INDEX TO FINANCIAL STATEMENTS
 BMW BRILLIANCE AUTOMOTIVE LTD.
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Balance sheets as at December 31, 2007 and 2006
    
    
    F-3Income statements for the years ended December 31, 2007, 2006 and 2005
    
    
    F-5Cash flow statements for the years ended December 31, 2007, 2006 and 2005
    
    
    F-6Notes to the financial statements
    
    
    F-9




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##### 



Report of Independent Registered Public Accounting Firm
       
 F-2




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##### 



(In thousands of RMB)
 Note
    
    2007
    
    
    2006(unaudited)AssetsCurrent assetsCash at bank and on hand
    
    5
    
    
    401,018
    
    
    
    993,662Bills receivable
    
    6
    
    
    992,153
    
    
    
    562,657Accounts receivable
    
    7, 22
    
    
    36,516
    
    
    
    3,789Other receivables
    
    8, 22
    
    
    911,091
    
    
    
    895,440Payments in advance
    
    
    
    
    1,538
    
    
    
    7,643Inventories
    
    9,22
    
    
    2,830,021
    
    
    
    2,549,919Deferred expenses
    
    
    
    
    1,017
    
    
    
    1,016Other current assets
    
    10
    
    
    116,567
    
    
    
    65,663Total current assets
    
    
    
    
    5,289,921
    
    
    
    5,079,789Fixed assetsCost
    
    
    
    
    2,792,491
    
    
    
    2,198,764Less: Accumulated depreciation
and amortization
    
    
    
    
    (769,138
    )
    
    
    (474,589
    )Net book value before provision for impairment
    
    
    
    
    2,023,353
    
    
    
    1,724,175Less: Provision for impairment
of fixed assets
    
    
    
    
    (8,916
    )
    
    
    (8,916
    )Carrying amount
    
    11
    
    
    2,014,437
    
    
    
    1,715,259Construction in progress
    
    12
    
    
    133,734
    
    
    
    60,050Fixed assets pending disposal
    
    
    
    
    1,116
    
    
    
    1,358Total fixed assets
    
    
    
    
    2,149,287
    
    
    
    1,776,667Intangible assets
    
    13
    
    
    69,540
    
    
    
    63,153Total assets
    
    
    
    
    7,508,748
    
    
    
    6,919,609
 The notes on pages F-9 to F-32 form part of these financial statements.
 F-3




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##### 



(In thousands of RMB)
 Note
    
    2007
    
    
    2006(unaudited)Liabilities and investors equityCurrent liabilitiesShort-term loans
    
    14
    
    
    1,100,000
    
    
    
    400,000Accounts payable
    
    22(b)
    
    
    2,452,845
    
    
    
    2,878,900Receipts in advance
    
    
    
    
    141,046
    
    
    
    193,354Accrued payroll
    
    
    
    
    22,638
    
    
    
    13,185Staff welfare payable
    
    
    
    
    29
    
    
    
    30Taxes (recoverable)/payable
    
    4(c)
    
    
    (150,552
    )
    
    
    118,206Other payables
    
    22(b)
    
    
    230,656
    
    
    
    791,861Other creditors
    
    
    
    
    14
    
    
    
    19Accrued expenses
    
    22(b)
    
    
    1,079,899
    
    
    
    608,034Provision for warranty
    
    15
    
    
    28,346
    
    
    
    9,976Current portion of long-term loans
    
    16
    
    
    290,000
    
    
    
    Total current liabilities
    
    
    
    
    5,194,921
    
    
    
    5,013,565Long-term liabilitiesLong-term loans, excluding current portion
    
    17
    
    
    870,000
    
    
    
    700,000Total long-term liabilities
    
    
    
    
    870,000
    
    
    
    700,000Total liabilities
    
    
    
    
    6,064,921
    
    
    
    5,713,565Investors equityPaid-in capital
    
    18
    
    
    1,377,055
    
    
    
    1,377,055Capital reserve
    
    19
    
    
    273,430
    
    
    
    272,447Accumulated losses
    
    
    
    
    (206,658
    )
    
    
    (443,458
    )Total investors equity
    
    
    
    
    1,443,827
    
    
    
    1,206,044Total liabilities and investors equity
    
    
    
    
    7,508,748
    
    
    
    6,919,609
  F-4




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##### 



(In thousands of RMB)
 Note
    
    2007
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)Sales from principal activities
    
    20,22
    
    
    12,460,502
    
    
    
    8,947,350
    
    
    
    6,280,304Less:
    
    Cost of sales from principal activities
    
    22
    
    
    (9,657,796
    )
    
    
    (7,355,485
    )
    
    
    (6,134,660
    )Business taxes and surcharges
    
    
    
    
    (1,087,955
    )
    
    
    (737,320
    )
    
    
    (416,299
    )Profit/(loss) from principal activities
    
    
    
    
    1,714,751
    
    
    
    854,545
    
    
    
    (270,655
    )Add:
    
    Profit from other operations
    
    
    
    
    25,537
    
    
    
    12,679
    
    
    
    602,179Less:
    
    Operating expenses
    
    
    
    
    (1,463,153
    )
    
    
    (799,235
    )
    
    
    (532,221
    )General and administrative expenses
    
    
    
    
    (73,923
    )
    
    
    (59,121
    )
    
    
    (245,161
    )Add:
    
    Net financial income
    
    21
    
    
    91,289
    
    
    
    19,717
    
    
    
    163,630Operating profit/(loss)
    
    
    
    
    294,501
    
    
    
    28,585
    
    
    
    (282,228
    )Add:
    
    Subsidy income
    
    
    
    
    2,100
    
    
    
    1,350
    
    
    
    Non-operating income
    
    
    
    
    12,775
    
    
    
    11,724
    
    
    
    1,243Less:
    
    Non-operating expenses
    
    
    
    
    (3,189
    )
    
    
    (4,459
    )
    
    
    (385
    )Profit/(loss) before income tax
    
    
    
    
    306,187
    
    
    
    37,200
    
    
    
    (281,370
    )Less:
    
    Income tax
    
    4(b)
    
    
    (69,387
    )
    
    
    (19,338
    )
    
    
    Net profit/(loss) for the year
    
    
    
    
    236,800
    
    
    
    17,862
    
    
    
    (281,370
    )Add:
    
    Accumulated losses at the beginning of the year
    
    
    
    
    (443,458
    )
    
    
    (461,320
    )
    
    
    (179,950
    )Accumulated losses carried forward
    
    
    
    
    (206,658
    )
    
    
    (443,458
    )
    
    
    (461,320
    )
  F-5




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##### 



(In thousands of RMB)
 Note to thecash flowstatements
    
    2007
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)Cash flows from operating activities:Cash received from sale of goods
    
    
    
    
    14,122,777
    
    
    
    10,204,886
    
    
    
    7,548,939Other cash received relating to operating activities
    
    
    
    
    264,080
    
    
    
    213,806
    
    
    
    126,508Sub-total of cash inflows
    
    
    
    
    14,386,857
    
    
    
    10,418,692
    
    
    
    7,675,447Cash paid for goods and services
    
    
    
    
    (11,401,814
    )
    
    
    (7,971,755
    )
    
    
    (4,593,992
    )Cash paid to and for employees
    
    
    
