##### 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, 2005
 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
 Commission file number: 1-11412
 BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED
 
  Not Applicable
    
    Bermuda(Translation of Registrants name into English)
    
    (Jurisdiction of Incorporation or Organization)
 Suites 1602-05, Chater House, 8 Connaught Road Central, Hong Kong
 
   Title of each class
    
    Exchange on which registeredAmerican Depositary Shares
Ordinary Shares, par value US$0.01 per share
    
    New York Stock Exchange, Inc.
The Stock Exchange of Hong Kong Limited
 Securities registered or to be registered pursuant to Section 12(g) of the Act: None
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
 Number of outstanding shares of each of the issuers classes of capital or common stock as of December 31, 2005:
    o þ
  o þ
  þ o
  o þ o
  o þ
  o þ




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Table of Contents
 PagePart IITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    
    
    1ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    1ITEM 3. KEY INFORMATION
    
    
    1ITEM 4. INFORMATION ON THE COMPANY
    
    
    15ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    38ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    51ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    61ITEM 8. FINANCIAL INFORMATION
    
    
    65ITEM 9. THE OFFER AND LISTING
    
    
    68ITEM 10. ADDITIONAL INFORMATION
    
    
    69ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    78ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    80Part IIITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    80ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    80ITEM 15. DISCLOSURE CONTROLS AND PROCEDURES
    
    
    80ITEM 16. [RESERVED]
    
    
    80ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    80ITEM 16B. CODE OF ETHICS
    
    
    81ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    81ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
    
    
    82ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    82Part IIIITEM 17. FINANCIAL STATEMENTS
    
    
    82ITEM 18. FINANCIAL STATEMENTS
    
    
    82ITEM 19. EXHIBITS
    
    
    83EX-2.1 Trust Deed, dated June 7, 2006EX-4.2 Form of Service Agreement for Executive DirectorEX-4.3 Purchase Agreement, dated May 8, 2006EX-7.1 Statement explaining how certain ratios were calculated in the annual reportEX-8.1 List of significant subsidiariesEX-12.1 Section 302 Certification of the Chief Executive OfficerEX-12.2 Section 302 Certification of the Chief Financial OfficerEX-13.1 Section 906 Certification of the CEO and CFO
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CONVENTIONS
  FORWARD-LOOKING STATEMENTS
  
    
    unexpected adverse effects on the economy of the Peoples Republic of China, or
China, and Chinas automobile sector in particular;
    
    increased competition from other domestic and international automobile manufacturers;
    
    our relative inexperience in manufacturing and selling sedans;
    
    increased costs for raw materials and components;
    
    possible further revaluation of the Renminbi against foreign currencies; and
    
    fluctuations in foreign exchange rates.
  CURRENCY TRANSLATION
  ii




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PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 Selected Financial Data
 Historical Financial Information of Brilliance China Automotive
  (Amounts in millions,
    
    As of and for the years ended December 31,except per share/ADS and operating data)
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2005(Rmb, except operating data)
    
    (US$)Income Statement Data:Total Sales
    
    
    6,218.4
    
    
    
    7,319.5
    
    
    
    10,109.6
    
    
    
    6,542.0
    
    
    
    5,469.0
    
    
    
    677.7Cost of sales
    
    
    4,308.0
    
    
    
    5,411.3
    
    
    
    7,727.1
    
    
    
    5,491.3
    
    
    
    5,012.0
    
    
    
    621.1Gross Profit
    
    
    1,910.4
    
    
    
    1,908.1
    
    
    
    2,382.4
    
    
    
    1,050.7
    
    
    
    457.0
    
    
    
    56.6Selling, general and administrative
expenses
    
    
    673.4
    
    
    
    1,067.2
    
    
    
    1,410.1
    
    
    
    1,510.4
    
    
    
    1,195.3
    
    
    
    148.1Net income (loss)
    
    
    887.1
    
    
    
    610.5
    
    
    
    780.8
    
    
    
    1.2
    
    
    
    (671.3
    )
    
    
    (83.2
    )Balance Sheet Data:Total assets
    
    
    11,696.5
    
    
    
    13,853.7
    
    
    
    18,288.2
    
    
    
    17,776.4
    
    
    
    14,692.3
    
    
    
    1,820.6Current assets
    
    
    6,127.1
    
    
    
    8,263.0
    
    
    
    10,286.5
    
    
    
    9,428.3
    
    
    
    7,110.2
    
    
    
    881.1Current liabilities
    
    
    5,741.7
    
    
    
    7,332.7
    
    
    
    8,031.0
    
    
    
    8,187.7
    
    
    
    8,059.8
    
    
    
    998.7Capital stock
    
    
    303.2
    
    
    
    303.2
    
    
    
    303.4
    
    
    
    303.4
    
    
    
    303.4
    
    
    
    37.6Total shareholders equity
    
    
    5,419.8
    
    
    
    6,005.3
    
    
    
    6,886.3
    
    
    
    6,857.7
    
    
    
    6,139.7
    
    
    
    760.8Cash Flow Statement Data:Payment for capital expenditure
    
    
    782.5
    
    
    
    798.8
    
    
    
    955.9
    
    
    
    999.1
    
    
    
    558.0
    
    
    
    69.1Depreciation and amortization
    
    
    118.1
    
    
    
    270.6
    
    
    
    677.8
    
    
    
    603.0
    
    
    
    616.6
    
    
    
    76.4Net cash flows (used in) provided by
operating activities
    
    
    1,326.8
    
    
    
    1,913.0
    
    
    
    753.4
    
    
    
    (719.3
    )
    
    
    896.3
    
    
    
    111.1Net cash flows (used in) provided by
investing activities
    
    
    (1,398.8
    )
    
    
    (2,209.9
    )
    
    
    (2,491.3
    )
    
    
    (722.4
    )
    
    
    325.6
    
    
    
    40.3Net cash flows (used in) provided by
financing activities
    
    
    (45.8
    )
    
    
    365.9
    
    
    
    2,281.1
    
    
    
    853.9
    
    
    
    (1,622.9
    )
    
    
    (201.1
    )
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(Amounts in millions,
    
    As of and for the years ended December 31,except per share/ADS and operating data)
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2005(Rmb, except operating data)
    
    (US$)Per Share/ADS Data:Basic earnings (loss) per share
    
    
    0.25
    
    
    
    0.17
    
    
    
    0.21
    
    
    
    0.0003
    
    
    
    (0.1830
    )
    
    
    (0.0227
    )Basic earnings (loss) per ADS
    
    
    25.10
    
    
    
    16.65
    
    
    
    21.30
    
    
    
    0.03
    
    
    
    (18.30
    )
    
    
    (2.27
    )Diluted earnings (loss) per share
    
    
    0.25
    
    
    
    0.17
    
    
    
    0.21
    
    
    
    0.0003
    
    
    
    (0.1830
    )
    
    
    (0.0227
    )Diluted earnings (loss) per ADS
    
    
    25.10
    
    
    
    16.65
    
    
    
    21.16
    
    
    
    0.03
    
    
    
    (18.30
    )
    
    
    (2.27
    )Cash dividends declared per ADS(1)
    
    
    0.96
    
    
    
    1.48
    
    
    
    2.12
    
    
    
    1.07
    
    
    
    n/a
    
    
    
    n/aOperating Data:Production volume (units)Minibus  Deluxe model
    
    
    9,413
    
    
    
    8,620
    
    
    
    9,291
    
    
    
    7,682
    
    
    
    8,752Minibus  Mid-priced model
    
    
    51,423
    
    
    
    56,959
    
    
    
    65,734
    
    
    
    56,215
    
    
    
    48,131Subtotal  Minibuses
    
    
    60,836
    
    
    
    65,579
    
    
    
    75,025
    
    
    
    63,897
    
    
    
    56,883Zhonghua Sedans(2)
    
    
    
    
    
    
    8,890
    
    
    
    27,054
    
    
    
    11,806
    
    
    
    6,854Total
    
    
    60,836
    
    
    
    74,469
    
    
    
    102,079
    
    
    
    75,703
    
    
    
    63,737Sales volume (units)Minibus  Deluxe model
    
    
    9,653
    
    
    
    9,017
    
    
    
    9,004
    
    
    
    6,626
    
    
    
    9,940Minibus  Mid-priced model
    
    
    53,356
    
    
    
    56,121
    
    
    
    65,614
    
    
    
    54,992
    
    
    
    50,060Subtotal  Minibuses
    
    
    63,009
    
    
    
    65,138
    
    
    
    74,618
    
    
    
    61,618
    
    
    
    60,000Zhonghua Sedans(2)
    
    
    
    
    
    
    8,816
    
    
    
    25,600
    
    
    
    10,982
    
    
    
    9,000Total
    
    
    63,009
    
    
    
    73,954
    
    
    
    100,218
    
    
    
    72,600
    
    
    
    69,000
 
 (1)
    
    Calculated using the respective U.S. dollar to Renminbi year-end noon
buying rates for the years presented. Brilliance China Automotive
declared cash dividends per ordinary share in H.K. dollars in each of
2004, 2003, 2002 and 2001.(2)
    
    Commercial production of Zhonghua sedans began in August 2002. Exchange Rate Information
  Noon Buying RatePeriod
    
    Period End
    
    Average(1)
    
    High
    
    Low2001
    
    
    8.2761
    
    
    
    8.2769
    
    
    
    8.2776
    
    
    
    8.27612002
    
    
    8.2800
    
    
    
    8.2772
    
    
    
    8.2800
    
    
    
    8.27652003
    
    
    8.2767
    
    
    
    8.2771
    
    
    
    8.2800
    
    
    
    8.27652004
    
    
    8.2765
    
    
    
    8.2768
    
    
    
    8.2774
    
    
    
    8.27642005
    
    
    8.0702
    
    
    
    8.1826
    
    
    
    8.2765
    
    
    
    8.0702January 2006
    
    
    8.0608
    
    
    
    8.0641
    
    
    
    8.0702
    
    
    
    8.0596February 2006
    
    
    8.0415
    
    
    
    8.0514
    
    
    
    8.0616
    
    
    
    8.0415March 2006
    
    
    8.0167
    
    
    
    8.0333
    
    
    
    8.0505
    
    
    
    8.0167April 2006
    
    
    8.0165
    
    
    
    8.0159
    
    
    
    8.0248
    
    
    
    8.0040May 2006
    
    
    8.0215
    
    
    
    8.0148
    
    
    
    8.0300
    
    
    
    8.0005June 2006 (through June 20, 2006)
    
    
    7.9969
    
    
    
    8.0110
    
    
    
    8.0225
    
    
    
    7.9969
 
 Source:
    
    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. (1)
    
    Determined by averaging the rates on the last business day of each
month during the respective year and on the last business day of each
week during the respective month.
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Risk Factors
  Risks Relating to Brilliance China Automotive Minibus and Sedan Businesses
 Brilliance China Automotive experienced a net loss of Rmb 671.3 million in 2005 and may not be
profitable in 2006 or in subsequent years.
    If demand for minibuses and sedans in China does not increase, and if Shenyang Automotive does not
increase its market share, the ability of Shenyang Automotive to increase its sales volume will be
adversely impacted.
  3




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Delays in the development of new products, lack of consumer acceptance of new products and
unforeseen shifts in consumer preferences may have a negative effect on Brilliance China
Automotives financial results.
  Brilliance China Automotive has experienced a management turnover and could continue to have
problems retaining and recruiting key personnel in the future.
 
  There are significant risks involved in Brilliance China Automotives joint venture with BMW to
produce BMW sedans in China.
  4




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The ownership of Brilliance China Automotive by its largest shareholder is currently the subject of
litigation.
     Failure by Brilliance China Automotive to continue to form and maintain alliances with foreign
automobile manufacturers could adversely affect its competitiveness.
  The inability of Shenyang Automotive to access Toyotas technical resources to upgrade Shenyang
Automotives products, or Toyotas provision of assistance to any of Shenyang Automotives
competitors could negatively impact Shenyang Automotives sales and competitive position.
  5




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Any delay or disruption in Shenyang Automotives ability to obtain engines from Toyota could limit
Shenyang Automotives ability to produce its deluxe minibuses.
  Any delay or disruption in Shenyang Automotives ability to obtain engines could limit Shenyang
Automotives ability to produce its Zhonghua sedans.
   If Brilliance China Automotive fails to upgrade its existing production facilities or build new
facilities in a timely and cost-efficient manner, its businesses, financial condition and results
of operation may be negatively affected.
  6




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Shenyang Automotives competitors may have access to more advanced technology, greater financial
resources and more substantial support from the Chinese government, which could negatively affect
Shenyang Automotives competitive position.
  Huachen, as Brilliance China Automotives substantial shareholder, may not always act in the best
interest of other shareholders.
  Significant changes in the cost or availability of raw materials or components may have a material
adverse impact on Brilliance China Automotives results of operations.
  Product liabilities and recall claims may adversely affect Brilliance China Automotives results of
operation.
  7




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Brilliance China Automotives business and future growth depend on availability of funding.
  Brilliance China Automotive is required to comply with increasingly stringent environmental
standards applicable to its vehicles and manufacturing facilities.
  Brilliance China Automotive may encounter difficulties for compliance with the Sarbanes-Oxley Act
of 2002.
  8




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There is no assurance that the research and development carried out by Brilliance China Automotive
will materialize in products that can achieve market acceptance.
   Brilliance China Automotives intellectual property rights may be infringed by third parties and,
Brilliance China Automotive may also face infringement claims brought by third parties.
   Brilliance China Automotive has uninsured risks.
  Brilliance China Automotive may not succeed under the Local Branding approach to maintain and
strengthen the name recognition of its Zhonghua brand and may subsequently suffer loss as PRC
consumers give more weight to brand recognition as they make auto purchase decisions.
  9




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Risks Relating to the Minibus and Sedan Industries in China
 Chinas automobile demands may become more volatile due to macroeconomic factors.
   
    
    economic and monetary policies implemented by the Chinese government;
    
    availability of automobile consumption loans;
    
    availability of automobile insurance policies;
    
    consumer confidence;
    
    volatility in petroleum, diesel and other commodity prices; and
    
    development of transportation infrastructure, for example express ways.
   Competition is intense in Chinas automobile industry.
   10




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Reduced tariffs and import restrictions on foreign-made motor vehicles and motor vehicle components
as a result of Chinas entry into the WTO may lead to increased competition for Brilliance China
Automotive.
    The automobile industry is heavily regulated in China, and automobile-related regulations may
become even more stringent in the future.
  
    
    crash test requirements and other safety standards in relation to automobile and
automotive parts and components;
    
    emission standards;
    
    maximum fuel consumption;
    
    minimum warranty requirements;
    
    automobile recall requirements;
    
    noise, waste, discharge and other pollution controls relating to manufacturing of automobiles;
    
    restrictions on road use, including time restriction and segmental restriction; and
 
    
    market entry requirements and/or minimum production requirements for automobile and
automotive components and partsmanufacturers.
 
 11




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Chinas automobile industry is significantly dependent upon the economy of China.
  Increase in fuel prices may adversely affect demand for automobiles.
  
    
    have an adverse impact on Chinas economy and may thereby result in a slow down for
automobile demand;
    
    increase Brilliance China Automotives production costs due to increase in costs of
petrochemical products; and
    
    discourage customers from purchasing automobiles due to increased running costs.
  Chinas re-adjustment of consumption taxes on vehicles may cause decline of demand for certain
models Brilliance China Automotive currently manufactures.
  12




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Risks Relating to Chinas Economy and Regulatory System
 Chinas economic, political and social conditions, as well as government policies, could affect
Brilliance China Automotives businesses.
  
    
    extent of government involvement;
    
    level of development;
    
    growth rate;
    
    control of foreign exchange; and
    
    allocation of resources.
   Exchange rates fluctuations may affect the results of operations of Brilliance China Automotive.
   13




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Budgetary constraints on Chinas government entities and state enterprises could affect Shenyang
Automotives sales and pricing of products.
  Any significant failure or disruption of Chinas banking system could materially and adversely
affect Brilliance China Automotives ability to obtain credit.
  Shenyang Automotives ability to obtain sufficient foreign exchange to satisfy its requirements is
dependent on authorization of the State Administration of Foreign Exchange of China.
  There are inherent uncertainties in Chinas legal system which may affect Brilliance China
Automotive.
   14




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Other Risks
 There can be no assurance that there will not be another significant outbreak of a highly
contagious disease.
   
 ITEM 4. INFORMATION ON THE COMPANY
 History and Development of Brilliance China Automotive
      15




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16




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Business Overview
       17




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Principal Products
     18




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DeluxeMinibus
    
    Deluxe
    
    Mid-priced
    
    Zhonghua
    
    Zhonghua(Granvia or
    
    Minibus
    
    Minibus
    
    Sedan
    
    SedanGranse Model(1))
    
    (Hiase Model)
    
    (Hiase Model)
    
    Zunchi
    
    JunjieMaximum number
of passengers
    
    7-8
    
    15
    
    15
    
    5
    
    5Engine type
    
    Toyota 4-cylinder
2.7 liter gasoline
engine and
Mianyang
Xinchen 2.7 liter
gasoline engine
    
    Toyota 4-cylinder
2.4 liter gasoline
engine and
Mitsubishi 2.4
liter gasoline
engine
    
    Mianyang Xinchen
and Shenyang
Xinguang
4-cylinder
2.2 liter gasoline
engine
    
    Mitsubishi
4-cylinder
2.0 and 2.4 liter
gasoline
engine
    
    Mitsubishi
4-cylinder
1.8 and 2.0 liter
and Mitsubishi
DongAn 1.6 liter
gasoline
engineHorsepower
    
    105
    
    100.6
    
    92.5
    
    122-130
    
    134-173Price Range in Rmb(2)
    
    119,800-239,800
    
    121,800-156,800
    
    64,800-101,800
    
    105,800-209,800
    
    85,800-128,800Fuel Consumption
(Liters/100 km)(3)(4)
    
    10
    
    10
    
    9.8
    
    6.8(MT)/
7.6(AT)
    
    10.1 (MT)/
10.7 (AT)Maximum speed(4)
    
    158 km/hr
    
    130 km/hr
    
    130 km/hr
    
    195 km/hr (MT)/
185 km/hr (AT)
    
    185 km/hr (MT)/
180 km/hr (AT)Domestic component content
    
    > 80%
    
    > 85%
    
    100%
    
    92-100%
    
    90-99%Length
    
    4.7 m
    
    4.8 m
    
    4.8 m
    
    4.88 m
    
    4.65 m
 
 (1)
    
    Known as Grace before February 2004.(2)
    
    Actual price depends on specific model.(3)
    
    Based on an average speed of 50-55 kilometers per hour for minibuses
and 80 kilometers per hour for sedans.(4)
    
    MT denotes manual transmission and AT denotes automatic transmission.  BMW Brilliance
    
    BMW Brilliance3-Series Sedan
    
    5-Series SedanModels
    
    Series 320 and 325
    
    Series 520, 525 and 530Maximum number of
passengers
    
    5
    
    5Engine types
    
    BMW 4 and 6-cylinder
1.9 liter and 2.5 liter
gasoline engines
    
    BMW 6-cylinder
2.0 liter, 2.5 liter
and 3.0 liter
gasoline enginesHorsepower
    
    150  218 bhp
    
    170  231 bhpPrice range in Rmb(1)
    
    338,000  454,200
    
    484,300  648,800Fuel Consumption
(Liters/100 km)(2)
    
    7.4  8.4
    
    9.8  9.9Maximum speed
    
    220  245 km/hr
    
    230  250 km/hrLength
    
    4.52 m
    
    4.84 m
 
 (1)
    
    Actual price depends on specific model.(2)
    
    Based on an average speed of 80 kilometers per hour. 19




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Deluxe minibus
   Mid-priced minibus
   20




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Zhonghua sedan
   2003
    
    
    2004
    
    
    2005Revenue
    
    
    
    
    
    
    Revenue
    
    
    
    
    
    
    Revenue(Rmb million)
    
    
    %
    
    
    (Rmb million)
    
    
    %
    
    
    (Rmb million)
    
    
    %Minibus salesDeluxe minibus
    
    
    1,284
    
    
    
    12.7
    
    
    
    960
    
    
    
    14.7
    
    
    
    958
    
    
    
    17.5Mid-priced minibus
    
    
    4,962
    
    
    
    49.1
    
    
    
    3,797
    
    
    
    58.1
    
    
    
    2,989
    
    
    
    54.7Zhonghua
sedan sales(1)
    
    
    3,345
    
    
    
    33.1
    
    
    
    1,324
    
    
    
    20.2
    
    
    
    863
    
    
    
    15.8Subtotal
    
    
    9,591
    
    
    
    94.9
    
    
    
    6,081
    
    
    
    93.0
    
    
    
    4,810
    
    
    
    88.0Other sources of income(2)
    
    
    519
    
    
    
    5.1
    
    
    
    461
    
    
    
    7.0
    
    
    
    659
    
    
    
    12.0Total
    
    
    10,110
    
    
    
    100.0
    
    
    
    6,542
    
    
    
    100.0
    
    
    
    5,469
    
    
    
    100.0
 
 (1)
    
    Commercial launch of the Zhonghua sedan occurred in August 2002.(2)
    
    Including sales of components and scrap metal. 21




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##### Table of Contents



2003
    
    
    2004
    
    
    2005Province/
    
    Revenue
    
    
    
    
    
    
    Revenue
    
    
    
    
    
