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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 1934þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended: December 31, 2004o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from to
 Commission file number: 1-11412 BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED 
 (Exact name of Registrant
as specified in its charter) 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 
  Securities registered or to be registered pursuant to Section 12(b) of the Act: 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, 2004:  3,284,176 American Depositary Shares, each representing 100 Ordinary Shares Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item 18 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
    
    
    11ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    34ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    47ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    55ITEM 8. FINANCIAL INFORMATION
    
    
    61ITEM 9. THE OFFER AND LISTING
    
    
    63ITEM 10. ADDITIONAL INFORMATION
    
    
    65ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    75ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    76Part IIITEM
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    76ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    77ITEM 15. DISCLOSURE CONTROLS AND PROCEDURES
    
    
    77ITEM 16. [RESERVED]
    
    
    77ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    77ITEM 16B. CODE OF ETHICS
    
    
    77ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    78ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
    
    
    79ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    79Part IIIITEM 17. FINANCIAL STATEMENTS
    
    
    79ITEM 18. FINANCIAL STATEMENTS
    
    
    79ITEM 19. EXHIBITS
    
    
    79EX-1.1 BYE-LAWS OF BRILLIANCE CHINAEX-4.12 EQUITY INTEREST TRANSFER AGREEMENTEX-7.1 DEBT TO EQUITY RATIOEX-8.1 LIST OF SIGNIFICANT SUBSIDIARIESEX-12.1 CERT OF CEO PURSUANT TO SECTION 302EX-12.2 CERT OF CFO PURSUANT TO SECTION 302EX-13.1 CERT OF CEO & CFO PURSUANT TO SECTION 906
  i




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FORWARD-LOOKING STATEMENTS Certain information contained in this annual report that does not relate to historical
financial information may be deemed to constitute forward-looking statements. The words or phrases
will likely result, are expected to, will continue, is anticipated, estimate, project,
believe or similar expressions identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from historical results and
those presently anticipated or projected. Brilliance China Automotive wishes to caution readers not
to place undue reliance on any these forward-looking statements, which speak only as of the date
made. Among the factors that could cause Brilliance China Automotives actual results in the future
to differ materially from any opinions or statements expressed with respect to future periods
include:  
    
    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 revaluation of the Renminbi against foreign currencies; and
    
    fluctuations in foreign exchange rates. When considering these forward-looking statements, you should keep in mind the factors
described in Item 3  Key Information  Risk Factors and other cautionary statements appearing in
Item 5  Operating and Financial Review and Prospects of this annual report. These risk factors
and statements describe circumstances that could cause actual results to differ materially from
those contained in any forward-looking statement. CURRENCY TRANSLATION Unless otherwise specified, all references in this annual report to U.S. dollars or US$
are to United States dollars; all references to Renminbi or Rmb are to Renminbi, which is the
legal tender currency of China; all references to H.K. dollars or HK$ are to Hong Kong dollars,
which is the legal tender currency of Hong Kong and all references to Euro and Euros are to the
legal tender currency of the European Monetary Union. On December 31, 2004, the noon buying rates
in New York City for cable transfers of Renminbi, Hong Kong dollars and Euros, as certified for
customs purposes by the Federal Reserve Bank of New York was US$1.00 = Rmb 8.28, US$1.00 = HK$7.77
and Euro 1.00 = US$1.35. Translations of amounts from Renminbi, Hong Kong dollars and Euros to U.S.
dollars for the convenience of the reader have been made at those rates. No representation is made
that the Renminbi, Hong Kong dollar or Euro amounts could have been, or could be converted into
U.S. dollars at those rates or at any other rates. In addition, all financial information presented
herein has been prepared in accordance with United States generally accepted accounting principles,
or U.S. GAAP. ii




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PART I 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS Not applicable. 
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 
 ITEM 3. KEY INFORMATION Selected Financial Data Historical Financial Information of Brilliance China Automotive The following table presents the selected consolidated financial information of Brilliance
China Automotive and its subsidiaries as of and for the years ended December 31, 2000, 2001, 2002,
2003 and 2004, which have been derived from our audited consolidated financial statements. The
selected financial information for the years ended December 31, 2002, 2003 and 2004 and as of
December 31, 2003 and 2004 should be read in conjunction with, and is qualified in its entirety by
reference to, the financial statements, prepared in accordance with U.S. GAAP, included elsewhere
in this annual report, the accompanying notes thereto and Item 5  Operating and Financial Review
and Prospects. The financial statements and footnotes for the years ended December 31, 2000 and
2001 and as of December 31, 2000, 2001 and 2002 are not included in this annual report. (Amounts in millions,
    
    As of and for the years ended December 31,except per share/ADS and operating data)
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2004(Rmb, except operating data)
    
    
    (US$)Income Statement Data:Total Sales
    
    
    6,306.4
    
    
    
    6,218.4
    
    
    
    7,319.5
    
    
    
    10,109.6
    
    
    
    6,542.0
    
    
    
    790.4Cost of sales
    
    
    4,436.2
    
    
    
    4,308.0
    
    
    
    5,411.3
    
    
    
    7,727.1
    
    
    
    5,491.3
    
    
    
    663.5Gross Profit
    
    
    1,870.3
    
    
    
    1,910.4
    
    
    
    1,908.1
    
    
    
    2,382.4
    
    
    
    1,050.7
    
    
    
    126.9Selling, general and administrative
expenses
    
    
    663.2
    
    
    
    673.4
    
    
    
    1,067.2
    
    
    
    1,410.1
    
    
    
    1,510.4
    
    
    
    182.5Net income
    
    
    870.0
    
    
    
    887.1
    
    
    
    610.5
    
    
    
    780.8
    
    
    
    1.2
    
    
    
    0.1Balance Sheet Data:Total assets
    
    
    10,552.4
    
    
    
    11,696.5
    
    
    
    13,853.7
    
    
    
    18,288.2
    
    
    
    17,776.4
    
    
    
    2,147.8Current assets
    
    
    6,076.7
    
    
    
    6,127.1
    
    
    
    8,263.0
    
    
    
    10,286.5
    
    
    
    9,428.3
    
    
    
    1,139.2Current liabilities
    
    
    6,177.7
    
    
    
    5,741.7
    
    
    
    7,332.7
    
    
    
    8,031.0
    
    
    
    8,187.7
    
    
    
    989.3Capital stock
    
    
    276.9
    
    
    
    303.2
    
    
    
    303.2
    
    
    
    303.4
    
    
    
    303.4
    
    
    
    36.7Total shareholders equity
    
    
    3,836.3
    
    
    
    5,419.8
    
    
    
    6,005.3
    
    
    
    6,886.3
    
    
    
    6,857.7
    
    
    
    828.6Cash Flow Statement Data:Payment for capital expenditure
    
    
    1,016.2
    
    
    
    782.5
    
    
    
    798.8
    
    
    
    955.9
    
    
    
    999.1
    
    
    
    120.7Depreciation and amortization
    
    
    114.0
    
    
    
    118.1
    
    
    
    270.6
    
    
    
    677.8
    
    
    
    603.0
    
    
    
    72.9Net cash flows (used in) / provided
by operating activities
    
    
    201.4
    
    
    
    1,326.8
    
    
    
    1,913.0
    
    
    
    753.4
    
    
    
    (719.3
    )
    
    
    (86.9
    )Net cash flows used in investing
activities
    
    
    (2,833.2
    )
    
    
    (1,398.8
    )
    
    
    (2,209.9
    )
    
    
    (2,491.3
    )
    
    
    (722.4
    )
    
    
    (87.3
    )Net cash flows provided by (used in)
financing activities
    
    
    2,597.8
    
    
    
    (45.8
    )
    
    
    365.9
    
    
    
    2,281.1
    
    
    
    853.9
    
    
    
    103.2
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(Amounts in millions,
    
    As of and for the years ended December 31,except per share/ADS and operating data)
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2004(Rmb, except operating data)
    
    
    (US$)Per Share/ADS Data:Basic earnings per share(1)
    
    
    0.28
    
    
    
    0.25
    
    
    
    0.17
    
    
    
    0.21
    
    
    
    0.0003
    
    
    
    0.00004Basic earnings per ADS(2)
    
    
    27.61
    
    
    
    25.10
    
    
    
    16.65
    
    
    
    21.30
    
    
    
    0.03
    
    
    
    0.004Diluted earnings per share(1)
    
    
    0.27
    
    
    
    0.25
    
    
    
    0.17
    
    
    
    0.21
    
    
    
    0.0003
    
    
    
    0.00004Diluted earnings per ADS(2)
    
    
    26.80
    
    
    
    25.10
    
    
    
    16.65
    
    
    
    21.16
    
    
    
    0.03
    
    
    
    0.004Cash dividends declared per ADS(2,3)
    
    
    0.48
    
    
    
    0.96
    
    
    
    1.48
    
    
    
    2.12
    
    
    
    1.07
    
    
    
    0.13Operating Data:Production volume (units)Minibus  Deluxe model
    
    
    10,603
    
    
    
    9,413
    
    
    
    8,620
    
    
    
    9,291
    
    
    
    7,682Minibus  Mid-priced model
    
    
    50,617
    
    
    
    51,423
    
    
    
    56,959
    
    
    
    65,734
    
    
    
    56,215Subtotal  Minibuses
    
    
    61,220
    
    
    
    60,836
    
    
    
    65,579
    
    
    
    75,025
    
    
    
    63,897Zhonghua Sedans(4)
    
    
    
    
    
    
    
    
    
    
    8,890
    
    
    
    27,054
    
    
    
    11,806Total
    
    
    61,220
    
    
    
    60,836
    
    
    
    74,469
    
    
    
    102,079
    
    
    
    75,703Sales volume (units)Minibus  Deluxe model
    
    
    10,145
    
    
    
    9,653
    
    
    
    9,017
    
    
    
    9,004
    
    
    
    6,626Minibus  Mid-priced model
    
    
    49,873
    
    
    
    53,356
    
    
    
    56,121
    
    
    
    65,614
    
    
    
    54,992Subtotal  Minibuses
    
    
    60,018
    
    
    
    63,009
    
    
    
    65,138
    
    
    
    74,618
    
    
    
    61,618Zhonghua Sedans(4)
    
    
    
    
    
    
    
    
    
    
    8,816
    
    
    
    25,600
    
    
    
    10,982Total
    
    
    60,018
    
    
    
    63,009
    
    
    
    73,954
    
    
    
    100,218
    
    
    
    72,600
 
 (1)
    
    The weighted average number of shares outstanding for the years ended
December 31, 2000 was adjusted to retrospectively take into account
the effect of the bonus share issuances effected on April 14, 2000.(2)
    
    On April 14, 2000, Brilliance China Automotives shares traded on the
New York Stock Exchange, Inc. were converted to ADSs at a ratio of 100
shares to 1 ADS. The calculation of earnings and cash dividends per
ADS is based on the weighted average number of ADSs outstanding during
the years presented. The weighted average number of ADSs outstanding
is calculated based on the assumptions that the ADS had been in
existence throughout all the years presented and that all of the
outstanding shares were held in the form of ADSs (at the ratio of 100
shares for each ADS).(3)
    
    Calculated at an exchange rate of US$1.00=Rmb 8.28, the noon buying
rate for Renminbi on December 31, 2004, as if ADSs were in issue
during the years presented. Brilliance China Automotive declared cash
dividends per ordinary share in H.K. dollars in each of 2004, 2003,
2002, 2001 and 2000.(4)
    
    Commercial production of Zhonghua sedans began in August 2002. Exchange Rate Information The following table sets forth certain information concerning exchange rates between Renminbi
and U.S. dollars for the periods indicated: Noon Buying RatePeriod
    
    Period End
    
    
    Average(1)
    
    
    High
    
    
    Low2000
    
    
    8.2773
    
    
    
    8.2784
    
    
    
    8.2799
    
    
    
    8.27652001
    
    
    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
    
    
    
    8.2764
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Noon Buying RatePeriod
    
    Period End
    
    
    Average(1)
    
    
    High
    
    
    LowJanuary 2005
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2765February 2005
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2765March 2005
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2765April 2005
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2765May 2005
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2765June 2005 (through June 27, 2005)
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2765
    
    
    
    8.2765
 
 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. 3




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Risk Factors Brilliance China Automotive is subject to various changing competitive, economic, political
and social conditions in China, as well as special concerns and significant risks not usually
encountered by a United States company. These include the following: Risks Relating to Brilliance China Automotive Minibus and Sedan Businesses Brilliance China Automotive experienced a sharp drop in net income in 2004 and may not be
profitable in 2005 or in subsequent years. Brilliance China Automotives net income decreased 99.8% to Rmb 1.2 million (US$0.14 million)
in 2004 from Rmb 780.8 million in 2003. During the same period, total sales of Brilliance China
Automotive were Rmb 6,542.0 million (US$790.4 million), representing a 35.3% decrease from Rmb
10,109.6 million in 2003. The decrease in total sales was primarily due to the decrease in the
sales volumes of minibuses and the Zhonghua sedan. Total sales was also negatively impacted by the
decrease in average unit selling prices due to the changes in product mix resulting from the
significant slowdown in growth in the domestic demand for automobiles in China and the intensified
price competition during 2004. As a result of these factors, Brilliance China Automotive
experienced a sharp drop in net income in 2004, and may incur losses in 2005 and in subsequent
years, which could impact Brilliance China Automotives ability to implement its business strategy
and adversely affect its financial condition. In 2004, Brilliance China Automotive also recognized a provision for impairment of intangible
assets of Rmb 50 million in respect of the design and development costs of the Zhonghua sedans, an
impairment loss on goodwill of Rmb 47.3 million in relation to one of Brilliance China Automotives
jointly controlled entities and a provision for impairment of the property, plant and equipment of
Rmb 10.0 million in one of Brilliance China Automotives subsidiaries in 2004. There can be no
assurance that Brilliance China Automotive will not be required to recognize a provisions
impairment of intangible assets, an impairment loss on goodwill or a provision for impairment of
the property, plant and equipment in 2005. 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. The success of Brilliance China Automotives business strategy will depend on the ability of
its 51.0%-owned subsidiary, Shenyang Brilliance JinBei Automobile Co., Ltd., or Shenyang
Automotive, to increase substantially its sales volume. Such an increase can only be achieved if
Shenyang Automotive increases its market share or if there is an overall increase in the size of
the minibus and sedan markets in China. Although the overall unit sales of minibuses and sedans in
China increased between 2000 and 2003 and we have experienced increased sales of our minibuses and
Zhonghua sedans in 2003, the implementation of macro-economic policies and austerity measures in
China has resulted in a significant slowdown in growth in domestic demand for automobiles since the
second half of 2004. Shenyang Automotives sales volume of minibuses decreased by 17.4% from 74,618
units in 2003 to 61,618 units in 2004. Sales volume of Zhonghua sedans decreased 57.1% from 25,600
units in 2003 to 10,982 units in 2004. The pace and strength of the recovery in the automotive
industry in China remain difficult to predict. In light of this industry-wide decline in demand, as
well as other factors, there can be no assurance that demand for Shenyang Automotives minibuses
and sedans will return to previous levels. If overall demand for domestic minibuses and sedans does
not increase in the future, the ability of Shenyang Automotive to increase its sales volume or
market share could be adversely affected. 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. Meeting consumer demand with new vehicles developed over increasingly shorter product
development cycle times is critical to Brilliance China Automotives continued success. Brilliance
China Automotives ability to strengthen its position within its traditional minibus segment while
expanding into additional market segments with new products, such as sedans, will play a key role
in determining its future success. In order to compete successfully within its traditional markets,
as well as to enter new markets with new product offerings, Brilliance China Automotive must assess
trends in consumer preferences, modify existing products or develop new products to match 4




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those trends and deliver to market these newly developed or modified products before such
preferences change. 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 significant management turnover and could continue to
have problems retaining and recruiting key personnel in the future. Brilliance China Automotive had significant turnover of its directors and executive officers
in 2004 and 2005 and could continue to have problems retaining and recruiting senior management in
the future. Since June 2004, six of its nine then current directors have resigned. Of the six who
resigned, one was the President and Chief Executive Officer, another was the Vice President and
Chief Financial Officer, and a third was the Vice Chairman, Executive Vice President and Company
Secretary. In addition, an independent non-executive director who was appointed in June 2004 to
fill one of a vacant directorships resigned in September 2004. While Brilliance China Automotive
has appointed a new President and Chief Executive Officer, a new Chief Financial Officer, and two
other directors, there can be no assurance that this relatively new management team will be as
effective in implementing Brilliance China Automotives business strategy or that any new strategy
that the new management team may decide to implement will achieve its intended objectives. Brilliance China Automotives success depends to a significant degree upon the continued
contributions of key management and other personnel, some of whom could be difficult to replace.
Brilliance China Automotive does not maintain key man life insurance covering its senior management
and competition for qualified management personnel can be intense. There can be no assurance that
Brilliance China Automotive will be able to recruit suitable candidates and high turnover of senior
management can adversely impact Brilliance China Automotives stock price and customer
relationships as well as make recruiting for future management positions more difficult. In
addition, Brilliance China Automotive must successfully integrate any new management personnel that
they hire in order to achieve its operating objectives, and changes in other key management
positions may temporarily affect its financial performance and results of operations as new
management becomes familiar with its business. Accordingly, Brilliance China Automotives future
financial performance will depend to a significant extent on its ability to motivate and retain key
management personnel. There are significant risks involved in Brilliance China Automotives joint venture with BMW to
produce BMW sedans in China. On March 27, 2003, Brilliance China Automotive, through its indirect subsidiary, Shenyang
JinBei Automotive Industry Holdings Company Limited, or SJAI, entered into a joint venture contract
with BMW Holding BV, or BMW Holding, to assemble, produce and sell BMW designed and branded sedans
in China. Production began in September 2003 and the 3-Series and 5-Series sedans were formally
launched in China in October and November 2003, respectively. There are significant risks involved
in this joint venture, including, but not limited to, the ability of the joint venture to obtain
adequate financing as and when necessary, obtain timely delivery of imported components and parts,
source necessary components at competitive prices, successfully develop, manufacture, market and
sell BMW sedans in China, and obtain appropriate approvals for its new products from governmental
authorities in China. Brilliance China Automotive currently has a 49.0% effective interest in the
joint venture and provides guarantees for the performance of all obligations of SJAI, including
required capital contributions. The ownership of Brilliance China Automotive by its largest shareholder is currently the subject of
litigation. On January 21, 2003, a writ brought by Broadsino Finance Company Limited, or Broadsino, as
plaintiff was filed with the Supreme Court of Bermuda and an ex parte court order dated January 22,
2003 granted by the Supreme Court of Bermuda in favor of Broadsino was served on the registered
office of Brilliance China Automotive in Bermuda. Brilliance China Automotive, one current director
and three former directors of Brilliance China Automotive, among others, are defendants in these
proceedings. The writ alleged that Brilliance China Automotive was aware that the interest of the
Chinese Financial Education Development Foundation, a former significant shareholder, in
1,446,121,500 shares representing a 39.45% ownership interest of the then outstanding share capital
of Brilliance China Automotive, was held in trust for Broadsino and was improperly transferred to
Huachen Automotive Group Holdings Company Limited, or Huachen, a company wholly owned by the
Liaoning 5