    
    (316,836
    )
    
    
    (123,374
    )
    
    
    (97,941
    )Cash paid for all types of taxes
    
    
    
    
    (1,889,008
    )
    
    
    (936,237
    )
    
    
    (610,878
    )Other cash paid relating to operating activities
    
    
    
    
    (1,403,211
    )
    
    
    (461,223
    )
    
    
    (1,149,228
    )Sub-total of cash outflows
    
    
    
    
    (15,010,869
    )
    
    
    (9,492,589
    )
    
    
    (6,452,039
    )Net cash (outflow)/inflow from
operating activities
    
    i
    
    
    (624,012
    )
    
    
    926,103
    
    
    
    1,223,408Cash flows from investing activities:
    
    iiNet cash received from disposal of fixed assets
    
    
    
    
    27,675
    
    
    
    35,311
    
    
    
    27,541Other cash received relating to
investing activities
    
    
    
    
    5,927
    
    
    
    9,233
    
    
    
    11,844Sub-total of cash inflows
    
    
    
    
    33,602
    
    
    
    44,544
    
    
    
    39,385Cash paid for acquisition of fixed assets,
construction in progress and intangible assets
    
    
    
    
    (1,053,224
    )
    
    
    (604,051
    )
    
    
    (374,845
    )Sub-total of cash outflows
    
    
    
    
    (1,053,224
    )
    
    
    (604,051
    )
    
    
    (374,845
    )Net cash outflow from investing activities
    
    
    
    
    (1,019,622
    )
    
    
    (559,507
    )
    
    
    (335,460
    )
  F-6




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##### 



(In thousands of RMB)
 Note to thecash flowstatements
    
    2007
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)Cash flows from financing activities:Cash received from borrowings
    
    
    
    
    6,510,000
    
    
    
    680,000
    
    
    
    550,000Sub-total of cash inflows
    
    
    
    
    6,510,000
    
    
    
    680,000
    
    
    
    550,000Cash repayments of borrowings
    
    
    
    
    (5,350,000
    )
    
    
    (750,000
    )
    
    
    (950,000
    )Cash paid for interest expenses
    
    
    
    
    (109,010
    )
    
    
    (51,495
    )
    
    
    (79,773
    )Sub-total of cash outflows
    
    
    
    
    (5,459,010
    )
    
    
    (801,495
    )
    
    
    (1,029,773
    )Net cash inflow/(outflow) from
financing activities
    
    
    
    
    1,050,990
    
    
    
    (121,495
    )
    
    
    (479,773
    )Net (decrease)/increase in cash
    
    iii
    
    
    (592,644
    )
    
    
    245,101
    
    
    
    408,175
  F-7




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##### 



(In thousands of RMB)
 Notes to the cash flow statements
 i
    
    Reconciliation of net profit/(loss) to cash flows from operating activities
 2007
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)Net profit/(loss)
    
    
    236,800
    
    
    
    17,862
    
    
    
    (281,370
    )Add:
    
    Provision for/(reversal of) impairment of inventories and fixed assets
    
    
    13,370
    
    
    
    (52,827
    )
    
    
    41,181Depreciation and amortization of fixed assets
    
    
    313,202
    
    
    
    182,017
    
    
    
    180,088Amortization of intangible assets
    
    
    26,262
    
    
    
    22,734
    
    
    
    16,848(Increase)/decrease in deferred expenses
    
    
    (1
    )
    
    
    1,230
    
    
    
    2,216Increase/(decrease) in accrued expenses
    
    
    471,865
    
    
    
    290,928
    
    
    
    (530,119
    )(Gains)/losses on disposal of fixed assets
    
    
    (1,279
    )
    
    
    1,690
    
    
    
    1,857Financial expenses
    
    
    103,083
    
    
    
    42,262
    
    
    
    67,929(Increase)/decrease in gross inventories
    
    
    (293,472
    )
    
    
    (1,604,350
    )
    
    
    3,299,561(Increase)/decrease in gross operating receivables
    
    
    (522,673
    )
    
    
    122,556
    
    
    
    (529,282
    )(Decrease)/increase in operating payables
    
    
    (971,169
    )
    
    
    1,902,001
    
    
    
    (1,045,501
    )Net cash (outflow)/inflow from operating activities
    
    
    (624,012
    )
    
    
    926,103
    
    
    
    1,223,408
 ii
    
    Investing activities not requiring the use of cash
 2007
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)Donation of fixed assets received
    
    
    983
    
    
    
    
    
    
    
    
 iii
    
    Net (decrease)/increase in cash
 2007
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)Cash at the end of the year
    
    
    401,018
    
    
    
    993,662
    
    
    
    748,561Less:
    
    Cash at the beginning of the year
    
    
    (993,662
    )
    
    
    (748,561
    )
    
    
    (340,386
    )Net (decrease)/increase in cash
    
    
    (592,644
    )
    
    
    245,101
    
    
    
    408,175
  F-8




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##### 



(In thousands of RMB)
 1
    
    COMPANY STATUSBMW Brilliance Automotive Ltd. (the Company) is an equity joint venture established in
Shenyang City, Liaoning Province in the Peoples Republic of China (PRC) by Shenyang JinBei
Automotive Industry Holdings Company Limited and BMW Holding BV (registered in the Netherlands). The Company obtained an approval certificate (Wai Jing Mao Zi Shen Zi [2003]
No. 0075) from the Ministry of Commerce on May 20, 2003, and a business licence (Qi He Liao
Shen Zong Zi No. 111002579) on May 23, 2003 issued by the Shenyang Administration of Industry
and Commerce of the PRC. The registered capital is Euro 150 million (equivalent to RMB
1,377,055).According to the joint venture contract and articles of association, the Companys period of
operation is 15 years and its principal activities are the production and sale of BMW
passenger cars, engines, parts and components, and accessories; and provision of after-sales
services (including spare parts) in connection with its products. The Company commenced
operations in September 2003.2
    
    BASIS OF PREPARATIONThe principal accounting policies adopted in the preparation of the financial statements are
in conformity with the Accounting Standards for Business Enterprises-Basic Standard issued in
2006, specific accounting standards issued before 2006 and the Accounting Rules and
Regulations for Business Enterprises (PRC GAAP), all issued by the Ministry of Finance of the
PRC. The accounting policies comply with the legal and reporting requirements of the relevant
government authorities. Accordingly, the basis of measurement and presentation in these
financial statements may not be in compliance with the accounting principles and practices
generally accepted in countries and jurisdictions other than the PRC and may not be suitable
for any purpose other than for statutory reporting.3
    
    SIGNIFICANT ACCOUNTING POLICIES
 (a)
    
    Accounting yearThe accounting year of the Company is from January 1 to December 31.(b)
    
    Basis of preparation and measurement basisThe financial statements of the Company have been prepared on an accrual basis. Unless
otherwise stated, the measurement basis used is historical cost.
 F-9




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3
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (c)
    
    Reporting currencyThe Companys reporting currency is Renminbi.(d)
    