    
    RevenueMunicipality
    
    (Rmb million)
    
    
    %
    
    
    (Rmb million)
    
    
    %
    
    
    (Rmb million)
    
    
    %Beijing
    
    
    1,686
    
    
    
    17.6
    
    
    
    1,131
    
    
    
    18.6
    
    
    
    755
    
    
    
    15.7Guangdong
    
    
    1,502
    
    
    
    15.7
    
    
    
    821
    
    
    
    13.5
    
    
    
    529
    
    
    
    11.0Liaoning
    
    
    964
    
    
    
    10.1
    
    
    
    644
    
    
    
    10.6
    
    
    
    567
    
    
    
    11.8Shanghai
    
    
    720
    
    
    
    7.5
    
    
    
    566
    
    
    
    9.3
    
    
    
    452
    
    
    
    9.4Jiangsu
    
    
    660
    
    
    
    6.9
    
    
    
    389
    
    
    
    6.4
    
    
    
    283
    
    
    
    5.9Zhejiang
    
    
    686
    
    
    
    7.1
    
    
    
    328
    
    
    
    5.4
    
    
    
    188
    
    
    
    3.9Shandong
    
    
    465
    
    
    
    4.8
    
    
    
    237
    
    
    
    3.9
    
    
    
    183
    
    
    
    3.8Tianjin
    
    
    257
    
    
    
    2.7
    
    
    
    183
    
    
    
    3.0
    
    
    
    115
    
    
    
    2.4Heilongjiang
    
    
    212
    
    
    
    2.2
    
    
    
    134
    
    
    
    2.2
    
    
    
    82
    
    
    
    1.7Hebei
    
    
    226
    
    
    
    2.4
    
    
    
    128
    
    
    
    2.1
    
    
    
    87
    
    
    
    1.8Hubei
    
    
    189
    
    
    
    2.0
    
    
    
    128
    
    
    
    2.1
    
    
    
    82
    
    
    
    1.7Hunan
    
    
    180
    
    
    
    1.9
    
    
    
    128
    
    
    
    2.1
    
    
    
    96
    
    
    
    2.0Shaanxi
    
    
    165
    
    
    
    1.7
    
    
    
    128
    
    
    
    2.1
    
    
    
    77
    
    
    
    1.6Henan
    
    
    168
    
    
    
    1.7
    
    
    
    110
    
    
    
    1.8
    
    
    
    106
    
    
    
    2.2Sichuan
    
    
    240
    
    
    
    2.5
    
    
    
    103
    
    
    
    1.7
    
    
    
    115
    
    
    
    2.4Shanxi
    
    
    106
    
    
    
    1.1
    
    
    
    103
    
    
    
    1.7
    
    
    
    72
    
    
    
    1.5Fujian
    
    
    184
    
    
    
    1.9
    
    
    
    91
    
    
    
    1.5
    
    
    
    63
    
    
    
    1.3Jilin
    
    
    136
    
    
    
    1.4
    
    
    
    85
    
    
    
    1.4
    
    
    
    72
    
    
    
    1.5Chongqing
    
    
    145
    
    
    
    1.5
    
    
    
    85
    
    
    
    1.4
    
    
    
    48
    
    
    
    1.0Xinjiang
    
    
    117
    
    
    
    1.2
    
    
    
    79
    
    
    
    1.3
    
    
    
    63
    
    
    
    1.3Yunnan
    
    
    89
    
    
    
    0.9
    
    
    
    79
    
    
    
    1.3
    
    
    
    43
    
    
    
    0.9Anhui
    
    
    102
    
    
    
    1.1
    
    
    
    79
    
    
    
    1.3
    
    
    
    53
    
    
    
    1.1Guangxi
    
    
    96
    
    
    
    1.0
    
    
    
    73
    
    
    
    1.2
    
    
    
    34
    
    
    
    0.7Jiangxi
    
    
    77
    
    
    
    0.8
    
    
    
    55
    
    
    
    0.9
    
    
    
    34
    
    
    
    0.7Inner Mongolia
    
    
    44
    
    
    
    0.5
    
    
    
    49
    
    
    
    0.8
    
    
    
    34
    
    
    
    0.7Guizhou
    
    
    52
    
    
    
    0.5
    
    
    
    30
    
    
    
    0.5
    
    
    
    19
    
    
    
    0.4Hainan
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    0.3
    
    
    
    106
    
    
    
    2.2Other(1)
    
    
    123
    
    
    
    1.3
    
    
    
    97
    
    
    
    1.6
    
    
    
    452
    
    
    
    9.4Total
    
    
    9,591
    
    
    
    100.0
    
    
    
    6,081
    
    
    
    100.0
    
    
    
    4,810
    
    
    
    100.0
 
 (1)
    
    Gansu, Ningxia, Qinghai and Tibet as well as export to other countries. 22




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##### Table of Contents



BMW Brilliance
     Production Process
 Minibus Production Process and Equipment
 
    
    Stamping. Shenyang Automotive produces its own semi-finished steel sheets for
stamping on a roll, drop and stack production line. Stamping is carried out at nine
production stations that utilize 36 domestic and imported presses, the largest of which
is calibrated at 3,200 tons and is used to stamp roofs and side panels for the deluxe
and mid-priced minibuses. The 198 and 277 dies used for stamping and cutting body
components for the Hiase and Granse minibuses, respectively, were purchased from
Toyota. Substantially all of the stamped metal vehicle components utilized in Shenyang
Automotives minibuses are produced in this stamping workshop.
    
    Welding. The welding workshop consists of 2 production lines and 13 process
conveying lines, among which the Hiase has 6 lines and the Granse has 7 lines. Each
line is focused on a different section of the minibus. These lines were manufactured
with Toyota technology and utilize a combination of manual welding and automatic
robotic welding, the latter of which is utilized for the more difficult welding points.
Each welding station is equipped with a domestically manufactured testing machine. The
annual production capacity based on two shifts is 120,000 units among which 80,000
units are dedicated to the existing minibuses and 40,000 units to the Granse.
    
    Painting. Shenyang Automotive currently operates a 50,000 square foot painting
workshop that was set up at the beginning of 2004 to enhance the production capacity.
The new painting workshop has three floors, each with its own function. The new
workshop has an annual production capacity of 120,000 units, with space reserved for
expansion up to an annual production capacity of 150,000. The new workshop uses a
painting method that combines the use of a conveyor, automated machine and robotic
machine. Steps taken to prepare the vehicle body for painting include de-greasing,
rinsing, phosphatization and electrophoretic coating. Using the 3C1B process, each of
three coats of paint is applied by a sprayer to the minibus body and dried in a heated drying chamber. The
specialized pre-painting preparation of the vehicle allows the frame to withstand
corrosion for eight years. Also, the high standard of cleanliness in the painting
workshop and the advanced paint sprayers used allow Shenyang Automotive to reduce
environmental pollution, provide better working conditions for the painting workshop
employees, conserve raw materials and ensure that each minibus receives three
consistent, high-quality coats of paint. Finally, various quality control tests are
conducted, including measurement of the luster and thickness of the paint on each
vehicle.
 23




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##### Table of Contents




    
    Assembly. Shenyang Automotives final assembly workshop is equipped with a
combination single slot, hanging and double slot conveyor. The conveyor is 570 meters
long, has 86 separate workstations and is capable of producing minibuses at the rate of
one every 160 seconds. Shenyang Automotive also developed jointly with the Shenyang
Automation Research Center of the China Science Institute an automated lifting system
that is used in the assembly of the power train, rear chassis and crank case, as well
as a computerized hydraulic machine for carrying out the transfer from a single rail
conveyor onto a hanging line conveyor  the first of its kind to be developed in
China.
    
    Testing. Shenyang Automotive employs an advanced comprehensive vehicle testing
system to ensure that each vehicle conforms to specifications, including wheel
alignment, exhaust emissions, steering, braking and engine performance and testing, and
windshield leakage testing. All of these final testing procedures are also supported by
a comprehensive quality control staff that monitors each step of the production
process. See  Business Overview  Quality Control below.
 Zhonghua Sedan Production Process and Equipment
 
    
    Stamping. At present, 147 pieces for 206 types of large and medium parts of the
Zhonghua sedan (including Zunchi and Junjie) are produced in the stamping (or pressing)
workshop. There are 593 imported and domestically produced moulds, five large and
medium pressing lines, among which the line producing large (2,300 ton) parts was
imported from Schuler of Germany and is equipped with robots to handle automated
production. There is also an uncoiling and blanking line from Schuler, which can supply
parts for up to seven production lines, as well as a 100-ton molding press imported
from Kawasaki of Japan. The other pressing lines were purchased from a domestic
equipment manufacturer.
    
    Welding. The welding workshop is required to assemble and weld 394 separate panels,
30 machined parts, 10 roll-pressed parts and 30 standard parts. This line was designed,
manufactured and installed by Kuka of Germany. The welding line consists of 24 zones
and 331 stations, and is capable of spot-welding, carbon dioxide welding, project
welding, T-stud welding, sealing, brazing and hemming. At present, there are 43 working
robots in this workshop, which are used to weld, seal and inspect at the most important
stations on the line. The SKID apparatus that transports components both on the ground
and overhead adds speed and efficiency to the welding process.
    
    Painting. Zhonghua sedans and the BMW-branded sedans share the same painting line.
All of the equipment used in the painting line is provided by Durr of Germany, and the
paint supply system was imported from Graco of the United States. Steps involved in the
body painting process include pre-treatment, E-coat, sealing, PVC, primer, top-coat and
cavity wax. The painting line is highly mechanized and automated, with a central
control system imported from Siemens. The painting line may switch paints of different
colors within 10 seconds and 15 paints of different colors may be used in the same
painting line. All of the paints and other materials utilized in paint workshop are
high quality products sourced both from within China and abroad.
    
    Assembly and Testing. The performance of the assembly and testing workshop is guided
by an information system based on bar code technology. The layout of the final assembly
shop is designed by Schenck Engineering of Germany and consists of the body buffer
line, main production line, test line, water proof line, finishing line and marriage
line, as well as various sub-lines and a rework area. The assembly line utilizes a
double-track conveyer system for transporting the vehicles through each process.
    
    Instrument Production.The instrument panel workshop, occupying an area of 3,700
square meters, produces Zhonghua instrument panels. The processes include vacuum
shaping, foaming, hydrocutting and welding, and use seven different machines. The
workshop has a high production capacity for the production of parts and assembly of
instrument panels.
 24




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##### Table of Contents



BMW Sedan Production Process
  
    
    Welding. The manufacturing and welding process in the welding workshop is performed
according to the BMW Groups global standard. The dimensional quality is checked with a
CMM Machine from Wenzel Company of Germany. The sourced welding equipment is from
standard suppliers in Germany. The welding workshop contains stud welding, spot
welding, mig welding and sealing operations. The line operators have been trained by
the BMW Groups specialists and the process is controlled by the BMW Groups
specialists from Germany. The quality checks and audits are consistent with those
performed at other BMW Group plants.
    
    Painting. All of the equipment used in the painting line is provided by Durr of
Germany, and the paint supply system was imported from Graco of the United States.
Steps involved in the body painting process are highly mechanized and automated, with a
central control system imported from Siemens. All of the paints and other materials
utilized in the paint workshop are high quality products sourced both from within China
and abroad.
    
    Assembly. The assembly workshop consists of two areas, both using conveyor systems
designed by the German supplier AFT with 58 line stations in total, as well as handling
devices for heavy parts from Dalmec Company.
    
    Testing. The finishing and testing equipment is located in the second area of the
assembly workshop. A wide range of special equipment used in BMW Groups plants
worldwide is used to test 100% of the cars produced.
 Raw Materials and Components
 Raw Materials
  Components
 25




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##### Table of Contents



Other Significant Subsidiaries, Jointly Controlled Entities and Associated Companies
  Mianyang Xinchen
   26




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##### Table of Contents



Ningbo Yuming
  Shenyang Xinguang
   Xing Yuan Dong, Ningbo Brilliance Ruixing and Mianyang Brilliance Ruian
    27




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##### Table of Contents



Shenyang Aerospace
  Brilliance Dongxing and Xingchen Automotive Seats
  Brilliance JinBei Engine Plant
    28




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##### Table of Contents



Shenyang Brilliance Power Train Machinery Co., Ltd.
  Shenyang Chenfa Automobile Component Co., Ltd.
  Sales and Marketing
  Shenyang Automotive
 2003
    
    
    2004
    
    
    2005Units Sold
    
    
    %
    
    
    Units Sold
    
    
    %
    
    
    Units Sold
    
    
    %Shenyang AutomotiveDeluxe minibus
    
    
    9,004
    
    
    
    9.0
    
    
    
    6,626
    
    
    
    9.1
    
    
    
    9,940
    
    
    
    14.4Mid-priced minibus
    
    
    65,614
    
    
    
    65.5
    
    
    
    54,992
    
    
    
    75.8
    
    
    
    50,060
    
    
    
    72.6Zhonghua sedan
    
    
    25,600
    
    
    
    25.5
    
    
    
    10,982
    
    
    
    15.1
    
    
    
    9,000
    
    
    
    13.0Total
    
    
    100,218
    
    
    
    100.0
    
    
    
    72,600
    
    
    
    100.0
    
    
    
    69,000
    
    
    
    100.0BMW BrillianceBMW sedans(1)
    
    
    4,359
    
    
    
    100.0
    
    
    
    8,708
    
    
    
    100.0
    
    
    
    17,501
    
    
    
    100.0
 
 (1)
    
    Commercial launch of the BMW sedans was in the fourth quarter of 2003.  29




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##### Table of Contents



2003
    
    
    2004
    
    
    2005Minibuses
    
    
    Sedans
    
    
    Minibuses
    
    
    Sedans
    
    
    Minibuses
    
    
    SedansProvince/Municipality
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %Beijing
    
    
    15,679
    
    
    
    21.0
    
    
    
    2,876
    
    
    
    11.2
    
    
    
    13,031
    
    
    
    21.1
    
    
    
    1,002
    
    
    
    9.1
    
    
    
    10,395
    
    
    
    17.3
    
    
    
    453
    
    
    
    5.0Guangdong
    
    
    13,000
    
    
    
    17.4
    
    
    
    3,158
    
    
    
    12.3
    
    
    
    9,385
    
    
    
    15.2
    
    
    
    825
    
    
    
    7.5
    
    
    
    7,107
    
    
    
    11.8
    
    
    
    467
    
    
    
    5.2Liaoning
    
    
    7,780
    
    
    
    10.4
    
    
    
    2,408
    
    
    
    9.4
    
    
    
    6,173
    
    
    
    10.0
    
    
    
    1,145
    
    
    
    10.4
    
    
    
    6,461
    
    
    
    10.8
    
    
    
    1,650
    
    
    
    18.3Shanghai
    
    
    6,571
    
    
    
    8.8
    
    
    
    1,301
    
    
    
    5.1
    
    
    
    6,933
    
    
    
    11.3
    
    
    
    296
    
    
    
    2.7
    
    
    
    6,347
    
    
    
    10.6
    
    
    
    141
    
    
    
    1.6Jiangsu
    
    
    5,415
    
    
    
    7.3
    
    
    
    1,550
    
    
    
    6.1
    
    
    
    4,254
    
    
    
    6.9
    
    
    
    569
    
    
    
    5.2
    
    
    
    3,915
    
    
    
    6.5
    
    
    
    138
    
    
    
    1.5Zhejiang
    
    
    5,071
    
    
    
    6.8
    
    
    
    2,002
    
    
    
    7.8
    
    
    
    3,534
    
    
    
    5.7
    
    
    
    505
    
    
    
    4.6
    
    
    
    2,578
    
    
    
    4.3
    
    
    
    88
    
    
    
    1.0Shandong
    
    
    2,221
    
    
    
    3.0
    
    
    
    2,114
    
    
    
    8.3
    
    
    
    1,927
    
    
    
    3.1
    
    
    
    812
    
    
    
    7.4
    
    
    
    2,313
    
    
    
    3.9
    
    
    
    296
    
    
    
    3.3Tianjin
    
    
    1,683
    
    
    
    2.3
    
    
    
    870
    
    
    
    3.4
    
    
    
    1,512
    
    
    
    2.5
    
    
    
    552
    
    
    
    5.0
    
    
    
    1,468
    
    
    
    2.4
    
    
    
    185
    
    
    
    2.1Heilongjiang
    
    
    1,542
    
    
    
    2.1
    
    
    
    614
    
    
    
    2.4
    
    
    
    1,094
    
    
    
    1.8
    
    
    
    334
    
    
    
    3.0
    
    
    
    1,079
    
    
    
    1.8
    
    
    
    94
    
    
    
    1.0Hebei
    
    
    1,351
    
    
    
    1.8
    
    
    
    862
    
    
    
    3.4
    
    
    
    1,089
    
    
    
    1.8
    
    
    
    361
    
    
    
    3.3
    
    
    
    1,187
    
    
    
    2.0
    
    
    
    44
    
    
    
    0.5Hubei
    
    
    1,343
    
    
    
    1.8
    
    
    
    595
    
    
    
    2.3
    
    
    
    1,104
    
    
    
    1.8
    
    
    
    373
    
    
    
    3.4
    
    
    
    1,136
    
    
    
    1.9
    
    
    
    53
    
    
    
    0.6Hunan
    
    
    1,274
    
    
    
    1.7
    
    
    
    572
    
    
    
    2.2
    
    
    
    1,006
    
    
    
    1.6
    
    
    
    408
    
    
    
    3.7
    
    
    
    1,125
    
    
    
    1.9
    
    
    
    275
    
    
    
    3.1Shaanxi
    
    
    998
    
    
    
    1.3
    
    
    
    651
    
    
    
    2.5
    
    
    
    993
    
    
    
    1.6
    
    
    
    447
    
    
    
    4.1
    
    
    
    958
    
    
    
    1.6
    
    
    
    126
    
    
    
    1.4Henan
    
    
    1,013
    
    
    
    1.4
    
    
    
    614
    
    
    
    2.4
    
    
    
    937
    
    
    
    1.5
    
    
    
    299
    
    
    
    2.7
    
    
    
    1,285
    
    
    
    2.1
    
    
    
    207
    
    
    
    2.3Sichuan
    
    
    1,063
    
    
    
    1.4
    
    
    
    1,161
    
    
    
    4.5
    
    
    
    751
    
    
    
    1.2
    
    
    
    386
    
    
    
    3.5
    
    
    
    1,007
    
    
    
    1.7
    
    
    
    623
    
    
    
    7.0Shanxi
    
    
    806
    
    
    
    1.1
    
    
    
    274
    
    
    
    1.1
    
    
    
    815
    
    
    
    1.3
    
    
    
    323
    
    
    
    3.0
    
    
    
    922
    
    
    
    1.5
    
    
    
    143
    
    
    
    1.6Fujian
    
    
    1,184
    
    
    
    1.6
    
    
    
    637
    
    
    
    2.5
    
    
    
    811
    
    
    
    1.3
    
    
    
    229
    
    
    
    2.1
    
    
    
    824
    
    
    
    1.3
    
    
    
    98
    
    
    
    1.1Jilin
    
    
    848
    
    
    
    1.1
    
    
    
    523
    
    
    
    2.0
    
    
    
    845
    
    
    
    1.4
    
    
    
    146
    
    
    
    1.3
    
    
    
    950
    
    
    
    1.6
    
    
    
    55
    
    
    
    0.6Chongqing
    
    
    882
    
    
    
    1.2
    
    
    
    541
    
    
    
    2.1
    
    
    
    549
    
    
    
    0.9
    
    
    
    351
    
    
    
    3.2
    
    
    
    476
    
    
    
    0.8
    
    
    
    232
    
    
    
    2.6Xinjiang
    
    
    1,080
    
    
    
    1.5
    
    
    
    237
    
    
    
    0.9
    
    
    
    764
    
    
    
    1.3
    
    
    
    166
    
    
    
    1.5
    
    
    
    830
    
    
    
    1.4
    
    
    
    90
    
    
    
    1.0Yunnan
    
    
    301
    
    
    
    0.4
    
    
    
    482
    
    
    
    1.9
    
    
    
    674
    
    
    
    1.1
    
    
    
    244
    
    
    
    2.2
    
    
    
    551
    
    
    
    0.9
    
    
    
    90
    
    
    
    1.0Anhui
    
    
    776
    
    
    
    1.0
    
    
    
    317
    
    
    
    1.2
    
    
    
    748
    
    
    
    1.2
    
    
    
    201
    
    
    
    1.8
    
    
    
    663
    
    
    
    1.1
    
    
    
    101
    
    
    
    1.1Guangxi
    
    
    662
    
    
    
    0.9
    
    
    
    299
    
    
    
    1.2
    
    
    
    681
    
    
    
    1.1
    
    
    
    161
    
    
    
    1.5
    
    
    
    478
    
    
    
    0.8
    
    
    
    30
    
    
    
    0.3Jiangxi
    
    
    446
    
    
    
    0.6
    
    
    
    301
    
    
    
    1.2
    
    
    
    440
    
    
    
    0.7
    
    
    
    193
    
    
    
    1.8
    
    
    
    396
    
    
    
    0.7
    
    
    
    120
    
    
    
    1.3Inner Mongolia
    
    
    373
    
    
    
    0.5
    
    
    
    99
    
    
    
    0.4
    
    
    
    355
    
    
    
    0.6
    
    
    
    203
    
    
    
    1.9
    
    
    
    414
    
    
    
    0.7
    
    
    
    92
    
    
    
    1.0Guizhou
    
    
    231
    
    
    
    0.3
    
    
    
    246
    
    
    
    1.0
    
    
    
    139
    
    
    
    0.2
    
    
    
    166
    
    
    
    1.5
    
    
    
    161
    
    
    
    0.3
    
    
    
    110
    
    
    
    1.2Hainan
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    0.3
    
    
    
    39
    
    
    
    0.4
    
    
    
    1,519
    
    
    
    2.5
    
    
    
    31
    
    
    
    0.3Other(1)
    
    
    1,017
    
    
    
    1.3
    
    
    
    296
    
    
    
    1.2
    
    
    
    899
    
    
    
    1.5
    
    
    
    246
    
    
    
    2.2
    
    
    
    3,455
    
    
    
    5.8
    
    
    
    2,968
    
    
    
    33.0Total
    
    
    74,618
    
    
    
    100.0
    
    
    
    25,600
    
    
    
    100.0
    
    
    
    61,618
    
    
    
    100.0
    
    
    
    10,982
    
    
    
    100.0
    
    
    
    60,000
    
    
    
    100.0
    
    
    
    9,000
    
    
    
    100.0
 
 (1)
    
    Gansu, Ningxia, Qinghai and Tibet as well as export to other countries.  30




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##### Table of Contents



Competition
   31




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##### Table of Contents



Minibus
 
    
    Southeast Motors. Southeast Motors is currently 25% owned by Taiwan China Motors,
50% owned by Fujian Provincial Automobile Industry Company and 25% owned by Mitsubishi.
Southeast Motors has launched over thirty different models of light passenger vehicles
(including minibuses) under the Delica and Freeca brand names and also launched the MPV
in 2004. Southeast Motors has an annual production capacity of 60,000 minibuses in
2005. Its sales volume in 2005 was 12,827 minibuses, representing a 32.8% decrease from
19,080 minibuses in 2004. Delica series includes seven-, eight- and eleven-seat
ordinary, luxury and super luxury models and is currently priced between Rmb 79,800 to
Rmb 199,800.
    