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Provincial Government. Upon application by Brilliance China Automotive, the court order was
discharged by a judgment of the Supreme Court of Bermuda given on February 11, 2003. On March 10, 2003, Brilliance China Automotive filed a summons at the Supreme Court of Bermuda
to have Broadsinos writ and statement of claim struck out. The strikeout proceedings were duly
heard before the Supreme Court of Bermuda on July 22 and 23, 2003. On December 31, 2003 the Supreme
Court of Bermuda issued its judgment on the strike-out proceedings, and struck out the writ in
respect of legal proceedings brought by Broadsino against Brilliance China Automotive. On March 4,
2004, Broadsino submitted an application for leave to appeal to the Supreme Court of Bermuda, but
at the hearing of the application before the court on March 9, 2004, Broadsinos application was
refused. Broadsino subsequently issued a Notice of Appeal dated June 18, 2004 whereby it sought to
appeal to the Court of Appeal of Bermuda, Civil Appellate Jurisdiction the decision of the Supreme
Court of Bermuda dated December 31, 2003. The Court of Appeal of Bermuda ruled in its judgment of
March 14, 2005 in the favor of Brilliance China Automotive and dismissed Broadsinos appeal. On
April 5, 2005, Broadsino submitted a notice of motion for leave to appeal to the Court of Appeal of
Bermuda, which seeks leave to appeal to the Privy Council with respect to the Court of Appeals
judgment. On June 9, 2005, the Court of Appeal directed Broadsino to amend Broadsinos notice of
motion for leave to appeal. On June 27, 2005, Broadsino was granted leave to appeal the judgment of the Court
of Appeal to the Privy Council in the United Kingdom, which represents the highest court of appeal in the
Bermuda judicial system. As at the date of this annual report, the
order granting leave to the Privy Council
setting out the issues to be determined was still to be issued. On August 7, 2003, a lawsuit was filed in U.S. federal court by the former Chairman of
Brilliance China Automotive and others against the Liaoning Provincial Government relating to
Huachens ownership of Brilliance China Automotive. On March 3, 2005, the claim was dismissed by
the district court for lack of jurisdiction over the nature of the case and the type of relief
sought and on March 16 the plaintiffs filed a notice of appeal. Brilliance China Automotive has
never been named as a party to the lawsuit. The directors of Brilliance China Automotive do not believe the recent litigation in Bermuda
or any other litigation in other jurisdictions have had or will have a significant impact on the
financial position of Brilliance China Automotive. See Item 8  Financial Information  Legal
Proceedings for further details of these litigation proceedings. Failure by Brilliance China Automotive to continue to form and maintain alliances with foreign
automobile manufacturers could adversely affect its competitiveness. In order for Brilliance China Automotive to remain competitive and obtain additional
technology and financing, it is crucial that it enters into and maintains alliances with foreign
motor vehicle manufacturers. This is particularly true since Chinas accession to the World Trade
Organization, or the WTO, in November 2001. As a result of the reduction in import restrictions,
more automobile manufacturers have been and will be entering Chinas motor vehicle market. If
Brilliance China Automotive cannot maintain its existing alliances with Toyota and BMW or form
strategic alliances with other foreign automobile manufacturers regarding the establishment of
joint ventures and the procurement of necessary components on commercially beneficial terms, its
competitive position will be adversely affected. The inability of Shenyang Automotive to access Toyotas technical resources to upgrade its
products, or Toyotas provision of assistance to any of Shenyang Automotives competitors could
negatively impact Shenyang Automotives sales and competitive position. Shenyang Automotive has historically relied to a significant extent on Toyota for technical
assistance for its minibuses. On December 17, 2001, Shenyang Automotive entered into an agreement
with Toyota for the technology transfer of the fifth generation of the Toyota minibus  the Granvia
 for which production based upon semi-knockdown kits from Toyota commenced in 2002. In the first
half of 2004, the Granvia, which is marketed under the brand name Granse (known as Grace before
February 2004) when sold in China by Brilliance China Automotive, entered into commercial
production, with more than 60% of its parts and components from domestic sources. Although Shenyang
Automotive has introduced new products, including its successful mid-priced minibus, incorporating
styling and engineering refinements and modifications without assistance from Toyota, lack of
access to Toyotas technical resources may limit Shenyang Automotives ability to upgrade
significantly its existing Toyota-designed products. Failure to update its existing models could
eventually result in Shenyang Automotives 6




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products becoming technologically inferior to its competitors products, which could have an
adverse impact on Shenyang Automotives sales. Although Brilliance China Automotive has no
knowledge of any intention of Toyota to produce, or assist a current or potential competitor in the
production of, minibuses similar to those of Shenyang Automotive in China, neither Brilliance China
Automotive nor Shenyang Automotive could prohibit Toyota from doing so. 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. While Shenyang Automotive is currently in the process of replacing the Toyota engines used in
some of its minibus models with Mitsubishi and Mianyang Xinchen engines, currently most of the
engines installed in Shenyang Automotives deluxe minibuses are purchased from Toyota on a
commercial basis. Shenyang Automotive generally maintains an inventory of Toyota engines sufficient
to sustain two months of planned production. To date, Shenyang Automotive has not experienced any
material disruption to its supply of engines from Toyota. Changes in regulatory requirements,
tariffs and other trade barriers and price or exchange controls could, however, hinder Shenyang
Automotives ability to import engines. An extended disruption or reduction in Shenyang
Automotives supply of Toyota engines would consequently limit Shenyang Automotives ability to
produce deluxe minibuses. Any delay or disruption in Shenyang Automotives ability to obtain Mitsubishi engines could limit
Shenyang Automotives ability to produce its Zhonghua sedans. Currently all of the Mitsubishi engines installed in Brilliance China Automotives Zhonghua
sedans are purchased from Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd., or
Shenyang Aerospace, on a commercial basis. Shenyang Aerospace is an associated company of
Brilliance China Automotive, in which Brilliance China Automotive has a 12.8% equity interest. See
Item 4  Information on the Company  Business Overview  Other Significant Subsidiaries, Jointly
Controlled Entities and Associated Companies  Shenyang Aerospace. Shenyang Automotive is
currently in discussions with other domestic and overseas engine manufacturers, with a view to
broadening its engine sourcing for the Zhonghua sedans, including using foreign designs to produce
domestically engines for sedans and minibuses. Shenyang Automotive generally maintains an inventory
of Mitsubishi engines sufficient to sustain two months of planned production. To date, Shenyang
Automotive has not experienced any material disruption to its supply of Mitsubishi engines from
Shenyang Aerospace. However, there can be no assurance that Shenyang Automotive will at all times
be able to obtain a steady supply of Mitsubishi engines from Shenyang Aerospace. An extended
disruption or reduction in Shenyang Aerospaces supply of Mitsubishi engines to Shenyang Automotive
would consequently 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. In order to maintain its competitive edge, Brilliance China Automotives strategy is to
upgrade its production facilities, including molding, welding, painting and assembly facilities and
build new facilities, for example, the construction of its new engine plant. Any failure or delay
in implementing such upgrading or construction plans in a timely and cost-efficient manner could
limit its future growth and have a material adverse effect upon Brilliance China Automotives
businesses, financial condition and results of operations. 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. Some of Shenyang Automotives competitors have formed joint ventures with, or licensed
technology from, foreign automobile manufacturers, and others may do so in the future. These
competitors may have access to greater financial resources than Brilliance China Automotive or to
technology and equipment that are more advanced than the technology and equipment utilized by
Brilliance China Automotive. In addition, some of Shenyang Automotives potential competitors may
receive substantial support from the Chinese government, including priority access to loans,
favorable import quotas and tariffs, expedited approvals of proposed projects and 7




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products and preferential tax treatment. Such advantages may make it difficult for Shenyang
Automotive to compete with these other automobile manufacturers. Huachen, as Brilliance China Automotives substantial shareholder, may not always act in the best
interest of other shareholders. Huachen, a wholly owned subsidiary of the Liaoning Provincial Government, currently owns 39.4%
of the issued and outstanding shares of Brilliance China Automotive, which it acquired from the
Chinese Financial Education Development Foundation in December 2002. Accordingly, Huachen is
entitled to cast 39.4% of the votes on all matters voted on by the shareholders of Brilliance China
Automotive (to the extent it is not required to abstain from exercising its voting rights under the
Bye-laws of Brilliance China Automotive and applicable laws and regulations), and therefore is able
to exert substantial influence over the election of Brilliance China Automotives directors, the
outcome of actions requiring majority shareholder approval and the business in general of
Brilliance China Automotive. Such influence could preclude the ability of minority shareholders to
influence important business decisions of Brilliance China Automotive, and may result in actions or
omissions by Brilliance China Automotive that are not in the best interest of the minority
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. Brilliance China Automotive has relationships with over 250 suppliers in China and sources the
majority of its important components and raw materials from at least two different suppliers to
ensure availability and increase competition among suppliers. Brilliance China Automotive has also
made significant progress in increasing the domestic component content of its products. However,
certain principal components of Brilliance China Automotives products, including those used in
sedans produced by our joint venture with BMW, Brilliance BMW Automotive Ltd., or BMW Brilliance,
continue to be imported from Toyota, BMW and other overseas suppliers. Because certain components
are imported from Toyota, BMW and other suppliers in Japan and Europe, the costs as well as
availability of such components may be affected by foreign exchange, exchange rates, import
restrictions, customs clearance, shipment schedules and import duties and consequently drive up
Brilliance China Automotives costs of production. In addition, unexpected disruptions in the
supply of certain components, particularly from foreign suppliers, may also require using
alternative suppliers or cause delays in the production process. Furthermore, increases in the
price of electricity or certain raw materials, such as steel, may result in increased costs of
production. Significant changes in the cost or availability of raw materials or components may have
an 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. Manufacturers and sellers of defective products in China may be subject to liability for
losses and injury caused by such defective products under Chinas laws. However, there is currently
no mandatory legal requirement for automobile manufacturer to maintain insurance coverage in
respect of production interruption, product liability or damage to third party properties. Neither
Brilliance China Automotive nor Shenyang Automotive carries product liability insurance or
insurance against losses due to production insurance, product recalls or damage to third party
properties. Brilliance China Automotive cannot guarantee that product liability claims will not be
brought against Brilliance China Automotive or its subsidiaries and affiliates in the future, and,
if such claims are successful, that such claims will not have a material adverse impact upon
Brilliance China Automotives results of operations, or that the Chinese government will not impose
new requirement for sufficient insurance to be maintained to cover the risks associated with
Brilliance China Automotives China operations, including those of Shenyang Automotive and BMW
Brilliance. Brilliance China Automotive is required to comply with increasingly stringent environmental
standards applicable to its vehicles and manufacturing facilities. Brilliance China Automotives production facilities are subject to government pollution
regulations enforced by the relevant local government. In addition, the Chinese government has set
vehicle safety, exhaust and performance standards with which Brilliance China Automotive must
comply. Brilliance China Automotives operations are sensitive to changes in the Chinese
governments environmental policies relating to all aspects of the 8




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automobile manufacturing. There is no assurance that changes in such policies would not have an
adverse effect on the revenue or results of operations of Brilliance China Automotive. Risks Relating to the Minibus and Sedan Industries in China Competition in Chinas minibus and sedan industry could lead to further competitive pricing
pressure. Chinas minibus and sedan industry is highly competitive in terms of vehicle quality, pricing,
choice of models, reliability, safety, fuel economy, customer service and financing terms. Many
participants, particularly in the sedan industry, have announced plans to increase production
capacity in China. Increasing capacity within the industry is likely to intensify further
competitive pricing pressure. In addition, the significant slowdown in growth in the domestic
demand for automobiles in China has intensified price competition among automobile manufacturers in
2004. Increased price competition may cause our sales volume and profit margin to decrease, and
thus adversely affect our results of operations and financial condition. Reduced tariffs and import restrictions on foreign-made motor vehicles and motor vehicle components
as a result of Chinas accession to the WTO may lead to increased competition for Brilliance China
Automotive. The Chinese government imposes restrictions, quotas and tariffs on the import of foreign-made
motor vehicles, as well as motor vehicle components. However, as a result of Chinas accession to
the WTO, which regulates trading and tariffs among its signatory states, in November 2001, China
has committed to reducing its import restrictions on motor vehicles and motor vehicle components.
In addition, China will be required to conform its import tariffs to the uniform tariffs under the
WTO. Effective January 1, 2002, China reduced its import tariffs on motor vehicles and automotive
components from between 80% to 100% and between 18% to 40%, respectively, to between 43.8% to 50.7%
and between 14% to 31.4%, respectively. This range was lowered further to between 4.8% and 25% for
automotive components in 2003. In 2004, the average import tariffs on automotive components for the
deluxe minibuses (including Granse minibuses) and Zhonghua sedans were 13.8% and 10.5%,
respectively. In addition, tariffs on vehicles with nine seats or less and engine sizes of three
liters or below fell from 43.9% in 2002 to 38.2% in 2003, while tariffs on vehicles with more than
nine seats and engines of more than three liters decreased from 50.7% in 2002 to 43.0% in 2003. In
2004, tariffs were 34.2% for vehicles with nine seats or less and engine sizes of three liters or
less and 37.6% for vehicles with more than nine seats and engines of more than three liters. In
2005, tariffs have been fixed at 30% for all motor vehicles. These tariffs are scheduled to be
further reduced in 2006. Although lower tariffs and reduced import restrictions may benefit Brilliance China Automotive
in terms of lower cost of imported components, lower tariffs and reduced import restrictions could
also lead to a substantial increase in the number of minibuses, sport utility vehicles, sedans and
other motor vehicles imported into China, thereby significantly increasing competition in
Brilliance China Automotives current and proposed markets. Extensive governmental regulations on the automobile industry in China may limit the flexibility of
Brilliance China Automotive to respond to market conditions and competition. The Chinese government has implemented extensive policies and regulations for the passenger
automobile industry, including policies and regulations relating to market entry, vehicle safety
and emissions standards, exhaust and performance standards, pollution levels of vehicle production
facilities, pricing, vehicle and component import tariffs and foreign ownership of interests in
vehicle and component manufacturers. In addition, every new product type must be approved by the
Chinese government before it can be introduced into the market. This approval process can sometimes
be lengthy, and can impact the ability of Brilliance China Automotive to introduce new products in
a timely manner. This regulatory framework may limit the flexibility of Brilliance China Automotive
to respond to market conditions or competition. The cost of complying with these policies and
regulations can also be significant. Brilliance China Automotives operations are sensitive to
changes in the Chinese governments policies relating to all aspects of the automobile industry.
There can be no assurance that changes in such policies would not have an adverse effect on the
revenue or results of operations of Brilliance China Automotive. China automobile industry is significantly dependent upon the economy of China. 9




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The performance of the China automobile industry is highly dependent on general economic
conditions and the purchasing power of consumers in China. Thus, the revenue and profits of
Brilliance China Automotive are subject to cyclical fluctuations and may be adversely affected by
any unfavorable changes in the economic conditions in China. Risks Relating to Chinas Economy and Regulatory System Currency exchange risks could affect Brilliance China Automotives cross-border transactions. Brilliance China Automotive is subject to risks associated with cross-border transactions,
including foreign currency exchange rate risks relating to its purchase of automotive components
from Toyota in Japan and other overseas suppliers. During 2004, imported components comprised
approximately 6.7% of the total costs of minibuses and approximately 18.0% of the total costs of
the Zhonghua sedan. Changes in foreign currency exchange rates also affect the costs of
foreign-manufactured components imported by Chinese manufacturers of larger components, such as
engines, which we purchase domestically. Budgetary constraints on Chinas government entities and state enterprises could affect Shenyang
Automotives sales and pricing of products. Brilliance China Automotive believes that approximately 30% and 35% of Shenyang Automotives
2004 revenues from minibuses and sedans, respectively, were derived from sales to governmental
agencies and certain state-run enterprises. Because of Shenyang Automotives customer composition,
sales and pricing of its products can be affected by budgetary constraints applicable to government
entities and state enterprises. Brilliance China Automotives results of operations and financial position are affected to a
significant degree by economic, political and legal developments in China. Substantially all of Brilliance China Automotives assets are located in China and
substantially all of Brilliance China Automotives revenues are derived from China. Accordingly,
the results of operations and financial position of Brilliance China Automotive are subject to a
significant degree to economic, political and legal developments in China. Since 1978, the Chinese
government has been reforming its economic system. Many of the reforms are unprecedented or
experimental, and are expected to undergo future change. Other political, economic and social
factors, such as political changes, changes in the rates of economic growth, changes in foreign
exchange rate policies, unemployment or inflation, or in the disparities in per capita wealth
between regions within China, could lead to further adjustment of the reform measures. There can be
no assurance that the reforms in the economic system in China will continue or that Brilliance
China Automotive will not be adversely affected by changes in political, economic and social
conditions in China, including changes in political leadership or by the adoption of additional or
revised reform measures. Any significant disruption of Chinas banking system could materially and adversely affect
Brilliance China Automotives ability to obtain credit. Most major banks in China are owned by the Chinese government. Most of these banks have
historically extended significant amounts of loans according to governmental policy rather than for
commercial reasons. As a result, these banks currently have significant loans outstanding to
state-owned enterprises, many of which have incurred recurring and material losses. Consequently,
many banks in China have substantial levels of loans that are not current with respect to payments
of either interest or principal and may not have made adequate provisions to cover potential losses
on these loans. Any significant disruption of Chinas banking system could materially and adversely
affect Brilliance China Automotives ability to obtain credit and the economic environment in which
it conducts its business and may also affect its customers and distributors. Shenyang Automotives and BMW Brilliances ability to obtain sufficient foreign exchange to satisfy
their requirements is dependent on authorization of the State Administration of Foreign Exchange. 10




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Substantially all of the revenues of Shenyang Automotive and BMW Brilliance are denominated in
Renminbi, while some of their operating expenses, purchase costs of components and capital
expenditures are denominated in foreign currencies. The Renminbi currently is not a freely
convertible currency. The State Administration of Foreign Exchange, under the authority of the
Peoples Bank of China, regulates the conversion of Renminbi into foreign currency. There can be no
assurance that the current authorizations for foreign-invested enterprises, such as Shenyang
Automotive and BMW Brilliance, to retain their foreign exchange to satisfy foreign exchange
liabilities or to pay dividends in the future will not be limited or eliminated or that Shenyang
Automotive and BMW Brilliance will be able to obtain sufficient foreign exchange to pay dividends
and to satisfy their other foreign exchange requirements. See also Government Regulation and Environmental Matters in Item 4  Information on the
Company, Item 5  Operating and Financial Review and Prospects, Item 8  Financial Information
 Legal Proceedings and Item 11  Quantitative and Qualitative Disclosures About Market Risk. 
 ITEM 4. INFORMATION ON THE COMPANY History and Development of Brilliance China Automotive Brilliance China Automotive Holdings Limited was established as an exempted company with
limited liability under the laws of Bermuda on June 9, 1992. Brilliance China Automotives
principal place of business is Suites 1602-05, Chater House, 8 Connaught Road Central, Hong Kong,
telephone number: (852) 2523-7227. Brilliance China Automotive was initially established to hold a 51.0% interest in Shenyang
Brilliance JinBei Automobile Co., Ltd. (formerly known as Shenyang JinBei Passenger Vehicle
Manufacturing Company, Ltd.), or Shenyang Automotive, a Sino-foreign equity joint venture
enterprise established on July 22, 1991. The remaining 49.0% interest in Shenyang Automotive was
owned by Shenyang JinBei Automotive Company Limited (formerly Shenyang Brilliance Automotive
Company Limited and FAW-JinBei Automotive Company Limited), or JinBei. In February 2003, an
amendment was made to Shenyang Automotives joint venture contract and as a result, the term of
Shenyang Automotive became perpetual. Shenyang Automotive is currently the leading manufacturer and
distributor of minibuses in China and also the manufacturer of Zhonghua sedans. On December 29, 2003, Brilliance China Automotive, through Shenyang Xinjinbei Investment and
Development Co., Ltd., or SXID, and Shenyang JinBei Automotive Industry Holdings Co., Ltd., or
SJAI, its 99.0% and 98.0% indirectly owned subsidiaries, respectively, entered into agreements to
acquire the entire equity interests of Shenyang Automobile Industry Asset Management Company
Limited, or SAIAM, and Shenyang Xinjinbei Investment Co., Ltd, or SXI. SAIAM and SXI own 29.9% and
11%, respectively, of the issued share capital of JinBei. Upon the completion of the acquisition
and the receipt of government approvals for the transaction, which is expected by the end of 2005,
Brilliance China Automotive will obtain an effective interest of approximately 40.1% of JinBei,
thereby increasing its effective interest in Shenyang Automotive from 51.0% to approximately 70.7%. Prior to May 1998, Brilliance China Automotives sole operating asset was its interest in
Shenyang Automotive. On May 18, 1998, Brilliance China Automotive acquired 50% and 51% equity
interests, respectively, in Mianyang Xinchen Engine Co., Ltd., or Mianyang Xinchen, a manufacturer
of gasoline engines for use in passenger vehicles and light duty trucks, and Ningbo Yuming
Machinery Industrial Co., Ltd., or Ningbo Yuming, a producer of automobile windows and window
molding and stripping. Mianyang Xinchen is a Sino-foreign joint venture whose 50-year term will
expire in 2048. Ningbo Yuming is a wholly foreign-owned enterprise with a 50-year term that will
expire in 2043. On October 19, 2004, Brilliance China Automotive, through its subsidiary Beston
Asia Investment Limited, entered into an agreement with Madam Chen Qiuling for the acquisition of
her 49% interest in Ningbo Yuming. Approvals of the acquisition were obtained from the relevant
Chinese authorities on November 25, 2004 and Ningbo Yuming has thus become a wholly owned
subsidiary of Brilliance China Automotive. In addition to the acquisition of interests in Mianyang Xinchen and Ningbo Yuming, Brilliance
China Automotive has also acquired from Brilliance Holdings Limited, an affiliated company, a 50.0%
equity interest in Shenyang Xinguang Brilliance Automobile Engine Co., Ltd., or Shenyang Xinguang
Brilliance, on December 11, 11




