213,907
    
    
    
    177,6204110 Light-Duty Diesel Engines
    
    
    644,116
    
    
    
    1,189,995
    
    
    
    1,218,097
    
    
    
    178,2334112 Light-Duty Diesel Engines
    
    
    372,423
    
    
    
    469,015
    
    
    
    518,263
    
    
    
    75,8336105 Medium-Duty Diesel Engines
    
    
    1,705,399
    
    
    
    2,132,590
    
    
    
    2,202,856
    
    
    
    322,3246108 Medium-Duty Diesel Engines
    
    
    991,190
    
    
    
    1,424,391
    
    
    
    1,491,211
    
    
    
    218,1956112 Heavy-Duty Diesel Engines
    
    
    725,288
    
    
    
    643,373
    
    
    
    623,459
    
    
    
    91,2256113 Heavy-Duty Diesel Engines
    
    
    365,717
    
    
    
    877,177
    
    
    
    1,031,965
    
    
    
    150,998Others
    
    
    910,403
    
    
    
    1,220,323
    
    
    
    1,500,286
    
    
    
    219,5226,920,528
    
    
    
    9,556,303
    
    
    
    10,384,022
    
    
    
    1,519,398
  2006
    
    2007
    
    2008Sales
    
    SalesRevenue
    
    Revenue
    
    Sales RevenueRmb
    
    Rmb
    
    Rmb
    
    US $(in thousands)
    
    (in thousands)
    
    (in thousands)
    
    (in thousands)China
    
    
    6,893,551
    
    
    
    9,533,767
    
    
    
    10,352,114
    
    
    
    1,514,729Other countries
    
    
    26,977
    
    
    
    22,536
    
    
    
    31,908
    
    
    
    4,6696,920,528
    
    
    
    9,556,303
    
    
    
    10,384,022
    
    
    
    1,519,398
 28 Foreign currency exchange
   29 Distribution of profits
  F-44




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##### Table of Contents



30 Derivative instrument and hedging activities
  31 Significant concentrations and risks
 (a) Customer concentration
  Years ended December 31,2006
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    US$Liuzhou Dongfeng Automobile (see Note (i))
    
    
    453,090
    
    
    
    658,585
    
    
    
    574,236
    
    
    
    84,023Hubei Dongfeng Automobile (see Note (ii))
    
    
    238,400
    
    
    
    333,612
    
    
    
    233,151
    
    
    
    34,115
 
 Notes:(i):
    
    Sales to Liuzhou Dongfeng Automobile for the year ended December 31, 2006, 2007 and 2008 was
approximately 6.5%, 6.9% and 5.5% of total sales.(ii):
    
    Sales to Hubei Dongfeng Automobile for the year ended December 31, 2006, 2007 and 2008 was
approximately 3.4%, 3.5% and 2.2% of total sales.Both customers are controlled by or affiliated with Dongfeng Automobile Company. At December
31, 2007 and 2008, approximately 16.1% and 30.1% of gross trade accounts receivable,
respectively, were due from these customers. Management considers its relationships with these
major customers to be good; however, the loss of one or more of the Groups major customers
would have a material adverse effect on the Companys consolidated financial position, results
of operations and cash flows. (b) Product concentration
  (c) Supplier concentration
  (d) Material supply concentration
  (e) Nature of operations
  F-45




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##### Table of Contents



(f) Transactions involving Yuchais Chinese shareholders
    (g) Cash and cash equivalents
  December 312007
    
    2007
    
    2008
    
    2008Rmb
    
    Rmb
    
    Rmb
    
    RmbPRC
    
    Singapore
    
    PRC
    
    SingaporeRmb
    
    
    439,689
    
    
    
    
    
    
    
    615,672
    
    
    
    USD
    
    
    
    
    
    
    79,872
    
    
    
    
    
    
    
    76,987SGD
    
    
    
    
    
    
    1,384
    
    
    
    
    
    
    
    777439,689
    
    
    
    81,256
    
    
    
    615,672
    
    
    
    77,764
 32 Acquisitions
 Acquisition of Yulin Hotel Company
   Fair valuesRmb000Current assets
    
    
    7,809Property and equipment
    
    
    210,502Construction in progress
    
    
    130Lease prepayments
    
    
    48,281Goodwill
    
    
    5,675Total assets acquired
    
    
    272,397Amounts due to related parties
    
    
    19,782Other current liabilities
    
    
    7,015Total liabilities assumed
    
    
    26,797Net assets acquired
    
    
    245,600
  Acquisition
of Guangxi Yuchai Anda Gearbox Company Limited (Anda)
   F-46




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##### Table of Contents



33 Subsequent events
 (a) Multi-currency Revolving Credit Facility
  (b) HLGE S$93 million Loan Agreement
  (c) Partial Redemption of New Bonds by HLGE
  (d) Full Redemption of New Bonds by HLGE
  (e) Provincial
Government Approval for Acquisition of Yulin Hotel
Company
  34
Comparative figures
  F-47