    Nanjing Iveco.In 1995, Italys Fiat Auto Company and Yuejin Group established
Nanjing Iveco Automotive Company, Ltd., a 50-50 equity joint venture, for the
manufacture of 33 models of five-ton passenger, goods and off-road vehicles in the
Iveco S series. Models currently in production include the A30, A40 and A49 passenger
vehicles, as well as a separate series of goods vehicles. Nanjing Iveco has an annual
production capacity of 60,000 vehicles. In 2005, Nanjing Iveco sold 12,885 vehicles,
representing a 23.8% increase from 10,407 minibuses in 2004. Its minibuses are
currently priced between Rmb 112,900 to Rmb 206,900.
    
    Jiangling Motors.Jiangling Motors Corp. of Jiangxi Province is currently 50% owned
by the Ford Motor Company and 50% owned by the Changan Group. Jiangling Motors produced
China Transit, a Ford brand minibus, light trucks and pick-ups. At present, China
Transit is available in 15-seat, 12-seat and 9-seat versions. In 2005, Jiangling Motors
sold a total of 18,887 minibuses, representing a 37.3% increase from 13,752 vehicles in
2003. Production capacity was approximately 100,000 per year by the end of 2005. Its
minibuses are currently priced between Rmb 118,800 to Rmb 193,600.
 32




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##### Table of Contents



Zhonghua Sedan
  
    
    First Auto Works Group of the PRC. First Auto Works is one of the largest automotive
companies in the PRC. First Auto Works Hongqi sedan was launched in 2001 and is
considered one of the PRC governments showcase PRC-made sedans. Its latest model is
known as the Hongqi Mingshi, was launched in 2004, and has a 1.8-liter engine with four
doors. It is priced at approximately Rmb 159,800 to Rmb 198,800, similar to the
Zhonghua sedan. First Auto Works sold 6,664 Honqi Mingshi sedans in 2005, representing
a 3.8% decrease from 2004.
    
    Shanghai Volkswagen Automotive. Shanghai Volkswagen Automotive was one of the
original state-designed automobile manufacturers in the PRC. It is currently 50% owned
by Volkswagen AG of Germany and 50% owned by Shanghai Automotive Industry Corp. It
still holds a dominant share of the PRC sedan market and competes with the Zhonghua
sedan through the Santana 3000 sedans. The Santana 3000 has a 1.78-liter engine and
sells for between Rmb 118,000 to Rmb 149,000. In 2005, Shanghai Volkswagen Automotive
sold 56,953 units of Santana 3000 sedans representing a 36.9% decrease from 2004.
    
    Beijing Hyundai. Beijing Hyundai was established in 2002 as a 50-50 joint venture
between Beijing Auto Investment and Hyundai Motor Co. of South Korea. It currently
produces and sells the Sonata 2.0-liter, Sonata 2.5-liter and Sonata 2.7-liter, and the
newly-introduced Elantra 1.6-liter and 1.8-liter models. The Sonata 2.0-liter sells for
approximately Rmb 149,800 to Rmb 228,000. The Elantra 1.8 liter sedan sells for
approximately Rmb 112,800 to Rmb 151,800. In 2005, Beijing Hyundai sold 45,006 units
and 176,589 units of the Sonata 2.0 liter and the Elantra, respectively, representing
an increase of 14.7% and 71.9%, respectively.
 BMW Sedans
  
    
    FAW Volkswagen. FAW Volkswagen is 10% owned by Audi AG, 30% by Volkswagen AG and 60%
by First Auto Works of China. FAW Volkswagen produces and sells the Audi A4 and A6
sedans and the Volkswagen Jetta and Bora sedans in the PRC. FAW Volkswagens Audi
sedans have a dominant share of the PRCs premium sedan market. FAW Volkswagen sold
46,177 and 42,331 units of Audi A6 sedans in 2004 and 2005, respectively. The Audi A4
sedan was formally launched in the PRCs market in 2003 and had a total sales volume of
15,841 and 7,770 in 2004 and 2005, respectively. A new Audi A6 was launched in June 2005. The Audi A4 sedan currently sells for between Rmb
275,400 to Rmb 479,500, and the new Audi A6 sedan sells for between Rmb 349,800 to Rmb
674,900.
 
    
    Beijing Benz.Beijing Benz Daimler Chrysler Auto Co Ltd., or Beijing Benz, a 50-50
joint venture between Daimler Chrysler and Beijing Automotive Industry Holding Company,
obtained a license to produce the Mercedes-Benz C-Class and E-Class sedans in the PRC
in August 2005. Beijing Benz launched its domestically produced models of E280 and
E200K in December 2005. These E-Class sedans currently are sold between Rmb 525,000 and
Rmb 639,800 in the PRC. The vehicles are produced in a new facility in Beijing with an
initial production capacity of 20,000 units per year.
  33




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Governmental Regulation
        34




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##### Table of Contents



Quality Control
    After-Sales Service
     35




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##### Table of Contents



Environmental Matters
   Insurance
  36




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##### Table of Contents



Organizational Structure
  EffectiveInterest held byJurisdiction of
    
    Brilliance ChinaSubsidiaries
    
    Incorporation
    
    AutomotiveShenyang Brilliance JinBei Automobile Co., Ltd.
    
    China
    
    
    51.0
    %Ningbo Yuming Machinery Industrial Co., Ltd.
    
    China
    
    
    100.0
    %Shenyang XingYuanDong Automobile Component Co., Ltd.
    
    China
    
    
    100.0
    %Shenyang Jianhua Motors Engine Co., Ltd.
    
    China
    
    
    60.8
    %Ningbo Brilliance Ruixing Auto Components Co., Ltd.
    
    China
    
    
    100.0
    %Mianyang Brilliance Ruian Automotive Components Co., Ltd.
    
    China
    
    
    100.0
    %Shenyang JinBei Automotive Industry Holdings Company Ltd.
    
    China
    
    
    98.0
    %Shenyang XinJinBei Investment and Development Co., Ltd.
    
    China
    
    
    99.0
    %Shenyang Brilliance Dongxing Automotive Component Co., Ltd.
    
    China
    
    
    100.0
    %Shenyang JinDong Development Co., Ltd.
    
    China
    
    
    75.5
    %Shenyang ChenFa Automobile Component Co., Ltd.
    
    China
    
    
    100.0
    %Shanghai Hidea Auto Design Co., Ltd.
    
    China
    
    
    63.3
    %Shenyang Brilliance Power Train Machinery Co., Ltd.
    
    China
    
    
    75.0
    %China Brilliance Automotive Components Group Limited
    
    Bermuda
    
    
    100.0
    %Southern State Investment Limited
    
    BVI
    
    
    100.0
    %Beston Asia Investment Limited
    
    BVI
    
    
    100.0
    %Pure Shine Limited
    
    BVI
    
    
    100.0
    %Key Choices Group Limited
    
    BVI
    
    
    100.0
    %Brilliance China Automotive Finance Ltd.
    
    BVI
    
    
    100.0
    %Jointly Controlled EntitiesMianyang Xinchen Engine Co., Ltd.
    
    China
    
    
    50.0
    %Shenyang Xinguang Brilliance Automobile Engine Co., Ltd.
    
    China
    
    
    50.0
    %BMW Brilliance Automotive Ltd.
    
    China
    
    
    49.0
    %Associated CompaniesChongqing FuHua Automotive Sales Service Co., Ltd.
    
    China
    
    
    29.4
    %Chongqing Baosheng Automotive Sale and Service Co., Ltd.
    
    China
    
    
    29.4
    %Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd.
    
    China
    
    
    12.8
    %
 Property, Production Facilities and Equipment
     37




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##### Table of Contents



ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 The following discussion should be read in conjunction with the rest of this annual report,
including the consolidated financial statements and notes thereto contained elsewhere in this
annual report. The results discussed below are not necessarily indicative of the results to be
expected in any future periods.
 Overview
   38




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.
 39




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##### Table of Contents



Production Volumes and Sales
   Costs and Expenses
   40




---



##### Table of Contents



Results of Operations
 Year ended December 31,2005
    
    
    2004
    
    
    2003(Thousands of Rmb)Sales to third parties
    
    
    3,859,151
    
    
    
    4,402,141
    
    
    
    7,797,054Sales to affiliated companies
    
    
    1,609,839
    
    
    
    2,139,857
    
    
    
    2,312,503Total sales
    
    
    5,468,990
    
    
    
    6,541,998
    
    
    
    10,109,557Cost of sales
    
    
    (5,011,955
    )
    
    
    (5,491,250
    )
    
    
    (7,727,125
    )Gross profit
    
    
    457,035
    
    
    
    1,050,748
    
    
    
    2,382,432Selling, general and administrative expenses
    
    
    (1,195,336
    )
    
    
    (1,510,442
    )
    
    
    (1,410,067
    )Interest expense
    
    
    (182,354
    )
    
    
    (182,458
    )
    
    
    (167,111
    )Interest income
    
    
    60,189
    
    
    
    58,800
    
    
    
    52,672Equity in earnings of associated companies and
jointly controlled entities, net
    
    
    48,995
    
    
    
    126,261
    
    
    
    109,471Subsidy income
    
    
    3,139
    
    
    
    1,815
    
    
    
    48,497Other income, net
    
    
    43,650
    
    
    
    25,709
    
    
    
    78,293Impairment loss on intangible assets(1)
    
    
    (173,000
    )
    
    
    (50,000
    )
    
    
    Impairment loss on goodwill(2)
    
    
    (257,720
    )
    
    
    (47,320
    )
    
    
    (Loss) income before taxation and minority interests
    
    
    (1,195,402
    )
    
    
    (526,887
    )
    
    
    1,094,187(Provision) benefit for income taxes
    
    
    (101,884
    )
    
    
    63,110
    
    
    
    (144,140
    )Minority interests
    
    
    625,997
    
    
    
    464,991
    
    
    
    (169,205
    )Net (loss) income
    
    
    (671,289
    )
    
    
    1,214
    
    
    
    780,842
 
 (1)
    
    In 2005, a provision for impairment of intangible assets of Rmb 173.0
million in respect of the design and development costs of the Zhonghua
sedans was recognized.(2)
    
    In 2005, an impairment loss on goodwill of Rmb 257.7 million in
relation to one of Brilliance China Automotives jointly controlled entities and a subsidiary was recognized. 41




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##### Table of Contents



Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
           42




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##### Table of Contents



Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
      43




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##### Table of Contents



Contingent Liabilities and Outstanding Guarantees
   
    
    Corporate guarantees of approximately Rmb 120 million (US$14.9 million) for
revolving bank loans and notes drawn by affiliated companies of Shanghai Shenhua
Holdings Co., Ltd., or Shanghai Shenhua. The guarantee arose from the mutual
negotiation between Shenyang Automotive and Shanghai Shenhua. Associated with the
corporate guarantee, Shanghai Shenhua also provided a cross guarantee for the bank
facilities of Shenyang Automotive. The guarantee was for revolving activities of
Shanghai Shenhua and will be terminated upon mutual agreements between Shenyang
Automotive and Shanghai Shenhua. If Shanghai Shenhua defaults on the repayment of its
bank loans or notes when they fall due, Shenyang Automotive is required to repay the
outstanding balance. There is no recourse or collateralization provision in the
guarantee. Default by Shanghai Shenhua and its affiliated companies is considered
remote by management and therefore no liability for the guarantors obligation under
the guarantee existed as of December 31, 2005.
 44




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##### Table of Contents




    
    A joint and several proportional corporate guarantee with a joint venture
partner of Shenyang Aerospace on a long-term bank loan of approximately Rmb 111 million
(US$13.8 million) drawn by Shenyang Aerospace which will expire in 2008. The guarantee
was provided by the Group and a joint venture partner of Shenyang Aerospace for its
long-term loan financing needs during its start-up period. If Shenyang Aerospace
defaults on the repayment of its bank loan when it falls due, the Group and the joint
venture partners are jointly and severally liable to repay the outstanding balance.
There is no recourse or collateralization provision in the guarantee. Default by
Shenyang Aerospace is considered remote by management and therefore no liability for
the guarantors obligation under the guarantee existed as of December 31, 2005.
    
    Corporate guarantees of bank loans amounting to Rmb 295 million (US$36.6 million),
which is also the maximum potential amount of future payments under the guarantee as of
December 31, 2005, drawn by JinBei. Bank deposits of Rmb 311 million (US$38.5 million)
were pledged as a collateral for the corporate guarantees. However, default by JinBei
is considered remote by management and therefore no liability for the guarantors
obligation under the guarantee existed as of December 31, 2005.
   Liquidity and Capital Resources
  Payment due by period(In thousands of Rmb)Less than 1
    
    1-3
    
    4-5
    
    More than 5Contractual Obligations
    
    Total
    
    year
    
    years
    
    years
    
    yearsNotes payable (1)
    
    
    3,026,952
    
    
    
    3,026,952
    
    
    
    
    
    
    
    
    
    
    
    Notes payable to affiliated companies (2)
    
    
    74,092
    
    
    
    74,092
    
    
    
    
    
    
    
    
    
    
    
    Convertible bonds (3)
    
    
    1,650,637
    
    
    
    1,650,637
    
    
    
    
    
    
    
    
    
    
    
    Financing from BMW Brilliance (4)
    
    
    109,784
    
    
    
    109,784
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations (relating to
offices and property)
    
    
    72,441
    
    
    
    13,501
    
    
    
    19,290
    
    
    
    3,706
    
    
    
    35,944Unconditional purchase obligations
    
    
    248,258
    
    
    
    248,258
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    5,182,164
    
    
    
    5,123,224
    
    
    
    19,290
    
    
    
    3,706
    
    
    
    35,944
 
 (1)
    
    Approximately Rmb 2.7 billion of the Rmb 3.0 billion notes payable had effective interest
rates of 3% to 4%. The remaining Rmb 0.3 billion notes payable were interest free.(2)
    
    Notes payable to affiliated companies are non-interest bearing.(3)
    
    Included in the amount is a total accreted redemption premium payable on November 28, 2006 of
approximately Rmb 36.6 million. The accreted redemption premium as of December 31, 2005 of
approximately Rmb 25.4 million was calculated based on the outstanding principal of the
convertible bonds using the effective interest method.(4)
    
    Accrued interest of approximately Rmb 35.2 million was calculated on the outstanding
principal using the compound interest method at an effective annual rate of 11.127% on a
quarterly basis. 
 45




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##### Table of Contents



Cash Flows
    
    
    decreases in notes receivable from third parties and from affiliated companies in
the amounts of Rmb 243.4 million and Rmb 306.2 million, respectively, for the year
ended December 31, 2005, as compared to a decrease of Rmb 206.6 million and an increase
of Rmb 118.0 million for the year ended December 31, 2004;
    
    a decrease in inventory of Rmb 569.5 million (US$70.6 million) for the year ended
December 31, 2005, as compared to an increase in inventory of Rmb 328.2 million for the
year ended December 31, 2004;
    
    a decrease in notes and accounts payable of Rmb 333.3 million (US$41.3 million) for
the year ended December 31, 2005, as compared to a decrease of Rmb 391.1 million for
the year ended December 31, 2004; and
    
    an increase in amounts due to affiliated companies of Rmb 171.9 million (US$21.3
million) for the year ended December 31, 2005, as compared to a decrease in such
amounts due of Rmb 162.1 million for the year ended December 31, 2004.
   Debt Changes
  46




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##### Table of Contents



Capital Expenditures
  Foreign Currency Requirements
   47




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##### Table of Contents



Research and Development, Patents and Licenses, etc.
  Trend information
  
    
    Increased Demand for Motor Vehicles. The rate of increase in Chinas gross domestic
product has been one of the highest in the world over the past decade, and this growth
has fueled demand for automobiles. In fact, demand in the Chinese automobile industry
has been growing over the past several years at a faster rate than the growth in
Chinas gross domestic product. This trend is expected to have a favorable impact on
Brilliance China Automotives sales volume for both minibuses and sedans. However, due
to the implementation of macro-economic policies and austerity measures, there was a
significant slowdown in growth in domestic demand for automobiles since the second half
of 2004. Therefore, while growth in demand for automobiles is expected to continue, it
is likely to increase at a slower rate than in prior years.
    
    Competition. As a result of Chinas accession to the WTO, domestic production of
automobiles (including minibuses and sedans) is expected to increase, particularly
through Sino-foreign joint ventures that are being established for this purpose.
Formation of new Sino-foreign joint ventures and further investments by foreign auto
makers to increase the capacity of existing operations could result in overcapacity and
increased domestic competition for Brilliance China Automotive and greater downward
pressure on vehicle prices as competitors begin to employ a higher ratio of
domestically produced components and as more competitors achieve economies of scale due
to increased volume of production.
    
    Price. Retail prices in the automotive market are expected to continue to fall as a
result of the localization of production and sourcing of components as described
immediately above as well as increased competition. A decrease in average selling
prices may lower margins and cause industry-wide deterioration of profitability. This
expected decline in vehicle prices will likely have an adverse effect on Brilliance
China Automotives gross income and profits.
    
    Growth, Consolidation and Development. On June 2, 2004, the NDRC issued a new
automotive policy for China, which will likely result in consolidation in the industry
and further the development and sophistication of the automobile industry in areas such
as consumer financing and research and development. The new policy sets minimum levels
of investment for new plants and research and development, imposes vehicle import
tariffs instead of component tariffs on semi-knocked down imports and, under certain
conditions, allows foreign investors to control more than 50% of a joint venture with
Chinese partners and open more than two joint venture plants in China to produce the
same categories of vehicles. The new policy acknowledges the success of Chinas
automobile industry and seeks to encourage this pillar industry to foster further
growth, particularly of domestically produced and branded products and research and
development, through consolidation of smaller, less-efficient manufacturers and
increased foreign and domestic investment. In addition, the policy aims to centralize
or reorganize certain automobile-related sectors, such as consumer loan services, to
reduce overhead and administrative burdens on the industry and allow industry
participants to focus on their core businesses. By encouraging industry consolidation
and establishing clearer guidelines for foreign investment, the policy encourages existing players in the industry to grow and provides
incentives for targeted investment from both domestic and foreign sources. However, the
ultimate impact of the new policy on Brilliance China Automotive is still uncertain and
subject to more detailed guidance and implementing regulations that are expected to be
promulgated by the NDRC in the future.
    
    Improvements in Chinas Infrastructure. China continues to improve and expand its
roadway system. By making automobile travel a more practical and accessible mode of
transportation for motorists in China, such improvements in Chinas infrastructure will
likely add to demand for automobiles.
    