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2000. Shenyang Xinguang Brilliance is a Sino-foreign equity joint venture manufacturer of gasoline
engines for use in passenger vehicles and light duty trucks. Shenyang Automotive is a major
customer of each of Mianyang Xinchen, Ningbo Yuming and Shenyang Xinguang Brilliance. Brilliance
China Automotive believes that the acquisition of these components suppliers has enabled it to
maintain the quality, and ensure a stable supply, of certain key components required for the
production needs of Shenyang Automotive. On October 12, 1998, June 9, 2000 and July 3, 2000, Brilliance China Automotive established
wholly owned subsidiaries (1) Shenyang XingYuanDong Automobile Component Co., Ltd., or Xing Yuan
Dong, (2) Ningbo Brilliance Ruixing Auto Components Co., Ltd., or Ningbo Brilliance Ruixing, and
(3) Mianyang Brilliance Ruian Automotive Components Co., Ltd., or Mianyang Brilliance Ruian,
respectively, to centralize and consolidate the sourcing of automotive parts and components for
Shenyang Automotive, Ningbo Yuming, and Mianyang Xinchen, respectively. In 2001, Xing Yuan Dong,
Ningbo Brilliance Ruixing and Mianyang Brilliance Ruian all began manufacturing automotive
components in order to maintain their preferential tax treatment from the Chinese government. Under an acquisition agreement dated April 25, 1998 between Shenyang Automotive and Shenyang
State Assets Administration Bureau, Shenyang Automotive was to acquire a 21.0% indirect interest in
Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd., or Shenyang Aerospace, a
Sino-foreign equity joint venture. A revised agreement was subsequently signed on August 15, 1999
among Shenyang Automotive, Shenyang State Assets Administration Bureau, Shanghai Brilliance
Industrial Company Limited and Xing Yuan Dong, under which Shenyang Automotives effective interest
in Shenyang Aerospace was reduced to 16.8% in exchange for cash consideration and the remaining
4.2% effective interest was transferred to Xing Yuan Dong at cost. At the completion of the
transfer on May 25, 2000, Brilliance China Automotives indirect effective interest in Shenyang
Aerospace was 12.8%. Upon completion of the acquisition of additional shares in JinBei and the
receipt of approvals from relevant Chinese authorities, which is expected by the end of 2005,
Brilliance China Automotives effective interest in Shenyang Aerospace will increase to
approximately 16.1%. At the end of 1998, Shenyang Automotive began to construct new production lines for the
manufacture of sedans and multi-purpose vehicles, or MPVs. These new production lines were
completed in mid-2002 and reached a total annual production capacity of 100,000 sedans or MPVs as
at the end of 2002. Beginning in 1999, Shenyang Automotive implemented an expansion of its minibus
facilities that resulted in an increase in its annual production capacity for deluxe and mid-priced
minibuses from 40,000 units to 70,000 units in 2002 (based on two shifts per day). The stamping and
assembly workshops currently have annual production capacities of 80,000 and 90,000 units,
respectively, based on two shifts of workers, and can be increased to 120,000 units based on three
shifts. In 2003, Shenyang Automotive constructed a new painting facility with a capacity of 120,000
units per year and in 2004 began construction of a new engine plant with an initial planned
capacity of 50,000 engines per year. On December 17, 2001, Shenyang Automotive entered into an agreement with Toyota Motor
Corporation for the transfer of technology relating to the fifth generation of the Toyota minibus,
the Granvia, which Shenyang Automotive markets under the brand name Granse (known as Grace
before February 2004) in China. Production of this minibus model based on semi-knockdown kits from
Toyota began in the second half of 2002 and commercial production using domestic parts and
components commenced in the second half of 2004. The Zhonghua sedan, designed by the world-renowned Italdesign, was launched to the market in
China in August 2002, after approval for production and sale of the Zhonghua sedan was obtained
from the Chinese government in May 2002. On March 27, 2003, Brilliance China Automotive, through its indirect subsidiary, SJAI, entered
into a joint venture contract with BMW Holding to produce and sell BMW sedans in China. On April
28, 2003, Brilliance China Automotive increased its effective interest in SJAI from 81% to 89.1%
and thereby increased its effective interest in the joint venture with BMW Holding BV from 40.5% to
44.6%. On December 16, 2003, Brilliance China Automotive further increased its effective interest
in the joint venture to 49.0% by further increasing its interest in SJAI from 89.1% to 98.0%. BMW
Brilliance received its business license on May 22, 2003 and introduced the BMW designed and
branded 3-Series and 5-Series sedans in China in October and November of 2003, respectively, based
on knockdown kits supplied by BMW. BMW Brilliance is also planning to launch the new 3-Series
sedans in China. 12




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Brilliance China Automotive currently has no material acquisitions or divestitures planned or
pending. For additional information see Item 5  Operating and Financial Review and Prospects 
Liquidity and Capital Resources  Capital Expenditures. Business Overview Brilliance China Automotives core businesses are the manufacture and sale of minibuses and
Zhonghua sedans in China through its subsidiary, Shenyang Automotive. We also have a joint venture
with BMW to produce and sell 3-Series and 5-Series sedans in China. In 2004, Shenyang Automotive
sold a total of 61,618 minibuses and 10,982 Zhonghua sedans. Due to the significant slowdown in
growth in domestic demand for automobiles since the second half of 2004, our sales volume for
minibus and sedan for the year ended December 31, 2004 decreased 17.4% and 57.1%, respectively,
compared to sales volume in 2003. Brilliance China Automotives 49%-indirectly owned joint venture,
BMW Brilliance, commenced production of the BMW-designed and branded sedans in 2003 and sold a
total of 4,359 of the 3-Series and 5-Series sedans in the last quarter of 2003. In the year ended
December 31, 2004, a total of 8,708 of the BMW sedans were sold. Currently, Shenyang Automotive has
an annual production capacity of 80,000 units of deluxe and mid-priced minibuses (based on two
shifts per day), 120,000 units of deluxe and mid-priced minibuses (based on three shifts per day),
and 70,000 units of Zhonghua sedans (based on two shifts per day). BMW Brilliance currently has an
annual production capacity of 30,000 units (based on 2 shifts per day). Shenyang Automotives production facilities are located in the industrial city of Shenyang,
the capital of Liaoning Province in northeastern China. Shenyang Automotives principal products
are the deluxe minibus, the mid-priced minibus and the Zhonghua sedan. The mid-priced minibuses
accounted for approximately 58.1% of the total sales revenue of Brilliance China Automotive in
2004, compared with 49.1% of total sales revenue in 2003. The deluxe and mid-priced minibuses are 8
to 15-seat minibuses adapted from Toyotas Hiace and Granvia minibuses (marketed under the name
Granse in China). In 2001, Shenyang Automotive began to install multiple electronic fuel injection engines,
which are currently used in all of Shenyang Automotives mid-priced minibuses. With the
installation of this engine in the mid-priced minibus, currently all of Shenyang Automotives
minibuses meet European II emission standards. Since 2004, the Chinese government has been
encouraging its automobile manufacturers to meet the European III emission standards. Shenyang
Automotive expects most of its minibuses and Zhonghua sedans to meet European III emission
standards by the end of 2005. In 2003, Shenyang Automotive commenced production of the fifth generation Toyota minibus, the
Granvia (marketed under the name Granse in China), based on semi-knockdown kits supplied by
Toyota. Commercial production of the Granse model using domestic parts and components commenced in
the first half of 2004. In 2004, Shenyang Automotives sales volume decreased 27.6% from 100,218 units in 2003 to
72,600 units in 2004. The 2004 sales figure comprises 61,618 minibuses and 10,982 Zhonghua sedans.
The decrease in overall sales was primarily due to the decrease in the sales volume of minibuses
and the significant decrease in the sales volume of the Zhonghua sedans due to the slowdown in
growth of the Chinese automobile industry. Our joint venture, BMW Brilliance sold 8,708 BMW-branded
sedans in 2004, compared to 4,359 in the last quarter of 2003. Shenyang Automotives sales in China
has been supported by a substantial network of more than 800 minibus distributors, including
approximately 240 exclusive minibus distributors, and approximately 130 sedan distributors, as well
as over 340 after-sales service centers for minibuses and over 160 for sedans. Shenyang Automotive
also continued to implement its 4S sales center system, with sales, after-sales service, spare
parts and surveys offered by the same dealership outlet. As of the end of 2004, Shenyang Automotive
had over 90 4S dealership outlets for minibuses and over 80 4S dealership outlets for Zhonghua
sedans nationwide. For the year ended December 31, 2004, Brilliance China Automotive reported sales of Rmb
6,542.0 million (US$790.4 million) and net income of Rmb 1.2 million (US$0.1 million), representing
a decrease of approximately 35.3% and 99.8%, respectively, compared to 2003. The decrease in sales
and net income was primarily due to the decrease in sales volume of Shenyang Automotive, especially
for the Zhonghua sedans, and the decrease in average 13




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##### Table of Contents



unit selling prices due to the changes in product mix, resulting from significant reduction in
domestic demand for automobiles and the intensified price competition faced by Chinese automobile
manufacturers in 2004. Principal Products Shenyang Automotives principal products are minibuses and the Zhonghua sedans. Our joint
venture with BMW, BMW Brilliance, also produces 3 and 5 Series sedans. Shenyang Automotives principal minibus products are the deluxe minibus and the mid-priced
minibus, which constituted approximately 14.7% and 58.1% of total 2004 sales revenue, respectively.
These vehicles are used primarily for passenger transportation but can also be modified for use as
police vans, ambulances or other specialty vehicles. Shenyang Automotive sells all of its minibuses
under the JinBei brand name in a variety of models designed to meet the requirements of particular
market segments. Brilliance China Automotive believes that Shenyang Automotives minibuses have
established a reputation in China for high quality and reliability that has enabled Shenyang
Automotive to maintain its market-leading position in recent years. Shenyang Automotive commenced
production of the high-end Granse model in 2002 based on semi-knockdown kits from Toyota and
started production of the domestic version of the Granse model using domestic parts and components
in the first half of 2004. Shenyang Automotives Zhonghua sedan was introduced to the commercial market in China in
August 2002 and constituted approximately 33.1% and 20.2% of total sales revenue in 2003 and 2004,
respectively. The initial model was a five-seat manual transmission sedan with a 4-cylinder,
2.0-liter Mitsubishi engine. Shenyang Automotive now also produces manual transmission Zhonghua
sedans with 2.4-liter engines and automatic transmission versions with both 2.0-liter and 2.4-liter
engines. In December 2004, the facelift version of the Zhonghua model, known as
Grandeur(Zunchi in Chinese), was launched. The following table sets forth certain information with respect to Shenyang Automotives
principal products as of the date of this annual report. DeluxeMinibus
    
    Deluxe
    
    Mid-priced
    
    Zhonghua
    
    Zhonghua(Granvia or
    
    Minibus
    
    Minibus
    
    Sedan
    
    SedanGranse Model(1))
    
    (Hiace Model)
    
    (Hiace Model)
    
    Version 2.0
    
    Version 2.4Maximum 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 liter gasoline
engine
    
    Mitsubishi
4-cylinder
2.4 liter
gasoline
engineHorsepower
    
    105
    
    100.6
    
    92.5
    
    122
    
    130Price Range in Rmb(2)
    
    119,800-239,800
    
    102,800-249,800
    
    59,800-94,800
    
    139,800-159,800
    
    173,800-209,800Fuel Consumption
(Liters/100 km)(3)(4)
    
    10
    
    10
    
    9.8
    
    6.5 (MT)/
7.6 (AT)
    
    6.8 (MT)/
7.6 (AT)Maximum speed(4)
    
    158 km/hr
    
    130 km/hr
    
    130 km/hr
    
    190 km/hr (MT)/
185 km/hr (AT)
    
    195 km/hr (MT)/
185 km/hr (AT)Domestic component content
    
    60%
    
    80%
    
    100%
    
    75-85%
    
    75-85%Length
    
    4.7 m
    
    4.8 m
    
    4.8 m
    
    4.88 m
    
    4.88 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. 14




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##### Table of Contents



The following table sets forth certain information with respect to BMW Brilliances principal
products as of the date of this annual report. BMW Brilliance
    
    BMW Brilliance3-Series Sedan
    
    5-Series SedanModels
    
    Series 318 and 325
    
    Series 520, 525 and 530Maximum number of passengers
    
    5
    
    5Engine types
    
    BMW 6-cylinder
1.8 liter and 2.5 liter
gasoline engines
    
    BMW 6-cylinder
2.0 liter, 2.5 liter
and 3.0 liter
gasoline enginesHorsepower
    
    143 - 192 bhp
    
    170 - 231 bhpPrice range in Rmb(1)
    
    348,000  408,000
    
    488,000  618,000Fuel Consumption
(Liters/100 km)(2)
    
    8.1 - 9.5
    
    9.8 - 9.9Maximum speed
    
    218 - 240 km/hr
    
    230 - 250 km/hrLength
    
    4.47 m
    
    4.84 m
 
 (1)
    
    Actual price depends on specific model.(2)
    
    Based on an average speed of 80 kilometers per hour. Deluxe minibus. The deluxe minibus has historically been Shenyang Automotives flagship
product and is among the highest quality, most technologically advanced minibuses currently
produced in China. The deluxe minibus is used primarily as a passenger vehicle and features air
conditioning, and optional power steering, power windows, automatic locks, a rear window wiper,
full interior carpeting and alternative interior configurations. Shenyang Automotives high-end products have been further improved to incorporate more
user-friendly features to meet diversified customer demands. In the deluxe line, Shenyang
Automotive has introduced a locally developed model, based on the Toyota 441N, which is equipped
with an anti-lock braking system, improved helix rear suspension and refined interior trim. It has
the highest technical content among Shenyang Automotives product lines. On December 17, 2001, Shenyang Automotive entered into an agreement with Toyota for the
technology transfer of the fifth generation of the Toyota minibus  the Granvia  for which
production based upon semi-knockdown kits from Toyota commenced in 2002. Shenyang Automotive began
producing the Granvia using domestic parts in the first half of 2004. The Granvia is marketed under
the brand name Granse (known as Grace before February 2004) when sold in China by Shenyang
Automotive. The Granse minibus exhibits several improvements over the fourth generation minibus,
including more responsive performance when carrying heavy loads, better handling, better
maneuverability, 360-degree interior moveable seats, and a more luxurious and comfortable interior. 15




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##### Table of Contents



Mid-priced minibus. The mid-priced minibus was developed by Shenyang Automotive and was
commercially introduced in the second half of 1996. Shenyang Automotive produces two principal
mid-priced minibus models, both of which are based on the deluxe minibus and share the same styling
and body of the deluxe minibus, with the principal difference being the engine. By equipping the
majority of these models with a domestically manufactured Mianyang Xinchen or Shenyang Xinguang
engine, Shenyang Automotive is able to sell them for significantly less than the deluxe minibus,
yet still maintain function and quality standards for these models that are only slightly lower
than the deluxe minibus. This has allowed the mid-priced minibus models to compete more effectively
in terms of price with other domestically produced products. See  Competition below. These
mid-priced models include the Aurora, a version derived from a similar model from the deluxe line
but with more local content, and the Shuttler, which features a multi-point injection (MPI) system,
improved air conditioning and flexible seating that allows it to be used as both a passenger and
goods vehicle. In 2002, Shenyang Automotive introduced three new minibus models to the market, including
mid-priced minibuses that utilize Mitsubishi engines and in 2003 Shenyang Automotive launched the
updated versions of these minibus models. In 2004, Shenyang Automotive launched lower-priced models
with more limited features in response to market demand and in the first half of 2005, a
lower-priced domestic version of the Granse was launched. Since the end of 2003, Shenyang Automotives minibus capacity has been 80,000 units per year
(based on two shifts) and 120,000 units per year (based on three shifts). Brilliance China
Automotive believes that its long-term interests require that Shenyang Automotive continue to
expand its production capacity. Any increase in Shenyang Automotives future revenue will depend on
its ability to continue to expand in a similar manner. Realization of its production and sales
goals is also contingent upon other factors, including the development of new vehicle models, the
ability to continue to achieve overall cost reductions, ongoing access to high-quality raw
materials and domestic component manufacturers and maintenance of a large well-trained labor force,
an effective distribution network and after-sales service capabilities. Zhonghua sedan. The Zhonghua sedan was designed by Italdesign and was commercially introduced
by Shenyang Automotive in August 2002 after receiving approval from the Chinese government in May
2002. This sedan is designed to target the mid-priced sedan market segment, including governmental
institutions, businesses and individual users in China. This sedan model was specifically designed
for the Chinese market and utilizes a high degree of domestic component content, thereby offering
cost advantages to consumers. In 2003, Shenyang Automotive spent approximately Rmb 200.0 million on
upgrading the Zhonghua production facilities and related dies and tools. On March 27, 2001, Brilliance China Automotive entered into a three-year technical assistance
agreement with BMW under which BMW engineers provide consulting services to help in the initial
stages of production of Zhonghua sedans at Shenyang Automotives sedan production facilities in
Shenyang, including assistance in achieving and maintaining the desired level of production
quality. This agreement expired in March 2004 and Brilliance China Automotive and BMW are currently
in discussions regarding a similar agreement to be entered into directly between Shenyang
Automotive and BMW to replace the original agreement. 16




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##### Table of Contents



The following table sets forth Brilliance China Automotives revenues by category, for the
years 2002 through 2004: 2002
    
    
    2003
    
    
    2004Revenue
    
    
    
    
    
    
    Revenue
    
    
    
    
    
    
    Revenue(Rmb million)
    
    
    %
    
    
    (Rmb million)
    
    
    %
    
    
    (Rmb million)
    
    
    %Minibus salesDeluxe minibus
    
    
    1,324
    
    
    
    18.1
    
    
    
    1,284
    
    
    
    12.7
    
    
    
    960
    
    
    
    14.7Mid-priced minibus
    
    
    4,600
    
    
    
    62.8
    
    
    
    4,962
    
    
    
    49.1
    
    
    
    3,797
    
    
    
    58.1Zhonghua sedan(1)
    
    
    1,117
    
    
    
    15.3
    
    
    
    3,345
    
    
    
    33.1
    
    
    
    1,324
    
    
    
    20.2Subtotal
    
    
    7,042
    
    
    
    96.2
    
    
    
    9,591
    
    
    
    94.9
    
    
    
    6,081
    
    
    
    93.0Other sources of income(2)
    
    
    277
    
    
    