    Translation of foreign currenciesForeign currency transactions during the year are translated into Renminbi at the
exchange rates quoted by the Bank of China ruling on the first day of the month in
which the transactions take place.Monetary assets and liabilities denominated in foreign currencies are translated into
Renminbi at the exchange rates quoted by the Bank of China ruling at the balance sheet
date.Exchange gains and losses on foreign currency translation, except for the exchange
gains and losses directly relating to the construction of fixed assets,
are reported in the income statement.Exchange gains and losses on foreign exchange forward contracts are not recognized in the financial statements until the contracts are settled (the contract settlement date).(e)
    
    Accounts receivable and bills receivableAccounts receivable and bills receivable are stated at cost less provision for doubtful
debts losses.Accounts receivable and bills receivable are derecognised if the Companys contractual
rights to the cash flows from these assets expire or if the Company transfers these
assets to another party without retaining control or substantively all risks and
rewards of these receivables.The provision for bad debt losses is estimated by management based on individual
accounts receivable and bills receivable which show signs of uncollectibility.
Provision for other receivables is determined based on their specific nature and
managements estimate of their collectibility.(f)
    
    InventoriesInventories are carried at the lower of cost and net realisable value.Cost comprises all costs of purchase, costs of conversion and other costs. Inventories
are measured at their actual cost upon acquisition. Cost is determined using the
standard cost method with periodical adjustments of cost variance to arrive at actual
cost. In addition to the purchase cost of raw materials, work in progress and finished
goods include direct labour costs and an appropriate allocation of manufacturing
overheads.
 F-10




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3
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (f)
    
    Inventories (continued)Any excess of the cost over the net realisable value of each item of inventories is
recognized as a provision for diminution in the value of inventories. Net realisable
value is the estimated selling price in the normal course of business less the
estimated costs to completion and the estimated expenses and related taxes necessary to
make the sale.(g)
    
    Fixed assets and construction in progressFixed assets are assets held by the Company for use in the production of goods, for use
in the supply of services, for rental purposes and for administrative purposes. They
are expected to be used for more than one year.Fixed assets are stated in the balance sheet at cost less accumulated depreciation and
impairment losses (see note 3(j)). Construction in progress is stated in the balance
sheet at cost less impairment losses (see note 3(j)).All direct and indirect costs that are related to the construction of fixed assets and
incurred before the assets are ready for their intended use are capitalised as
construction in progress. Those costs include borrowing costs on specific borrowings
for the construction of the fixed assets during the construction period.Construction in progress is transferred to fixed assets when it is ready for its
intended use. No depreciation is provided against construction in progress.Fixed assets are depreciated using the straight-line method over their estimated useful
lives. The respective estimated useful lives for the Companys fixed assets are as
follows:
 Estimated useful lifePlant and buildings
    
    15 yearsMachinery and equipment
    
    Shorter of product lifecycle or 10 yearsOffice and other equipment
    
    5 yearsMotor vehicles
    
    5 yearsLeasehold improvements
    
    Shorter of lease period or 5 years
 F-11




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3
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (h)
    
    Operating lease
 i)
    
    Assets held for use in operating leasesWhere the Company leases out assets under operating leases, the assets are
included in the balance sheet according to their nature and are depreciated in
accordance with the Companys depreciation policies, as set out in note 3(g).
Impairment losses are provided for in accordance with the accounting policy set
out in note 3(j).ii)
    
    Operating lease chargesRental payments under operating leases are charged as expenses on a straight-line
basis over the lease term.
 (i)
    
    Intangible assetsIntangible assets are stated in the balance sheet at cost less accumulated amortization
and impairment losses (see note 3(j)). The cost of the intangible assets is amortized
on a straight-line basis over their estimated useful lives. The respective
amortization periods for the intangible assets are as follows:
 Computer software
    
    5 yearsSAP
    
    5 yearsUp-front licence fee
    
    Shorter of product lifecycle or 5 years
 (j)
    
    Provision for impairmentThe carrying amounts of assets (including fixed assets, construction in progress and
intangible assets) are assessed regularly to determine whether their recoverable
amounts have declined below their carrying amounts. Assets are tested for impairment
whenever events or changes in conditions indicate that their recorded carrying amounts
may not be recoverable. When such a decline has occurred, the carrying amount is
reduced to the recoverable amount. The amount by which the carrying amount is reduced
is the impairment loss.The recoverable amount is the greater of the net selling price and the present value of
the estimated future cash flows arising from the continuous use of the asset and from
the disposal of the asset at the end of its useful life.
 F-12




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##### 



3
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (j)
    
    Provision for impairment (continued)Provision for impairment is calculated on an item by item basis and recognized as an
expense in the income statement.If there is an indication that there has been a change in the factors used to determine
the provision for impairment and as a result the estimated recoverable amount is
greater than the carrying amount of the asset, the impairment loss recognized in prior
years is reversed. Reversals of impairment losses are recognized in the income
statement. An impairment loss is reversed only to the extent of the assets carrying
amount that would have been determined had no impairment loss been recognized in prior
years.(k)
    
    Income taxIncome tax is recognized when payable under the tax payable method. Income tax for the
year is provided at the applicable tax rate on taxable income.(l)
    
    Provisions and contingent liabilitiesProvisions are recognized when the Company has a present obligation as a result of a
past event, it is probable that an outflow of economic benefits will be required to
settle the obligations and a reliable estimate can be made.Where it is not probable that the settlement of the above obligation will cause an
outflow of economic benefits, or the amount of the outflow cannot be estimated
reliably, the obligation is disclosed as a contingent liability.
 i)
    
    Provision for warrantyThe Companys cars are sold with a 24-month warranty. During the warranty
period, the Company pays dealers for parts, components and labor covered by the
warranty. The costs of the warranty obligation are accrued at the time the
sales are recognized, based on the estimated costs of fulfilling the total
obligations. The factors used to estimate warranty expenses are re-evaluated
periodically in light of actual experience.
 (m)
    
    Revenue recognitionWhen it is probable that the economic benefits will flow to the Company and the revenue
and costs can be measured reliably, revenue is recognized in the income statement.Sale of goodsSales revenue is recognized when the significant risks and rewards of the ownership of
goods have been transferred to the buyers. No revenue is recognized if there are
significant uncertainties regarding the receipt of the consideration and the return of
goods, or when the revenue and the costs incurred or to be incurred in respect of the
transaction cannot be measured reliably.
 F-13




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##### 



3
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (n)
    
    Borrowing costsBorrowing costs incurred on specific borrowings for the construction of fixed assets
are capitalised into the cost of the fixed assets during the construction period until
the fixed assets are ready for their intended uses.Except for the above, other borrowing costs are recognized as financial expenses in the
income statement when incurred.(o)
    
    Repair and maintenance expensesRepair and maintenance expenses (including major overhaul expenses) are recognized in
the income statement when incurred.(p)
    
    Retirement benefitsPursuant to the relevant laws and regulations in the PRC, the Company has joined a
defined contribution retirement plan for the employees arranged by a governmental
organisation. The Company makes contributions to the retirement scheme at the
applicable rates based on the employees salaries. The contributions are charged to
the income statement on an accrual basis. After the payment of the contributions under
the retirement plan, the Company does not have any other obligations in this respect.(q)
    
    Related partiesIf the Company has the power, directly or indirectly, to control, jointly control or
exercise significant influence over another party, or vice versa, or where the Company
and one or more parties are subject to common control from another party, they are
considered to be related parties. Related parties may be individuals or enterprises.
 F-14