    Rising Fuel Prices.Chinas fuel prices reached historical heights in May 2006 and
may continue to increase. Such increases will likely have a negative influence on
Brilliance China Automotives sales volume.
 48




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Critical Accounting Policies
    Revenue Recognition
   Warranties
  49




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##### Table of Contents



Inventories
  Impairment of long-lived assets
  Deferred Taxation
  Transactions with affiliated companies
  Recent Accounting Pronouncements
    50




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##### Table of Contents



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 Directors and Senior Management
   Year FirstElected or AppointedName
    
    Age
    
    Position
    
    Director or OfficerExecutive DirectorsWu Xiao An
    
    
    44
    
    
    Chairman of the Board and Executive Vice President
    
    
    1994Qi Yumin
    
    
    46
    
    
    President and Chief Executive Officer
    
    
    2006He Guohua
    
    
    55
    
    
    Director
    
    
    2005Wang Shiping
    
    
    49
    
    
    Director
    
    
    2005Lei Xiaoyang
    
    
    49
    
    
    Director
    
    
    2003Independent Non-Executive DirectorsXu Bingjin
    
    
    66
    
    
    Director
    
    
    2003Song Jian
    
    
    49
    
    
    Director
    
    
    2004Jiang Bo
    
    
    46
    
    
    Director
    
    
    2004OthersZha Jianping
    
    
    35
    
    
    Chief Financial Officer
    
    
    2005Zhang Ruiping
    
    
    35
    
    
    Qualified Accountant
    
    
    2004
 51




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Executive Directors
  
    52




---



##### Table of Contents



Independent Non-Executive Directors
    Others
    53




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##### Table of Contents



Compensation
  Board Practices
  Service Agreements
  Audit Committee
  Meetings
  Authority and Duties
   
    
    be primarily responsible for the appointment, re-appointment and removal of the
external auditor, the remuneration and terms of the engagement of the external auditor,
and the resignation or dismissal of the external auditor;
    
    review and monitor the external auditors independence and objectivity and the
effectiveness of the audit process in accordance with applicable standards, and to
oversee the work of external auditor (including resolution of disagreements between
management and the external auditor regarding financial reporting). The committee should establish with the external auditor the
nature and scope of the audit and reporting obligations before the audit commences;
 54




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
    
    develop and implement policy on the engagement of an external auditor to supply
non-audit services. For this purpose, external auditor shall include any entity that
is under common control, ownership or management with the audit firm or any entity that
a reasonable and informed third party having knowledge of all relevant information
would reasonably conclude as part of the audit firm nationally or internationally. The
committee should identify to the Board any matters in respect of which it considers
that action or improvement is needed and make recommendations as to the steps to be
taken;
    
    monitor the integrity of financial statements of Brilliance China Automotive and
Brilliance China Automotives annual reports and accounts, interim reports and, if
prepared for publication, quarterly reports, and to review significant financial
reporting judgments contained in them. In this regard, in reviewing Brilliance China
Automotives reports and accounts before submission to the board, the committee should
focus particularly on:
 
    
    changes in accounting policies and practices;
    
    accounting policies which require difficult, subjective or complex judgments
(also known as critical accounting policies);
    
    significant adjustments resulting from audits;
    
    going concern assumptions and any qualifications;
    
    compliance with accounting standards; and
    
    compliance with listing rules of stock exchange(s) and other applicable legal
and regulatory requirements and guidance in relation to financial reporting;
 
    
    In regard to the review of financial information:
 
    
    members of the committee must liaise with the Board, senior management and the
person appointed as Brilliance China Automotives qualified accountant;
    
    the committee must meet at least once a year with the external auditor; and
    
    the committee should consider any significant or unusual items that are, or may
need to be, reflected in such reports and accounts and must give due consideration
to any matters that have been raised by Brilliance China Automotives qualified
accountant, compliance officer (if any) or auditor;
 
    
    establish procedures for the receipt, retention and treatment of complaints
regarding accounting, internal accounting controls or auditing matters, including
procedures for the confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters;
    
    review Brilliance China Automotives financial controls, internal control and risk
management systems;
    
    discuss with the management the system of internal control and ensure that
management has discharged its duty to establish and maintain an effective internal
control system;
    
    discuss policies with respect to risk assessment and risk management;
    
    consider the findings of investigations of internal control matters as delegated by
the board, or on the committees own initiative, and review managements response;
 55




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##### Table of Contents




    
    where an internal audit function exists, to ensure co-ordination between the
internal and external auditors, to ensure that the internal audit function is
adequately resourced and has appropriate standing within Brilliance China Automotive,
and to review and monitor the effectiveness of the internal audit function;
    
    where an internal audit function exists, to meet separately, periodically, with
management, with internal auditors (or other personnel responsible for the internal
audit function) and with external auditors;
    
    review the groups financial and accounting policies and practices;
    
    review the external auditors management letter, any material queries raised by the
external auditor to management in respect of the accounting records, financial accounts
or systems of control, and managements response;
    
    review with the external auditor any audit problems or difficulties and managements
response;
    
    ensure that the board provides a timely response to the issues raised in the
external auditors management letter;
    
    report to the board on the matters set out in the code provision of Rule C.3 of
Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of
Hong Kong Limited;
    
    give pre-approval of other services and fees of the external auditor;
    
    set clear hiring policies for employees or former employees of the external auditors;
    
    report regularly to the board of the result of their review of the financial
reporting system and internal control procedures and recommendations (if any) thereon;
and
    
    consider other topics, as determined from time to time by the board.
  Remuneration Committee
  Meetings
  56




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##### Table of Contents



Authority and Duties
   
    
    make recommendations to the board on the policy and structure for all remuneration
of the directors and senior management of Brilliance China Automotive and its
subsidiaries and on the establishment of a formal and transparent procedure for
developing the policy of Brilliance China Automotive and its subsidiaries on such
remuneration;
    
    determine the specific remuneration packages of all executive directors and senior
management, including benefits in kind, pension rights and compensation payments,
including any compensation payable for loss or termination of their office or
appointment, and make recommendations to the board on the remuneration of non-executive
directors;
    
    review and approve performance-based remuneration in accordance with corporate goals
and objectives resolved by the board from time to time;
    
    review and approve the compensation payable to executive directors and senior
management in connection with any loss or termination of their office or appointment in
order to ensure that such compensation is determined in accordance with relevant
contractual terms and that such compensation is otherwise fair and not excessive for
Brilliance China Automotive and its subsidiaries;
    
    review and approve compensation arrangements relating to dismissal or removal of
directors for misconduct to ensure that such arrangements are determined in accordance
with relevant contractual terms and that any compensation payment is otherwise
reasonable and appropriate;
    
    ensure that no director or any of his associates is involved, directly or
indirectly, in deciding such directors remuneration; and
    
    in respect of any service agreement to be entered into between Brilliance China
Automotive/its subsidiaries and its respective director or proposed director, the prior
approval of which by the shareholders of Brilliance China Automotive in general meeting
is required pursuant to the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the Listing Rules), to review and provide
recommendations to the shareholders of Brilliance China Automotive (other than the
shareholders who are directors with a material interest in the relevant service
agreements and their respective associates (as defined in the Listing Rules)) as to
whether the terms of the service agreements are fair and reasonable and whether such
service agreements are in the interests of Brilliance China Automotive and the
shareholders as a whole, and to advise shareholders on how to vote.
 57




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##### Table of Contents



Summary Corporate Governance Differences
  NYSE
    
    Brilliance China AutomotiveListed companies must have
a majority of independent
directors. Companies must
identify which directors are
independent and disclose the
basis for that determination.
    
    Brilliance China Automotive is not
required to have a majority of
independent directors. Under the rules
of The Stock Exchange of Hong Kong
Limited, Brilliance China Automotive is
required to have at least three independent non-executive directors.
Brilliance China Automotive identifies
the status of each director based on
standards set forth by The Stock
Exchange of Hong Kong Limited. Under
those standards, the board of directors
need not affirmatively determine that a
director has no material relationship
with the listed company (either
directly or as a partner, shareholder
or officer of an organization that has
a relationship with the company) for
that director to be deemed independent.
It is for the independent non-executive
directors to make the relevant
declaration. Every independent
non-executive director has to declare
his independency at the time of his
appointment and on an annual basis.Non-management directors must
meet at executive sessions
without management.
    
    Non-management directors are not
required to meet at executive sessions
without management.Listed companies must have a
nominating/corporate governance
committee composed entirely of
independent directors.
    
    Brilliance China Automotive is not
required to have a nominating/corporate
governance committee composed entirely
of independent directors and does not
have such a committee.Listed companies must have a
compensation committee composed
entirely of independent
directors.
    
    Brilliance China Automotive has
established a remuneration committee.
The remuneration committee must consist
of not less than three members, a
majority of whom must be independent
non-executive directors.Listed companies must adopt and
disclose a code of business
conduct and ethics for
directors, officers and
employees, and promptly disclose
any waivers of the code for
directors or executive officers.
    
    Brilliance China Automotive is not
required to adopt a code of business
conduct and ethics for directors,
officers and employees and is not
required to promptly disclose any
waivers of any such code for directors
or executive officers. Brilliance China
Automotive has adopted a Model Code for
Securities Transactions by Directors
and a Code for Securities Transactions
by Employees that, among other things,
sets forth a policy for compliance with
securities laws, primarily insider
trading, and has also adopted an
Employee Handbook that, among other
things, contains procedures for
compliance with securities laws, a
policy on confidential information and
a code of conduct.
 58




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##### Table of Contents



Employees
    Functional Area
    
    Number of EmployeesAdministrative personnel
    
    
    1,448Technical personnel
    
    
    1,336Production workers
    
    
    6,127Total
    
    
    8,911
   Share Ownership
  Employee Share Option Schemes
 The 1999 Share Option Scheme
   Number of share options2005
    
    
    2004At January 1,
    
    
    14,490,000
    
    
    
    15,490,000Cancelled/Lapsed during the year
    
    
    (11,690,000
    )
    
    
    (1,000,000
    )At December 31,
    
    
    2,800,000
    
    
    
    14,490,000
  59




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##### Table of Contents



New Share Option Scheme
  (a)
    
    the closing price of the common stock on the relevant stock exchange as stated
in such stock exchanges quotation sheet on the date of the offer of grant, which must
be a trading date;(b)
    
    the average closing price of the common stock on the relevant stock exchange as
stated in such stock exchanges quotation sheets for the five trading days immediately
preceding the date of the offer of grant; or(c)
    
    the nominal value of the common stock.
    Call Option Agreements
     60




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##### Table of Contents



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 Major Shareholders
  Number of Shares
    
    Percent ofTitle of Class
    
    Identity of Person or Group
    
    Owned
    
    Capital StockOrdinary Shares
    
    Huachen Automotive Group Holdings Company Limited(1)
    
    
    1,446,121,500
    
    
    
    39.42
    %Ordinary Shares
    
    Templeton Asset Management Ltd.
    
    
    215,388,000
    
    
    
    5.87
    %Ordinary Shares
    
    Brandes Investment Partners, L.P.
    
    
    306,052,000
    
    
    
    8.34
    %
 
 (1)
    
    Huachen Automotive Group Holdings Company Limited is a
wholly owned subsidiary of the Liaoning Provincial
Government.  Related Party Transactions
   61




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##### Table of Contents



2005
    
    
    2004
    
    
    2003(Rmb 000)Sales to JinBei and its affiliated companies
    
    
    69,432
    
    
    
    38,127
    
    
    
    150,637Purchases from JinBei and its affiliated companies
    
    
    383,808
    
    
    
    764,311
    
    
    
    986,828Sales to Shanghai Shenhua and its affiliated companies
    
    
    1,469,402
    
    
    
    1,895,881
    
    
    
    1,984,715Purchases from Shanghai Shenhua and its affiliated companies
    
    
    85,354
    
    
    
    214,467
    
    
    
    222,940Sales to other affiliated companies of Brilliance Holdings Limited
    
    
    
    
    
    
    
    
    
    
    504Purchases from a joint venture partner of Shenyang Aerospace
    
    
    1,987
    
    
    
    39,019
    
    
    
    Subcontracting charges to BMW Brilliance
    
    
    112,160
    
    
    
    178,685
    
    
    
    17,438Purchases from other affiliated companies of Brilliance Holdings
Limited
    
    
    66,441
    
    
    
    89,690
    
    
    
    93,498Purchases from associated companies and jointly controlled entities
    
    
    524,221
    
    
    
    898,914
    
    
    
    1,597,289Sales to affiliated companies of the joint venture partner of Ningbo
Yuming
    
    
    
    
    
    
    
    
    
    
    5,135Purchases from affiliated companies of the joint venture partner of
Ningbo Yuming
    
    
    
    
    
    
    342
    
    
    
    16,338Sales to associated companies and jointly controlled entities
    
    
    71,005
    
    
    
    205,849
    
    
    
    171,512Consideration paid to the joint venture partner of Ningbo Yuming for
acquisition of further interests in Ningbo Yuming
    
    
    
    
    
    
    10,000
    
    
    
    Purchase of intangible asset from an affiliated company of the joint
venture partner of Ningbo Yuming
    
    
    
    
    
    
    6,940
    
    
    
    Finance charge to a jointly controlled entity
    
    
    17,329
    
    
    
    17,850
    
    
    
    Operating lease rental on machineries and equipment charged by a
jointly controlled entity
    
    
    2,260
    
    
    
    12,840
    
    
    
    12,000Operating lease rental from a jointly controlled entity
    
    
    15,078
    
    
    
    15,364
    
    
    
    Sales of property, plant and equipment to JinBei and its affiliated
companies
    
    
    
    
    
    
    4,407
    
    
    
    Sales of property, plant and equipment to a jointly controlled entity
    
    
    263
    
    
    
    1,105
    
    
    
    Purchase of machinery from JinBei and its affiliated companies
    
    
    
    
    
    
    58,089
    
    
    
    Service income from a jointly controlled entity
    
    
    43,671
    
    
    
    
    
    
    
    
    62




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##### Table of Contents




    
    a corporate guarantee of approximately Rmb 120 million (US$14.9 million) for
revolving bank loans and notes drawn by affiliated companies of Shanghai Shenhua.
However, default by Shanghai Shenhua and its affiliated companies is considered remote
by management and therefore no liability for the guarantors obligation under the
guarantee existed as of December 31, 2005;
    
    a joint and several proportional guarantee with all the initial joint venture
partners of Shenyang Aerospace on a long-term bank loan of approximately Rmb 111
million (US$13.8 million) drawn by Shenyang Aerospace that will expire in 2008.
However, default by Shanghai Aerospace is considered remote by management and therefore
no liability for the guarantors obligation under the guarantee existed as of December
31, 2005; and
    
    corporate guarantees for bank loans amounting to Rmb 295 million (US$36.6 million)
drawn by JinBei. Bank deposits of Rmb 311 million were pledged as a collateral for the
corporate guarantee. However, However, default by JinBei is considered remote by
management and therefore no liability for the guarantors obligation under the
guarantee existed as of December 31, 2005.
  2005
    
    
    2004
    
    
    2003(Rmb 000)Notes receivable from affiliated companiesNotes receivable from affiliated companies of JinBei
    
    
    9,446
    
    
    
    22,500
    
    
    
    4,505Notes receivable from Shanghai Shenhua
    
    
    328,482
    
    
    
    601,348
    
    
    
    487,770Notes receivable from associated companies and jointly
controlled entities
    
    
    1,042
    
    
    
    21,295
    
    
    
    31,900Notes receivable from an affiliated company of the joint
venture partner of Ningbo Yuming
    
    
    
    
    
    
    
    
    
    
    3,000Total(1)
    
    
    338,970
    
    
    
    645,143
    
    
    
    527,175Amounts due from affiliated companiesDue from Shanghai Shenhua and its affiliated companies
    
    
    276,763
    
    
    
    386,710
    
    
    
    54,967Due from Shanghai Yuantong(2)
    
    
    
    
    
    
    
    
    
    
    355,835Due from affiliated companies of the joint venture partner
of Ningbo Yuming
    
    
    
    
    
    
    
    
    
    
    4,408Due from affiliated companies of JinBei
    
    
    62,877
    
    
    
    58,312
    
    
    
    53,242Due from affiliated companies of Brilliance Holdings Limited
    
    
    54,222
    
    
    
    
    
    
    
    Due from associated companies and jointly controlled entities
    
    
    205,565
    
    
    
    75,224
    
    
    
    46,453Due from a joint venture partner of Shenyang Aerospace
    
    
    1,505
    
    
    
    882
    
    
    
    Receivable arising from the disposal of machineries and
equipment to BMW Brilliance(3)
    
    
    269,003
    
    
    
    269,003
    
    
    
    269,003Provision for doubtful debts
    
    
    (29,720
    )
    
    
    (24,720
    )
    
    
    (9,720
    )Total
    
    
    840,215
    
    
    
    765,411
    
    
    
    774,188
 
 (1)
    
    The notes receivable from affiliated companies are guaranteed by banks
in China and have maturities of six months or less. The fair value of
the notes receivable approximates their carrying value.(2)
    
    The amounts due from Shanghai Yuantong as of December 31, 2003 were
non-interest bearing. Subsequent to December 31, 2003, Rmb 350 million
of endorsed bank notes were received from Shanghai Yuantong.(3)
    
    The outstanding balance is unsecured, non-interest bearing and will be
settled by BMW Brilliance when certain conditions specified in the
agreement of sale are fulfilled. 63




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##### Table of Contents



2005
    
    
    2004
    
    
    2003(Rmb 000)Advances to affiliated companiesAdvances to JinBei and its affiliated companies
    
    
    16,185
    
    
    
    16,786
    
    
    
    69,748Advances to associated companies and jointly controlled entities
    
    
    7,226
    
    
    
    22,528
    
    
    
    Advances to Shanghai Shenhua
    
    
    9,045
    
    
    
    
    
    
    
    Advances to Brilliance Holdings Limited and its affiliated companies
    
    
    15,273
    
    
    
    
    
    
    
    172,955Advances to other affiliated companies (non-interest bearing)
    
    
    452
    
    
    
    138
    
    
    
    779Provision for doubtful debts
    
    
    (9,250
    )
    
    
    (1,975
    )
    
    
    Total
    
    
    38,931
    
    
    
    37,477
    
    
    
    243,482
  2005
    
    
    2004
    
    
    2003(Rmb 000)Advances from affiliated companiesAdvances from affiliated companies of Brilliance Holdings Limited
    
    
    28,558
    
    
    
    14,319
    
    
    
    15,294Advances from an associated company
    
    
    607
    
    
    
    
    
    
    
    Advances from an affiliated company of Shanghai Shenhua
    
    
    236
    
    
    
    230
    
    
    
    Advances from affiliated companies of JinBei
    
    
    1,088
    
    
    
    945
    
    
    
    516Advances from affiliated companies of the joint venture partner
of Ningbo Yuming
    
    
    
    
    
    
    
    
    
    
    1,845Advances from other affiliated companies
    
    
    
    
    
    
    382
    
    
    
    382Financing received from BMW Brilliance
    
    
    74,605
    
    
    
    74,605
    
    
    
    74,605Total
    
    
    105,094
    
    
    
    90,481
    
    
    
    92,642
  64




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##### Table of Contents



2005
    
    
    2004
    
    
    2003(Rmb 000)Notes payable to affiliated companiesNotes payable to affiliated companies of JinBei
    
    
    8,139
    
    
    
    24,229
    
    
    
    27,272Notes payable to associated companies and jointly controlled entities
    
    
    22,491
    
    
    
    91,892
    
    
    
    8,059Notes payable to other affiliated companies
    
    
    
    
    
    
    925
    
    
    
    100Notes payable to affiliated companies of Brilliance Holdings Limited
    
    
    43,462
    
    
    
    
    
    
    
    Notes payable to Shanghai Shenhua
    
    
    
    
    
    
    4,116
    
    
    
    Total
    
    
    74,092
    
    
    
    121,162
    
    
    
    35,431Amounts due to affiliated companiesDue to JinBei and its affiliated companies
    
    
    142,438
    
    
    
    195,166
    
    
    
    216,559Due to other affiliated companies of Brilliance Holdings Limited
    
    
    22,025
    
    
    
    8,705
    
    
    
    2,478Due to Shanghai Shenhua and its affiliated companies
    
    
    4,191
    
    
    
    40,570
    
    
    
    84,417Due to affiliated companies of the joint venture partner of Ningbo
Yuming
    
    
    
    
    
    
    
    
    
    
    1,037Due to affiliated companies of the joint venture partner of Xinguang
Brilliance
    
    
    
    
    
    
    
    
    
    
    4,967Due to associated companies and jointly controlled entities
    
    
    465,023
    
    
    
    276,951
    
    
    
    375,396Due to other affiliated companies
    
    
    130
    
    
    
    1,330
    
    
    
    Total
    
    
    633,807
    
    
    
    522,722
    
    
    
    684,854
    
 ITEM 8. FINANCIAL INFORMATION
 Consolidated Statements and Other Financial Information
  Legal Proceedings
 Broadsino Litigation
  65




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##### Table of Contents



(i)
    
    overturning on February 11, 2003 an ex parte Court Order dated January 22, 2003
which had restrained Brilliance China Automotive from, amongst other things,
registering the transfer of the Sale Shares by the Foundation to Huachen and/or Huachen
to certain directors of Brilliance China Automotive;
 (ii)
    
    initiating on March 10, 2003, a Strikeout Summons at the Supreme Court to have
the Writ and the statement of claim struck out, which proceedings were duly heard
before the Supreme Court, and which resulted on December 31, 2003 in that court issuing
a judgment to strike-out the Writ;(iii)
    
    challenging Broadsinos attempts for appeal to the Court of Appeal of Bermuda,
Civil Appellant jurisdiction which appeal was then dismissed by that courts judgment
of March 14, 2005 which ruled in Brilliance China Automotives favor;(iv)
    
    challenging at all stages Broadsinos further attempts for leave to appeal to
the Privy Council in the United Kingdom with respect to the Court of Appeals judgment;
and(v)
    
    being awarded costs in Broadsinos seeking of a grant of leave on November 10,
2005 in the Court of Appeal in Bermuda to withdraw its leave to appeal to the Privy
Council.
  Yang Rong Employment Proceedings
   66




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##### Table of Contents



Dividends
   
    
    Brilliance China Automotive is, or would after payment be, unable to pay its
liabilities as they become due; or
    
    the realizable value of Brilliance China Automotives assets would thereby be less
than the aggregate of its liabilities and its issued share capital and share premium
account. As a Bermuda company, Brilliance China Automotive must abide by these criteria
in formulating its dividend policy.
  
    
    satisfy all tax liabilities;
    
    provide for losses in previous years;
    
    in the case of a Sino-foreign joint venture, also make appropriation, in proportions
determined at the sole discretion of the board of directors of the joint venture, to a
general reserve fund, an enterprise expansion fund and a staff welfare and employee
bonus fund. During the year ended December 31, 2005, Shenyang Automotive was not
required to and therefore did not make any additional contributions into these funds.
  
    
    in the case of a wholly foreign owned enterprise, appropriate 10% of profit after
providing for taxes and losses in previous years to a general reserve fund until the
balance of the fund reaches 50% of its share capital. Any further appropriation
thereafter is optional. The appropriation to an enterprise expansion fund and a staff
welfare fund is at the sole discretion of the board of directors of the wholly foreign
owned enterprise. During the year ended December 31, 2005, Xing Yuan Dong and Mianyang
Brilliance Ruian made an additional Rmb 9.3 million (US$1.2 million) to the general
reserve fund, enterprise expansion fund and staff welfare fund.
 Significant Changes
  67




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##### Table of Contents



ITEM 9. THE OFFER AND LISTING
  The New York Stock Exchange, Inc.
    