    3.8
    
    
    
    519
    
    
    
    5.1
    
    
    
    461
    
    
    
    7.0Total
    
    
    7,319
    
    
    
    100.0
    
    
    
    10,110
    
    
    
    100.0
    
    
    
    6,542
    
    
    
    100.0
 
 (1)
    
    Commercial launch of the Zhonghua sedan occurred in August 2002.(2)
    
    Including sales of components and scrap metal. 17




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##### Table of Contents



The following table sets forth the geographic breakdown of Shenyang Automotives minibus and
Zhonghua sedan sales revenue throughout China for the years 2002 through 2004: 2002
    
    
    2003
    
    
    2004Province/
    
    Revenue
    
    
    
    
    
    
    Revenue
    
    
    
    
    
    
    RevenueMunicipality
    
    (Rmb million)
    
    
    %
    
    
    (Rmb million)
    
    
    %
    
    
    (Rmb million)
    
    
    %Beijing
    
    
    1,122
    
    
    
    15.9
    
    
    
    1,686
    
    
    
    17.6
    
    
    
    1,131
    
    
    
    18.6Guangdong
    
    
    1,445
    
    
    
    20.5
    
    

    
    1,502
    
    
    
    15.7
    
    
    
    821
    
    
    
    13.5Liaoning
    
    
    773
    
    
    
    11.0
    
    
    
    964
    
    
    
    10.1
    
    
    
    644
    
    
    
    10.6Shanghai
    
    
    1,120
    
    
    
    15.9
    
    
    
    720
    
    
    
    7.5
    
    
    
    566
    
    
    
    9.3Jiangsu
    
    
    303
    
    
    
    4.3
    
    
    
    660
    
    
    
    6.9
    
    
    
    389
    
    
    
    6.4Zhejiang
    
    
    190
    
    
    
    2.7
    
    
    
    686
    
    
    
    7.1
    
    
    
    328
    
    
    
    5.4Shandong
    
    
    238
    
    
    
    3.4
    
    
    
    465
    
    
    
    4.8
    
    
    
    237
    
    
    
    3.9Tianjin
    
    
    115
    
    
    
    1.6
    
    
    
    257
    
    
    
    2.7
    
    
    
    183
    
    
    
    3.0Heilongjiang
    
    
    147
    
    
    
    2.1
    
    
    
    212
    
    
    
    2.2
    
    
    
    134
    
    
    
    2.2Hebei
    
    
    139
    
    
    
    2.0
    
    
    
    226
    
    
    
    2.4
    
    
    
    128
    
    
    
    2.1Hubei
    
    
    121
    
    
    
    1.7
    
    
    
    189
    
    
    
    2.0
    
    
    
    128
    
    
    
    2.1Hunan
    
    
    137
    
    
    
    2.0
    
    
    
    180
    
    
    
    1.9
    
    
    
    128
    
    
    
    2.1Shaanxi
    
    
    71
    
    
    
    1.0
    
    
    
    165
    
    
    
    1.7
    
    
    
    128
    
    
    
    2.1Henan
    
    
    80
    
    
    
    1.1
    
    
    
    168
    
    
    
    1.7
    
    
    
    110
    
    
    
    1.8Sichuan
    
    
    133
    
    
    
    1.9
    
    
    
    240
    
    
    
    2.5
    
    
    
    103
    
    
    
    1.7Shanxi
    
    
    59
    
    
    
    0.8
    
    
    
    106
    
    
    
    1.1
    
    
    
    103
    
    
    
    1.7Fujian
    
    
    151
    
    
    
    2.1
    
    
    
    184
    
    
    
    1.9
    
    
    
    91
    
    
    
    1.5Jilin
    
    
    137
    
    
    
    2.0
    
    
    
    136
    
    
    
    1.4
    
    
    
    85
    
    
    
    1.4Chongqing
    
    
    81
    
    
    
    1.2
    
    
    
    145
    
    
    
    1.5
    
    
    
    85
    
    
    
    1.4Xinjiang
    
    
    101
    
    
    
    1.4
    
    
    
    117
    
    
    
    1.2
    
    
    
    79
    
    
    
    1.3Yunnan
    
    
    56
    
    
    
    0.8
    
    
    
    89
    
    
    
    0.9
    
    
    
    79
    
    
    
    1.3Anhui
    
    
    74
    
    
    
    1.1
    
    
    
    102
    
    
    
    1.1
    
    
    
    79
    
    
    
    1.3Guanxi
    
    
    56
    
    
    
    0.8
    
    
    
    96
    
    
    
    1.0
    
    
    
    73
    
    
    
    1.2Jiangxi
    
    
    50
    
    
    
    0.7
    
    
    
    77
    
    
    
    0.8
    
    
    
    55
    
    
    
    0.9Neimonggol
    
    
    30
    
    
    
    0.4
    
    
    
    44
    
    
    
    0.5
    
    
    
    49
    
    
    
    0.8Guizhou
    
    
    30
    
    
    
    0.4
    
    
    
    52
    
    
    
    0.5
    
    
    
    30
    
    
    
    0.5Hainan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    0.3Other(1)
    
    
    83
    
    
    
    1.2
    
    
    
    123
    
    
    
    1.3
    
    
    
    97
    
    
    
    1.6Total
    
    
    7,042
    
    
    
    100.0
    
    
    
    9,591
    
    
    
    100.0
    
    
    
    6,081
    
    
    
    100.0
 
 (1)
    
    Gansu, Ningxia, Qinghai and Tibet. BMW Brilliance On March 14, 2003, Brilliance China Automotive received formal approval from the Chinese
government with respect to the feasibility study for the establishment of a joint venture between
BMW Holding, a wholly owned subsidiary of BMW AG, and SJAI, an indirect subsidiary of Brilliance
China Automotive. On March 27, 2003, SJAI entered into a joint venture contract with BMW Holding in
relation to the establishment of the joint venture in China. On April 28, 2003, Brilliance China
Automotive, through its indirectly 90%-owned subsidiary, SXID, entered into an agreement with the
10% shareholder of SJAI to acquire an additional 9% interest in SJAI, thereby increasing its
effective interest from 40.5% to 44.6%. On December 16, 2003, by increasing its indirect interest
in
SJAI from 89.1% to 98.0%, Brilliance China Automotive effectively further increased its interest in
BMW Brilliance to 49.0%. The registered capital and total investment cost of the joint venture is Euro 150 million and
Euro 450 million, respectively (equivalent to approximately Rmb 1,564 million and Rmb 4,692
million, respectively). As of 18




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##### Table of Contents



December 31, 2004, Brilliance China Automotive had injected
approximately Rmb 688.5 million into the joint venture. The joint venture is 50%-owned by each of
SJAI and BMW Holding and has a term of 15 years starting from May 22, 2003, the date of issuance of
the joint ventures business license, which may be extended by mutual consent of the parties to the
joint venture. The business scope of the joint venture is to produce and sell BMW-designed and
branded passenger cars, engines, parts and components and to provide after-sales services
(including repair, maintenance and spare parts) relating to its products. Profits of the joint
venture are shared equally by SJAI and BMW Holding, in proportion to their respective contributions
to the registered capital of the joint venture. This joint venture contract prohibits Brilliance
China Automotive from entering into similar ventures with other automobile manufacturers for the
manufacture and sale of premium sedans in China. Brilliance China Automotive has agreed to provide a guarantee to BMW Holding in relation to
the performance by SJAI of its obligations under the joint venture contract. A reciprocal guarantee
has been provided by BMW AG to SJAI in respect of the obligations of BMW Holding under the joint
venture contract. In addition, Brilliance China Automotive has been indemnified by SAIAM and
Shenyang JinBei Automobile Industry Company Limited with respect to its liabilities under this
guarantee to BMW Holding. On May 22, 2003, the business license for the joint venture was issued by the Shenyang City
Administration for Industry and Commerce. Commercial production of BMW-designed and branded sedans
commenced in September 2003 based on knockdown kits supplied by BMW. The 3-Series BMW sedans were
launched in the market in October 2003 and the 5-Series were launched in November 2003. BMW
Brilliance also plans to launch new versions of the 3-Series in the fourth quarter of 2005. Since
the first half of 2004, BMW Brilliance had begun to incorporate domestically produced components in
its 3-Series sedans and 5-Series sedans. However, a large portion of the production of these
vehicles (especially the newly introduced sedans, for example, the new 3-Series) is still primarily
based upon complete knockdown parts supplied by BMW. 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 38 domestic and imported presses, the largest of which
is calibrated at 3200 tons and is used to stamp roofs and side panels for the deluxe
and mid-priced minibuses. The 198 dies used for stamping and cutting body components
for the deluxe minibus and mid-priced minibus 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 Haice 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 36,000 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 10 to 15 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 19




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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.
    
    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 88 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 and transmission
performance. 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, 163 pieces for 118 types of large and medium parts of the
Zhonghua sedan are produced in the stamping (or pressing) workshop. There are 478
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 a 6300KN
uncoiling and blanking line from Schuler, which can supply parts for up to seven
production lines, as well as a 100-ton moulding 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 295 separate panels,
28 machined parts, 8 roll-pressed parts and 28 standard parts. This line was designed,
manufactured and installed by Kuka of Germany. The welding line consists of 21 zones
and 285 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 6,540
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. 20




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##### Table of Contents



BMW Sedan Production Process The automotive production process employed by BMW Brilliance is generally divided into four
stages: welding, painting, assembly and testing. In each stage, BMW Brilliance utilizes equipment
primarily imported from Germany. Each stage of the manufacturing process is also carefully
monitored both by quality control engineers and through specialized testing equipment to ensure
that the final product achieves the specified BMW Group quality standards.  
    
    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
state of the art CMM Machine from Wenzel Company of Germany. The sourced welding
equipment is from Edag Company of Germany. The welding workshop contains stud welding,
spot welding, mig welding and sealing operations. The line operators have been trained
by the BMW Group specialists and the process is controlled by the BMW Group 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 assembly areas, one of which uses a
conveyor system designed by the German supplier AFT with 56 line stations in total, as
well as handling devices for heavy parts from Dalmec Company.
    
    Testing. The finishing and testing equipment are located in the second area. A wide
range of special equipment used in BMW Group plants worldwide is used to test 100% of
the cars produced. Raw Materials and Components Raw Materials. To ensure its supply of high-quality domestic raw materials, components and
spare parts, Shenyang Automotive has relationships with over 250 suppliers in China as of December
2004. Shenyang Automotive sources the majority of its important components and raw materials from
at least two different suppliers to ensure availability and increase competition among suppliers.
In 2004, approximately 65.6% of Shenyang Automotives components sourcing was handled through
Brilliance China Automotives subsidiaries and associated companies. Steel is our principal raw material. Shenyang Automotive purchases steel predominantly through
the use of supply contracts. Since steel represented only approximately 6.0% of the total cost of
goods sold for the minibus (including Granse) and 3.5% of the total cost of goods sold for the
Zhonghua sedan in 2004, the impact of rising steel prices on Shenyang Automotives overall
production costs was not significant. Furthermore, this increase in the costs for steel was offset
by decreases in the costs of components due to a decrease in prices of the minibus components used
in the minibuses and an increase in the ratio of domestically produced components used in the
Zhonghua sedans. Components. Shenyang Automotive has adopted a system that regularly evaluates its existing
suppliers. These suppliers range from well-known international suppliers to domestic suppliers with
special technology and know-how. Shenyang Automotive has conducted a comprehensive survey of its
suppliers against an array of criteria, such as quality problem feedback ratio, production
capacity, quality assurance systems and after-sales services.
Implementing this process has enabled Shenyang Automotive to build a stronger supplier network as
the foundation for future growth. The domestic component content of the deluxe minibuses is currently 80% for the Hiace model
and 60% for the Granse model. The principal components of the Hiace deluxe model that we continue
to import from Toyota are the engine and the rear axle. Shenyang Automotive has developed deluxe
minibuses that would utilize 21




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##### Table of Contents



Mitsubishi engines made by Shenyang Aerospace in order to offer a
greater variety of products to its customers. These new models have a higher domestic component
ratio. Mitsubishi engines have already been installed in some of the deluxe minibus (Hiace model)
units. The mid-priced minibus uses 100% domestic parts and the domestic component content of the
Zhonghua sedan is over 80%. Brilliance China Automotive calculates domestic component content by
looking through larger components, such as engines, produced by domestic Chinese entities to
determine the percentage of such components own components that were manufactured outside China. Because certain components are imported from Toyota and other suppliers in Japan and Europe,
the availability of foreign exchange, exchange rates, import restrictions and the level of import
duties may affect the availability of certain components and Shenyang Automotives costs of
production. See Item 5  Operating and Financial Review and Prospects  Liquidity and Capital
Resources. Shenyang Automotive is required to pay import duties on imported automobile components.
Shenyang Automotive was subject to an average tariff rate of 13.8% to 10.5% on imported components
used in its deluxe minibuses (including Granse minibuses) and Zhonghua sedans, respectively, in
2004. During 2004, imported components comprised approximately 6.7% of the total costs of all
minibuses. In addition, imported components comprised 18.0% of the total costs of the Zhonghua
sedan during 2004. Changes in foreign currency exchange rates also affect the cost of
foreign-manufactured components imported by Chinas domestic manufacturers to make larger
components, such as engines, which we purchase domestically. The total aggregate import tariffs
paid by Shenyang Automotive for 2004 were approximately Rmb 56.9 million (US$6.9 million). However,
as a result of Chinas accession to the WTO, import tariffs on motor vehicle components decreased
to between 4.8% and 25% effective January 1, 2003. In 2004, the import tariff on motor vehicle
components ranged between 5.0% and 22.9% and in 2005, between 5.0% and 18.6%. A decrease in import
tariffs will result in a decrease in the percentage of the total cost of minibuses and sedans that
imported components comprise. Brilliance China Automotive intends to continue its efforts to increase domestic component
content for both deluxe minibuses and sedans, while at the same time emphasizing quality. See Item
5  Operating and Financial Review and Prospects. Other Significant Subsidiaries, Jointly Controlled Entities and Associated Companies Brilliance China Automotive believes that the acquisition of interests in strategic components
suppliers has and will continue to broaden its revenue base, increase the reliability of the supply
of certain core components of Shenyang Automotives and BMW Brilliances minibuses and sedans,
enhance their ability to monitor component quality and facilitate greater coordination among the
management and engineering personnel and their respective principal suppliers. Mianyang Xinchen Mianyang Xinchen, directly and indirectly through Xing Yuan Dong (described below), accounted
for 7.3% of Shenyang Automotives purchases of parts and components in 2004. Mianyang Xinchens
principal product is the 2.2 liter 491Q gasoline engine. In 2000, Mianyang Xinchen also began
producing the 491QE electronic fuel injection engine on a mass production basis to satisfy the
markets demand for products that can meet new higher emission standards. In 2001, Mianyang Xinchen
developed three additional passenger vehicle gasoline engines. As a result, Shenyang Automotive has
access to engines suited to a full range of light-duty passenger vehicles. Mianyang Xinchen had
annual sales of Rmb 766.4 million (US$92.6 million) in 2004. Shenyang Automotive, which installs
Mianyang Xinchens 491Q engine in most of its mid-priced minibuses, accounted for 50.5% of Mianyang
Xinchens sales in 2004. Mianyang Xinchens overall annual sales of gasoline engines in 2004
decreased by 7.4 % from 2003.
In 2004, the after-sales repair ratio for Mianyang Xinchens products decreased to 6.3% from 6.5%
in 2003. Mianyang Xinchens current annual production capacity is 100,000 to 120,000 gasoline
engines (depending on number of shifts). 22




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##### Table of Contents



In March 2004, the technology center of Mianyang Xinchen was designated by Chinese
governmental authorities as a State-class enterprise technology center, becoming only the second
State-class enterprise technology center in the China automotive gasoline engine industry. Ningbo Yuming Ningbo Yuming, directly and indirectly through Xing Yuan Dong and Ningbo Brilliance Ruixing
(described below), accounted for 3.9% of Shenyang Automotives purchases of parts and components in
2004. Ningbo Yumings principal products are automobile window molding and stripping, as well as a
front independent suspension system (including a high performance front axle) for use in light
passenger vehicles. Ningbo Yuming had annual sales of Rmb 205.5 million (US$24.8 million) in 2004.
Ningbo Yuming intends to further develop front axles for use in different types of light goods
vehicles to enlarge its market share in the safety components market. Ningbo Yuming received
ISO-9002 accreditation in December 1999. Shenyang Automotive, which uses Ningbo Yumings products
in all of its deluxe minibuses, mid-priced minibuses and Zhonghua sedans, accounted for
approximately 99.5% of Ningbo Yumings sales in 2004. Shenyang Automotive also granted Ningbo
Yuming the status of Class A Supplier in 1999, which it continues to hold. Shenyang Xinguang Shenyang Xinguang is principally engaged in the manufacture and sale of gasoline engines for
use in passenger vehicles and light duty trucks. In 2004, engine purchases by Shenyang Automotive
for use in mid-priced minibuses accounted for 46.0% of Shenyang Xinguangs total sales, which
amounted to Rmb 171.3 million (US$20.7 million). Shenyang Xinguang currently produces 491Q engines
and has a production capacity of 50,000 engines per year. It manufactured 39,883 and sold 39,362
491Q engines in 2004. Shenyang Xinguang intends to further develop upgraded versions of the 491Q engine in 2004.
These new 16-valve engines have greater power and are designed to satisfy European III emission
standards. They are suitable for use in JinBei minibuses (models SY6480A) and Zhonghua sedans.
Shenyang Xinguang produces this new engine by using part of its existing 491Q facilities, together
with a new production line. Capacity for this new engine is 50,000 units per year, based on two
daily shifts. Xing Yuan Dong, Ningbo Brilliance Ruixing and Mianyang Brilliance Ruian Xing Yuan Dong assists Shenyang Automotive in obtaining and developing a reliable supply of
domestically produced parts and components. Xing Yuan Dong also facilitates development of locally
produced automotive parts and components and acts to improve the quality of these components. When
a customized component is needed, Xing Yuan Dong provides potential suppliers with designs and
specifications for the customized parts and components required by Shenyang Automotive. These
potential suppliers liaise with Xing Yuan Dong and discuss details of production. Xing Yuan Dong
then selects appropriate suppliers and offers technical assistance and cost evaluations. Xing Yuan
Dong continuously strives to reduce the number of Shenyang Automotives suppliers, lower costs,
increase the efficiency and commitment of the remaining suppliers, streamline the component
purchasing process and ensure a steady supply of high quality components. In 2001, Xing Yuan Dong,
in order to maintain its preferential tax treatment from the Chinese government, also began
manufacturing automotive components for Shenyang Automotive. In 2004, all of Xing Yuan Dongs sales
were to Shenyang Automotive. Ningbo Brilliance Ruixing was established on June 9, 2000 as a wholly owned subsidiary of
Brilliance China Automotive to facilitate the trading and development of automotive components
between Ningbo Yuming and Shenyang Automotive. In 2004, all of Ningbo Brilliance Ruixings sales
were made to Shenyang Automotive and 59.0% of Ningbo Brilliance Ruixings purchases were from
Ningbo Yuming. Beginning in 2001, Ningbo Brilliance Ruixing also began manufacturing automotive
components for Shenyang Automotive. Mianyang Brilliance Ruian was established on July 3, 2000 as a wholly owned subsidiary of
Brilliance China Automotive to facilitate the trading and development of automotive components for
Mianyang Xinchen. In 2004, 20.3% of Mianyang Brilliance Ruians sales were made to Mianyang Xinchen
and all of Mianyang Brilliance 23