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##### 



4
    
    TAXATION
 (a)
    
    The types of tax applicable to the Companys sales of goods and rendering of
services include business tax, value added tax (VAT) and consumption tax. Their tax
rates are as follows:
 Business tax rate
    
    
    5
    %VAT rate
    
    
    17
    %Consumption tax rate
    
    5%, 9% or 12%
 (b)
    
    Income taxIncome tax in the income statement represents:
 
 2007
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)Provision for income
tax for the year
    
    
    69,387
    
    
    
    19,338
    
    
    
    
 Pursuant to Article 8 of the Foreign Enterprise Income Tax (FEIT) Law, starting from
the year in which a taxable income is made after the offset of deductible losses
incurred in prior years, the Company is entitled to a tax holiday of a tax-free period
for the first and second years and a 50% reduction in the income tax rate for the third
to fifth years. The Company has been granted a tax holiday for exemption of FEIT for
years 2005 and 2006, and a 50% reduction of FEIT for years 2007 to 2009.In 2006, the Companys FEIT tax returns for the years 2003 to 2005 were examined by the local tax bureau.
Notwithstanding the above provisions of the FEIT Law, based on uncertain tax positions arising from the tax
bureaus initial assessment, the Company determined that a liability in the amount of RMB 19,338 was required
in respect of the year ended 31 December 2006. This amount was subsequently paid to the tax bureau in April 2007.
In March 2008, the local tax bureau issued a final tax inspection report, as a result of which, the RMB 19,338
was returned to the Company in September 2008.On March 16, 2007, the National Peoples Congress passed the new Enterprise Income Tax
law (the new EIT law) which imposes a single income tax rate of 25% for most domestic
enterprises and foreign investment enterprises. The new EIT law was effective as of
January 1, 2008. The new EIT law provides a five-year transition period from its
effective date for those enterprises which were established before March 16, 2007 and
which were entitled to a preferential lower tax rate under the then effective tax laws
or regulations. Further, according to the new EIT law, entities that were entitled to
a tax holiday shall continue to be entitled to the tax holiday. Therefore, the
Companys applicable tax rates will increase from 7.5% in 2007 to 9%, 10%, 22%, 24% and
25% in 2008, 2009, 2010, 2011 and 2012 onwards respectively.
 F-15




---



##### 



4
    
    TAXATION (CONTINUED)
 (c)
    
    Taxes (recoverable)/payable
 2007
    
    
    2006(unaudited)VAT recoverable
    
    
    (310,190
    )
    
    
    (15,841
    )Consumption tax payable
    
    
    112,933
    
    
    
    109,162Withholding tax payable
    
    
    2,401
    
    
    
    5,063Business tax payable
    
    
    353
    
    
    
    89Income tax payable
    
    
    40,572
    
    
    
    19,338Others
    
    
    3,379
    
    
    
    395Total
    
    
    (150,552
    )
    
    
    118,206
 5
    
    CASH AT BANK AND ON HAND
 2007
    
    
    2006(unaudited)Cash on hand
    
    
    56
    
    
    
    62Demand deposits
    
    
    400,962
    
    
    
    993,600Total
    
    
    401,018
    
    
    
    993,662
 6
    
    BILLS RECEIVABLE
 2007
    
    
    2006(unaudited)Bank acceptance bills
    
    
    992,153
    
    
    
    562,657
 In addition to the above bank acceptance bills as at December 31, 2007, the Company has outstanding bills receivable discounted with banks for which
the Company has retained a recourse obligation amounted to RMB 829,747 (2006: RMB
494,388). Management has assessed the recoverable amount of the recourse obligation
arising from these discounted bank bills to be insignificant based on the default
experience and the credit status of the issuing banks.
 F-16




---



##### 



7
    
    ACCOUNTS RECEIVABLE
 The ageing analysis of the Companys accounts receivable is as follows:
 2007
    
    
    2006 (unaudited)Percentage
    
    
    
    
    
    
    
    
    
    
    Percentageof total
    
    
    
    
    
    
    
    
    
    
    of totalaccounts
    
    
    Bad debt
    
    
    
    
    
    
    accounts
    
    
    Bad debtRMB
    
    
    receivable
    
    
    provision
    
    
    RMB
    
    
    receivable
    
    
    provisionWithin 1 year
    
    
    36,516
    
    
    
    100
    %
    
    
    
    
    
    
    3,789
    
    
    
    100
    %
    
    
    
 8
    
    OTHER RECEIVABLES
 The ageing analysis of the Companys other receivables is as follows:
 2007
    
    
    2006 (unaudited)Percentage
    
    
    
    
    
    
    
    
    
    
    Percentageof total
    
    
    
    
    
    
    
    
    
    
    of totalother
    
    
    Bad debt
    
    
    
    
    
    
    other
    
    
    Bad debtRMB
    
    
    receivables
    
    
    provision
    
    
    RMB
    
    
    receivables
    
    
    provisionWithin 1 year
    
    
    428,942
    
    
    
    47
    %
    
    
    
    
    
    
    725,100
    
    
    
    81
    %
    
    
    After 1 year but
within 2 years
    
    
    450,275
    
    
    
    49
    %
    
    
    
    
    
    
    170,340
    
    
    
    19
    %
    
    
    After 2 years but
within 3 years
    
    
    31,874
    
    
    
    4
    %
    
    
    
    
    
    
    
    
    
    
    0
    %
    
    
    Total
    
    
    911,091
    
    
    
    100
    %
    
    
    
    
    
    
    895,440
    
    
    
    100
    %
    
    
    
 9
    
    INVENTORIES
 2007
    
    
    2006(unaudited)Goods-in-transit
    
    
    674,755
    
    
    
    923,126Raw materials
    
    
    259,905
    
    
    
    484,835Work in progress
    
    
    41,085
    
    
    
    147,060Finished goods
    
    
    1,867,884
    
    
    
    995,1362,843,629
    
    
    
    2,550,157Less: Provision for diminution
in value of inventories
    
    
    (13,608
    )
    
    
    (238
    )Total
    
    
    2,830,021
    
    
    
    2,549,919
 F-17




---



##### 



9
    
    INVENTORIES (CONTINUED)
 Provision for diminution in value of inventories
 2007
    
    
    2006 (unaudited)Raw
    
    
    Finished
    
    
    
    
    
    
    Raw
    
    
    Finishedmaterials
    
    
    goods
    
    
    Total
    
    
    materials
    
    
    goods
    
    
    TotalOpening balance as at
January 1
    
    
    
    
    
    
    (238
    )
    
    
    (238
    )
    
    
    (26,425
    )
    
    
    (19,098
    )
    
    
    (45,523
    )Add: Provision made
during the year
    
    
    (2,216
    )
    
    
    (11,392
    )
    
    
    (13,608
    )
    
    
    
    
    
    
    
    
    
    
    Less: transfer out
due to sales
    
    
    
    
    
    
    238
    
    
    
    238
    
    
    
    26,425
    
    
    
    18,860
    
    
    
    45,285Closing balance as at
December 31
    
    
    (2,216
    )
    
    
    (11,392
    )
    
    
    (13,608
    )
    
    
    
    
    
    
    (238
    )
    
    
    (238
    )
 All the above inventories are purchased from others or self-manufactured.
 2007
    