    The Stock Exchange of Hong Kong Limited(US$)
    
    (HK$)ADSs
    
    Ordinary SharesHigh
    
    Low
    
    High
    
    Low2001: 1st quarter
    
    
    31.55
    
    
    
    22.88
    
    
    
    2.78
    
    
    
    1.602nd quarter
    
    
    33.85
    
    
    
    23.15
    
    
    
    2.75
    
    
    
    1.763rd quarter
    
    
    24.38
    
    
    
    11.51
    
    
    
    1.96
    
    
    
    0.824th quarter
    
    
    22.70
    
    
    
    14.69
    
    
    
    1.76
    
    
    
    1.112002: 1st quarter
    
    
    21.48
    
    
    
    16.00
    
    
    
    1.70
    
    
    
    1.262nd quarter
    
    
    18.50
    
    
    
    12.34
    
    
    
    1.49
    
    
    
    0.983rd quarter
    
    
    15.15
    
    
    
    12.10
    
    
    
    1.22
    
    
    
    0.984th quarter
    
    
    19.00
    
    
    
    10.65
    
    
    
    1.49
    
    
    
    0.802003: 1st quarter
    
    
    25.49
    
    
    
    18.11
    
    
    
    2.03
    
    
    
    1.422nd quarter
    
    
    29.29
    
    
    
    20.48
    
    
    
    2.28
    
    
    
    1.563rd quarter
    
    
    34.49
    
    
    
    26.80
    
    
    
    2.73
    
    
    
    2.104th quarter
    
    
    61.30
    
    
    
    34.20
    
    
    
    4.75
    
    
    
    2.652004: 1st quarter
    
    
    62.75
    
    
    
    39.52
    
    
    
    4.85
    
    
    
    3.852nd quarter
    
    
    48.25
    
    
    
    28.55
    
    
    
    3.73
    
    
    
    2.153rd quarter
    
    
    32.20
    
    
    
    19.21
    
    
    
    2.53
    
    
    
    1.524th quarter
    
    
    24.40
    
    
    
    17.75
    
    
    
    1.93
    
    
    
    1.402005: 1st quarter
    
    
    22.73
    
    
    
    14.76
    
    
    
    1.78
    
    
    
    1.222nd quarter
    
    
    20.00
    
    
    
    15.75
    
    
    
    1.61
    
    
    
    1.263rd quarter
    
    
    19.10
    
    
    
    13.41
    
    
    
    1.50
    
    
    
    0.984th quarter
    
    
    15.25
    
    
    
    12.56
    
    
    
    1.18
    
    
    
    0.972006: January
    
    
    17.80
    
    
    
    14.91
    
    
    
    1.40
    
    
    
    1.12February
    
    
    23.66
    
    
    
    16.51
    
    
    
    1.57
    
    
    
    1.26March
    
    
    17.48
    
    
    
    14.52
    
    
    
    1.36
    
    
    
    1.12April
    
    
    19.25
    
    
    
    14.84
    
    
    
    1.55
    
    
    
    1.14May
    
    
    18.70
    
    
    
    15.44
    
    
    
    1.47
    
    
    
    1.18June (through June 20)
    
    
    16.40
    
    
    
    14.05
    
    
    
    1.27
    
    
    
    1.10
   68




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ITEM 10. ADDITIONAL INFORMATION
 Memorandum of Association and Bye-laws
  General
   Directors
 Disclosure of interests in contracts with Brilliance China Automotive or its subsidiaries
   69




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##### Table of Contents




    
    any contract or arrangement for the giving by Brilliance China Automotive of any
security or indemnity to the director or his associates in respect of money lent by him
or any of his associates or obligations incurred or undertaken by him or his associates
at the request of or for the benefit of Brilliance China Automotive or any of its
subsidiaries;
    
    any contract or arrangement for the giving by Brilliance China Automotive of any
security to a third party in respect of a debt or obligation of Brilliance China
Automotive, or any of its subsidiaries, for which the director or his associates have
assumed responsibility or guaranteed or secured in whole or in part whether solely or
jointly;
    
    any contract or arrangement concerning an offer of the shares, debentures or other
securities of or by Brilliance China Automotive or any other company which Brilliance
China Automotive may promote or be interested in for subscription or purchase where the
director or his associates are interested as a participant in the underwriting or
sub-underwriting of the offer;
    
    any contract or arrangement concerning any other company in which the director or
his associates are interested whether directly or indirectly, as an officer or
executive or shareholder or in which the director or his associates are beneficially
interested in shares of that company, other than a company in which the director
together with any of his associates beneficially own 5% or more of the issued shares of
any class of shares of such company (or of any third company through which his interest
is derived) or of the voting rights;
    
    any proposal or arrangement concerning the adoption, modification or operation of
any employees share scheme under which the director or his associates may benefit;
    
    any proposal or arrangement for the benefit of employees of Brilliance China
Automotive or its subsidiaries including the adoption, modification or operation of a
pension fund or retirement, death or disability benefit scheme which relates both to
directors and employees of Brilliance China Automotive or any of its subsidiaries and
does not give the director any privilege not generally accorded to the class of persons
to whom such scheme or fund relates; and
    
    any contract or arrangement in which the director or his associates are interested
in the same manner as other holders of shares or debentures or securities of Brilliance
China Automotive by virtue only of their interest in shares or debentures or other
securities of Brilliance China Automotive.
 Remuneration
  Borrowing powers
  70




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##### Table of Contents



Alterations to constitutional documents
  Variation of rights of existing shares or classes of shares
  Special resolutions  majority required
  Voting rights and right to demand a poll
   
    
    by the chairman of the meeting;
    
    by at least three members present in person, or by a duly authorized corporate
representative, or by proxy for the time being entitled to vote at the meeting;
    
    by any member or members present in person, or by a duly authorized corporate
representative, or by proxy, and representing not less than one-tenth of the total
voting rights of all the members having the right to attend and vote at the meeting; or
    
    by any member or members present in person, or by a duly authorized corporate
representative, or by proxy having the right to attend and vote at the meeting, and in
respect of whose shares, sums have been paid up in the aggregate equal to not less than one-tenth of the total sum paid up
on all the shares having that right.
 71




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##### Table of Contents



Requirements for annual general meetings
  Notices of annual general meetings
  Quorum for meetings and separate class meetings
  Dividends
    
    
    that such dividend be satisfied wholly or in part in the form of an allotment of
shares credited as fully paid up, on the basis that the shares so allotted shall be of
the same class or classes as the class or classes of shares already held by the
allottee, provided that the members will be entitled to elect to receive such dividend
(or part of it) in cash in lieu of such allotment; or
    
    that the members entitled to such dividend will be entitled to elect to receive an
allotment of shares credited as fully paid up in lieu of the whole or such part of the
dividend as the board of directors may think fit, on the basis that the shares so
allotted shall be of the same class or classes as the class or classes of shares
already held by the allottee.
  72




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##### Table of Contents



Procedures on liquidation
   Transfer of shares
     73




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##### Table of Contents




    
    the sum, if any, as the board of directors shall determine to be paid to Brilliance
China Automotive has been paid;
    
    the shares are free of any lien in favor of Brilliance China Automotive;
    
    the instrument of transfer is properly stamped, is in respect of only one class of
share and is lodged at the relevant registration or transfer office accompanied by the
relevant share certificate(s);
    
    other evidence as the board of directors may reasonably require to show the right of
the transferor to make the transfer has been presented (particularly if the instrument
of transfer is executed by some other person on his behalf); and
    
    in some circumstances, the permission of the Bermuda Monetary Authority has been
obtained.
  Recent Amendments to the Bye-laws
   
    
    Bye-law 1(A): To amend the existing definition of associates and Clearing House
and to add a new definition for subsidiaries
    
    Bye-law 70: To reflect the requirement of voting by poll in respect of certain
transactions under the Listing Rules
    
    Bye-law 76: To provide for circumstances under which shareholders are required to
abstain from voting or restricted to vote for or against any particular resolution as
required by the revised Appendix 3 to the Listing Rules
    
    Bye-laws 98(E), 98(H) and 98(K): To be consistent with the provisions of the revised
Appendix 3 to the Listing Rules so that, subject to certain exceptions, a director
shall abstain from voting at the board meeting on any contract or arrangement in which he and/or any of his associates has/have
a material interest nor shall he be counted towards the quorum of the relevant board
meeting
    
    Bye-law 103: To be consistent with the revised Appendix 3 to the Listing Rules which
stipulates the minimum seven-day period for lodgment by a shareholder of the notice to
nominate a director and the nomination shall commence no earlier than the day after the
despatch of the notice of the general meeting appointed for such election and end no
later than seven days before the date of such general meeting
 74




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##### Table of Contents




    
    Bye-law 6(A): To reflect the existing authorized share capital of Brilliance China Automotive
    
    Bye-law 70: To facilitate the process for demanding a poll at general meetings
    
    Bye-law 99: To provide for retirement by rotation of every director at annual
general meetings of Brilliance China Automotive in compliance with code provision A.4.2
of the Code on Corporate Governance Practices issued by The Stock Exchange of Hong Kong
Limited
    
    Bye-law 102 (A) and (B): To specify that any director of Brilliance China Automotive
appointed to fill a casual vacancy shall hold office until the next following general
meeting, instead of the next following annual general meeting
 Material Contracts
  (a)
    
    Equity Interest Transfer Agreement dated October 19, 2004 between Ms. Chen
Qiuling and Beston Asia Investment Limited in relation to the transfer of Ms. Chens
49% interest in Ningbo Yuming Machinery Industrial Co., Ltd. to Beston Asia Investment
Limited;(b)
    
    Service Agreement for Executive Director dated March 1, 2006 between Brilliance
China Automotive and Mr. Wu Xiao An;(c)
    
    Service Agreement for Executive Director dated March 1, 2006 between Brilliance
China Automotive and Mr. Qi Yumin;(d)
    
    Purchase Agreement, dated May 8, 2006, between Brilliance China Finance Limited
(formerly known as Goldcosmos Investments Limited), Brilliance China Automotive and
Citigroup Global Markets Limited relating to the sale of zero coupon guaranteed
convertible bonds due 2011 by Brilliance China Finance Limited; and(e)
    
    Trust Deed, dated June 7, 2006, between Brilliance China Finance Limited
(formerly known as Goldcosmos Investments Limited), Brilliance China Automotive and The
Bank of New York, London Branch relating to the zero coupon guaranteed convertible
bonds due 2011 issued by Brilliance China Finance Limited.
 75




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##### Table of Contents



Exchange Controls
       
    
    the acquisition or holding of land in Bermuda (except that required for its business
and held by way of lease or tenancy for terms of not more than 50 years) without the
express authorization of the Bermuda legislature;
    
    the taking of mortgages on land in Bermuda to secure an amount in excess of
BD$50,000 without the consent of the Minister of Finance of Bermuda;
    
    the acquisition of securities secured on any land in Bermuda, other than certain
types of Bermuda government securities; or
    
    the carrying on of business of any kind in Bermuda, except in furtherance of the
business of Brilliance China Automotive carried on outside Bermuda or under a license
granted by the Minister of Finance of Bermuda.
   76




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##### Table of Contents



Taxation
 Income tax
         77




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##### Table of Contents



Value Added Tax and Consumption Tax
  Customs Duties
  Documents on Display
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Exchange Rates
   78




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##### Table of Contents



Interest Rates
   Tariff Reductions
     79




---



##### Table of Contents



ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 Material Modifications to the Rights of Security Holders
  Use of Proceeds
  
 ITEM 15. DISCLOSURE CONTROLS AND PROCEDURES
   
 ITEM 16. [RESERVED]
 
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  80




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##### Table of Contents



ITEM 16B. CODE OF ETHICS
  
    
    The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong,
including the Model Code for Securities Transactions by Directors of Listed Issuers;
    
    Non-Statutory Guidelines on Directors Duties issued by the Hong Kong Companies
Registry in January 2004;
    
    Guide for Independent Non-Executive Directors issued by The Hong Kong Institute of
Directors in 2000;
    
    Guidelines for Directors issued by The Hong Kong Institute of Directors in 2005; and
    
    Code for Securities Transactions by Employees.
 
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Total Fees2005
    
    
    2004
    
    
    2003Rmb000
    
    

Rmb000
    
    

Rmb000Audit fees
    
    
    3,146
    
    
    
    4,452
    
    
    
    3,807Audit-related fees
    
    
    723
    
    
    
    662
    
    
    
    662Tax fees
    
    
    
    
    
    
    
    
    
    
    11Other fees
    
    
    
    
    
    
    
    
    
    
    248Total
    
    
    3,869
    
    
    
    5,114
    
    
    
    4,728
 Audit Fees
  81




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##### Table of Contents



Audit-Related Fees
  Tax Fees
  Other Fees
  Pre-Approval Policies and Procedures
  
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
  82




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##### Table of Contents



ITEM 19. EXHIBITS
  1.1
    
    Amended and Restated Bye-Laws of Brilliance China Automotive, dated June 25,
2004.*2.1
    
    Trust Deed, dated June 7, 2006, between Brilliance China Finance Limited
(formerly known as Goldcosmos Investments Limited), Brilliance China Automotive and The
Bank of New York, London Branch relating to the zero coupon guaranteed convertible bonds due 2011
issued by Brilliance China Finance Limited.
 4.1
    
    English translation of Equity Interest Transfer Agreement dated October 19,
2004 between Ms. Chen Qiuling and Beston Asia Investment Limited in relation to the
transfer of Ms. Chens 49% interest in Ningbo Yuming Machinery Industrial Co., Ltd. to
Beston Asia Investment Limited.*4.2
    
    Form of Service Agreement for Executive Director.4.3
    
    Purchase Agreement, dated May 8, 2006, between Brilliance China Finance Limited
(formerly known as Goldcosmos Investments Limited), Brilliance China Automotive and
Citigroup Global Markets Limited relating to the sale of zero coupon guaranteed
convertible bonds due 2011 by Brilliance China Finance Limited.7.1
    
    Statement explaining how certain ratios were calculated in the annual report.8.1
    
    List of significant subsidiaries, jointly controlled entities and associated
companies of Brilliance China Automotive as of December 31, 2005.12.1
    
    Section 302 Certification of the Chief Executive Officer.12.2
    
    Section 302 Certification of the Chief Financial Officer.13.1
    
    Section 906 Certification of the Chief Executive Officer and Chief Financial Officer.
 
 *
    
    Incorporated by reference from the Registrants annual report on Form 20-F
filed with the SEC on June 28, 2005. 83




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##### Table of Contents



SIGNATURE
  BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED/s/ Wu Xiao AnWU Xiao AnChairman




---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
 BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED AND SUBSIDIARIES
 PageReport of Independent Registered Public Accounting Firm of Moores Rowland Mazars, dated April 21, 2006
    
    
    F-2Report of Independent Registered Public Accounting Firm of PricewaterhouseCoopers, dated April 22, 2004
    
    
    F-3Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2005, 2004 and 2003
    
    
    F-4Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
    
    
    F-7Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2005, 2004 and 2003
    
    
    F-10Notes to Consolidated Financial Statements
    
    
    F-11
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm of Moores Rowland Mazars, dated April 21,
2006
 To the Shareholders of
Brilliance China Automotive Holdings Limited
    Moores Rowland Mazars  Chartered Accountants
Certified Public Accountants
  F-2




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##### Table of Contents



Report of Independent Registered Public Accounting Firm of PricewaterhouseCoopers, dated April 22,
2004
 The following report is a copy of a report previously issued by PricewaterhouseCoopers
 To the Shareholders of
Brilliance China Automotive Holdings Limited
    PricewaterhouseCoopers  Certified Public Accountants
  F-3




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##### Table of Contents



Consolidated Statements of Income and Comprehensive Income  For the years ended December 31, 2005, 2004 and 2003
 Year ended December 31,2005
    
    
    2004
    
    
    2003RMB000
    
    

RMB000
    
    

RMB000(except for share and ADS data)Sales to third parties
    
    
    3,859,151
    
    
    
    4,402,141
    
    
    
    7,797,054Sales to affiliated companies
    
    
    1,609,839
    
    
    
    2,139,857
    
    
    
    2,312,503Total sales
    
    
    5,468,990
    
    
    
    6,541,998
    
    
    
    10,109,557Cost of sales (include purchase of goods and
subcontracting charges from affiliated companies)
(2005: RMB1,174,732,000, 2004: RMB2,185,428,000,
2003: RMB2,934,331,000)
    
    
    (5,011,955
    )
    
    
    (5,491,250
    )
    
    
    (7,727,125
    )Gross profit
    
    
    457,035
    
    
    
    1,050,748
    
    
    
    2,382,432Selling, general and administrative expenses
    
    
    (1,195,336
    )
    
    
    (1,510,442
    )
    
    
    (1,410,067
    )Interest expense
    
    
    (182,354
    )
    
    
    (182,458
    )
    
    
    (167,111
    )Interest income
    
    
    60,189
    
    
    
    58,800
    
    
    
    52,672Equity in earnings of associated companies and jointly
controlled entities, net
    
    
    48,995
    
    
    
    126,261
    
    
    
    109,471Subsidy income
    
    
    3,139
    
    
    
    1,815
    
    
    
    48,497Other income, net
    
    
    43,650
    
    
    
    25,709
    
    
    
    78,293Impairment loss on intangible assets
    
    
    (173,000
    )
    
    
    (50,000
    )
    
    
    Impairment loss on goodwill
    
    
    (257,720
    )
    
    
    (47,320
    )
    
    
    (Loss) income before taxation and minority interests
    
    
    (1,195,402
    )
    
    
    (526,887
    )
    
    
    1,094,187(Provision) benefit for income taxes
    
    
    (101,884
    )
    
    
    63,110
    
    
    
    (144,140
    )Minority interests
    
    
    625,997
    
    
    
    464,991
    
    
    
    (169,205
    )Net (loss) income
    
    
    (671,289
    )
    
    
    1,214
    
    
    
    780,842Other comprehensive (loss) incomeFair value adjustment for securities available-for-sales
    
    
    (27,227
    )
    
    
    28,468
    
    
    
    Comprehensive (loss) income
    
    
    (698,516
    )
    
    
    29,682
    
    
    
    780,842Basic (loss) earnings per share
    
    RMB(0.1830)
    
    RMB0.0003
    
    

    RMB0.2130Basic (loss) earnings per ADS
    
    RMB(18.30)
    
    RMB0.03
    
    

    RMB21.30Diluted (loss) earnings per share
    
    RMB(0.1830)
    
    RMB 0.0003
    
    

    RMB0.2116Diluted (loss) earnings per ADS
    
    RMB(18.30)
    
    RMB 0.03
    

    
    RMB21.16Weighted average number of shares outstanding
    
    
    3,668,390,900
    
    
    
    3,668,390,900
    
    
    
    3,666,539,983Weighted average number of ADSs outstanding
    
    
    36,683,909
    
    
    
    36,683,909
    
    
    
    36,665,400Net income adjusted for the dilutive effect of
convertible bonds
    
    
    (671,289
    )
    
    
    1,214
    
    
    
    783,515Weighted average number of shares outstanding adjusted
for dilutive effect of stock options and convertible
bonds
    
    
    3,668,390,900
    
    
    
    3,683,795,968
    
    
    
    3,702,398,310Weighted average number of ADSs outstanding adjusted
for dilutive effect of stock options and convertible
bonds
    
    
    36,683,909
    
    
    
    36,837,960
    
    
    
    37,023,983
  F-4




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##### Table of Contents



Consolidated Balance Sheets  As of December 31, 2005 and 2004
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000AssetsCurrent assetsCash and cash equivalents
    
    
    843,400
    
    
    
    1,244,499Short-term bank deposits
    
    
    1,053,832
    
    
    
    1,008,602Pledged short-term bank deposits
    
    
    1,932,649
    
    
    
    2,777,191Deferred expenses  current portion
    
    
    8,920
    
    
    