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##### Table of Contents



Ruians sales of its manufactured automotive components were made to
Shenyang Automotive. In 2001, Mianyang Brilliance Ruian also began manufacturing automotive
components for Shenyang Automotive. Shenyang Aerospace Shenyang Aerospace was formed for the purpose of manufacturing 2.0-liter, 122 horsepower and
2.4-liter, 130 horsepower Mitsubishi gasoline engines. Shenyang Aerospace commenced trial operation
in March 1999. Shenyang Automotive uses these engines in its deluxe minibuses and in the Zhonghua
sedans. In addition, Shenyang Aerospaces engines are also sold domestically to other passenger
vehicle producers. Mitsubishi Motors Corporation, Mitsubishi Corporation, China Aerospace
Automotive Industry Group Co., MCIC Holdings Sdn. Bhd. and Shenyang Jianhua Motors Engine Co. Ltd.,
or Shenyang Jianhua, own equity interests of 25.0%, 9.3%, 30.0%, 14.7% and 21.0%, respectively, in
Shenyang Aerospace. Upon completion of the acquisition of additional shares of JinBei and the
receipt of approvals from relevant Chinese authorities which is expected by the end of 2005,
Brilliance China Automotives effective interest in Shenyang Jianhua will increase to 76.6% and
consequently Brilliance China Automotives effective interest in Shenyang Aerospace will increase
to approximately 16.1%. Dongxing Automotive and Xingchen Automotive Seats In December 2001, Brilliance China Automotive entered into an agreement with Brilliance
Holdings Limited for the acquisition of the entire issued share capital of Key Choices Group
Limited at a consideration of approximately Rmb 278.0 million. Key Choices is an investment holding
company and its principal assets are the 100% equity interest in the registered capital of Dongxing
Automotive and a 90% equity interest in the registered capital of Shenyang Xingchen Automotive
Seats Co., Ltd., or Xingchen Automotive Seats. Dongxing Automotive is a foreign-invested enterprise
established in China whose principal products are automotive components for use in passenger
vehicles. In 2004, Dongxing Automotives sales were made to Shenyang Automotive. Xingchen
Automotive Seats is a Sino-foreign equity joint venture established in China in December 2001 that
formerly was principally engaged in the manufacturing of automotive seats. However, Xingchen
Automotive Seats ceased its operations in the second half of 2002. Brilliance JinBei Engine Plant In 2004, Shenyang Brilliance Jinbei Automobile Co., Ltd. invested in a new engine plant
located in the Shenyang Economic and Trade Development Zone. Construction on this plant is expected
to be completed in the first half of 2005 and the plant will occupy 280,000 square meters of land,
with building size of approximately 64,000 square meters and a main workshop area of 52,000 square
meters. FEV Motorentechnik GmbH provided certain technologies relating to engine production and
most of the required equipment was imported from Germany. The first product currently under development at this plant is a four-cylinder, 16-valve
multiple injection 1.8TCI turbo-charged engine for sedans. This engine will form the core of the
new Brilliance China Automotive family of engine products and serve as the basis for expanding the
size of engines used in Shenyang Automotive sedans from 1.6 liters to 2.0 liters. The development
of 1.8 liter engines began in the first quarter of 2005, and these engines are expected to be
offered to the market by the end of 2005 or early 2006, with trial production scheduled to commence
in the fourth quarter of 2005. The engines mainly will be manufactured for use in Zhonghua sedans and the minibues, but will
also be open for sale to third party automotive manufacturers both domestically and abroad. The
targeted capacity for the first phase of development is 50,000 engines per year, with two
subsequent phases having targeted capacity of 100,000 and 200,000 engines per year, respectively.
The first phase will require Rmb 1.13 billion (US$136.1 million) in investment for completion. The
intellectual property rights over the engines developed are owned by Brilliance China Automotive. Shenyang Brilliance Power Train Machinery Co., Ltd. Shenyang Brilliance Power Train Machinery Co., Ltd. is a PRC joint venture that was
established in December 2004 by Shenyang Brilliance Jinbei Automobile Co., Ltd. and Brilliance
China Automotive with registered capital of US$22.9 million. Shenyang Brilliance Jinbei Automobile
Co., Ltd holds a 51% equity interest 24




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##### Table of Contents



and Brilliance China Automotive holds a 49% equity interest.
The company is established to purchase engines, manual and automatic transmissions and other
components from various suppliers, including the Brilliance JinBei Engine Plant, to assemble
completed powertrains for the engines made by Brilliance JinBei Engine Plant that can be used in
automobiles, in particular Zhonghua sedans. The plant is expected to be completed and in operation
by the end of 2005. In addition to use in Zhonghua sedans, the powertrain products are also planned
for sale to the external market. The target customers are automobile makers that have no powertrain
manufacturing capacity of their own. Shenyang Chenfa Automobile Component Co., Ltd. Shenyang Chenfa Automobile Component Co., Ltd. is a PRC wholly foreign-owned enterprise held
by Brilliance China Automotive, with a registered capital of US$8.0 million and a total investment
of US$8.4 million. Its scope of business is the production and sale of powertrains and automotive
components. Shenyang Chenfa Auto Components Co., Ltd. was established in June 2003 and currently
has 52 employees. The main product of Shenyang Chenfa is powertrains for Mitsubishi engines used in
the Zhonghua sedan, of which it is capable of producing 40,000 units per year. This line has been
in operation for more than one year. It also has an engine manifold production line and a cam
bearing frame production line with a capacity of 50,000 units per year. Shenyang Chenfa is also
responsible for purchasing engine management systems and other automotive components for Brilliance
China Automotive. Sales and Marketing The following tables set forth by vehicle model for the years 2002 through 2004 the number of
Shenyang Automotive minibuses and sedans sold and BMW Brilliance sedans sold and the percentage of
unit sales represented by each model: Shenyang Automotive 2002
    
    
    2003
    
    
    2004Units Sold
    
    
    %
    
    
    Units Sold
    
    
    %
    
    
    Units Sold
    
    
    %Shenyang AutomotiveDeluxe minibus
    
    
    9,017
    
    
    
    12.2
    
    
    
    9,004
    
    
    
    9.0
    
    
    
    6,626
    
    
    
    9.1Mid-priced minibus
    
    
    56,121
    
    
    
    75.9
    
    
    
    65,614
    
    
    
    65.5
    
    
    
    54,992
    
    
    
    75.8Zhonghua sedan(1)
    
    
    8,816
    
    
    
    11.9
    
    
    
    25,600
    
    
    
    25.5
    
    
    
    10,982
    
    
    
    15.1Total
    
    
    73,954
    
    
    
    100.0
    
    
    
    100,218
    
    
    
    100
    
    
    
    72,600
    
    
    
    100BMW BrillianceBMW sedans(2)
    
    
    
    
    
    
    
    
    
    
    4,359
    
    
    
    100
    %
    
    
    8,708
    
    
    
    100
    %
 
 (1)
    
    Commercial launch of the Zhonghua sedan occurred in August 2002.(2)
    
    Commercial launch of the BMW sedans was in the fourth quarter of 2003. Shenyang Automotives marketing efforts are supervised by its General Manager and are
conducted primarily through a regionalized sales program under which Shenyang Automotive has
divided China into six major sales regions and three sales belts, each headed by an experienced
senior executive. These regions are further subdivided into 30 provincial sales regions for
minibuses and 26 provincial sales regions for sedans. Each of these
sales regions corresponds to a separate province in China. These units are responsible for meeting
defined sales targets, with the executives compensation linked to performance. In addition,
Shenyang Automotive implements a commission compensation package for its sales personnel and
rewards with bonuses its non-sales personnel who develop customer leads that result in minibus
sales. The retail prices and commission scales are both nationally unified by Shenyang Automotive,
thereby preventing cross-regional sales and counter-productive price wars. Shenyang Automotives
minibuses and Zhonghua sedans are marketed through a sales network of approximately 25




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240 exclusive
and over 500 non-exclusive minibus distributors and approximately 130 exclusive sedan distributors
nationwide, as well as through annual automobile industry trade shows and at special sales shows
sponsored by JinBei and Shenyang Automotive. Approximately 95% of Shenyang Automotives 2004 unit
sales of minibuses and sedans were made to its distributors and approximately 5% were made directly
to customers. Shenyang Automotives sales in China has been supported by a substantial network of
approximately 240 exclusive minibus distributors and approximately 130 sedan distributors, as well
as over 340 after-sales service centers for minibuses and over 160 for sedans. Shenyang Automotive
also continued to implement its 4S sales center system, with sales, service, spare parts and
surveys offered by the same dealership outlet. As of December 31, 2004, Shenyang Automotive had
over 90 and over 80 dealership outlets for minibuses and sedans, respectively, which had achieved
the 4S dealership standard. Shenyang Automotives minibus and sedan sales were generally made on a cash basis in 2004.
However, credit is offered to a few large customers following a financial assessment and an
established payment record. Credit terms are generally between 30 to 90 days and security in the
form of guarantees or bank notes is obtained from major customers. Designated staff monitors
accounts receivable and follow up collection with the customers. Customers considered to be of high
credit risk are traded on a cash basis. In addition, in order to incentivize customers and
facilitate sales, Shenyang Automotive also accepts three-month to six-month bank-endorsed notes as
payment for its minibuses and sedans. Shenyang Automotive has 5 regional distribution centers in order to shorten delivery
lead-times and to increase cost efficiencies. Also, by utilizing transportation methods such as
trucking, rail and shipping, Shenyang Automotive ensures that most vehicles are not driven until
they reach the end users. In 2004, all finished products were delivered to customers with zero
mileage. The following table sets forth the geographic breakdown of Shenyang Automotives minibus and
sedan unit sales throughout China for the years 2002 through 2004: 2002
    
    
    2003
    
    
    2004Minibuses
    
    
    Sedans
    
    
    Minibuses
    
    
    Sedans
    
    
    Minibuses
    
    
    SedansProvince/Municipality
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %Beijing
    
    
    10,994
    
    
    
    16.9
    
    
    
    955
    
    
    
    10.8
    
    
    
    15,679
    
    
    
    21.0
    
    
    
    2,876
    
    
    
    11.2
    
    
    
    13,031
    
    
    
    21.1
    
    
    
    1,002
    
    
    
    9.1Guangdong
    
    
    14,067
    
    
    
    21.6
    
    
    
    1,302
    
    
    
    14.8
    
    
    
    13,000
    
    
    
    17.4
    
    
    
    3,158
    
    
    
    12.3
    
    
    
    9,385
    
    
    
    15.2
    
    
    
    825
    
    
    
    7.5Liaoning
    
    
    6,713
    
    
    
    10.3
    
    
    
    1,281
    
    
    
    14.5
    
    
    
    7,780
    
    
    
    10.4
    
    
    
    2,408
    
    
    
    9.4
    
    
    
    6,173
    
    
    
    10.0
    
    
    
    1,145
    
    
    
    10.4Shanghai
    
    
    11,030
    
    
    
    16.9
    
    
    
    987
    
    
    
    11.2
    
    
    
    6,571
    
    
    
    8.8
    
    
    
    1,301
    
    
    
    5.1
    
    
    
    6,933
    
    
    
    11.3
    
    
    
    296
    
    
    
    2.7Jiangsu
    
    
    2,113
    
    
    
    3.2
    
    
    
    872
    
    
    
    9.9
    
    
    
    5,415
    
    
    
    7.3
    
    
    
    1,550
    
    
    
    6.1
    
    
    
    4,254
    
    
    
    6.9
    
    
    
    569
    
    
    
    5.2Zhejiang
    
    
    1,611
    
    
    
    2.5
    
    
    
    331
    
    
    
    3.7
    
    
    
    5,071
    
    
    
    6.8
    
    
    
    2,002
    
    
    
    7.8
    
    
    
    3,534
    
    
    
    5.7
    
    
    
    505
    
    
    
    4.6Shandong
    
    
    2,063
    
    
    
    3.2
    
    
    
    395
    
    
    
    4.5
    
    
    
    2,221
    
    
    
    3.0
    
    
    
    2,114
    
    
    
    8.3
    
    
    
    1,927
    
    
    
    3.1
    
    
    
    812
    
    
    
    7.4Tianjin
    
    
    1,147
    
    
    
    1.8
    
    
    
    84
    
    
    
    0.9
    
    
    
    1,683
    
    
    
    2.3
    
    
    
    870
    
    
    
    3.4
    
    
    
    1,512
    
    
    
    2.5
    
    
    
    552
    
    
    
    5.0Heilongjiang
    
    
    1,416
    
    
    
    2.2
    
    
    
    146
    
    
    
    1.7
    
    
    
    1,542
    
    
    
    2.1
    
    
    
    614
    
    
    
    2.4
    
    
    
    1,094
    
    
    
    1.8
    
    
    
    334
    
    
    
    3.0Hebei
    
    
    1,145
    
    
    
    1.8
    
    
    
    252
    
    
    
    2.9
    
    
    
    1,351
    
    
    
    1.8
    
    
    
    862
    
    
    
    3.4
    
    
    
    1,089
    
    
    
    1.8
    
    
    
    361
    
    
    
    3.3Hubei
    
    
    1,108
    
    
    
    1.7
    
    
    
    156
    
    
    
    1.8
    
    
    
    1,343
    
    
    
    1.8
    
    
    
    595
    
    
    
    2.3
    
    
    
    1,104
    
    
    
    1.8
    
    
    
    373
    
    
    
    3.4Hunan
    
    
    1,282
    
    
    
    2.0
    
    
    
    138
    
    
    
    1.6
    
    
    
    1,274
    
    
    
    1.7
    
    
    
    572
    
    
    
    2.2
    
    
    
    1,006
    
    
    
    1.6
    
    
    
    408
    
    
    
    3.7Shaanxi
    
    
    801
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    998
    
    
    
    1.3
    
    
    
    651
    
    
    
    2.5
    
    
    
    993
    
    
    
    1.6
    
    
    
    447
    
    
    
    4.1Henan
    
    
    733
    
    
    
    1.1
    
    
    
    108
    
    
    
    1.2
    
    
    
    1,013
    
    
    
    1.4
    
    
    
    614
    
    
    
    2.4
    
    
    
    937
    
    
    
    1.5
    
    
    
    299
    
    
    
    2.7Sichuan
    
    
    851
    
    
    
    1.3
    
    
    
    437
    
    
    
    5.0
    
    
    
    1,063
    
    
    
    1.4
    
    
    
    1,161
    
    
    
    4.5
    
    
    
    751
    
    
    
    1.2
    
    
    
    386
    
    
    
    3.5Shanxi
    
    
    672
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    806
    
    
    
    1.1
    
    
    
    274
    
    
    
    1.1
    
    
    
    815
    
    
    
    1.3
    
    
    
    323
    
    
    
    3.0Fujian
    
    
    1,286
    
    
    
    2.0
    
    
    
    258
    
    
    
    2.9
    
    
    
    1,184
    
    
    
    1.6
    
    
    
    637
    
    
    
    2.5
    
    
    
    811
    
    
    
    1.3
    
    
    
    229
    
    
    
    2.1Jilin
    
    
    951
    
    
    
    1.5
    
    
    
    392
    
    
    
    4.4
    
    
    
    848
    
    
    
    1.1
    
    
    
    523
    
    
    
    2.0
    
    
    
    845
    
    
    
    1.4
    
    
    
    146
    
    
    
    1.3
 26




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##### Table of Contents



2002
    
    
    2003
    
    
    2004Minibuses
    
    
    Sedans
    
    
    Minibuses
    
    
    Sedans
    
    
    Minibuses
    
    
    SedansProvince/Municipality
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %Chongqing
    
    
    643
    
    
    
    1.0
    
    
    
    168
    
    
    
    1.9
    
    
    
    882
    
    
    
    1.2
    
    
    
    541
    
    
    
    2.1
    
    
    
    549
    
    
    
    0.9
    
    
    
    351
    
    
    
    3.2Xinjiang
    
    
    1,010
    
    
    
    1.5
    
    
    
    44
    
    
    
    0.5
    
    
    
    1,080
    
    
    
    1.5
    
    
    
    237
    
    
    
    0.9
    
    
    
    764
    
    
    
    1.3
    
    
    
    166
    
    
    
    1.5Yunnan
    
    
    548
    
    
    
    0.8
    
    
    
    72
    
    
    
    0.8
    
    
    
    301
    
    
    
    0.4
    
    
    
    482
    
    
    
    1.9
    
    
    
    674
    
    
    
    1.1
    
    
    
    244
    
    
    
    2.2Anhui
    
    
    556
    
    
    
    0.9
    
    
    
    168
    
    
    
    1.9
    
    
    
    776
    
    
    
    1.0
    
    
    
    317
    
    
    
    1.2
    
    
    
    748
    
    
    
    1.2
    
    
    
    201
    
    
    
    1.8Guanxi
    
    
    539
    
    
    
    0.8
    
    
    
    72
    
    
    
    0.8
    
    
    
    662
    
    
    
    0.9
    
    
    
    299
    
    
    
    1.2
    
    
    
    681
    
    
    
    1.1
    
    
    
    161
    
    
    
    1.5Jiangxi
    
    
    357
    
    
    
    0.5
    
    
    
    156
    
    
    
    1.8
    
    
    
    446
    
    
    
    0.6
    
    
    
    301
    
    
    
    1.2
    
    
    
    440
    
    
    
    0.7
    
    
    
    193
    
    
    
    1.8Neimonggol
    
    
    298
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    373
    
    
    
    0.5
    
    
    
    99
    
    
    
    0.4
    
    
    
    355
    
    
    
    0.6
    
    
    
    203
    
    
    
    1.9Guizhou
    
    
    355
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    231
    
    
    
    0.3
    
    
    
    246
    
    
    
    1.0
    
    
    
    139
    
    
    
    0.2
    
    
    
    166
    
    
    
    1.5Hainan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    0.3
    
    
    
    39
    
    
    
    0.4Other(1)
    
    
    849
    
    
    
    1.3
    
    
    
    42
    
    
    
    0.5
    
    
    
    1,017
    
    
    
    1.3
    
    
    
    296
    
    
    
    1.2
    
    
    
    899
    
    
    
    1.5
    
    
    
    246
    
    
    
    2.2Total
    
    
    65,138
    
    
    
    100.0
    
    
    
    8,816
    
    
    
    100.0
    
    
    
    74,618
    
    
    
    100.0
    
    
    
    25,600
    
    
    
    100.0
    
    
    
    61,618
    
    
    
    100.0
    
    
    
    10,982
    
    
    
    100.0
 
 (1)
    Gansu, Ningxia, Qinghai and Tibet. Generally, Shenyang Automotives sales are the highest in the second and fourth quarters of
the year. In 2004, however, Shenyang Automotive recorded its highest levels of sales in the first
and second quarters , partly due to the significant downturn in the demand of automobiles since the
second half of 2004. The Chinese government continues to encourage the development of the relatively
underdeveloped, resource-rich western provinces of China and significant government resources have
been allocated in the past to develop the infrastructure of the western provinces. Brilliance China
Automotive believes the governments policy regarding western China will be conducive to the
development of the local automotive markets. Although Brilliance China Automotives largest market
today remains in the eastern coastal provinces, Brilliance China Automotive believes that the
market in the western provinces of China represent substantial upward growth potential in the
future. Brilliance China Automotive will continue to expand its dealership system in that region to
tap into this potential growth. Approximately 29.0% of consolidated revenues in 2004 were generated from Shanghai Shenhua
Holdings Co., Ltd. (formerly known as Shanghai Brilliance Group Co., Ltd. and Shanghai Shenhua
Industrial Co., Ltd.) or Shanghai Shenhua. Shanghai Shenhua is an affiliate of Brilliance China
Automotive that serves as the principal distributor of Shenyang Automotives products. Shanghai
Shenhua operates under substantially the same commercial terms and arrangements with Shenyang
Automotive as its other third party distribution agents. However, in southern China, where it sells
solely to distributors on an exclusive basis, Shanghai Shenhua receives additional compensation for
operating after-sales service centers, which was a 1% commission on sales until January 2003. Since
January 2003, this compensation has been paid in the form of a commission of Rmb 100 to Rmb 150 per
vehicle sold. Shenyang Automotive uses a computerized sales monitoring system to accurately identify
customer demographics, determine which products and options are most in demand and improve
inventory control. As Shenyang Automotive brings more product options to market, Brilliance China
Automotive believes that this computer system will provide Shenyang Automotive with the ability to
track customer preferences in various regions and adjust its production and distribution efforts
accordingly. In 2004, Shenyang Automotive spent approximately Rmb 206.9 million (US$25.0 million) on
overall advertising, consisting primarily of Internet, television and print advertising. Competition The Chinese minibus manufacturing industry is highly fragmented and competitive. According to
the China Automotive Technology & Research Center, in 2004, approximately 58 manufacturers sold an
aggregate of 397,722 minibuses. The top five manufacturers sold an aggregate of 207,474 minibuses
during the same period. Significant competitive factors in the industry include price, quality,
reliability and customer service. Brilliance China 27