    
    2006(unaudited)Cost of inventories charged to costs and
expenses in the income statement
    
    
    9,657,796
    
    
    
    7,355,485
 10
    
    OTHER CURRENT ASSETS
 2007
    
    
    2006(unaudited)Other monetary funds
    
    
    116,567
    
    
    
    65,663
 Other monetary funds as at December 31, 2007 consist of the following bank deposits:
 a)
    
    Dealer trust account of RMB 101,567 placed in the Shenyang Xinbei branch of
Industrial and Commercial Bank of China; andb)
    
    Dealer trust account of RMB 15,000 placed in the Shenyang branch of Guangdong
Development Bank.
 F-18




---



##### 



11
    
    FIXED ASSETS
 Plant
    
    
    Machinery
    
    
    Officeand
    
    
    and
    
    
    and other
    
    
    Motor
    
    
    Leaseholdbuildings
    
    
    equipment
    
    
    equipment
    
    
    vehicles
    
    
    improvements
    
    
    TotalCost:As at January 1, 2007(unaudited)
    
    
    493,831
    
    
    
    1,339,339
    
    
    
    207,939
    
    
    
    84,058
    
    
    
    73,597
    
    
    
    2,198,764Additions
    
    
    117
    
    
    
    285,663
    
    
    
    37,637
    
    
    
    52,173
    
    
    
    (4
    )
    
    
    375,586Transfer from
construction in progress
    
    
    6,341
    
    
    
    240,628
    
    
    
    481
    
    
    
    
    
    
    
    15,498
    
    
    
    262,948Disposals
    
    
    
    
    
    
    (336
    )
    
    
    (5,698
    )
    
    
    (31,836
    )
    
    
    (6,937
    )
    
    
    (44,807
    )As at December 31, 2007
    
    
    500,289
    
    
    
    1,865,294
    
    
    
    240,359
    
    
    
    104,395
    
    
    
    82,154
    
    
    
    2,792,491Accumulated depreciation:As at January 1, 2007(unaudited)
    
    
    (70,081
    )
    
    
    (287,833
    )
    
    
    (67,544
    )
    
    
    (8,058
    )
    
    
    (41,073
    )
    
    
    (474,589
    )Charge for the year
    
    
    (35,123
    )
    
    
    (201,390
    )
    
    
    (42,714
    )
    
    
    (17,643
    )
    
    
    (16,332
    )
    
    
    (313,202
    )Written back on disposal
    
    
    
    
    
    
    160
    
    
    
    3,881
    
    
    
    7,676
    
    
    
    6,936
    
    
    
    18,653As at December 31, 2007
    
    
    (105,204
    )
    
    
    (489,063
    )
    
    
    (106,377
    )
    
    
    (18,025
    )
    
    
    (50,469
    )
    
    
    (769,138
    )Provision for impairment:As at January 1, 2007(unaudited)/
December 31, 2007
    
    
    
    
    
    
    (437
    )
    
    
    (8,479
    )
    
    
    
    
    
    
    
    
    
    
    (8,916
    )Carrying amount:As at December 31, 2007
    
    
    395,085
    
    
    
    1,375,794
    
    
    
    125,503
    
    
    
    86,370
    
    
    
    31,685
    
    
    
    2,014,437As at December 31, 2006
(unaudited)
    
    
    423,750
    
    
    
    1,051,069
    
    
    
    131,916
    
    
    
    76,000
    
    
    
    32,524
    
    
    
    1,715,259
 As at December 31, 2007, the original cost of fixed assets that have been fully depreciated
but are still in use is RMB 404.As at December 31, 2007, certain fixed assets with carrying amount of RMB 668,162 are pledged
as security for long-term bank loans (note 17).As at December 31, 2007, the carrying amount of the fixed assets leased out under operating
leases is set out below:Plant and buildings:
 2007Cost
    
    
    195,405Accumulated depreciation
    
    
    (44,723
    )Total
    
    
    150,682
 As at December 31, 2007, the future minimum lease income under non-cancellable operating
lease in respect of the leasing out properties and machinery were receivable as follows:
 2007Within 1 year
    
    
    26,580Total
    
    
    26,580
 F-19




---



##### 



12
    
    CONSTRUCTION IN PROGRESS
 RMBCostAs at January 1, 2007 (unaudited)
    
    
    60,050Additions during the year
    
    
    336,632Transfer to fixed assets during the year
    
    
    (262,948
    )As at December 31, 2007
    
    
    133,734
  13
    
    INTANGIBLE ASSETS
 Computer
    
    
    
    
    
    
    Up-frontsoftware
    
    
    SAP
    
    
    licence fee
    
    
    TotalCost:As at January 1, 2007 (unaudited)
    
    
    16,258
    
    
    
    61,112
    
    
    
    38,839
    
    
    
    116,209Additions during the year
    
    
    10,410
    
    
    
    905
    
    
    
    21,334
    
    
    
    32,649As at December 31, 2007
    
    
    26,668
    
    
    
    62,017
    
    
    
    60,173
    
    
    
    148,858Accumulated amortisation:As at January 1, 2007 (unaudited)
    
    
    (5,560
    )
    
    
    (30,479
    )
    
    
    (17,017
    )
    
    
    (53,056
    )Charge for the year
    
    
    (4,071
    )
    
    
    (12,598
    )
    
    
    (9,593
    )
    
    
    (26,262
    )As at December 31, 2007
    
    
    (9,631
    )
    
    
    (43,077
    )
    
    
    (26,610
    )
    
    
    (79,318
    )Carrying amount:As at December 31, 2007
    
    
    17,037
    
    
    
    18,940
    
    
    
    33,563
    
    
    
    69,540As at December 31, 2006 (unaudited)
    
    
    10,698
    
    
    
    30,633
    
    
    
    21,822
    
    
    
    63,153
  2008
    
    
    30,6442009
    
    
    17,7002010
    
    
    15,3402011
    
    
    4,3342012
    
    
    1,52269,540
 F-20




---



##### 



14
    
    SHORT-TERM LOANS
 2007
    
    
    2006 (unaudited)Interest
    
    
    Secured/
    
    
    
    
    
    
    Interest
    
    
    Secured/Principal
    
    
    rate (p.a.)
    
    
    guaranteed
    
    
    Principal
    
    
    rate (p.a.)
    
    
    guaranteedBank loans RMB
    
    
    100,000
    
    
    
    5.751
    %
    
    Nil
    
    
    
    
    
    
    
    
    
    
     RMB
    
    
    1,000,000
    
    
    
    6.561
    %
    
    Nil
    
    
    400,000
    
    
    
    5.508
    %
    
    NilTotal
    
    
    1,100,000
    
    
    
    
    
    
    
    
    
    
    
    400,000
 15
    
    PROVISION FOR WARRANTY
 As at January 1, 2007 (unaudited)
    
    
    9,976Add: Charge for the year
    
    
    28,727Less: Payments during the year
    
    
    (10,357
    )As at December 31, 2007
    
    
    28,346
  16
    
    CURRENT PORTION OF LONG-TERM LOANS
 2007
    
    
    2006 (unaudited)Interest
    
    
    Secured/
    
    
    
    
    
    
    Interest
    
    
    Secured/Principal
    
    
    rate(p.a.)
    