    8,920Notes receivable
    
    
    377,505
    
    
    
    620,899Notes receivable from affiliated companies
    
    
    338,970
    
    
    
    645,143Accounts receivable, net
    
    
    124,958
    
    
    
    55,632Due from affiliated companies
    
    
    840,215
    
    
    
    765,411Inventories, net
    
    
    1,046,818
    
    
    
    1,577,048Other receivables
    
    
    432,019
    
    
    
    474,617Prepayments and other current assets
    
    
    57,707
    
    
    
    127,080Income tax recoverable
    
    
    12,476
    
    
    
    44,285Other taxes recoverable
    
    
    1,766
    
    
    
    41,468Advances to affiliated companies
    
    
    38,931
    
    
    
    37,477Total current assets
    
    
    7,110,166
    
    
    
    9,428,272Property, plant and equipment
    
    
    4,362,762
    
    
    
    4,295,576Intangible assets
    
    
    584,811
    
    
    
    952,440Interests in associated companies and jointly controlled entities
    
    
    1,520,696
    
    
    
    1,792,590Investment securities
    
    
    22,684
    
    
    
    49,911Goodwill
    
    
    339,710
    
    
    
    418,400Prepayment for a long-term investment
    
    
    600,000
    
    
    
    600,000Deferred tax assets
    
    
    
    
    
    
    114,005Deferred expenses  non-current portion
    
    
    16,353
    
    
    
    25,273Long-term land lease prepayments
    
    
    124,157
    
    
    
    76,126Other long-term assets
    
    
    10,966
    
    
    
    23,833Total assets
    
    
    14,692,305
    
    
    
    17,776,426
 F-5




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##### Table of Contents



Consolidated Balance Sheets (Continued)  As of December 31, 2005 and 2004
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Liabilities and shareholders equityCurrent liabilitiesConvertible bonds
    
    
    1,639,550
    
    
    
    Short-term bank loans
    
    
    496,500
    
    
    
    Notes payable
    
    
    3,026,952
    
    
    
    5,727,216Notes payable to affiliated companies
    
    
    74,092
    
    
    
    121,162Accounts payable
    
    
    928,892
    
    
    
    732,978Due to affiliated companies
    
    
    633,807
    
    
    
    522,722Customer advances
    
    
    318,978
    
    
    
    265,489Other payables
    
    
    434,651
    
    
    
    363,584Dividends payable
    
    
    3,406
    
    
    
    3,478Accrued expenses and other current liabilities
    
    
    265,908
    
    
    
    274,183Income tax payable
    
    
    14,309
    
    
    
    43,974Other taxes payable
    
    
    117,695
    
    
    
    42,391Advances from affiliated companies
    
    
    105,094
    
    
    
    90,481Total current liabilities
    
    
    8,059,834
    
    
    
    8,187,658Convertible bonds
    
    
    
    
    
    
    1,667,888Deferred income
    
    
    79,602
    
    
    
    Commitments and contingencies (Note 21)
    
    
    
    
    
    
    Total liabilities
    
    
    8,139,436
    
    
    
    9,855,546Minority interests
    
    
    413,181
    
    
    
    1,063,226Shareholders equityCapital stockCommon stock (5,000,000,000 shares of US$0.01
each authorized and 3,668,390,900 shares of
US$0.01 each issued and outstanding as of
December 31, 2005 and 2004)
    
    
    303,388
    
    
    
    303,388Additional paid-in capital
    
    
    2,325,690
    
    
    
    2,325,690Accumulated other comprehensive income
    
    
    40,420
    
    
    
    67,647Dedicated capital
    
    
    167,631
    
    
    
    158,352Capital reserve
    
    
    120,000
    
    
    
    120,000Retained earnings
    
    
    3,182,559
    
    
    
    3,882,577Total shareholders equity
    
    
    6,139,688
    
    
    
    6,857,654Total liabilities and shareholders equity
    
    
    14,692,305
    
    
    
    17,776,426
  F-6




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##### Table of Contents



Consolidated Statements of Cash Flows  For the years ended December 31, 2005, 2004 and 2003
 Year ended December 31,2005
    
    
    2004
    
    
    2003RMB000
    
    
    RMB000
    
    
    RMB000Cash flows from operating activities:Net (loss) income
    
    
    (671,289
    )
    
    
    1,214
    
    
    
    780,842Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:Deferred income tax
    
    
    114,005
    
    
    
    (74,450
    )
    
    
    (1,514
    )Depreciation of property, plant and equipment
    
    
    399,744
    
    
    
    365,638
    
    
    
    447,094Amortization of long-term land lease prepayments
    
    
    3,886
    
    
    
    2,369
    
    
    
    2,153Amortization of intangible assets
    
    
    204,009
    
    
    
    226,041
    
    
    
    227,077Amortization of deferred expenses
    
    
    8,920
    
    
    
    8,920
    
    
    
    1,486Minority interests in net (loss) income of consolidated subsidiaries
    
    
    (625,998
    )
    
    
    (464,991
    )
    
    
    169,205Provision for doubtful debts and write off of bad debts
    
    
    55,703
    
    
    
    55,292
    
    
    
    4,825Write back of provision for doubtful debts
    
    
    (7,459
    )
    
    
    (1,000
    )
    
    
    (5,679
    )Provision for impairment of intangible assets
    
    
    173,000
    
    
    
    50,000
    
    
    
    Provision for impairment of property, plant and equipment
    
    
    48,299
    
    
    
    10,000
    
    
    
    6,027Provision for impairment of investment in a jointly controlled entity
    
    
    179,030
    
    
    
    47,320
    
    
    
    Provision for impairment of goodwill in a subsidiary
    
    
    78,690
    
    
    
    
    
    
    
    Write back of provision for inventories sold
    
    
    (39,638
    )
    
    
    (15,522
    )
    
    
    (Gain) loss on disposal of property, plant and equipment
    
    
    (341
    )
    
    
    12,519
    
    
    
    (14,004
    )Gain on disposal of a jointly controlled entity
    
    
    (2,098
    )
    
    
    
    
    
    
    Amortization of deferred compensation expenses
    
    
    
    
    
    
    
    
    
    
    173,213Government grant recognized
    
    
    (941
    )
    
    
    
    
    
    
    Unrealized exchange gain
    
    
    (40,829
    )
    
    
    
    
    
    
    Equity in earnings of associated companies and jointly controlled
entities, net
    
    
    (48,995
    )
    
    
    (126,261
    )
    
    
    (109,471
    )Accreted redemption premium on convertible bonds
    
    
    12,419
    
    
    
    12,401
    
    
    
    
 F-7




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##### Table of Contents



Consolidated Statements of Cash Flows (Continued)  For the years ended December 31, 2005, 2004 and 2003
 Year ended December 31,2005
    
    
    2004
    
    
    2003RMB000
    
    
    RMB000
    
    
    RMB000(Increase) decrease in operating assets:Accounts receivable
    
    
    (69,974
    )
    
    
    32,858
    
    
    
    (73,888
    )Notes receivable
    
    
    243,394
    
    
    
    206,553
    
    
    
    (357,708
    )Notes receivable from affiliated companies
    
    
    306,173
    
    
    
    (117,968
    )
    
    
    (314,190
    )Due from affiliated companies
    
    
    (79,804
    )
    
    
    (10,157
    )
    
    
    268,881Inventories
    
    
    569,524
    
    
    
    (328,154
    )
    
    
    (460,040
    )Other receivables
    
    
    7,278
    
    
    
    50,625
    
    
    
    (40,307
    )Prepayments and other current assets
    
    
    69,374
    
    
    
    191,443
    
    
    
    118,612Decrease (increase) in non-current assets
    
    
    12,866
    
    
    
    (6,843
    )
    
    
    (13,786
    )Increase (decrease) in operating liabilities:Notes and accounts payable
    
    
    (333,250
    )
    
    
    (391,075
    )
    
    
    48,461Due to affiliated companies
    
    
    171,871
    
    
    
    (162,132
    )
    
    
    (29,516
    )Notes payable to affiliated companies
    
    
    (47,070
    )
    
    
    
    
    
    
    35,431Customer advances
    
    
    53,486
    
    
    
    48,656
    
    
    
    (85,206
    )Other payables
    
    
    43,423
    
    
    
    (121,962
    )
    
    
    81,715Accrued expenses and other current liabilities
    
    
    (8,277
    )
    
    
    85,409
    
    
    
    (69,474
    )Import tariff and taxes payable
    
    
    117,152
    
    
    
    (306,000
    )
    
    
    (36,871
    )Net cash provided by (used in) operating activities
    
    
    896,283
    
    
    
    (719,257
    )
    
    
    753,368Cash flows from investing activities:Capital expenditures
    
    
    (558,028
    )
    
    
    (999,058
    )
    
    
    (955,887
    )Proceeds from disposal of property, plant and equipment
    
    
    9,487
    
    
    
    18,204
    
    
    
    118,301(Increase) decrease in short-term bank deposits
    
    
    (45,230
    )
    
    
    661,994
    
    
    
    (897,207
    )(Increase) decrease in pledged short-term bank deposits
    
    
    844,542
    
    
    
    (512,607
    )
    
    
    (914,584
    )(Increase) decrease in advances to affiliated companies
    
    
    (8,729
    )
    
    
    204,030
    
    
    
    1,061,214Increase in long term investment
    
    
    
    
    
    
    (4,138
    )
    
    
    Increase in other long-term assets
    
    
    
    
    
    
    (6,523
    )
    
    
    (874
    )Decrease in other receivables arising from short-term investments
    
    
    
    
    
    
    
    
    
    
    500,000Decrease (increase) in interests in associated companies and
jointly controlled entities
    
    
    11,517
    
    
    
    (12,250
    )
    
    
    (702,278
    )Dividend received from associated companies and jointly controlled
entities
    
    
    72,000
    
    
    
    15,103
    
    
    
    Payment for acquisition of further interest in a subsidiary
    
    
    
    
    
    
    (10,000
    )
    
    
    Prepayment for a long-term investment
    
    
    
    
    
    
    
    
    
    
    (600,000
    )Increase in other receivables
    
    
    
    
    
    
    
    
    
    
    (300,000
    )Proceeds received from disposal of investment in an associated
company
    
    
    
    
    
    
    20,000
    
    
    
    200,000Advances to a joint venture partner of a non-wholly owned subsidiary
    
    
    
    
    
    
    (97,156
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    325,559
    
    
    
    (722,401
    )
    
    
    (2,491,315
    )
 F-8




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##### Table of Contents



Consolidated Statements of Cash Flows (Continued)  For the years ended December 31, 2005, 2004 and 2003
 Year ended December 31,2005
    
    
    2004
    
    
    2003RMB000
    
    
    RMB000
    
    
    RMB000Cash flows from financing activities:Proceeds from short-term bank loans
    
    
    501,202
    
    
    
    900,000
    
    
    
    Repayment of short-term bank loans
    
    
    (4,702
    )
    
    
    (900,000
    )
    
    
    (150,000
    )Issuance of bank notes payable
    
    
    7,934,900
    
    
    
    12,405,435
    
    
    
    8,674,563Repayment of bank notes payable
    
    
    (10,106,000
    )
    
    
    (11,376,454
    )
    
    
    (7,828,000
    )Decrease in advances from affiliated companies
    
    
    (9,434
    )
    
    
    (2,161
    )
    
    
    (144,383
    )Financing received from a jointly controlled entity
    
    
    
    
    
    
    
    
    
    
    74,605Proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    4,701Dividends paid
    
    
    (19,450
    )
    
    
    (88,974
    )
    
    
    (43,634
    )Dividends paid to joint venture partners
    
    
    
    
    
    
    (83,987
    )
    
    
    (113,284
    )Proceeds from issuance of convertible bonds
    
    
    
    
    
    
    
    
    
    
    1,654,300Payment of direct expenses incurred in connection
with the issuance of convertible bonds
    
    
    
    
    
    
    
    
    
    
    (44,599
    )Capital contributions from joint venture partners
    
    
    
    
    
    
    
    
    
    
    196,826Receipts of government grants
    
    
    80,543
    
    
    
    
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (1,622,941
    )
    
    
    853,859
    
    
    
    2,281,095Net (decrease) increase in cash and cash equivalents
    
    
    (401,099
    )
    
    
    (587,799
    )
    
    
    543,148Cash and cash equivalents, beginning of year
    
    
    1,244,499
    
    
    
    1,832,298
    
    
    
    1,289,150Cash and cash equivalents, end of year
    
    
    843,400
    
    
    
    1,244,499
    
    
    
    1,832,298
  F-9




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##### Table of Contents



Consolidated Statements of Changes in Shareholders Equity
 For the years ended December 31, 2005, 2004 and 2003
 Common stock
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated otherNumber of
    
    
    
    
    
    
    paid-in
    
    
    Deferred stock
    
    
    Dedicated
    
    
    Capital
    
    
    comprehensive
    
    
    Retainedshares issued
    
    
    Amount
    
    
    capital
    
    
    compensation
    
    
    capital
    
    
    reserve
    
    
    income
    
    
    earnings
    
    
    TotalRMB000
    
    RMB000
    
    RMB000
    
    RMB000
    
    RMB000
    
    RMB000
    
    RMB000
    
    RMB000Balance as of
December 31, 2002
    
    
    3,666,052,900
    
    
    
    303,194
    
    
    
    2,321,183
    
    
    
    (173,213
    )
    
    
    132,179
    
    
    
    
    
    
    
    39,179
    
    
    
    3,382,780
    
    
    
    6,005,302Issuance of shares
    
    
    2,338,000
    
    
    
    194
    
    
    
    4,507
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,701Amortization of
deferred
compensation
expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173,213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173,213Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    780,842
    
    
    
    780,842Transfer to
dedicated capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,989
    
    
    
    
    
    
    
    
    
    
    
    (99,989
    )
    
    
    Capitalization of
dedicated capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120,000
    )
    
    
    120,000
    
    
    
    
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77,751
    )
    
    
    (77,751
    )Balance as of
December 31, 2003
    
    
    3,668,390,900
    
    
    
    303,388
    
    
    
    2,325,690
    
    
    
    
    
    
    
    112,168
    
    
    
    120,000
    
    
    
    39,179
    
    
    
    3,985,882
    
    
    
    6,886,307Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,214
    
    
    
    1,214Transfer to
dedicated capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,184
    
    
    
    
    
    
    
    
    
    
    
    (46,184
    )
    
    
    Net realized gain
on marketable
equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,468
    
    
    
    
    
    
    
    28,468Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,335
    )
    
    
    (58,335
    )Balance as of
December 31, 2004
    
    
    3,668,390,900
    
    
    
    303,388
    
    
    
    2,325,690
    
    
    
    
    
    
    
    158,352
    
    
    
    120,000
    
    
    
    67,647
    
    
    
    3,882,577
    
    
    
    6,857,654Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (671,289
    )
    
    
    (671,289
    )Transfer to
dedicated capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,279
    
    
    
    
    
    
    
    
    
    
    
    (9,279
    )
    
    
    Net unrealized loss
on marketable
equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,227
    )
    
    
    
    
    
    
    (27,227
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,450
    )
    
    
    (19,450
    )Balance as of
December 31, 2005
    
    
    3,668,390,900
    
    
    
    303,388
    
    
    
    2,325,690
    
    
    
    
    
    
    
    167,631
    
    
    
    120,000
    
    
    
    40,420
    
    
    
    3,182,559
    
    
    
    6,139,688
  F-10




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##### Table of Contents



Notes to Consolidated Financial Statements
 1. ORGANIZATION, PRINCIPAL ACTIVITIES AND OPERATING ENVIRONMENT
   Percentage of equityinterest/voting rightattributable toPlace of
    
    the CompanyName
    
    establishment/incorporation
    
    Directly
    
    Indirectly
    
    Principal activitiesShenyang Brilliance
JinBei Automobile
Co., Ltd.
(Shenyang
Automotive)
    
    Shenyang, the PRC
    
    
    51
    %
    
    
    
    
    
    Manufacture,
assembly and sale
of minibuses and
sedansNingbo Yuming
Machinery
Industrial Co.,
Ltd. (Ningbo
Yuming)
    
    Ningbo, the PRC
    
    
    
    
    
    
    100
    %
    
    Manufacture and
sale of automotive
componentsShenyang
XingYuanDong
Automobile
Component Co., Ltd.
(Xing Yuan Dong)
    
    Shenyang, the PRC
    
    
    100
    %
    
    
    
    
    
    Manufacture and
trading of
automotive
componentsNingbo Brilliance
Ruixing Auto
Components Co.,
Ltd. (Ningbo
Ruixing)
    
    Ningbo, the PRC
    
    
    100
    %
    
    
    
    
    
    Manufacture and
trading of
automotive
componentsMianyang Brilliance
Ruian Automotive
Components Co.,
Ltd. (Mianyang
Ruian)
    
    Mianyang, the PRC
    
    
    100
    %
    
    
    
    
    
    Manufacture and
trading of
automotive
componentsShenyang Brilliance
Dongxing Automotive
Component Co., Ltd.
(Dongxing
Automotive)
    
    Shenyang, the PRC
    
    
    
    
    
    
    100
    %
    
    Manufacture and
trading of
automotive
components and
remodeling
minibuses and
sedansBrilliance China
Automotive Finance
Ltd.
    
    British Virgin Islands
    
    
    100
    %
    
    
    
    
    
    FinancingShenyang ChenFa
Automobile
Component Co., Ltd.
    
    Shenyang, the PRC
    
    
    100
    %
    
    
    
    
    
    Development,
manufacture and
sale of engines
componentsShenyang XinJinBei
Investment and
Development Co.,
Ltd. (SXID)
    
    Shenyang, the PRC
    
    
    
    
    
    
    99
    %
    
    Investment holdingShenyang JinBei
Automotive Industry
Holdings Co., Ltd.
(SJAI)
    
    Shenyang, the PRC
    
    
    
    
    
    
    98.01
    %
    
    Investment holding
 F-11




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
   2. BASIS OF PRESENTATION
   
    
    Reclassification of certain items, designated as construction-in-progress in the statutory financial statements, as
property, plant and equipment;
    
    Reclassification of certain items, designated as long-term land lease prepayments from property, plant and equipment in
the statutory financial statements;
    
    Reclassification of certain items, designated as reserves appropriated from net income in the statutory financial
statements, as charges to income;
    
    Recognition of deferred income taxes;
    
    Recognition of provision for impairment loss of long-lived assets;
    
    Amortization and recognition of provision for impairment loss of intangible assets;
    
    Recognition of research and development expenditures; and
    
    Recognition of stock-based compensation.
 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (a) Basis of consolidation
   F-12




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
    (b) Sales
  (c) Cash, cash equivalents and short-term bank deposits
   (d) Inventories
   (e) Property, plant and equipment and long-term land lease prepayments
  F-13




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  Buildings
    
    
    5
    %Machinery and equipment (excluding special tools and moulds)
    
    
    10
    %Furniture, fixtures and office equipment
    
    
    20
    %Motor vehicles
    
    
    20
    %
     (f) Intangible assets
  (g) Impairment of long-lived assets
  (h) Goodwill
   F-14




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  (i) Investments in associated companies and jointly controlled entities
  (j) Investment securities
   (k) Taxation
 Income Tax
   F-15




---



##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
        Value Added Tax (VAT) and Consumption Tax
  F-16




---



##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  (l) Deferred taxation
   (m) Foreign currency translation
   (n) Warranty
     2005
    
    
    2004RMB000
    
    
    RMB000Balance as of January 1
    
    
    21,058
    
    
    
    23,643Accrual for warranties issued during the year
    
    
    32,396
    
    
    
    45,088Settlement made during the year
    
    
    (30,994
    )
    
    
    (47,673
    )Balance as of December 31
    
    
    22,460
    
    
    
    21,058
 F-17




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 (o) Advertising expenses
  (p) Research and development expenses
  (q) Operating leases
   (r) Stock based compensation
   F-18




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 Year ended December 31, 2003RMB000Net income as reported
    
    
    780,842Add: Adjustments for APB Opinion No. 25
    
    
    173,213Less: Fair value of stock options
    
    
    (210,711
    )Pro-forma net income
    
    
    743,344Basic earnings per ADS:As reported
    
    
    21.30Pro-forma
    
    
    20.27Diluted earnings per ADS:As reported
    
    
    21.16Pro-forma
    
    
    20.15Basic earnings per share:As reported
    
    
    0.2130Pro-forma
    
    
    0.2027Diluted earnings per share:As reported
    
    
    0.2116Pro-forma
    
    
    0.2015
 (s) (Loss) earnings per share and (loss) earnings per ADS
    Year ended December 31,2005
    
    
    2004
    
    
    2003RMB000
    
    
    RMB000
    
    
    RMB000Net (loss) income during the year
    
    
    (671,289
    )
    
    
    1,214
    
    
    
    780,842Add: accreted redemption premium related to the convertible bonds
    
    
    
    
    
    
    
    
    
    
    1,187Amortization of deferred expenses
    
    
    
    
    
    
    
    
    
    
    1,486Net (loss) income during the year adjusted for accreted
redemption premium related to the convertible bonds and
amortization of deferred expenses
    
    
    (671,289
    )
    
    
    1,214
    
    
    
    783,515
 F-19




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  Year ended December 31,2005
    
    
    2004
    
    
    2003Weighted average number of shares
of common stock used in calculation
of basic (loss) earnings per share
    
    
    3,668,390,900
    
    
    