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##### Table of Contents



Automotive believes that Shenyang Automotive is
competitive in all of these respects, and particularly in terms of quality, although Shenyang
Automotive has experienced competition in recent years from other manufacturers producing lower
priced, mid-range minibuses. The Chinese sedan manufacturing industry is also very competitive and fragmented. The top five
brands account for 53.9% of the overall market based on unit sales volume. The market shares of the
three leading manufacturers have been decreasing over the past several years. New models are being
introduced on an increasingly rapid basis as the number of new entrants into the market has also
increased. Unit sales of domestically produced sedans totaled 2,326,492 units in 2004, making
sedans the largest segment of the Chinese automotive market, accounting for 45.9% of the overall
market. Due to the implementation of macro-economic polices and austerity measures, the domestic
demand for automobiles in China has declined significantly since the second half of 2004.
Nevertheless, sedans are widely expected to continue to be the fastest growing segment of the
Chinese automobile market over the next few years. However, while vehicle ownership is expected to
continue to increase steadily in China as a result of increasing individual disposable income,
there is also expected to be increasing pricing pressure as tariff rates decline and competition
continues to grow from domestic, foreign and foreign-invested sedan manufacturers. Historically, Chinese motor vehicle producers have been exposed to little competition from
non-Chinese enterprises, partly as a result of import restrictions on foreign-made components and
motor vehicles. However, as a result of Chinas accession to the WTO, which regulates trading and
tariffs among its signatory states, in November 2001, China committed to reducing its import
restrictions on motor vehicles and motor vehicle components. In addition, China will be required to
conform its import tariffs to the uniform tariffs under the WTO. Effective January 1, 2002, China reduced its import tariffs on motor vehicles and automotive
components from between 80% to 100% and between 18% to 40%, respectively, to between 43.8% to 50.7%
and between 14.0% to 31.4%, respectively. This range was lowered further to between 4.8% and 25%
for automotive components effective January 1, 2003. Tariffs on vehicles with nine seats or less
and engine sizes of three liters or below fell from 43.9% in 2002 to 38.2% in 2003, while tariffs
on vehicles with more than nine seats and engines of more than three liters decreased from 50.7% in
2002 to 43.0% in 2003. In 2004, tariffs were 34.2% for vehicles with nine seats or less and engine
sizes of three liters or less and 37.6% for vehicles with more than nine seats and engines of more
than three liters, and in 2005 tariffs have been fixed at 30% of all motor vehicles. These tariffs
levels are scheduled to be further reduced in 2006. Such reductions in tariffs and import
restrictions could potentially increase the competition Brilliance China Automotive will face from
foreign manufacturers. Listed below are Shenyang Automotives current main competitors in the Chinese minibus and
sedan market. The data listed for each is based on information published by the Chinese government
in December 2004 regarding the Chinese automotive industry: Minibus  
    
    Southeast Motors. Taiwan China Motors and Fujian Provincial Automobile Industry
Company established a 50-50 joint venture company, Southeast Motors in November 1995.
Southeast Motors has launched over thirty different models of light passenger vehicles
under the Delica and Freeca brand names and also launched the MPV in 2004. Southeast
Motors has an annual production capacity of 150,000 light passenger vehicles in 2004.
Its sales volume in 2004 was 31,376 vehicles (including minibuses and MPVs),
representing a 37.2% decrease from 49,978 vehicles in 2003. The Delica series includes
seven-, eight- and eleven-seat ordinary, luxury and super luxury models. The Freeca
series includes eight-seat standard, luxury and super luxury models.
    
    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 and 75,000 engines. In 2004, Nanjing Iveco sold
17,475 vehicles, representing a 4.5% increase from 16,717 vehicles in 2003. 28




---



##### Table of Contents




    
    Jiangling Motors. Jiangling Motors Corp. of Jiangxi Province, after two years of
cooperation with Ford Motor Company (which owns a minority interest in 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 2004,
Jiangling Motors sold a total of 22,169 vehicles (including minibuses and pick-ups),
representing a 42.6% increase from 15,541 vehicles in 2003. Production capacity was
approximately 60,000 per year by the end of 2004 units. Zhonghua Sedan Brilliance China Automotive considers the following companies to be its main competitors in
the market for sedans priced between Rmb 130,000 and Rmb 200,000, which includes the Zhonghua
sedan:  
    
    First Auto Works Group of China. First Auto Works is one of the largest automotive
companies in China. First Auto Works Hongqi sedan was launched in 2001 and is
considered one of the Chinese governments showcase China-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 143,800  149,800 similar to the Zhonghua
sedan. First Auto Works sold 6,931 Honqi Mingshi sedans in 2004, representing a 59.9%
decrease from 2003.
    
    Shanghai Volkswagen Automotive. Shanghai Volkswagen Automotive was one of the
original state-designed automobile manufacturers in China. It is currently 40% owned by
Volkswagen AG of Germany, 10% owned by Volkswagen (China) Investment, 25% owned by
Shanghai Automotive Industry Corp., 15% owned by Shanghai Union Investment Co. and 10%
owned by China Auto Industry Co. It still holds a dominant share of the Chinese sedan
market and competes with the Zhonghua sedan through the Santana 2000 and Santana 3000
sedans. In March 2004, Shanghai Volkswagen Automotive launched the new Santana 3000,
which replaced the Santana 2000. The Santana 2000 had a 1.8-liter engine and sold for
approximately Rmb 145,000 to Rmb 174,000. The Santana 3000 has a 1.78-liter engine and
sells for between Rmb 138,000 to Rmb 174,000. In 2004, Shanghai Volkswagen Automotive
sold 90,202 units of Santana 2000 and Santana 3000 sedans.
    
    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 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 for the manual version and Rmb 192,000 for the automatic versions. The
Elantra 1.8 liter sedan sells for approximately Rmb 141,800 and Rmb 151,800 for the
manual and automatic versions, respectively. In 2004, Beijing Hyundai sold 41,341 units
and 102,749 units of the Sonata and the Elantra, respectively. BMW Sedans Brilliance China Automotive currently does not consider there to be any direct competitor to
its BMW sedans in the domestic market for high-end luxury cars produced in China in terms of
quality, craftsmanship, price, performance and technology but does consider Audi sedans, which are
produced by FAW Volkswagen, as its closest competitor in China in this regard. FAW Volkswagon is
10% owned by Audi AG, 30% by Volkswagen AG and 60% by First Auto Works of China. FAW Volkswagon
produces and sells the Audi A4 and A6 sedans and the Volkswagen Jetta and Bora sedans in China. FAW
Volkswagons Audi sedans have a dominant share of Chinas premium sedan market. In 2003 and 2004,
FAW Volkswagon sold 53,108 and 46,177 units of Audi A6 sedans, respectively. The Audi A4 sedan was
formally launched in Chinas market in 2003 and had a total sales volume of 8,173 in 2003 and
15,841 in 2004, respectively. A new Audi A6 was launched in June 2005. The Audi A4 sedan
sells for between Rmb 308,500 to Rmb 507,500, and the new Audi A6 sedan sells for between Rmb
462,200 to Rmb 649,600. In May 2003, DaimlerChrysler AG signed a project proposal with Beijing Automotive Industry
Holding Company Ltd., or BAIC, to manufacture Mercedes-Benz C-Class and E-Class sedans in China.
According to announcements by DaimlerChrysler, the joint venture has been approved by the relevant
authorities on June 13, 29




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##### Table of Contents



2005 and production of C-Class and E-Class is expected to commence within
one year. The vehicles will be produced in a new facility in Beijing with an initial production
capacity of 25,000 units per year. Brilliance China Automotive does not consider current foreign importers of luxury cars with
similar quality, craftsmanship, performance and technology (such as the Mercedes C-Class and
E-Class sedans) to be direct competitors for the BMW sedans as they are subject to import tariffs
and restrictions and cannot be priced competitively with BMW Brilliances locally produced BMW
sedans. The NDRC and the Ministry of Commerce The automobile industry in China is controlled at the central government level by the National
Development and Reform Commission, or NDRC, and the Ministry of Commerce. These entities were
created as a result of the governmental restructuring that commenced in March 2003. The NDRC
generally oversees and regulates the automobile industry in China and any new product or new
automobile production facility must obtain the prior approval of this body before entering the
market. Similarly, approval from the Ministry of Commerce must be obtained prior to any changes to
existing products or the expansion of existing facilities. Both of these entities must also approve
any Sino-foreign joint venture for the production of automobiles. On June 1, 2004, the NDRC issued a new automobile policy to replace the one that had been in
place since 1994. Two of the policys stated goals are industry consolidation and enhancement of
corporate capacity for research and development. To further these goals, the new policy sets
minimum levels of investment for new plants and research and development. Engine plant investments
are required to be over Rmb 1.5 billion and new automobile manufacturing projects must be over Rmb
2.0 billion. New automobile projects must also include a product research and development
investment of at least Rmb 500 million. The new policy will treat semi-knocked down imports as complete vehicle imports and therefore
impose vehicle import tariffs instead of component tariffs on them. Current vehicle import tariff
levels are between 34.2% and 37.6% (scheduled to fall to 25% by July 2006) whereas current
component tariff levels are between 15% and 18% (scheduled to fall to 10% by July 2006). In contrast to the old regulations, foreign investors in the automobile and motorcycle market
will now be allowed to control more than 50% of a joint venture with Chinese partners if the joint
venture is located in an export processing zone and plans to sell its products in overseas markets.
The new policy will also allow foreign investors to establish more than two joint venture plants in
China to produce the same categories of vehicles if they do so with their existing Chinese partners
through acquisitions of other companies in China. 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 allowing industry participants to
focus on their core businesses. By encouraging industry consolidation and establishing clearer guidelines for foreign
investment, the policy, in the opinion of Brilliance China Automotive, 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 and
other industry participants remains uncertain and subject to more detailed guidance and
implementing regulations that are expected to be promulgated by the NDRC in the future. On February 28, 2005, the General Administration of Customs, the NDRC, the Ministry of Finance
and the Ministry of Commerce jointly issued the Administrative Measures on the Import of Automobile
Parts with Complete Vehicle Characteristics. This measure sets up detailed standards and
procedures of the identification of automobile parts with complete vehicle characteristics and
treats automobile parts with complete vehicle characteristics, which include semi-knocked down
kits, as complete vehicle imports and imposes vehicle import tariffs instead of component tariffs
on them. Current vehicle import tariff levels are between 34.2% and 37.6% (scheduled to fall to 30




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##### Table of Contents



25% by July 2006) whereas current component tariff levels are between 15% and 18% (scheduled to
fall to 10% by July 2006). Quality Control As a result of technical and managerial training from Toyota and technical assistance from
BMW, Shenyang Automotive has adopted a highly regimented production quality management system for
its minibuses and sedans. This two-fold system concentrates both on the quality of the raw
materials and other production inputs and on the production process itself. In the production
process, the focal point of quality control is the production line worker, who undergoes extensive
training and testing to ensure that he or she performs the assigned task to the highest quality
standards and is qualified and able to determine on his or her own whether or not the product meets
the required specifications. In addition, Shenyang Automotives specialized quality control
engineers are present at each step of the production process, with 36, 39 and 22 separate quality
inspection points for minibus, Granse minibus and Zhonghua Sedans, respectively. In addition, Shenyang Automotive has established a quality improvement unit to supervise and
monitor after-sales service centers in major regional sales bases, such as Guangzhou, Shanghai and
Beijing, which also serve as channels for information feedback on product quality. Designated
personnel are assigned to follow-up on finding remedies for recurring quality issues in a timely
manner. Shenyang Automotive was granted the internationally recognized ISO-9001-94 quality system
certificate in October 1995, making it the first major automobile manufacturer in China to be
awarded such certificate. Shenyang Automotive has successfully obtained recertification in each
subsequent year by demonstrating a continued commitment to upholding among the highest quality
standards in Chinas automobile industry. To date, approximately 130, 70 and 10 of Shenyang
Automotives over 250 component suppliers achieved TS16949, QS-9000 and VDA 6.1 quality system
certification, respectively, and approximately 50 are accredited by ISO-9000. After-Sales Service Shenyang Automotives minibuses are sold with a 24-month or 50,000 kilometers (18-month or
30,000 kilometers for minibuses sold in 2002 and 2001) first-to-occur limited warranty. The
Zhonghua sedans were sold with a 36-month or 60,000 kilometers (24-month or 40,000 kilometers for
sedans sold in 2002) first-to-occur limited warranty. In addition to these basic limited
warranties, during 2003 Shenyang Automotive also offered customers a broader warranty for its
Zhonghua sedans. During the warranty period, Shenyang Automotive pays service stations for parts
and labor covered by the warranty; thereafter, customers must pay for all parts and labor. In
December 2004, the Grandeur (Zunchi in Chinese) were sold with a 10-year or 200,000 kilometers
first-to-occur limited warranty on key components. In 2004, total warranty costs for minibuses and
sedans sold during the year were approximately Rmb 38.2 million (US$4.6 million) and Rmb 6.9
million (US$0.8 million), respectively, or an average of Rmb 512.8 (US$61.9) per minibus sold and
Rmb 628.3 (US$75.9) per Zhonghua sedan sold. There are over 340 and over 160 service centers for Shenyang Automotive minibuses and sedans,
respectively, throughout China, with centers clustered in areas that match distribution patterns of
the vehicles. Such centers have been granted authority by Shenyang Automotive to service its
minibuses and sedans, including the provision of repair services and the sale of spare parts. This
extensive service network has enabled Shenyang Automotive to adopt its current policy of resolving
routine customer complaints in all provincial capitals and major cities within 24 hours and major
problems within three days. To improve customer service, Shenyang Automotive continually reevaluates its existing
distributors based on certain criteria, including financial soundness, customer service
capabilities and customer complaint record. Shenyang Automotive has also implemented a more
advanced 4S sales center system, with sales, service, spare
parts and survey offered by the same dealership outlet. As of the end of 2004, Shenyang Automotive
had over 90 and over 80 4S dealership outlets for its minibuses and sedans, respectively. BMW Brilliance currently has approximately 40 distributors, which are mainly located in first
tier cities in China. The number of distributors is expected to increase to over 60 by the end of
2005. Like Shenyang Automotive, BMW Brilliance implemented the more advanced 4S sales center
system. 31




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##### Table of Contents



Environmental Matters The Chinese government has set vehicle safety, exhaust and performance standards with which
Shenyang Automotive and BMW Brilliance must comply. Brilliance China Automotive believes that
Shenyang Automotives and BMW Brilliances minibuses and sedans currently meet the standards
imposed by the government. Their respective facilities are subject to government pollution
regulations enforced by the Shenyang municipal government. If operations are found to be in
violation, the government will allow a period of time to remedy the problem. If it should fail to
do so, the government can force a shut-down of Shenyang Automotives or BMW Brilliances operations
until such time as the violator complies with the regulations. To date, neither Shenyang Automotive
nor BMW Brilliance has been cited as violating a government pollution regulation. On January 1, 2000, the cities of Beijing and Tianjin, as well as Yunnan Province, put into
effect emission standards that were significantly stricter than the then prevailing gasoline
vehicle emission standards. Since then, these emission standards have been adopted nationwide.
Shenyang Automotives electronic fuel injection minibus, introduced in 1999, passed the emission
standards tests at the China National Automobile Testing Center in Tianjin in October 1999. This
engine not only produces cleaner emissions, but also achieved up to an 8% increase in fuel economy
and a 3% increase in horsepower. In 2001, Shenyang Automotive began to install multiple electronic
fuel injection engines, which are currently used in all of Shenyang Automotives mid-priced
minibuses. With the installation of this new engine in the mid-priced minibus, currently all of
Shenyang Automotives minibuses meet European II emission standards. All Zhonghua and BMW sedans
also meet these emission standards. In 2004, the Chinese government began to encourage its vehicle
manufacturers to meet the European III standards. Most of the vehicles of Shenyang Automotive and
BMW Brilliance are expected to meet the European III emission standards by the end of 2005 or early
2006. Insurance Shenyang Automotive and BMW Brilliance currently hold insurance policies that Brilliance China
Automotive believes are customary and standard for companies of comparable size in comparable
industries in China. Shenyang Automotive does not carry product liability insurance, and Brilliance
China Automotive believes it is customary and standard in the Chinese automobile industry for
manufacturers not to carry product liability insurance. BMW Brilliance has elected to purchase
product liability insurance, in order to conform with BMWs worldwide standards. Organizational Structure The following table lists information concerning the subsidiaries, jointly controlled entities
and associated companies of Brilliance China Automotive as of December 31, 2004: 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
    %
 32




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##### Table of Contents



EffectiveInterest held byJurisdiction of
    
    
    Brilliance ChinaSubsidiaries
    
    Incorporation
    
    
    AutomotiveShenyang Brilliance Power Train Machinery Co., Ltd.
    
    China
    
    
    75.0
    %Shenyang YuanChen Automotive Component Co., Ltd.
    
    China
    
    
    100.0
    %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 HuaBao Automotive Sales Service Co., Ltd.
    
    China
    
    
    49.0
    %Shenyang Xinguang Brilliance Automobile Engine Co., Ltd.
    
    China
    
    
    50.0
    %Shanghai Kowin Automotive Component Co., Ltd.
    