    
    guaranteed
    
    
    Principal
    
    
    rate(p.a.)
    
    
    guaranteednote 17 i)Bank loans RMB
    
    
    115,000
    
    
    
    7.047
    %
    
    note 17 ii)
    
    
    
    
    
    
    
    
    
    
     RMB
    
    
    5,000
    
    
    
    6.156%/7.047
    %
    
    note 17 ii)
    
    
    
    
    
    
    
    
    
    
     RMB
    
    
    2,500
    
    
    
    5.508%/6.399
    %
    
    note 17 ii)
    
    
    
    
    
    
    
    
    
    
     RMB
    
    
    87,500
    
    
    
    5.751%/6.480
    %
    
    note 17 ii)
    
    
    
    
    
    
    
    
    
    
     RMB
    
    
    80,000
    
    
    
    5.508%/6.156
    %
    
    note 17 ii)
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    290,000
    
    
    
    
    
    
    
    
    
    
    
    
 F-21




---



##### 



17
    
    LONG-TERM LOANS, EXCLUDING CURRENT PORTION
 2007
    
    
    2006 (unaudited)Maturity &
    
    
    
    
    
    
    
    
    
    
    Maturity &interest
    
    
    Secured/
    
    
    
    
    
    
    interest
    
    
    Secured/Principal
    
    
    rate (p.a.)
    
    
    guaranteed
    
    
    Principal
    
    
    rate (p.a.)
    
    
    guaranteednote i)Bank loansRMB
    
    
    345,000
    
    
    
    7.047
    %
    
    note ii)
    
    
    
    
    
    
    
    
    
    
    RMB
    
    
    15,000
    
    
    
    6.156%/7.047
    %
    
    note ii)
    
    
    
    
    
    
    
    
    
    
    RMB
    
    
    7,500
    
    
    
    5.508%/6.399
    %
    
    note ii)
    
    
    
    
    
    
    
    
    
    
    RMB
    
    
    262,500
    
    
    
    5.751%/6.480
    %
    
    note ii)
    
    
    680,000
    
    
    
    5.751
    %
    
    note ii)RMB
    
    
    240,000
    
    
    
    5.508%/6.156
    %
    
    note ii)
    
    
    20,000
    
    
    
    6.156
    %
    
    note ii)Total
    
    
    870,000
    
    
    
    
    
    
    
    
    
    
    
    700,000
 i)
    
    The long-term loans carry an annual interest rate adjustable at 90% of the rate
applicable to the eight-year Renminbi term loan as promulgated by the Peoples Bank of
China. The interest on the loan is payable on a quarterly basis, and principal is
repayable in 16 quarterly instalments of RMB 72,500 from March 2008 to December 2011.
 ii)
    
    The long-term bank loans are secured by fixed assets pledged to the bank (note 11).
 18
    
    PAID-IN CAPITAL
  2007
    
    
    2006 (unaudited)Amount
    
    
    %
    
    
    Amount
    
    
    %Euro
    
    
    
    
    
    EuroShenyang
JinBei Automotive Industry Holdings Company Limited
    
    
    75,000
    
    
    
    50
    %
    
    
    75,000
    
    
    
    50
    %BMW Holding BV
    
    
    75,000
    
    
    
    50
    %
    
    
    75,000
    
    
    
    50
    %150,000
    
    
    
    100
    %
    
    
    150,000
    
    
    
    100
    %
  2007
    
    
    2006 (unaudited)Amount in
    
    
    Amount in
    
    
    
    
    
    
    Amount in
    
    
    Amount inoriginal
    
    
    RMB
    
    
    %
    
    
    original
    
    
    RMB
    
    
    %currency
    
    
    equivalent
    
    
    
    
    
    currency
    
    
    equivalentEuro
    
    
    
    
    
    
    
    
    EuroShenyang
JinBei Automotive Industry Holdings Company Limited
    
    
    75,000
    
    
    
    688,527.5
    
    
    
    50
    %
    
    
    75,000
    
    
    
    688,527.5
    
    
    
    50
    %BMW Holding BV
    
    
    75,000
    
    
    
    688,527.5
    
    
    
    50
    %
    
    
    75,000
    
    
    
    688,527.5
    
    
    
    50
    %150,000
    
    
    
    1,377,055
    
    
    
    100
    %
    
    
    150,000
    
    
    
    1,377,055
    
    
    
    100
    %
  F-22




---



##### 



19
    
    CAPITAL RESERVE
 2007
    
    
    2006(unaudited)Waiver of liabilities by the foreign investor
    
    
    272,102
    
    
    
    272,102Donation of fixed assets
    
    
    1,328
    
    
    
    345273,430
    
    
    
    272,447
 20
    
    SALES FROM PRINCIPAL ACTIVITIES
 2007
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)Sale of cars
    
    
    12,352,466
    
    
    
    8,944,111
    
    
    
    6,280,304Sale of spare parts
    
    
    108,036
    
    
    
    3,239
    
    
    
    12,460,502
    
    
    
    8,947,350
    
    
    
    6,280,304
 21
    
    NET FINANCIAL INCOME
 2007
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)Interest expenses
incurred
    
    
    109,134
    
    
    
    51,767
    
    
    
    83,353Less: Borrowing costs
capitalised
    
    
    (124
    )
    
    
    (272
    )
    
    
    (3,580
    )Net interest expenses
    
    
    109,010
    
    
    
    51,495
    
    
    
    79,773Less: Interest income
    
    
    (5,927
    )
    
    
    (9,233
    )
    
    
    (11,844
    )Net foreign currency
exchange gains
    
    
    (195,672
    )
    
    
    (62,207
    )
    
    
    (232,235
    )Other financial
expenses
    
    
    1,300
    
    
    
    228
    
    
    
    676Total
    
    
    (91,289
    )
    
    
    (19,717
    )
    
    
    (163,630
    )
 F-23




---



##### 



22
    
    RELATED PARTY RELATIONSHIPS AND TRANSACTIONS
 (a)
    
    Relationship between the Company and related parties without controlling
relationships
 Relationship with the CompanyShenyang JinBei Automotive Industry Holdings Company Limited
    
    Chinese investorBMW Holding BV
    
    Foreign investorShenyang Brilliance JinBei Automotive Co., Ltd. (Brilliance JinBei)
    
    A related party of the Chinese investorBrilliance China Automotive Holdings Ltd.
    
    Ultimate holding company of the Chinese investorBMW AG
    
    Ultimate holding company of the foreign investorBMW (China) Automotive Trading Co., Ltd.
    