    3,668,390,900
    
    
    
    3,666,539,983Dilutive effect of stock options
    
    
    
    
    
    
    15,405,068
    
    
    
    3,338,970Dilutive effect of convertible bonds
    
    
    
    
    
    
    
    
    
    
    32,519,357Weighted average number of shares
of common stock adjusted for
dilutive effect of stock options
and convertible bonds used in
calculation of diluted (loss)
earnings per share
    
    
    3,668,390,900
    
    
    
    3,683,795,968
    
    
    
    3,702,398,310
      F-20




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  Year ended December 31,2005
    
    
    2004
    
    
    2003Weighted average number of ADSs
used in calculation of basic (loss)
earnings per ADS
    
    
    36,683,909
    
    
    
    36,683,909
    
    
    
    36,665,400Dilutive effect of stock options
    
    
    
    
    
    
    154,051
    
    
    
    33,390Dilutive effect of convertible bonds
    
    
    
    
    
    
    
    
    
    
    325,193Weighted average number of ADSs
adjusted for dilutive effect of
stock options and convertible bonds
used in calculation of diluted
(loss) earnings per ADS
    
    
    36,683,909
    
    
    
    36,837,960
    
    
    
    37,023,983
 (t) Segmental information
  (u) Comprehensive income
   (v) Convertible bonds
  (w) Guarantees
  F-21




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 (x) Allowance for doubtful accounts
  (y) Fair value of financial instruments
  (z) Other new accounting pronouncements
     F-22




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  4. SUBSIDY INCOME
  5. INCOME TAXES
   Year ended December 31,2005
    
    
    2004
    
    
    2003RMB000
    
    
    RMB000
    
    
    RMB000Current taxation
    
    
    12,121
    
    
    
    (11,340
    )
    
    
    (145,654
    )Deferred taxation
    
    
    (114,005
    )
    
    
    74,450
    
    
    
    1,514(101,884
    )
    
    
    63,110
    
    
    
    (144,140
    )
 F-23




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  Year ended December 31,2005
    
    
    2004
    
    
    2003%
    
    
    %
    
    
    %Average statutory tax rate (including state and local income tax)
    
    
    10.25
    
    
    
    17.44
    
    
    
    21.71Effect of statutory tax holiday
    
    
    3.07
    
    
    
    15.44
    
    
    
    (12.66
    )Effect of non-deductible expenses
    
    
    (2.62
    )
    
    
    (5.38
    )
    
    
    3.29Effect of valuation allowances
    
    
    (22.93
    )
    
    
    (15.06
    )
    
    
    (2.11
    )Others, not individually significant
    
    
    3.71
    
    
    
    (0.46
    )
    
    
    2.94Effective tax rate
    
    
    (8.52
    )
    
    
    11.98
    
    
    
    13.17
   As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Deferred tax asset:Research and development costs
    
    
    57,519
    
    
    
    45,683Provisions and accruals
    
    
    46,488
    
    
    
    47,633Provision for impairment of property, plant and equipment
    
    
    7,619
    
    
    
    2,751Amortization and provision for impairment of intangible assets
    
    
    102,436
    
    
    
    58,942Tax losses carry forward
    
    
    185,868
    
    
    
    61,460399,930
    
    
    
    216,469Valuation allowance (Note)
    
    
    (399,930
    )
    
    
    (102,464
    )Net deferred tax assets
    
    
    
    
    
    
    114,005
 Note:
 F-24




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 6.
    
    PLEDGED SHORT-TERM BANK DEPOSITS
  7.
    
    ACCOUNTS RECEIVABLE, NET
  As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Accounts receivable
    
    
    173,325
    
    
    
    103,350Less: Allowance for doubtful debts
    
    
    (48,367
    )
    
    
    (47,718
    )124,958
    
    
    
    55,632
  2005
    
    
    2004RMB000
    
    
    RMB000Balance as of January 1
    
    
    47,718
    
    
    
    46,272Additional provision
    
    
    1,177
    
    
    
    2,526Write-back of provision
    
    
    (528
    )
    
    
    (1,000
    )Written off against accounts receivable
    
    
    
    
    
    
    (80
    )Balance as of December 31
    
    
    48,367
    
    
    
    47,718
 8.
    
    NOTES RECEIVABLE
  9.
    
    OTHER RECEIVABLES
  F-25




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 10.
    
    INVENTORIES, NET
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Inventories consist of:Raw materials
    
    
    564,596
    
    
    
    888,378Work-in-progress
    
    
    64,025
    
    
    
    97,362Finished goods
    
    
    418,197
    
    
    
    591,3081,046,818
    
    
    
    1,577,048
 11.
    
    PROPERTY, PLANT AND EQUIPMENT AND LONG-TERM LAND LEASE PREPAYMENTS
  As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Buildings
    
    
    1,260,101
    
    
    
    1,126,073Machineries and equipment
    
    
    4,136,064
    
    
    
    3,450,089Motor vehicles
    
    
    117,497
    
    
    
    101,715Furniture, fixtures and office equipment
    
    
    382,017
    
    
    
    390,197Construction-in-progress
    
    
    454,591
    
    
    
    789,1456,350,270
    
    
    
    5,857,219Less: Accumulated provision for impairment losses
    
    
    (95,868
    )
    
    
    (47,949
    )6,254,402
    
    
    
    5,809,270Less: Accumulated depreciation
    
    
    (1,891,640
    )
    
    
    (1,513,694
    )Net book value
    
    
    4,362,762
    
    
    
    4,295,576
 (a)
    
    During the years ended December 31, 2005, 2004 and 2003, capitalized interest expenses
amounted to approximately RMB23.9 million, RMB18.4 million and RMB Nil, respectively.
 (b)
    
    Buildings amounting to approximately RMB41,022,000 and long-term land lease prepayments
amounting to approximately RMB64,405,000 were injected by Shenyang JinBei Automotive Company
Limited (JinBei), the joint venture partner of Shenyang Automotive, as part of its
additional capital contributions to Shenyang Automotive during the year ended December 31,
2003 (see Note 28).
 F-26




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 (c)
    
    In December 2003, Shenyang Automotive disposed of certain machineries and equipment at their
net book value to the Groups jointly controlled entity, BMW Brilliance Automotive Ltd (BMW
Brilliance), at a consideration mutually agreed by both parties. The agreement of sale
includes an option for BMW Brilliance to require Shenyang Automotive to purchase back such
machineries and equipment at the purchase price less depreciation over a specified period upon the occurrence
of certain events, including the passing of a valid resolution pursuant to the joint venture
contract by the board of directors of BMW Brilliance. These machineries and equipment are
maintained and operated by BMW Brilliance for the manufacturing of its products. BMW
Brilliance will provide certain services to Shenyang Automotive upon the payment of a service
fee which is determined based on the number of Zhonghua sedans produced by Shenyang Automotive
using these machineries and equipment at a predetermined formulated unit charge. As of the
date of approval of 2005 financial statements, the basis of service fees has not yet been
finalized and service fees of approximately RMB308,283,000, RMB196,125,000 and RMB17,438,000
have been accrued as of December 31, 2005, 2004 and 2003, respectively.
 (d)
    
    In 2003, Shenyang Automotive transferred the legal titles and ownership of certain buildings
at their net book value to BMW Brilliance and entered into an agreement with BMW Brilliance to
lease-back a substantial portion of the buildings. The agreement of sale includes an option
for BMW Brilliance to require Shenyang Automotive to purchase back such buildings at the
purchase price less depreciation upon the occurrence of certain events, including the passing
of a valid resolution pursuant to the joint venture contract by the board of directors of BMW
Brilliance. For financial reporting purposes, as of December 31, 2005 and 2004, the net book
value of the buildings, amounting to approximately RMB142,556,000 and RMB150,763,000,
respectively, were retained as assets on the balance sheet of the Group and the portion of
consideration received from BMW Brilliance up to December 31, 2005 and 2004, amounting to
approximately RMB74,605,000, was treated as a financing and will be partially offset against
the lease rental payable in future years. The remaining balance of approximately RMB99,768,000
(2004: RMB99,768,000) will be received from BMW Brilliance and will be accounted for as
additional financing.
 (e)
    
    As a result of the retirement from use and the change in use  from production to rental  of
certain property, plant and equipment of the Groups minibus and automotive components
segment, the Group assessed the recoverability of the carrying value of these long-lived
assets, which resulted in impairment losses of approximately RMB48.3 million, RMB10.0 million
and RMB6.0 million for the years ended December 31, 2005, 2004 and 2003 respectively. These
losses reflect the amounts by which the carrying values of these assets exceeded their
estimated fair values determined by their estimated discounted future cash flows. The
impairment loss was recorded as a component of Selling, general and administrative expenses
in the Consolidated Statement of Income and Comprehensive Income for the years.
 12.
    
    INTANGIBLE ASSETS
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000CostBeginning of year
    
    
    1,512,342
    
    
    
    1,504,337Additions
    
    
    9,380
    
    
    
    8,005End of year
    
    
    1,521,722
    
    
    
    1,512,342Accumulated amortizationBeginning of year
    
    
    (509,902
    )
    
    
    (283,861
    )Amortization for the year
    
    
    (204,009
    )
    
    
    (226,041
    )End of year
    
    
    (713,911
    )
    
    
    (509,902
    )Accumulated impairmentBeginning of year
    
    
    (50,000
    )
    
    
    Impairment loss provision for
the year
    
    
    (173,000
    )
    
    
    (50,000
    )End of year
    
    
    (223,000
    )
    
    
    (50,000
    )Net book valueEnd of year
    
    
    584,811
    
    
    
    952,440Beginning of year
    
    
    952,440
    
    
    
    1,220,476
 F-27




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  (a)
    
    Sedan design rights, which include rights, titles and interests in certain design and
engineering agreements and a technical assistance agreement related to Zhonghua sedans; and
 (b)
    
    Components and parts technology rights, which include rights, titles and interests in the
design of the components and spare parts for Zhonghua sedans contributed by Shenyang JinBei
Automotive Company Limited (JinBei), a joint venture partner, as capital into Shenyang
Brilliance JinBei Automobile Co. Ltd., a subsidiary of the Company in 2003 (see note 28).
   F-28




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 13.
    
    INTERESTS IN ASSOCIATED COMPANIES AND JOINTLY CONTROLLED ENTITIES
  Percentage of equityPlace of
    
    interest held indirectlyName of company
    
    establishment
    
    by the Company
    
    
    Principal activitiesAssociated companies:Shenyang Aerospace
Mitsubishi Motors Engine
Manufacturing Co., Ltd.
(Shenyang Aerospace)
    
    Shenyang, the PRC
    
    
    12.77
    %
    
    Manufacture and sale of automotive enginesChongqing FuHua Automotive
Sales Service Co., Ltd.
(Chongqing Fuhua)
    
    Chongqing, the PRC
    
    
    29.403
    %
    
    Trading of sedans and minibusesChongqing Baosheng
Automotive Sale and Service
Co., Ltd. (Chongqing
Baosheng)
    
    Chongqing, the PRC
    
    
    29.403
    %
    
    Trading of BMW sedansJointly controlled entities:Mianyang Xinchen Engine
Co., Ltd. (Mianyang
Xinchen)
    
    Mianyang, the PRC
    
    
    50
    %
    
    Manufacture and sale of automotive engines for minibuses and light duty trucksShenyang Xinguang
Brilliance Automobile
Engine Co., Ltd. (Xinguang
Brilliance)
    
    Shenyang, the PRC
    
    
    50
    %
    
    Manufacture and sale of automotive engines for minibuses and light duty trucksBMW Brilliance Automotive
Ltd. (BMW Brilliance)
    
    Shenyang, the PRC
    
    
    49.005
    %
    
    Manufacture and sale of BMW sedans
 Note:
 F-29




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Interests in associated companies:Shenyang Aerospace
    
    
    349,401
    
    
    
    364,158Chongqing Fuhua
    
    
    9,709
    
    
    
    9,518Chongqing Baosheng
    
    
    4,116
    
    
    
    3,640363,226
    
    
    
    377,316Interests in jointly controlled entities:Mianyang Xinchen
    
    
    311,102
    
    
    
    387,812Xinguang Brilliance
    
    
    244,890
    
    
    
    447,823Huabao
    
    
    
    
    
    
    4,922BMW Brilliance
    
    
    601,478
    
    
    
    570,375Kowin
    
    
    
    
    
    
    4,3421,157,470
    
    
    
    1,415,2741,520,696
    
    
    
    1,792,590
  As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Shenyang Aerospace
    
    
    31,983
    
    
    
    31,983Mianyang Xinchen
    
    
    91,410
    
    
    
    91,410Xinguang Brilliance
    
    
    73,343
    
    
    
    252,373196,736
    
    
    
    375,766
 F-30




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  Manufacture and sale of minibuses and
    
    
    Manufacture and sale ofautomotive components
    
    
    Zhonghua sedans
    
    
    TotalRMB000
    
    
    RMB000
    
    
    RMB000Balance as of
January 1, 2005
    
    
    343,783
    
    
    
    31,983
    
    
    
    375,766Impairment losses
    
    
    (179,030
    )
    
    
    
    
    
    
    (179,030
    )Balance as of
December 31, 2005
    
    
    164,753
    
    
    
    31,983
    
    
    
    196,736
   Year ended December 31,2005
    
    
    2004RMB000
    
    
    RMB000Associated companies:Shenyang Aerospace
    
    
    28,386
    
    
    
    57,854Chongqing Fuhua
    
    
    192
    
    
    
    (8
    )Chongqing Baosheng
    
    
    477
    
    
    
    (860
    )29,055
    
    
    
    56,986Jointly controlled entities:Mianyang Xinchen
    
    
    1,978
    
    
    
    33,331Xinguang Brilliance
    
    
    (13,296
    )
    
    
    17,173Huabao
    
    
    
    
    
    
    (2,334
    )BMW Brilliance
    
    
    31,582
    
    
    
    21,764Kowin
    
    
    (324
    )
    
    
    (659
    )19,940
    
    
    
    69,27548,995
    
    
    
    126,261
 F-31




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  Year ended December 31,2005
    
    
    2004RMB000
    
    
    RMB000Revenue
    
    
    1,807,849
    
    
    
    2,221,460Profit before taxation, net
    
    
    147,361
    
    
    
    296,835Net income
    
    
    131,955
    
    
    
    272,213
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Current assets
    
    
    908,750
    
    
    
    1,135,531Non-current assets
    
    
    2,020,235
    
    
    
    1,509,527Total assets
    
    
    2,928,985
    
    
    
    2,645,058Current liabilities
    
    
    (940,641
    )
    
    
    (743,600
    )Long-term liabilities
    
    
    (470,967
    )
    
    
    (396,927
    )Total liabilities
    
    
    (1,411,608
    )
    
    
    (1,140,527
    )Total shareholders equity
    
    
    1,517,377
    
    
    
    1,504,531
  Year ended December 31,2005
    
    
    2004RMB000
    
    
    RMB000Revenue
    
    
    6,597,047
    
    
    
    5,070,023Profit before taxation, net
    
    
    23,277
    
    
    
    135,455Net income
    
    
    23,277
    
    
    
    128,882
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Current assets
    
    
    3,983,194
    
    
    
    6,686,994Non-current assets
    
    
    1,727,924
    
    
    
    1,277,418Total assets
    
    
    5,711,118
    
    
    
    7,964,412Current liabilities
    
    
    (3,579,826
    )
    
    
    (5,934,842
    )Long-term liabilities
    
    
    (420,000
    )
    
    
    (320,000
    )Total liabilities
    
    
    (3,999,826
    )
    
    
    (6,254,842
    )Total shareholders equity
    
    
    1,711,292
    
    
    
    1,709,570
 F-32




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 14.
    
    INVESTMENT SECURITIES
  As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Available-for-sale securities
    
    
    17,305
    
    
    
    17,305Gross unrealized gain
    
    
    28,468
    
    
    
    28,468Gross unrealized loss
    
    
    (27,227
    )
    
    
    18,546
    
    
    
    45,773Unlisted securities at cost
    
    
    4,138
    
    
    
    4,13822,684
    
    
    
    49,911
   F-33




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 15.
    
    GOODWILL
  RMB000Balance as of January 1, 2005
    
    
    418,400Impairment losses
    
    
    (78,690
    )Balance as of December 31, 2005
    
    
    339,710
  16.
    
    PREPAYMENT FOR A LONG-TERM INVESTMENT
    F-34




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 17.
    
    DEFERRED EXPENSES
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Direct expenses incurred in connection
with the issuance of convertible bonds
(Note 18)
    
    
    44,599
    
    
    
    44,599Amortization of deferred expenses
    
    
    (19,326
    )
    
    
    (10,406
    )25,273
    
    
    
    34,193Non-current portion
    
    
    16,353
    
    
    
    25,273Current portion
    
    
    8,920
    
    
    
    8,92025,273
    
    
    
    34,193
 18.
    
    CONVERTIBLE BONDS
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Convertible bonds issued at par
    
    
    1,654,300
    
    
    
    1,654,300Accreted redemption premium
    
    
    26,008
    
    
    
    13,588Exchange gain
    
    
    (40,758
    )
    
    
    1,639,550
    
    
    
    1,667,888
   (i)
    
    The Bonds will mature on November 28, 2008. At any time from November 28, 2005 through
November 14, 2008, all, or from time to time, some of the aggregate outstanding principal
amount of the Bonds is redeemable at the option of Brilliance China Automotive Finance Ltd. at
the early redemption amount if the closing price of the shares on the SEHK for each of the
last 20 consecutive trading days has been at least 130% of the conversion price or if at least
90% in principal amount of the Bonds has been converted, redeemed or purchased and cancelled.
Unless previously converted, redeemed or purchased and cancelled, the Bonds will be redeemed
at 100% of their outstanding principal amount on November 28, 2008.
 (ii)
    
    All or some of the Bonds may be redeemed at the option of the relevant holder on November 28,
2006 at 102.27% of their principal amount. The Bonds may also be redeemed, in whole or in
part, at the option of the holders at the Early Redemption Amount (2.27% of principal amount)
on the occurrence of a change of control of the Company. The Bonds may also be redeemed at the
option of the holders if the shares of the Company cease to be listed or admitted for trading
on the SEHK.
  F-35




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 19.
    
    NOTES PAYABLE
  20.
    
    TAXES PAYABLE
  As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Income tax payable
    
    
    14,309
    
    
    
    43,974VAT payable
    
    
    47,087
    
    
    
    13,249Others
    
    
    70,608
    
    
    
    29,142Other taxes payable
    
    
    117,695
    
    
    
    42,391132,004
    
    
    
    86,365
 21.
    