    China
    
    
    25.5
    %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 The Shenyang municipal government granted to Shenyang Automotive the right to use three
parcels of land situated in the northern, eastern and western sectors of Shenyang with a total area
of approximately 890,000 square meters, approximately 50% of which is currently utilized by
Shenyang Automotive and BMW Brilliance. These land use rights will expire in 2021. The western parcel consists of 70,000 square meters, 40,000 square meters of which is occupied
by a mid-priced minibus production facility that is capable of producing 12,000 vehicles per year.
This facility is currently utilized to produce a small number of special purpose minibuses and can
also be used to produce components as well. The northern parcel covers 40,000 square meters and is used by Shenyang Automotive primarily
as a technical training facility. The eastern parcel covers 780,000 square meters, including Shenyang Automotives and BMW
Brilliances production facilities. Shenyang Automotives minibus facility currently has a
production capacity of 80,000 minibuses per year, using two shifts of workers. This facility is
specially designed for the manufacture and assembly of deluxe minibuses and mid-priced minibuses
and consists of four workshops. The stamping and assembly workshops currently have annual
production capacities of 80,000 and 90,000 units, respectively, based on two shifts of workers, and
can be increased to 120,000 units based on three shifts. The painting workshop currently has an
annual production capacity of 120,000, based on two shifts of workers. In 2003, Shenyang Automotive completed the construction of new manufacturing facilities for
sedans (including the Zhonghua sedan), which has a production capacity of 100,000 units, based on
two shifts per day. The new manufacturing facilities are located adjacent to Shenyang Automotives
previously existing minibus production facilities in the eastern parcel and include new pressing,
welding, painting and final assembly lines. Dies and other key production equipment were purchased
from leading European equipment manufacturers for the Zhonghua sedan. The total costs for
completion of this expansion project were approximately US$350.0 million, including new equipment,
construction costs and other expenditures, but excluding the design costs for the sedans. See Item
5  Operating and Financial Review and Prospects  Liquidity and Capital Resources. Certain workshops in these new sedan manufacturing facilities are currently shared with BMW
Brilliance, including part of a welding workshop for the 3-Series sedan, all of the painting
facilities, and part of the Zhonghua sedan assembly shop, which is currently used by BMW Brilliance
to test BMW sedans. 33




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Shenyang Automotive transferred legal titles and ownership of certain buildings in its eastern
parcel to BMW Brilliance for use in the production of BMW sedans. The agreement also states that
BMW Brilliance will lease back a substantial portion of those buildings to Shenyang Automotive. BMW
Brilliance also has the option 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, the buildings were retained as fixed assets on the
balance sheet of Brilliance China Automotive and the portion of consideration received from BMW
Brilliance is treated as a financing and will be partially offset against the lease rental payable
in future years. In December 2003, BMW Brilliance purchased certain machinery and equipment from Shenyang
Automotive for use in the production of BMW sedans. The agreement of sale includes an option for
BMW Brilliance to require Shenyang Automotive to purchase back such machinery and equipment 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. This machinery and equipment is maintained by BMW Brilliance for the manufacturing of
its products, as well as to provide certain services to Shenyang Automotive upon the payment of a
service fee, which is a predetermined fixed charge per unit based on the number of Zhonghua sedans
produced by Shenyang Automotive using this machinery and equipment. 
 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 Brilliance China Automotive is a holding company. Prior to 2002, Brilliance China Automotives
operating segment consisted solely of the manufacture and sale of minibuses and automotive
components through its subsidiaries and associated companies within China. No separate financial
information and segment information was disclosed. In 2002 and 2003, Brilliance China Automotive
began manufacturing and selling Zhonghua sedans and BMW sedans through Shenyang Automotive and BMW
Brilliance, respectively, which are managed separately because each of them represents a strategic
business unit that serves a different market in the automobile industry. Therefore, Brilliance
China Automotives reportable operating segments consist of (1) the manufacture and sale of
minibuses and automotive components, (2) the manufacture and sale of Zhonghua sedans and (3) the
manufacture and sale of BMW sedans. The accounting policies of each operating segment are the same.
Brilliance China Automotive evaluates performance based on stand-alone operating segment net income
and generally accounts for intersegment sales and transfers as if the sales or transfers were to
third parties, that is, at current market prices. Brilliance China Automotives activities are
conducted predominantly in China. Accordingly, no geographical segmentation analysis is provided. Prior to May 1998, Brilliance China Automotives sole operating asset was its interest in
Shenyang Automotive. As a result, Brilliance China Automotives historical results of operations
had been primarily driven by
the sales price, sales volume and cost of production of Shenyang Automotives minibuses. With a
view to maintaining quality, ensuring a stable supply of certain key components and developing new
businesses and products, Brilliance China Automotive acquired interests in various suppliers of
components and established joint ventures in China since May 1998. As a result of these additional
investments and joint ventures, Brilliance China Automotives income base has been broadened and
its future financial performance will differ from that of Shenyang Automotive. In May 1998, Brilliance China Automotive acquired indirect interests in two components
suppliers: (1) a 51% equity interest in Ningbo Yuming Machinery Industrial Co., Ltd., a wholly
foreign-owned Chinese enterprise primarily engaged in the production of automobile window molding,
stripping and other auto components; and (2) a 50% equity interest in Mianyang Xinchen Engine Co.,
Ltd., a Sino-foreign joint venture manufacturer of gasoline engines for use in passenger vehicles
and light duty trucks. On October 19, 2004, Brilliance China Automotive, 34




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through a subsidiary,
entered into an agreement to acquire the remaining 49% interest in Ningbo Yuming. Upon the approval
of the acquisition by the government on 25 November 2004, Ningbo Yuming became a wholly owned
subsidiary of Brilliance China Automotive. In October 1998, June 2000 and July 2000, Brilliance China Automotive established Shenyang
XingYuanDong Automobile Component Co., Ltd., Ningbo Brilliance Ruixing Auto Components Co., Ltd.
and Mianyang Brilliance Ruian Automotive Components Co., Ltd., respectively, as its wholly owned
subsidiaries to centralize and consolidate the sourcing of auto parts and components for Shenyang
Automotive. In 2001, all three companies, in order to maintain their preferential tax treatment
from the Chinese government, began manufacturing automotive components as well. In December 2000, Brilliance China Automotive acquired a 50% equity interest in Shenyang
Xinguang Brilliance Automobile Engine Co., Ltd., a Sino-foreign equity joint venture manufacturer
of gasoline engines for use in passenger vehicles. In December 2001, Brilliance China Automotive
acquired a 100% equity interest in Shenyang Brilliance Dongxing Automotive Component Co., Ltd., a
foreign-invested manufacturer of automotive components in China. In May 2002, Shenyang Automotive obtained the approval from the Chinese government to produce
and sell its Zhonghua sedans in China. The Zhonghua sedans were launched in the market in August
2002. On March 27, 2003, Brilliance China Automotive, through its indirect subsidiary, Shenyang
JinBei Automotive Industry Holdings Co., Ltd., or SJAI, entered into a joint venture contract with
BMW Holding to produce and sell BMW-designed and branded sedans in China. The registered capital
and total investment cost of the joint venture was Euro 150 million and Euro 450 million,
respectively. At that time, Brilliance China Automotives effective interests in SJAI and the joint
venture with BMW were 81% and 40.5%, respectively. On April 28, 2003, Brilliance China Automotive
increased its effective interest in SJAI from 81% to 89.1% and thereby increased its effective
interest in the joint venture with BMW from 40.5% to 44.6%. On December 16, 2003, Brilliance China
Automotive further increased its effective interest in SJAI from 89.1% to 98.0% and thereby
increased its effective interest in the joint venture with BMW from 44.55% to 49.0%. On December 29, 2003, Brilliance China Automotive entered into agreements in relation to the
proposed acquisition of an indirect 40.1% interest in Shenyang JinBei Automotive Company Limited,
the joint venture partner of Shenyang Automotive and a supplier of automotive components for
Brilliance China Automotives minibuses and sedans. Upon receipt of the necessary governmental
approvals for this transaction, which is expected by the end of 2005, Brilliance China Automotives
effective interest in Shenyang Automotive will increase from 51% to approximately 70.7%. On November 28, 2003, Brilliance China Automotive, through its wholly owned subsidiary,
Brilliance China Automotive Finance Ltd., issued an aggregate principal amount of US$200.0 million
zero coupon convertible bonds due 2008. These bonds are guaranteed by Brilliance China Automotive
and are convertible into fully paid ordinary shares par value US$0.01 of Brilliance China
Automotive at an initial conversion price of HK$4.60 per share at any time from January 8, 2004 to
November 14, 2008, unless the bonds have previously been redeemed or matured. Brilliance China
Automotive Finance Ltd. may redeem a portion of the convertible bonds in certain circumstances at
100% of their outstanding principal amount during the period from November 28, 2005 to
November 14, 2008. In addition, all or some of the bonds may be redeemed at the option of the
holder at 102.27% of their principal amount on November 28, 2006 and upon certain events, such as
the change of control of Brilliance China Automotive or the shares of Brilliance China Automotive
ceasing to be listed on The Stock Exchange of Hong Kong Limited, the bonds may be redeemed at the
option of the holder at 100% of their outstanding principal amount. These bonds rank equally with
all of Brilliance China Automotives senior, unsecured and unsubordinated obligations. As of
December 31, 2004, none of the bonds had been converted into the ordinary shares of Brilliance
China Automotive. The net proceeds of the convertible bond offering were advanced to Brilliance
China Automotive and were then loaned to certain subsidiaries of Brilliance China Automotive for
their operating use. Production Volumes and Sales 35




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Brilliance China Automotive derives its revenues from the sale of minibuses, sedans and
automotive components in China. Consolidated net sales of Brilliance China Automotive for the years
ended December 31, 2004, 2003 and 2002 were Rmb 6,542.0 million (US$790.4 million), Rmb 10,109.6
million and Rmb 7,319.5 million, respectively. The principal factor behind the overall increase in
sales in 2002 and 2003 was the launch of the Zhonghua sedans and the offering of more minibus
models and features by Shenyang Automotive at competitive prices. However, due to the significant
downturn of the domestic demand of automobiles in China since the second quarter of 2004,
consolidated net sales for the year ended 2004 declined substantially compared to the same period
in 2003. The mid-priced minibus has proven to be Brilliance China Automotives most popular and
competitive product. Despite the general slowdown of automobile industry, Brilliance China was able
to maintain its position as the market leader in the minibus market in 2004. Sales of deluxe
minibuses, mid-priced minibuses, Zhonghua sedans and components represented 14.7%, 58.1%, 20.2% and
7.0%, respectively, of Brilliance China Automotives total sales revenue in 2004. Brilliance China
Automotive expects that the mid-priced minibuses, together with the Zhonghua sedans, will continue
to represent a significant proportion of its total revenue. Costs and Expenses The major elements of Shenyang Automotives production costs in recent years have been the
purchase of automotive components, labor and depreciation and amortization. Shenyang Automotive has
significantly lowered its per unit production costs by improving operating efficiency, increasing
production volume and increasing the domestic component content ratios of its deluxe and mid-priced
models. As a result, average per unit production costs (including depreciation and amortization)
for the deluxe model have been steadily decreasing over the past several years. The domestic
component ratio of the Zhonghua sedan also increased from 60% in August 2002 to its current level
of over 80%. In 2004, per unit production costs for minibuses remained relatively stable. The per unit
production costs for the Zhonghua sedans increased by approximately 19.1% mainly due to the
increase in per unit fixed costs resulting from low sales volume in 2004. Due to the intensified
price competition brought about by the significantly weakened market and the change in product mix,
prices of minibuses and Zhonghua sedans decreased by an average of 7.8% and 7.7% respectively,
compared to those in 2003. Gross margin decreased significantly from Rmb 2,382.4 million (US$287.7
million) in 2003 to Rmb 1,050.7 million (US$126.9 million) in 2004 as a result of intensified price
competition resulting from overcapacity, continued rising prices of raw materials and weakened
market sentiments. Imported components are generally more expensive than domestically produced components and
were subject to import duties that have ranged as high as 120% since January 1992. However, as a
result of Chinas accession to the WTO in November 2001, import duties on automotive components
decreased to between 14% and 31.4% effective January 1, 2002, and to between 5% and 25% effective
January 1, 2003. Currently, the import duties are between 5.0% and 22.9%. In 2004, Shenyang
Automotive paid an average tariff of 13.8% and 10.5% on its minibus (including Granse minibus) and
sedan components, respectively. Shenyang Automotive intends to continue its efforts to increase the
domestic component content of its products, while at the same time maintaining quality. However,
Brilliance China Automotive expects that future improvements in domestic component content for its
existing mid-priced and deluxe minibuses (other than the Granse model) will be at a rate slower
than in prior years due to an already high domestic component content ratio, and the extent and
rate of any corresponding price
reductions are expected to be lower than in prior years. Brilliance China Automotive expects to
increase the ratio of domestic components in the Granse minibus and the Zhonghua sedan. Brilliance
China Automotive also expects BMW Brilliance to increase the domestic components ratio in its BMW
sedans. 36




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Results of Operations Year ended December 31,2004
    
    
    2003
    
    
    2002(Thousands of Rmb)Sales to third parties
    
    
    4,402,141
    
    
    
    7,797,054
    
    
    
    4,636,347Sales to affiliated companies
    
    
    2,139,857
    
    
    
    2,312,503
    
    
    
    2,683,108Total sales
    
    
    6,541,998
    
    
    
    10,109,557
    
    
    
    7,319,455Cost of sales
    
    
    (5,491,250
    )
    
    
    (7,727,125
    )
    
    
    (5,411,308
    )Gross profit
    
    
    1,050,748
    
    
    
    2,382,432
    
    
    
    1,908,147Selling, general and administrative expenses
    
    
    (1,510,442
    )
    
    
    (1,410,067
    )
    
    
    (1,067,154
    )Interest expense
    
    
    (182,458
    )
    
    
    (167,111
    )
    
    
    (171,286
    )Interest income
    
    
    58,800
    
    
    
    52,672
    
    
    
    43,617Equity in earnings of associated companies and jointly
controlled entities, net
    
    
    126,261
    
    
    
    109,471
    
    
    
    138,145Subsidy income
    
    
    1,815
    
    
    
    48,497
    
    
    
    Other income, net
    
    
    25,709
    
    
    
    78,293
    
    
    
    1,009Impairment loss on intangible assets(1)
    
    
    (50,000
    )
    
    
    
    
    
    
    Impairment loss on goodwill(2)
    
    
    (47,320
    )
    
    
    
    
    
    
    (Loss) income before taxation and minority interests
    
    
    (526,887
    )
    
    
    1,094,187
    
    
    
    852,478(Provision) benefit for income taxes
    
    
    63,110
    
    
    
    (144,140
    )
    
    
    (146,610
    )Minority interests
    
    
    464,991
    
    
    
    (169,205
    )
    
    
    (95,403
    )Net income
    
    
    1,214
    
    
    
    780,842
    
    
    
    610,465
 
 (1)
    
    In 2004, a provision for impairment of intangible assets of Rmb 50
million in respect of the design and development costs of the Zhonghua
sedans was recognized .(2)
    
    In 2004, an impairment loss on goodwill of Rmb 47.3 million in
relation to one of Brilliance China Automotives jointly controlled
entities was recognized. Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 Total sales of Brilliance China Automotive in the year ended December 31, 2004 were Rmb
6,542.0 million (US$790.4 million), representing a 35.3% decrease from Rmb 10,109.6 million in
2003. The decrease in total sales from 2003 to 2004 was primarily due to the decrease in the sales
volume of minibuses and, especially, the Zhonghua sedans and the decrease in average unit selling
prices due to the changes in product mix, resulting from the significant slowdown in growth in the
domestic demand for automobiles in China and the intensified price competition during 2004. Total sales of the minibuses and automotive components segment were Rmb 5,217.4 million
(US$630.4 million) in the year ended December 31, 2004, representing a 22.9% decrease from Rmb
6,764.2 million in 2003. Sales of the Zhonghua sedans were more significantly affected by the
weakened Chinese automobile industry in 2004, with total sales amounting to Rmb 1,324.6 million
(US$160.0 million) in the year ended December 31, 2004, representing a 60.4% decrease from Rmb
3,345.3 million in 2003. Shenyang Automotive sold a total of 61,618 minibuses in 2004, representing a 17.4% decrease
over the 74,618 minibuses sold in 2003. Of these vehicles sold, 54,992 were mid-priced minibuses,
representing a 16.2% decrease over the 65,614 mid-priced minibuses sold in 2003. Unit sales of the
deluxe minibuses decreased 26.4% from 9,004 units in 2003 to 6,626 units in 2004. Shenyang
Automotive also sold 10,982 Zhonghua sedans in 2004, compared to 25,600 sedans sold in 2003. In
addition to these sales, Brilliance China Automotives 49% indirectly owned BMW Brilliance also
sold a total of 8,708 BMW sedans in 2004. Cost of sales decreased 28.9% from Rmb 7,727.1 million in 2003 to Rmb 5,491.3 million
(US$663.5 million) in 2004. The decrease was primarily due to the decrease in the unit sales of
minibuses and Zhonghua sedans in 2004. Cost of sales as a percentage of sales was 83.9% in 2004,
compared to 76.4% in 2003. The overall gross profit margin of Brilliance China Automotive decreased
from 23.6% in 2003 to 16.1% in 2004, as a result of lower gross profit margin in respect of
minibuses and Zhonghua sedans. The decrease in gross margin of the minibuses was mainly due to the
decrease in sales volume and the decrease in average selling prices resulting from the changes in
product mix. The decrease in gross margin of the Zhonghua sedans and the loss-making position of
this product segment was mainly due to the significant decrease in sales volume of these sedans
compared to 2003 that prevented 37




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Brilliance China Automotive from benefiting from economies of scale
in production and caused the per unit costs of Zhonghua sedans to rise above the breakeven level. Selling, general and administrative expenses increased 7.1% from Rmb 1,410.1 million,
representing 13.9% of sales in 2003, to Rmb 1,510.4 million (US$182.5 million), representing 23.1%
of sales in 2004. The decrease in selling expenses primarily due to the decrease in warranty costs
and sales volume of the Zhonghua sedans and the decrease in marketing staff costs, was offset by
the increase in general and administrative expenses resulting from the increase in research and
development expenses incurred with respect to the Granse minibus and the Zhonghua sedans, the
increase in provision for inventories and provision for and write-off of bad and doubtful debts in
2004. Interest expense net of interest income increased by 8.1% from Rmb 114.4 million in 2003 to
Rmb 123.7 million (US$14.9 million) in 2004 due to the increase in interest income from notes
payable and the convertible bonds issued in November 2003. Net equity in earnings of associated companies and jointly controlled entities increased by
15.3% from Rmb 109.5 million in 2003 to Rmb 126.3 million (US$15.3 million) in 2004. The increase
was mainly due to the contribution of profit from BMW Brilliance in 2004. Subsidy income decreased 96.3% from Rmb 48.5 million in 2003 to Rmb 1.8 million in 2004. The
decrease was mainly due to a tax refund of Rmb 48.5 million in 2003 in relation to Brilliance China
Automotives reinvestment of the dividends from certain subsidiaries as additional capital
contribution. There was no such tax refund in 2004. Other income net of expenses decreased from Rmb 78.3 million in 2003 to Rmb 25.7 million
(US$3.1 million) in 2004. The decrease was primarily due to the decrease in income from the sale of
scrap metals in 2004 and a provision for impairment of the property, plant and equipment of Rmb 10
million in one of Brilliance China Automotives subsidiaries in 2004. In 2004, Brilliance China Automotive also recognized a provision for impairment of intangible
assets of Rmb 50.0 million in respect of the design and development costs of the Zhonghua sedans
and impairment loss on goodwill of Rmb 47.3 million in relation to one of Brilliance China
Automotives jointly controlled entities. Brilliance China Automotive recorded a loss before taxation and minority interests of Rmb
526.9 million in 2004 as compared to an income before taxation and minority interests of Rmb
1,094.2 million in 2003. Brilliance China Automotive recorded net tax credit of Rmb 63.1 million in
2004 as compared to the tax expenses of Rmb 144.1 million in 2003, resulting from the decrease in
the taxable income of Brilliance China Automotive and the effect of deferred taxation in 2004. As a result, net income decreased 99.8% to Rmb 1.2 million (US$0.14 million) in 2004 from Rmb
780.8 million in 2003. Basic earnings per ADS were Rmb 0.03 (US$0.0036) in 2004, representing a
99.9% decrease from Rmb 21.30 in 2003. Diluted earnings per ADS were Rmb 0.03 (US$0.0036) in 2004,
representing a 99.9% decrease from Rmb 21.16 in 2003. Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Total sales of Brilliance China Automotive in the year ended December 31, 2003 were Rmb
10,109.6 million, representing a 38.1% increase from Rmb 7,319.5 million in 2002. The increase in
total sales was primarily due to the increase in the unit sales of Shenyang Automotives minibuses
and the Zhonghua sedans in 2003. As the Zhonghua sedans were not launched until August 2002, the
total sales for 2003 are not directly comparable to those of 2002. Shenyang Automotive sold a total of 74,618 minibuses in 2003, representing a 14.6% increase
over the 65,138 minibuses sold in 2002. Of these vehicles sold, 65,614 were mid-priced minibuses,
representing a 16.9% increase over the 56,121 mid-priced minibuses sold in 2002. Unit sales of the
deluxe minibuses decreased 0.1% from 9,017 units in 2002 to 9,004 units in 2003. Shenyang
Automotive also sold 25,600 Zhonghua sedans in 2003, 38