    Group company of foreign investor
 (b)
    
    The amounts of the Companys related party transactions during the years and its
balances with related parties at the years end are summarised as follows:
 i)
    
    Related party transactions of the Company are summarised as follows:
 Note
    
    2007
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)Sales of goods
    
    
    
    
    6,002
    
    
    
    836
    
    
    
    Purchase of goods
    
    
    
    
    5,090,842
    
    
    
    5,017,684
    
    
    
    1,281,632Purchase of fixed assets
and tools
    
    
    
    
    187,044
    
    
    
    402,210
    
    
    
    122,805Purchase of other assets
    
    
    
    
    
    
    
    
    
    
    
    
    590Receiving services
    
    1)
    
    
    48,734
    
    
    
    126,700
    
    
    
    163,886Rendering of services
    
    2)
    
    
    335,804
    
    
    
    295,012
    
    
    
    134,821Interest expenses
    
    
    
    
    424
    
    
    
    812
    
    
    
    281Operating lease income
    
    
    
    
    26,744
    
    
    
    18,953
    
    
    
    26,444Operating lease expense
    
    
    
    
    14,174
    
    
    
    34,851
    
    
    
    15,256Royalty fee
    
    3)
    
    
    247,049
    
    
    
    178,882
    
    
    
    251,212Consultant support fee
    
    4)
    
    
    101,422
    
    
    
    161,256
    
    
    
    16,882Technical support fee
    
    5)
    
    
    402,786
    
    
    
    
    
    
    
    Up-front licence fee
    
    5)
    
    
    21,334
    
    
    
    
    
    
    
    Dealer development fee
    
    6)
    
    
    
    
    
    
    
    
    
    
    360,176Reimbursement of
marketing expense
    
    
    
    
    
    
    
    
    
    
    
    
    177,451Market entrance and
product related service
    
    7)
    
    
    
    
    
    
    
    
    
    
    257,480
 1)
    
    Pursuant to various service agreements with Brilliance
JinBei and BMW AG, the Company received services from Brilliance JinBei and
BMW AG with regard to the usage of plant facilities and other public
utilities.
 2)
    
    Pursuant to an agreement entered into between the Company
and Brilliance JinBei, the Company rendered painting services for the cars
produced by Brilliance JinBei in return for service fee income.
 F-24




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##### 



22
    
    RELATED PARTY RELATIONSHIPS AND TRANSACTIONS(CONTINUED)
 i)
    
    Related party transactions of the Company are summarised as follows:
(continued)
 3)
    
    A trademark licence agreement is entered into between the
Company and BMW AG to pay royalty fees based on a percentage of sales made
by the Company.
 4)
    
    Pursuant to the consultant support agreement with BMW AG,
the Company receives technical assistance from BMW AG. The consultant
support represents reimbursement of actual costs incurred by BMW AG to
assist the Company in enhancing the production capacity and operation of the
Company. The consultant support fee is mainly comprised of salary, hotel and
travelling costs of expatriates from BMW AG.
 5)
    
    Pursuant to an agreement between the Company and BMW AG,
the Company is required to pay technical support fee based on a percentage
of sales made by the Company as well as an up-front licence fee for each BMW
model series of licensed car.
 6)
    
    Pursuant to dealer development related service agreements
entered into between the Company and BMW AG, the Company rendered services
relating to dealer development and support to BMW AG in return for dealer
development fee income.
 7)
    
    Pursuant to market entrance and product related service
agreements entered into between the Company and BMW AG, the Company rendered
services relating to brand promotion and technology support to BMW AG in
return for market entrance and product related service income.
 ii)
    
    The balances arising from related party receivables and payables as
at December 31, 2007 and 2006 are summarised as follows:
 2007
    
    
    2006(unaudited)Accounts receivable
    
    
    2,009
    
    
    
    836Other receivables
    
    
    880,020
    
    
    
    879,130Accounts payable
    
    
    1,375,122
    
    
    
    1,931,198Other payables
    
    
    24,510
    
    
    
    461,758Accrued expenses
    
    
    550,180
    
    
    
    165,022
  F-25




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##### 



23
    
    COMMITMENTS
 (a)
    
    Capital commitments
  2007Contracted for
    
    
    159,962
 (b)
    
    Operating lease commitments
  2007Within 1 year
    
    
    39,561After 1 year but within 2 years
    
    
    12,215After 2 years but within 3 years
    
    
    11,333After 3 years
    
    
    9,297Total
    
    
    72,406
 (c)
    
    Forward exchange contracts
    F-26




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##### 



23
    
    COMMITMENTS (CONTINUED)
 (c)
    
    Forward exchange contracts (continued)
 When the fair value of a derivative contract is negative, the Company owes the
counterparty and, therefore, it does not possess credit risk. Market risk is the
adverse effect on the value of a derivative instrument that results from a change in
currency exchange rates. All of the Companys forward exchange contracts have a
maturity of less than one year after the balance sheet date.As of 31 December 2007, the notional amount of the foreign exchange forward contracts
of the foreign currencies to be purchased at maturity was Euro 575 million (2006: Euro
277 million). The Company uses the quoted prices based on observable market quotes to
estimate the fair value of the foreign exchange forward contracts. At 31 December 2007,
these forward exchange contracts had a net fair value of RMB 69 million (2006: RMB 99
million).
 24
    
    SIGNIFICANT DIFFERENCES BETWEEN PRC GAAP AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA
 The Companys accounting policies conform with PRC GAAP, which differ in certain significant
respects from generally accepted accounting principles in the United States of America (U.S.
GAAP). A description of the differences and their effects on net income and investors
equity are set forth below.
 (a)
    
    Description of differences between PRC GAAP and U.S. GAAP
 i)
    
    Foreign exchange forward contractsUnder PRC GAAP, changes in the fair value of the foreign exchange forward
contracts are not recognized in the financial statements until the contracts are
settled (the contract settlement date). On the contract settlement date, the
difference between the forward rate and the spot rate is recorded as an exchange
gain or loss in the income statement in the line item Net financial income.In 2007, for U.S. GAAP purposes, the Company accounted for foreign exchange
forward contracts as hedging activities in accordance with FASB Statement No.
133, Accounting for Derivative Instruments and Certain Hedging Activities, as
amended, which requires entities to recognize all foreign exchange forward
contracts as either assets or liabilities in the balance sheet at their
respective fair values. For foreign exchange forward contracts designated in
hedging relationships, changes in the fair value are either offset through
earnings against the change in fair value of the hedged item attributable to the
risk being hedged or recognized in accumulated other comprehensive income until
the hedged item is recognized in earnings.
 F-27




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##### 



24
    
    SIGNIFICANT DIFFERENCES BETWEEN PRC GAAP AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (CONTINUED)
 (a)
    
    Description of differences between PRC GAAP and U.S. GAAP (continued)
 i)
    
    Foreign exchange forward contracts (continued)The Company only enters into foreign exchange forward contracts that it intends
to designate as a hedge of a forecasted transaction (cash flow hedge). For all
hedging relationships, the Company formally documents the hedging relationship
and its risk-management objective and strategy for undertaking the hedge, the
hedging instrument, the hedged item, the nature of the risk being hedged, how the
hedging instruments effectiveness in offsetting the hedged risk will be assessed
prospectively and retrospectively, and a description of the method of measuring
ineffectiveness. The Company also formally assesses, both at the hedges
inception and on an ongoing basis, whether foreign exchange forward contracts
that are used in hedging transactions are highly effective in offsetting cash
flows of hedged items. For foreign exchange forward contracts that are designated
and qualify as a cash-flow hedge, the effective portion of the gain or loss on
the foreign exchange forward contract is reported as a component of accumulated
other comprehensive income and reclassified into earnings in the same period or
periods during which the hedged transaction affects earnings. Gains and losses on
foreign exchange forward contracts representing either hedge ineffectiveness or
hedge components excluded from the assessment of effectiveness are recognized in
current earnings.In 2006, under U.S. GAAP, the Company did not apply hedge accounting and
therefore the changes in fair value of the foreign exchange forward contracts
were recorded in the income statement.
 ii)
    