    COMMITMENTS AND CONTINGENCIES(a)
    
    Commitments
  F-36




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  Operating leaseRMB000Within one year
    
    
    13,501One to two years
    
    
    7,840Two to three years
    
    
    6,865Three to four years
    
    
    4,585Four to five years
    
    
    3,706Over five years
    
    
    35,944Total minimum lease payment
    
    
    72,441
 (b) Operating lease income
    As of December 31, 2005RMB000Buildings
    
    
    97,358Accumulated depreciation
    
    
    (10,780
    )Net investment in operating leases
    
    
    86,578
 F-37




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  As of December 31, 2005RMB000Within one year
    
    
    14,152One to two years
    
    
    14,152Two to three years
    
    
    14,152Three to four years
    
    
    14,152Four to five years
    
    
    14,152Over five years
    
    
    104,959Total
    
    
    175,719
  (c) Contingent liabilities
 (i)
    
    The Group had endorsed or discounted bank notes which were not yet honored by the issuers as
of December 31, 2005 and 2004 amounting to approximately RMB1,128 million and RMB1,345
million, respectively.(ii)
    
    As of December 31, 2005, the Group had provided the following guarantees:
 (1)
    
    Corporate guarantees of approximately RMB120 million (2004: RMB296 million) for
revolving bank loans and notes drawn by affiliated companies of Shanghai Shenhua Holdings
Co., Ltd. (Shanghai Shenhua):The guarantee arose from the mutual negotiation between Shenyang Automotive and Shanghai
Shenhua. Associated with the corporate guarantee, Shanghai Shenhua also provided a cross
guarantee for the bank facilities of Shenyang Automotive. The guarantee was for
revolving activities of Shanghai Shenhua and will be terminated upon mutual agreements
between Shenyang Automotive and Shanghai Shenhua. If Shanghai Shenhua defaults on the
repayment of its bank loans or notes when they fall due, Shenyang Automotive is required
to repay the outstanding balance. There is no recourse or collateralization provision in
the guarantee. As of December 31, 2005, the guarantee provided for the bank loans and
notes drawn by affiliated companies of Shanghai Shenhua was approximately RMB120 million
(2004: RMB296 million), which is also the maximum potential amount of future payments
under the guarantee as of December 31, 2005. However, default by Shanghai Shenhua and
its affiliated companies is considered remote by management and therefore no liability
for the guarantors obligation under the guarantee existed as of December 31, 2005.(2)
    
    A joint and several proportional corporate guarantee with a joint venture partner
of Shenyang Aerospace on a long-term bank loan of approximately RMB111 million (2004:
RMB221 million) drawn by Shenyang Aerospace which will expire in 2008:The guarantee was provided by the Group and a joint venture partner of Shenyang
Aerospace for its long-term loan financing needs during its start-up period. If Shenyang
Aerospace defaults on the repayment of its bank loan when it falls due, the Group and
the joint venture partners are jointly and severally liable to repay the outstanding
balance. There is no recourse or collateralization provision in the
guarantee. As of December 31, 2005, the guarantee provided for the outstanding bank loan of Shenyang Aerospace was RMB111 million (2004:
RMB221 million), which is also the maximum potential amount of future payments under the
guarantee as of December 31, 2005. However, default by Shenyang Aerospace is considered
remote by management and therefore no liability for the guarantors obligation under the
guarantee existed as of December 31, 2005.(3)
    
    Corporate guarantees of bank loans amounting to RMB295 million (2004: RMB100
million), which is also the maximum potential amount of future payments under the
guarantee as of December 31, 2005, drawn by JinBei. Bank deposits of RMB311 million
(2004: RMB102 million) were pledged as a collateral for the corporate guarantees.
However, default by JinBei is considered remote by management and therefore no liability
for the guarantors obligation under the guarantee existed as of December 31, 2005.
 F-38




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 (iii)
    
    On January 21, 2003, a writ dated January 21, 2003 (the Writ) brought by Broadsino Finance
Company Limited (Broadsino), as the Plaintiff, was filed with the Supreme Court of Bermuda
(the Supreme Court) which alleged that the interest of the Chinese Financial Education
Development Foundation (the Foundation) in 1,446,121,500 shares of the Company (the Sale
Shares) was held in trust for Broadsino and was improperly transferred to Huachen Automotive
Group Holdings Company Limited (Huachen).In the course of legal proceedings with Broadsino, the Company achieved the following:(i) overturning on February 11, 2003 an ex parte Court Order dated January 22, 2003 which had
restrained the Company from, amongst other things, registering the transfer of the Sale Shares
by the Foundation to Huachen and/or Huachen to certain directors of the Company; (ii)
initiating on March 10, 2003, a Strikeout Summons at the Supreme Court to have the Writ and
the statement of claim struck out, which proceedings were duly heard before the Supreme Court,
and which resulted on December 31, 2003 in that court issuing a judgement to strike-out the
Writ; (iii) challenging Broadsinos attempts for appeal to the Court of Appeal of Bermuda,
Civil Appellant jurisdiction which appeal was then dismissed by that courts judgement of
March 14, 2005 which ruled in the Companys favour; (iv) Broadsinos further attempts for
leave to appeal to the Privy Council in the United Kingdom with respect to the Court of
Appeals judgement being challenged at all stages by the Company; and (v) Broadsino seeking a
grant of leave on November 10, 2005 in the Court of Appeal in Bermuda to withdraw its leave to
appeal to the Privy Council and the Company being awarded its costs of the leave application.The directors of the Company do not believe the proceedings with Broadsino will have any
significant impact on the financial position of the Company and of the Group.(iv)
    
    On or about October 25, 2002, the Company was served with a claim lodged by Mr. Yang Rong
(Mr. Yang) in the Labour Tribunal in Hong Kong against the Company for alleged wrongful
repudiation and/or breach of his employment contract. The claim was for approximately US$4.3
million (equivalent to approximately RMB35.6 million) with respect to loss of salary. In
addition, Mr. Yang claimed unspecified damages in respect of bonuses and share options. The
claim was dismissed by the Labour Tribunal in Hong Kong on January 28, 2003. Mr. Yang
subsequently applied for a review of this decision. At the review hearing on July 4, 2003, the
Labour Tribunal ordered the case to be transferred to the High Court in Hong Kong. The claim
has therefore been transferred to the High Court and registered as High Court Action No. 2701
of 2003 (the Action).On September 16, 2003, a Statement of Claim was served on the Company. On November 4, 2003,
the Company filed a Defence and Counterclaim with the High Court. Mr. Yang filed a Reply to
Defence and Defence to Counterclaim on April 26, 2004. On July 21, 2004, Mr. Yang obtained
leave from the Court to file an Amended Reply to Defence and Defence to Counterclaim. The
Company filed and served a Reply to Defence to Counterclaim on September 4, 2004. Pleadings
closed on
September 18, 2004. The parties filed and served Lists of Documents on October 26, 2004 and
witness statements were exchanged on February 28, 2005.
 F-39




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 sine die sine die
     22. CAPITAL STOCK
 As of December 31,2005
    
    
    2004
    
    
    2003Number of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    Number ofshares
    
    
    Amount
    
    
    shares
    
    
    Amount
    
    
    shares
    
    
    Amount000
    
    

000
    
    
    000
    
    

000
    
    
    000
    
    

000Authorized:Common stock of
US$0.01 each
    
    
    5,000,000
    
    
    US$
    50,000
    
    
    
    5,000,000
    
    
    US$
    50,000
    
    
    
    5,000,000
    
    
    US$
    50,000Issued and fully paid:Common stock of
US$0.01 each
    
    
    3,668,391
    
    
    RMB303,388
    
    
    3,668,391
    
    
    RMB303,388
    
    
    3,668,391
    
    
    RMB303,388
  23. STOCK OPTIONS
 Original share option scheme approved in 1999
  (a)
    
    a price being not less than 80%, of the average closing price of the common stock on the
relevant stock exchange as stated in such stock exchanges quotation sheets for the five
trading days immediately preceding the relevant date in respect of such options; and
 (b)
    
    the nominal value of the common stock.
  F-40




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  No. of stock options000As of January 1, 2004
    
    
    15,490Granted
    
    
    Exercised
    
    
    Cancelled/lapsed
    
    
    (1,000
    )As of December 31, 2004
    
    
    14,490Granted
    
    
    Exercised
    
    
    Cancelled/lapsed
    
    
    (11,690
    )As of December 31, 2005
    
    
    2,800
 New share option scheme approved in 2002
  (a)
    
    the closing price of the common stocks on the relevant stock exchange as stated in such stock
exchanges quotation sheet on the date of the offer of grant, which must be a trading date;(b)
    
    the average closing price of the common stocks on the relevant stock exchange as stated in
such stock exchanges quotation sheets for the five trading days immediately preceding the
date of the offer of grant; and(c)
    
    the nominal value of the common stock.
  F-41




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 Call Option Agreements
        Risk-free interest rate
    
    
    4.96
    %Expected option life
 Issued on December 18, 2002
    
    1 yearExpected dividend yield
    
    
    4.11
    %Volatility
    
    
    48.01
    %
 24. DISTRIBUTION OF PROFIT
    F-42




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  Year ended December 31,2005
    
    
    2004RMB000
    
    
    RMB0002004 and 2003 final dividends of HK$0.005
and HK$0.01 per share, respectively
    
    
    19,450
    
    
    
    38,8852005 and 2004 interim dividends of HK$Nil
and HK$0.005 per share, respectively
    
    
    
    
    
    
    19,45019,450
    
    
    
    58,335
  25. RELATED PARTY TRANSACTIONS
 (a)
    
    Name and relationship
 Name
    
    RelationshipShenyang JinBei Automotive Company
Limited (JinBei)
    
    A shareholder of Shenyang AutomotiveShanghai Shenhua Holdings Co., Ltd.
(Shanghai Shenhua)
    
    Common directorship of certain
directors of the CompanyBrilliance Holdings Limited (BHL)
    
    Common directorship of certain
directors of the Company
  F-43




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  (b)
    
    Amounts due from affiliated companies arising from trading activities consisted of the
following:
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Due from related parties: Shanghai Shenhua and its affiliated companies
    
    
    276,763
    
    
    
    386,710 Affiliated companies of JinBei
    
    
    62,877
    
    
    
    58,312 Affiliated companies of BHL
    
    
    54,222
    
    
    
     Jointly controlled entities
    
    
    13,380
    
    
    
    26,643 A joint venture partner of Shenyang Aerospace
    
    
    1,505
    
    
    
    882 BMW Brilliance Trade receivables
    
    
    192,185
    
    
    
    48,581 Consideration receivable arising from
the disposal of machinery and equipment
(note (i))
    
    
    269,003
    
    
    
    269,003869,935
    
    
    
    790,131Less: Provision for doubtful debts
    
    
    (29,720
    )
    
    
    (24,720
    )840,215
    
    
    
    765,411
 
 (i)
    
    The outstanding balance is unsecured, non-interest bearing and will be settled by BMW
Brilliance when certain conditions specified in the agreement of sale are fulfilled (See also
Note 11(c)).(ii)
    
    Except for (i) above, the amounts due from affiliated companies are unsecured, non-interest
bearing and have no fixed repayment terms.(c)
    
    Notes receivable from affiliated companies arising from trading activities consisted of the
following: As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Notes receivable from related parties: Affiliated companies of JinBei
    
    
    9,446
    
    
    
    22,500 Shanghai Shenhua
    
    
    328,482
    
    
    
    601,348 Associated companies and jointly controlled entities
    
    
    1,042
    
    
    
    21,295338,970
    
    
    
    645,143
  F-44




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 (d)
    
    Amounts due to affiliated companies arising from trading activities consisted of the
following:
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Due to related parties: Associated companies and jointly controlled entities
    
    
    465,023
    
    
    
    276,951 Shanghai Shenhua and its affiliated companies
    
    
    4,191
    
    
    
    40,570 JinBei and its affiliated companies
    
    
    142,438
    
    
    
    195,166 Affiliated companies of BHL
    
    
    22,025
    
    
    
    8,705 Other affiliated companies
    
    
    130
    
    
    
    1,330633,807
    
    
    
    522,722
  (e)
    
    Notes payable to affiliated companies arising from trading activities consisted of the
following:
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Notes payable to related parties: Shanghai Shenhua
    
    
    
    
    
    
    4,116 Affiliated companies of BHL
    
    
    43,462
    
    
    
     Affiliated companies of JinBei
    
    
    8,139
    
    
    
    24,229 Associated companies and jointly controlled entities
    
    
    22,491
    
    
    
    91,892 Other affiliated companies
    
    
    
    
    
    
    92574,092
    
    
    
    121,162
 F-45




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 (f)
    
    Save as disclosed elsewhere in the financial statements, significant transactions with
affiliated companies consisted of the following:
 Year ended December 31,2005
    
    
    2004
    
    
    2003RMB000
    
    
    RMB000
    
    
    RMB000Sales of goods: JinBei and its affiliated companies
    
    
    69,432
    
    
    
    38,127
    
    
    
    150,637 Shanghai Shenhua and its affiliated companies
    
    
    1,469,402
    
    
    
    1,895,881
    
    
    
    1,984,715 Affiliated companies of BHL
    
    
    
    
    
    
    
    
    
    
    504 Jointly controlled entities
    
    
    71,005
    
    
    
    205,849
    
    
    
    171,512 Affiliated companies of the joint venture partner of Ningbo
Yuming
    
    
    
    
    
    
    
    
    
    
    5,1351,609,839
    
    
    
    2,139,857
    
    
    
    2,312,503Purchase of goods: JinBei and its affiliated companies
    
    
    383,808
    
    
    
    764,311
    
    
    
    986,828 Shanghai Shenhua and its affiliated companies
    
    
    85,354
    
    
    
    214,467
    
    
    
    222,940 Affiliated companies of BHL
    
    
    66,441
    
    
    
    89,690
    
    
    
    93,498 Associated companies and jointly controlled entities
    
    
    524,221
    
    
    
    898,914
    
    
    
    1,597,289 Affiliated companies of the joint venture partner of Ningbo
Yuming
    
    
    
    
    
    
    342
    
    
    
    16,338 Affiliated companies of the joint venture partner of Xinguang
    
    
    761
    
    
    
    
    
    
    
     A joint venture partner of Shenyang Aerospace
    
    
    1,987
    
    
    
    39,019
    
    
    
    Subcontracting charges to a jointly controlled entity
    
    
    112,160
    
    
    
    178,685
    
    
    
    17,4381,174,732
    
    
    
    2,185,428
    
    
    
    2,934,331Consideration paid to the joint venture partner of Ningbo
Yuming for acquisition of further interests in Ningbo Yuming
    
    
    
    
    
    
    10,000
    
    
    
    Purchase of intangible asset from an affiliated company of the
joint venture partner of Ningbo Yuming
    
    
    
    
    
    
    6,940
    
    
    
    Finance charge to a jointly controlled entity
    
    
    17,329
    
    
    
    17,850
    
    
    
    Operating lease rental on machinery and equipment charged by a
jointly controlled entity
    
    
    2,260
    
    
    
    12,840
    
    
    
    12,000Operating lease rental from a jointly controlled entity
    
    
    15,078
    
    
    
    15,364
    
    
    
    Proceeds from sale of property, plant and equipment JinBei and its affiliated companies
    
    
    
    
    
    
    4,407
    
    
    
     A jointly controlled entity
    
    
    263
    
    
    
    1,105
    
    
    
    Purchase of machinery from affiliated companies of JinBei
    
    
    
    
    
    
    58,089
    
    
    
    Service income from a jointly controlled entity
    
    
    43,671
    
    
    
    
    
    
    
    
  F-46




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
  i. Trademark license
  ii. Guarantees provided to affiliated companies
  (g)
    
    Advances to affiliated companies consisted of the following:
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Advances to related parties: Associated companies and jointly controlled entities
    
    
    7,226
    
    
    
    22,528 BHL and its affiliated companies
    
    
    15,273
    
    
    
     Shanghai Shenhua
    
    
    9,045
    
    
    
     Affiliated companies of JinBei
    
    
    16,185
    
    
    
    16,786 Other affiliated companies
    
    
    452
    
    
    
    13848,181
    
    
    
    39,452Less: provision for doubtful debts
    
    
    (9,250
    )
    
    
    (1,975
    )38,931
    
    
    
    37,477
  (h)
    
    Advances from affiliated companies consisted of the following:
 As of December 31,2005
    
    
    2004RMB000
    
    
    RMB000Advances from related parties: Associated companies
    
    
    607
    
    
    
     Affiliated companies of BHL
    
    
    28,558
    
    
    
    14,319 An affiliated company of Shanghai Shenhua
    
    
    236
    
    
    
    230 Affiliated companies of JinBei
    
    
    1,088
    
    
    
    945 Financing received from BMW Brilliance (Note 11(d))
    
    
    74,605
    
    
    
    74,605 Other affiliated companies
    
    
    
    
    
    
    382105,094
    
    
    
    90,481
  F-47




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 26. RETIREMENT PLAN AND EMPLOYEES BENEFIT
   27. EXECUTIVE BONUS PLAN
  28. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 Year ended December 31,2005
    
    
    2004
    
    
    2003RMB000
    
    
    RMB000
    
    
    RMB000Cash paid for:Interest
(net of amount capitalized: 2005: RMB23,875,000; 2004: RMB
18,369,000; 2003: RMBNil)
    
    
    111,303
    
    
    
    154,041
    
    
    
    165,924Income taxes
    
    
    33,975
    
    
    
    127,538
    
    
    
    163,687
   F-48




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 29. OTHER SUPPLEMENTAL INFORMATION
  Year ended December 31,2005
    
    
    2004
    
    
    2003RMB000
    
    
    RMB000
    
    
    RMB000Import tariffs
    
    
    15,224
    
    
    
    56,857
    
    
    
    104,598Research and development costs
    
    
    235,177
    
    
    
    479,928
    
    
    
    191,433Foreign exchange (gains) losses, net
    
    
    (21,487
    )
    
    
    6,011
    
    
    
    (120
    )Provision for impairments of property, plant and equipment
    
    
    48,299
    
    
    
    10,000
    
    
    
    6,027Provision for doubtful debts and write off of bad debts
    
    
    55,703
    
    
    
    55,292
    
    
    
    4,825
 30. SEGMENT INFORMATION
     F-49




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 Business segments  2005
 Manufacture and sale of
    
    
    Manufacture and
    
    
    Manufacture andminibuses and automotive
    
    
    sale of Zhonghua and
    
    
    sale of BMWcomponents
    
    
    sedans
    
    
    sedans
    
    
    TotalRMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000Total revenues from reportable segments
    
    
    4,837,379
    
    
    
    863,140
    
    
    
    
    
    
    
    5,700,519Elimination of intersegment revenues
    
    
    (231,529
    )
    
    
    
    
    
    
    
    
    
    
    (231,529
    )Revenues from external customers
    
    
    4,605,850
    
    
    
    863,140
    
    
    
    
    
    
    
    5,468,990Segment (loss) income before taxation
and minority interests
    
    
    (190,107
    )
    
    
    (980,264
    )
    
    
    32,250
    
    
    
    (1,138,121
    )Unallocated amounts  corporate expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,281
    )Income before taxation and minority
interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,195,402
    )Segment assets as of December 31, 2005
    
    
    9,207,757
    
    
    
    4,531,308
    
    
    
    615,304
    
    
    
    14,354,369Unallocated amounts  corporate assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    337,936Total assets as of December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,692,305Other disclosures:Depreciation of fixed assets
    
    
    257,112
    
    
    
    142,632
    
    
    
    
    
    
    
    399,744Amortization of long-term land lease
prepayments
    
    
    3,021
    
    
    
    865
    
    
    
    
    
    
    
    3,886Amortization on intangible assets
    
    
    4,883
    
    
    
    199,126
    
    
    
    
    
    
    
    204,009Impairment of equity method goodwill
(Note 13)
    
    
    179,030
    
    
    
    
    
    
    
    
    
    
    
    179,030Impairment of goodwill in a subsidiary
(Note 15)
    
    
    78,690
    
    
    
    
    
    
    
    
    
    
    
    78,690Interest income
    
    
    59,339
    
    
    
    850
    
    
    
    
    
    
    
    60,189Interest expense
    
    
    171,842
    
    
    
    10,512
    
    
    
    
    
    
    
    182,354Capital expenditure
    
    
    183,786
    
    
    
    401,886
    
    
    
    
    
    
    
    585,672Equity in earnings of associated
companies and jointly controlled
entities
    
    
    (11,642
    )
    
    
    28,387
    
    
    
    32,250
    
    
    
    48,995Equity method goodwill (Note 13)
    
    
    164,753
    
    
    
    31,983
    
    
    
    
    
    
    
    196,736Goodwill
(Note 15)
    
    
    339,710
    
    
    
    
    
    
    
    
    
    
    
    339,710
 F-50




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 Business segments  2004
 Manufacture and sale of
    
    
    Manufacture and
    
    
    Manufacture andminibuses and automotive
    
    
    sale of Zhonghuaand
    
    
    sale of BMWcomponents
    
    
    sedans
    
    
    sedans
    
    
    TotalRMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000Total revenues from
reportable segments
    
    
    5,546,263
    
    
    
    1,324,572
    
    
    
    
    
    
    
    6,870,835Elimination of intersegment
revenues
    
    
    (328,837
    )
    
    
    
    
    
    
    
    
    
    
    (328,837
    )Revenues from external
customers
    
    
    5,217,426
    
    
    
    1,324,572
    
    
    
    
    
    
    
    6,541,998Segment income (loss)
before taxation and
minority interests
    
    
    423,966
    
    
    
    (882,174
    )
    
    
    18,562
    
    
    
    (439,646
    )Unallocated amounts 
corporate expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (87,241
    )Income before taxation and
minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (526,887
    )Segment assets as of
December 31, 2004
    
    
    11,848,130
    
    
    
    5,268,699
    
    
    
    588,455
    
    
    
    17,705,284Unallocated amounts 
corporate assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,142Total assets as of December
31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,776,426Other disclosures:Depreciation of fixed assets
    
    
    202,731
    
    
    
    162,907
    
    
    
    
    
    
    
    365,638Amortization of long-term
land lease prepayments
    
    
    2,369
    
    
    
    
    
    
    
    
    
    
    
    2,369Amortization on intangible
assets
    
    
    905
    
    
    
    225,136
    
    
    
    
    
    
    
    226,041Impairment of equity method
goodwill (Note 13)
    
    
    47,320
    
    
    
    
    
    
    
    
    
    
    
    47,320Interest income
    
    
    56,716
    
    
    
    2,084
    
    
    
    
    
    
    
    58,800Interest expense
    
    
    169,075
    
    
    
    13,383
    
    
    
    
    
    
    
    182,458Capital expenditure
    
    
    221,838
    
    
    
    699,031
    
    
    
    
    
    
    
    920,869Equity in earnings of
associated companies and
jointly controlled entities
    
    
    49,845
    
    
    
    57,854
    
    
    
    18,562
    
    
    
    126,261Equity method goodwill
(Note 13)
    
    
    343,783
    
    
    
    31,983
    
    
    
    
    
    
    
    375,766Goodwill
(Note 15)
    
    
    418,400
    
    
    
    
    
    
    
    
    
    
    
    418,400
 F-51




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)
 31. ACCUMULATED OTHER COMPREHENSIVE INCOME
  Unrealized gain (loss) onmarketable available-for-sale
    
    
    Foreign currency
    
    
    Accumulative othersecurities
    
    
    translation adjustments
    
    
    comprehensive incomeRMB000
    
    
    RMB000
    
    
    RMB000Balance as of January 1, 2004
    
    
    
    
    
    
    39,179
    
    
    
    39,179Current year change
    
    
    28,468
    
    
    
    
    
    
    
    28,468Balance as of December 31,
2004
    
    
    28,468
    
    
    
    39,179
    
    
    
    67,647Current year change
    
    
    (27,227
    )
    
    
    
    
    
    
    (27,227
    )Balance as of December 31,
2005
    
    
    1,241
    
    
    
    39,179
    
    
    
    40,420
 32. COMPARATIVE FIGURES
  33. APPROVAL OF FINANCIAL STATEMENTS
  F-52