    Provision for impairmentUnder PRC GAAP, if there is an indication that there has been a change in the
factors used to determine the provision for impairment of fixed assets and as a
result the estimated recoverable amount is greater than the carrying amount of
the fixed assets, the impairment loss recognized in prior years is reversed.
Reversals of impairment losses are recognized in the income statement. An
impairment loss is reversed only to the extent of the fixed assets carrying
amount that would have been determined had no impairment loss been recognized in
prior years.Under U.S. GAAP, reversals of impairment losses are not permitted.
 F-28




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##### 



24
    
    SIGNIFICANT DIFFERENCES BETWEEN PRC GAAP AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (CONTINUED)
 (a)
    
    Description of differences between PRC GAAP and U.S. GAAP (continued)
 iii)
    
    Deferred income taxesUnder PRC GAAP, income tax expense is recognized under the tax payable
method and no deferred tax is recognized for temporary differences between the
financial statement carrying amounts of all assets and liabilities and their
respective tax bases.Under U.S. GAAP, income taxes are accounted for under the asset and
liability method. Deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss carryforwards. A valuation allowance is
provided to reduce the carrying amount of deferred income tax assets if it is
considered more-likely-than-not that some portion or all of the deferred income
tax assets will not be realized. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected
to be recovered or settled. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
 iv)
    
    InterestUnder PRC GAAP, interest received is classified in the statement of cash flows as
a component of investing activities and interest paid is classified in the
statement of cash flows as a component of financing activities.Under U.S. GAAP, interest received and paid are classified in the statement of
cash flows as components of operating activities.
 F-29




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##### 



24
    
    SIGNIFICANT DIFFERENCES BETWEEN PRC GAAP AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (CONTINUED)
 (b)
    
    A summary of the significant adjustments to net income for the years ended
December 31, 2007 and 2006 and to the investors equity as of December 31, 2007 and 2006
which would be required if U.S. GAAP had been applied, instead of PRC GAAP, in the
financial statements are set forth below:
 Note
    
    2007
    
    
    2006(unaudited)Net income in accordance
with PRC GAAP
    
    
    
    
    236,800
    
    
    
    17,862U.S. GAAP adjustments
 increase/(decrease) due to:Foreign exchange forward
contracts
    
    24(a) i)
    
    
    (99,763
    )
    
    
    104,434Provision for impairment
    
    24(a) ii)
    
    
    904
    
    
    
    (7,467
    )Deferred income taxes
    
    24(a) iii)
    
    
    93,820
    
    
    
    36,824Deferred income tax effect
on U.S. GAAP adjustments
    
    
    
    
    8,236
    
    
    
    (6,351
    )Net adjustments
    
    
    
    
    3,197
    
    
    
    127,440Net income in accordance
with U.S. GAAP
    
    
    
    
    239,997
    
    
    
    145,302
 Note
    
    2007
    
    
    2006(unaudited)Investors equity in accordance
with PRC GAAP
    
    
    
    
    1,443,827
    
    
    
    1,206,044U.S. GAAP adjustments
 increase/(decrease) due to:Foreign exchange forward
contracts
    
    24(a) i)
    
    
    69,430
    
    
    
    99,763Reversal of provision for impairment
    
    24(a) ii)
    
    
    (6,563
    )
    
    
    (7,467
    )Deferred income taxes
    
    24(a) iii)
    
    
    144,358
    
    
    
    48,551Net adjustment
    
    
    
    
    207,225
    
    
    
    140,847Investors equity in accordance
with U.S. GAAP
    
    
    
    
    1,651,052
    
    
    
    1,346,891
 F-30




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##### 



24
    
    SIGNIFICANT DIFFERENCES BETWEEN PRC GAAP AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (CONTINUED)
 (c)
    
    The changes in investors equity in accordance with U.S. GAAP for the years ended
December 31, 2007 and 2006 are as follows:
 Accumulatedother
    
    
    
    
    
    
    Total
    
    
    TotalContributed
    
    
    Additional
    
    
    comprehensive
    
    
    Retained
    
    
    shareholders'
    
    
    comprehensiveCapital
    
    
    paid-in capital
    
    
    income
    
    
    earnings
    
    
    equity
    
    
    incomeBalance as of January 1, 2006
(unaudited)
    
    
    1,377,055
    
    
    
    272,102
    
    
    
    
    
    
    
    (447,913
    )
    
    
    1,201,244
    
    
    
    Net income (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,302
    
    
    
    145,302
    
    
    
    145,302Total comprehensive
Income (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,302Others (unaudited)
    
    
    
    
    
    
    345
    
    
    
    
    
    
    
    
    
    
    
    345Balance as of December 31, 2006
(unaudited)
    
    
    1,377,055
    
    
    
    272,447
    
    
    
    
    
    
    
    (302,611
    )
    
    
    1,346,891
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    239,997
    
    
    
    239,997
    
    
    
    239,997Foreign exchange forward
contracts, net of deferred tax
expense of RMB 6,249
    
    
    
    
    
    
    
    
    
    
    63,181
    
    
    
    
    
    
    
    63,181
    
    
    
    63,181Others
    
    
    
    
    
    
    983
    
    
    
    
    
    
    
    
    
    
    
    983
    
    
    
    Total comprehensive
Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    303,178Balance as of
December 31, 2007
    
    
    1,377,055
    
    
    
    273,430
    
    
    
    63,181
    
    
    
    (62,614
    )
    
    
    1,651,052
 (d)
    
    Following are summarized balance sheet information determined under U.S. GAAP as
of December 31, 2007 and 2006:
 2007
    
    
    2006(unaudited)Current assets
    
    
    5,447,788
    
    
    
    5,212,564Non-current assets
    
    
    2,268,185
    
    
    
    1,847,892Total assets
    
    
    7,715,973
    
    
    
    7,060,456Current liabilities
    
    
    5,194,921
    
    
    
    5,013,565Non-current liabilities
    
    
    870,000
    
    
    
    700,000Total liabilities
    
    
    6,064,921
    
    
    
    5,713,565Investors equity
    
    
    1,651,052
    
    
    
    1,346,891Total liabilities and investors equity
    
    
    7,715,973
    
    
    
    7,060,456
 F-31




---



##### 



24
    
    SIGNIFICANT DIFFERENCES BETWEEN PRC GAAP AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (CONTINUED)
 (e)
    
    The condensed statements of cash flows under U.S. GAAP for the years ended
December 31, 2007 and 2006 were as follows:
 2007
    
    
    2006(unaudited)Net cash (used in)/provided
by operating activities
    
    
    (727,095
    )
    
    
    883,841Net cash used in investing activities
    
    
    (1,025,549
    )
    
    
    (568,740
    )Net cash provided by/(used in)
financing activities
    
    
    1,160,000
    
    
    
    (70,000
    )Net (decrease)/increase in cash
    
    
    (592,644
    )
    
    
    245,101Cash at beginning of year
    
    
    993,662
    
    
    
    748,561Cash at end of year
    
    
    401,018
    
    
    
    993,662
 As described in Note 24 (a) iv), under U.S. GAAP, interest received and interest paid
are classified as components of operating activities.
 F-32