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compared to 8,816 sedans sold during the last
five months of 2002. BMW Brilliance commenced production of the BMW-designed and branded 3-Series
and 5-Series sedans based on knockdown kits supplied by the BMW Group and sold 4,359 sedans in the
fourth quarter of 2003. Cost of sales increased 42.8% from Rmb 5,411.3 million in 2002 to Rmb 7,727.1 million in 2003.
This increase was primarily due to the increase in the unit sales of minibuses and sales of the
Zhonghua sedans in 2003. Cost of sales as a percentage of sales was 76.4% in 2003, compared to
73.9% in 2002. Gross profit margin for minibuses remained relatively stable compared to 2002, while
the overall gross profit margin of Brilliance China Automotive decreased from 26.1% in 2002 to
23.6% in 2003, as a result of the relatively lower start-up gross margin of the Zhonghua sedans. Selling, general and administrative expenses increased 32.1% from Rmb 1,067.2 million,
representing 14.6% of sales in 2002, to Rmb 1,410.1 million, representing 13.9% of sales in 2003.
The increase was primarily due to the increase in staff costs, selling and other expenses in
relation to the full year production of the Zhonghua sedans and the increase in stock-based
compensation expense of Rmb 162.9 million in 2003. As a result of call option agreements entered
into in 2002, compensation expense associated with the call options is being recognized by
Brilliance China Automotive on a straight-line basis from December 18, 2002 to August 6, 2003, the
date that the call options became fully vested. Accordingly, compensation expenses of approximately
Rmb 173.2 million and Rmb 10.3 million were charged to the income statements for the years ended
December 31, 2003 and 2002, respectively. Interest expense net of interest income decreased by 10.4% from Rmb 127.7 million in 2002 to
Rmb 114.4 million in 2003 due to the increase in interest income from bank deposits. Net equity in
earnings of associated companies and jointly controlled entities decreased by 20.7% from Rmb 138.1
million in 2002 to Rmb 109.5 million in 2003. The decrease was mainly due to the initial start-up
loss of BMW Brilliance of Rmb 124.9 million in 2003. Excluding the net loss effects from BMW
Brilliance, the net equity in earnings of associated companies and jointly controlled entities
increased 69.7% from Rmb 138.1 million in 2002 to Rmb 234.4 million in 2003. The increase was due
to the strong performance of Brilliance China Automotives associated companies and jointly
controlled entities engaged in engine manufacturing in 2003. In 2003, Brilliance China Automotive was granted subsidies in form of tax refunds on
reinvestments of Rmb 48.5 million in relation to Brilliance China Automotives reinvestment of
dividends from certain subsidiaries as additional capital contributions in 2003. Other income net of expenses increased from Rmb 1.0 million in 2002 to Rmb 78.3 million in
2003. The increase was primarily due to the increase in sales of scrap metals, moulds, and
machineries in 2003. Income before taxation and minority interests increased 28.4% to Rmb 1,094.2 million in 2003
from Rmb 852.5 million in 2002. Income taxes decreased 1.7% to Rmb 144.1 million in 2003 from Rmb
146.6 million in 2002. As a result, net income increased 27.9% to Rmb 780.8 million in 2003 from Rmb 610.5 million in
2002. Basic earnings per ADS were Rmb 21.30 in 2003, representing a 27.9% increase from Rmb 16.65
in 2002. Diluted earnings per ADS were Rmb 21.16 in 2003. Contingent Liabilities and Outstanding Guarantees Brilliance China Automotive and its subsidiaries had endorsed or discounted bank notes which
were not yet honored by the issuers as of December 31, 2004 and 2003 of approximately Rmb 6,118
million (US$739.2 million) and Rmb 1,492 million, respectively. These bank notes were used as a
financing tool primarily by Shenyang Automotive for the purchase of components from affiliated
companies and third parties and for other capital expenditures. As of December 31, 2004, Brilliance China Automotive and its subsidiaries had provided the
following guarantees: 39




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
    
    A corporate guarantee of approximately Rmb 296 million (US$35.8 million) for
revolving bank loans and notes drawn by affiliated companies of 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, 2004.
    
    A joint and several proportional guarantee with all the joint venture partners of
Shenyang Aerospace on a long-term bank loan with an outstanding amount of approximately
Rmb 221 million (US$26.7 million) drawn by Shenyang Aerospace which will expire in
2008. The guarantee was provided by the joint venture partners 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 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, 2004.
    
    Corporate guarantees for bank loans drawn by an affiliated company of Brilliance
Holdings Limited amounting to Rmb 300 million (US$36.2 million), which was also the
maximum potential amount of future payments under the guarantee as of December 31,
2004. The same amount of bank deposits were pledged as a collateral for the corporate
guarantees. However, default by the affiliated company of Brilliance Holdings Limited
is considered remote by management and therefore no liability for the guarantors
obligation under the guarantee existed as of December 31, 2004. The pledge of bank
deposits and the corporate guarantees were both terminated on March 25, 2005.
    
    Corporate guarantees of bank loans drawn by JinBei amounting to Rmb 100 million
(US$12.1 million), which was also the maximum potential amount of future payments under
the guarantee as of December 31, 2004. Bank deposits of Rmb 102 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, 2004.
    
    A guarantee to BMW Holdings BV guaranteeing the performance by SJAI of its
obligations under the joint venture agreement for the establishment of BMW Brilliance.
However, default by SJAI is considered remote by management and therefore no liability
for the guarantors obligation under the guarantee existed as of December 31, 2004. As of December 31, 2004, subsidiaries of Brilliance China Automotive had issued letters of
credit amounting to Rmb 11 million (US$1.3 million), compared to Rmb 32 million in 2003. None of
the issued letters of credit were secured by any pledged bank accounts. See also Item 8  Financial Information  Legal Proceedings for a discussion of potential
contingent liabilities relating to legal proceedings. 40




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Liquidity and Capital Resources The following table set forth our outstanding contractual and commercial commitments as of
December 31, 2004: Payments Due by Period(Amounts in thousands of Rmb)Less than
    
    
    1-3
    
    
    4-5
    
    
    More thanTotal
    
    
    1 year
    
    
    years

    
    
    years
    
    
    5 yearsOperating Leases (Relating to Offices and Property)
    
    
    64,561
    
    
    
    10,510
    
    
    
    8,304
    
    
    
    6,536
    
    
    
    39,211Unconditional Purchase Obligations
    
    
    551,184
    
    
    
    551,184
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    
    615,745
    
    
    
    561,694
    
    
    
    8,304
    
    
    
    6,536
    
    
    
    39,211
 Cash Flows As of December 31, 2004, Brilliance China Automotive had Rmb 2,253.1 million (US$272.1
million) in cash, cash equivalents and short-term bank deposits and Rmb 2,777.2 million (US$335.4
million) in pledged short-term bank deposits, a decrease of Rmb 1,249.8 million and an increase of
Rmb 512.6 million from its positions as of December 31, 2003. This decrease was mainly due to the
decrease in cash generated from operating activities and financing activities in 2004. For the year ended December 31, 2004, Brilliance China Automotive recorded cash flow used in
operating activities of Rmb 719.3 million (US$86.9 million), a significant decrease from the Rmb
753.4 million of cash flow provided by operating activities for the year ended December 31, 2003.
The change in cash flows used in/provided by operating activities was primarily due to the
inter-year changes in the following current assets and current liabilities:  
    
    a net decrease in accounts receivable, due from affiliated companies, notes
receivable from third parties and affiliated companies of Rmb 111.3 million (US$13.4
million) for the year ended December 31, 2004 compared to a net increase of Rmb 476.9
million for the year ended December 31, 2003, as a result of the decrease in total
sales of minibuses and Zhonghua sedans;
    
    a decrease in inventory levels of Rmb 328.2 million (US$39.6 million) for the year
ended December 31, 2004 compared to a decrease of Rmb 460.0 million for the year ended
December 31, 2003 as a result of the decrease in sales volume of minibuses and sedans;
    
    a net decrease of Rmb 553.2 million (US$66.8 million) in accounts payable, due to
affiliated companies, and notes payable to affiliated companies for the year ended
December 31, 2004 compared to a net increase of Rmb 54.4 million for the year ended
December 31, 2003 as a result of the decrease in purchases of goods from components
suppliers;
    
    an increase in customer advances of Rmb 48.7 million (US$5.9 million) for the year
ended December 31, 2004 compared to a decrease of Rmb 85.2 million for the year ended
December 31, 2003;
    
    a decrease in other payables of Rmb 122.0 million (US$14.7 million) for the year
ended December 31, 2004 compared to an increase of Rmb 81.7 million (US$9.9 million)
for the year ended December 31, 2003. The decrease was mainly due to the decrease in
development costs in relation to construction-in-progress in 2004;
    
    an increase in accrued expenses and other current liabilities of Rmb 85.4 million
(US$10.3 million) for the year ended December 31, 2004 compared to a decrease of Rmb
69.5 million for the year ended December 31, 2003;
    
    a decrease in taxes payable of Rmb 306.0 million (US$37.1 million) for the year
ended December 31, 2004 compared to a decrease of Rmb 36.9 million for the year ended
December 31, 2003 as a result of a significant decrease in income taxes and VAT
payable; and
    
    an increase of Rmb 12.4 million (US$1.5 million) in interest payable on convertible
bonds due to the issue of convertible bonds in November 2003 by Brilliance China
Automotive Finance Ltd. 41




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Cash used in investing activities decreased by 71.0% from Rmb 2,491.3 million for the year
ended December 31, 2003 to Rmb 722.4 million (US$87.2 million) for the year ended December 31,
2004. This decrease was primarily attributable to the decrease in short-term bank deposits of Rmb
662.0 million (US$80.0 million), the smaller increase in pledged short-term bank deposits of Rmb
512.6 million (US$61.9 million), the decrease in advances to affiliated companies of Rmb 204.0
million (US$24.6 million), and the smaller increase in investments in associated companies and
jointly controlled entities of Rmb 12.3 million (US$1.5 million). This decrease in cash used in
investing activities was partially offset by the Rmb 15.1 million (US$1.8 million) of dividend
received from an associated company and the Rmb 97.2 million (US$11.7 million) of advance to
minority shareholder. In December 2002, Xing Yuan Dong disposed of its entire equity interest in
China Zhengtong Investment Holdings Co., Ltd., or Zhengtong, to an affiliated company at its
original purchase cost, or Rmb 480.0 million. Rmb 460.0 million of this amount was received by
December 31, 2003, and the remainder was repaid in 2004. Net cash provided by financing activities decreased from Rmb 2,281.1 million for the year
ended December 31, 2003 to Rmb 853.9 million (US$103.1 million) for the year ended December 31,
2004. This decrease in net cash provided by financing activities was primarily due to the decrease
in advances from affiliated companies and the US$200 million in gross proceeds received from the
issuance of convertible bonds in November 2003. For additional information on the convertible
bonds, see above  Overview and  Debt Changes below. Debt Changes On November 28, 2003, Brilliance China Automotive, through its wholly owned subsidiary,
Brilliance China Automotive Finance Ltd., issued zero coupon guaranteed convertible bonds due 2008
with an aggregate principal amount of US$200.0 million (equivalent to approximately Rmb 1,654.3
million). These bonds are guaranteed by Brilliance China Automotive and are convertible into fully
paid ordinary shares par value US$0.01 of Brilliance China Automotive at an initial conversion
price of HK$4.60 per share at any time from January 8, 2004 to November 14, 2008, unless the bonds

have previously been redeemed or matured. Brilliance China Automotive Finance Ltd. may redeem a
portion of the convertible bonds in certain circumstances at 100% of their outstanding principal
amount during the period from November 28, 2005 to November 14, 2008. In addition, all or some of
the bonds may be redeemed at the option of the holder at 102.27% of their principal amount on
November 28, 2006 and upon certain events, such as the change of control of Brilliance China
Automotive or the shares of Brilliance China Automotive ceasing to be listed on The Stock Exchange
of Hong Kong Limited, the bonds may be redeemed at the option of the holder at 100% of their
outstanding principal amount. These bonds rank equally with all of Brilliance China Automotives
senior, unsecured and unsubordinated obligations. As of December 31, 2004, none of the bonds had
been converted into the ordinary shares of Brilliance China Automotive. The net proceeds of the
convertible bond offering were advanced to Brilliance China Automotive and were then loaned to
certain subsidiaries of Brilliance China Automotive. In 2004, Brilliance China Automotive continued to maintain credit facilities with banks to
finance its working capital needs. As of December 31, 2004, bank notes payable increased by 19.7%
to Rmb 5,727.2 million (US$692.0 million), an increase of Rmb 943.2 million (US$113.9 million) from
Rmb 4,784.0 million as of
December 31, 2003. The bank notes payable were either secured by the pledged short-term bank
deposits or notes receivables, or unsecured, with maturity periods of less than one year.
Brilliance China Automotive believes that it will continue to have access to sufficient bank
facilities to meet its working capital requirements. Furthermore, Brilliance China Automotive
believes it maintains adequate reserves to manage unforeseen delays in obtaining new financing, and
had cash and cash equivalents of Rmb 1,244.5 million (US$150.4 million) as of December 31, 2004. Capital Expenditures Capital expenditures and operating expenses are funded internally in the form of loans by
Brilliance China Automotive to Shenyang Automotive, as well as loans and notes payable borrowed by
Shenyang Automotive from third parties. Brilliance China Automotives capital expenditures were Rmb
999.1 million (US$120.7 million) in 2004, an increase of Rmb 43.2 million from the 2003 figure.
Major items of expenditure included the moulds, equipment and machinery for the production of new
versions of minibuses and sedans and new 1.8-liter turbo engine in 2004. Brilliance China
Automotive is currently investing or planning to invest in 2005 approximately Rmb 120 million
(US$14.5 million) on the development of the new versions of the Granse deluxe minibus and related
upgrade of facilities, Rmb 350 million (US$42.3 million) for the development of the new generations
of the 42




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Zhonghua sedans and related upgrade of facilities and Rmb 440 million (US$53.1 million) on
the development and investment in its components and engines businesses and approximately Rmb 100
million (US$12.1 million) on other research and development projects. Of this total amount,
approximately Rmb 551.2 million (US$66.6 million) had already been contractually committed as of
December 31, 2004. Foreign Currency Requirements Brilliance China Automotive together with its associated companies and jointly controlled
entities expect to require an aggregate of approximately Japanese Yen 4,000 million, US$50 million
and Euro 300 million to purchase imported equipment and components from Toyota of Japan, BMW of
Germany and other overseas suppliers for its minibuses and sedans in 2005. This estimate is based
upon the 2005 production plans of Brilliance China Automotive and its associated companies and
jointly controlled entities and the level of domestic content expected for its minibuses and sedans
in 2005. Brilliance China Automotive believes that it will be able to obtain adequate amounts of
foreign currency to meet its planned requirements for 2005. In 2004, Brilliance China Automotive
also started its trial sale of products overseas and generated foreign currency sales revenue of
US$2.4 million. Under the laws of China, Brilliance China Automotive and its associated companies
and jointly controlled entities in China are able to obtain necessary foreign exchange in exchange
for Renminbi upon approval from the State Administration of Foreign Exchange, based on executed
purchase contracts, joint venture agreements, feasibility studies and other documents evidencing
the needs and proposed usage of such foreign exchange. Research and Development, Patents and Licenses, etc. During 2002, 2003 and 2004, Brilliance China Automotive spent Rmb 304.9 million, Rmb 191.4
million and Rmb 479.9 million (US$58.0 million), respectively, on research and development
activities. In 2002, these amounts were used for improvements to Shenyang Automotives minibuses
and preparing for the commencement of the production of Zhonghua sedans, as well as for the
development of a new engine model in cooperation with a German engine manufacturer and the
development of a new safety system in cooperation with an airbag manufacturer. In 2003, these
amounts were used for the development of improved versions of existing minibus models, the
development of an improved version of the Zhonghua sedan and the development of new engines, airbag
systems and other components. In 2004, these amounts were primarily used for the development of new
models of minibus, the development of the facelift version of the Zhonghua sedan and the
development of a new 1.8 liter turbo engine with the technical assistance of FEV Motorentechnik
GmbH. Trend information General trends that Brilliance China Automotive expects will have a significant impact on its
results of operations in the near future include the following:  
    
    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. 43




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
    
    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. Critical Accounting Policies Critical accounting policies are defined as those that are reflective of significant judgments
and uncertainties and potentially result in materially different results under different
assumptions and conditions. Brilliance China Automotives consolidated financial statements have been prepared in
accordance with US GAAP. Brilliance China Automotives principal accounting policies are set forth
in note 3 to its consolidated financial statements. US GAAP requires that Brilliance China
Automotive adopt the accounting policies and make estimates that its directors believe are most
appropriate in the circumstances for the purposes of giving a true and
fair view of its results of operations and financial condition. However, different policies,
estimates and assumptions in critical areas could lead to materially different results. Brilliance China Automotive considers certain accounting policies, including those related to
revenue recognition, warranties, inventories, investment in jointly controlled entities and
associated companies, taxation, related party transactions and impairment of long-lived assets, to
be critical accounting policies due to the estimation processes involved in each. Revenue Recognition Brilliance China Automotive recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101) (as amended by Staff
Accounting Bulletin No. 104, Revenue Recognition (SAB 104)). SAB 101 and SAB 104 require that four
basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed
and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and
(4) is based on managements judgments regarding the fixed nature of the fee charged for services
rendered and products delivered, and the collectibility of those fees. Should changes in conditions
cause 44




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management to determine these criteria are not met for certain future transactions, revenue
recognized for any reporting period could be adversely affected. Sales represent the invoiced value of goods, net of sales tax, discounts and returns. Sales
are recognized when goods are delivered to customers and the significant risks and rewards of
ownership of the goods have been transferred to customers. Provisions for allowances and rebates
are made at the time of the sales of goods and are recognized as a reduction of sales. Warranties Shenyang Automotives minibuses are sold with a 24-month or 50,000 kilometers (24-month or
50,000 kilometers for minibuses sold in 2003, and 18-month or 30,000 kilometers for minibuses sold
in 2002) first-to-occur limited warranty. The Zhonghua sedans were sold with a 36-month or 60,000
kilometers (36-month or 60,000 kilometers for Zhonghua sedans sold in 2003, and 24-month or 40,000
kilometers for Zhonghua sedans sold in 2002) first-to-occur limited warranty. In addition to these
basic limited warranties, in 2003 Shenyang Automotive also offered customers a broader warranty for
its Zhonghua sedans. In December 2004, the Grandeur sedans (Zunchi in Chinese) are sold with a
10-year or 200,000 kilometers first-to-occur limited warranty on key components. During the
warranty period, Shenyang Automotive pays service stations for parts and labor covered by the
warranty; thereafter, customers must pay for all parts and labor. The costs of the warranty
obligation are accrued as selling expenses at the time the sales are recognized, based on the
estimated costs of fulfilling the total obligations, including handling and transportation costs.
The factors used to estimate warranty expenses are reevaluated periodically in light of actual
experience. Actual warranty expense may be different from our estimates. Inventories Inventories are carried at the lower of cost or market. Cost comprises all costs of purchase,
costs of conversion and other costs incurred in bringing the inventories to their present location
and condition. Cost is calculated on the moving-average basis, except for costs of work-in-progress
and finished goods of sedans and minibuses, which are calculated by the specific identification
basis with effect from July 1, 2004. The effect of this change in estimate is not significant to
the consolidated financial statements. Brilliance China Automotive provides allowance for excess,
slow moving and obsolete inventory and reduces the carrying value of its inventory to the lower of
cost or market. Impairment of long-lived assets Long-lived assets, such as property, plant and equipment and purchased intangible assets with
finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable from its undiscounted future cash flow. If
such assets are considered to be impaired,
the impairment to be recognized is measured as the amount by which the carrying amount of the
assets exceeds the fair market value of the assets. Deferred Taxation Deferred income tax is provided using the liability method, in which deferred income taxes are
recognized for temporary differences between the tax and financial statement bases of assets and
liabilities. The tax consequences of those differences expected to occur in subsequent years are
recorded as assets and liabilities on the balance sheet. Estimates may differ from actual results.
A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered
more likely than not that some portion of, or all of, the deferred tax assets will not be realized. Transactions with affiliated companies An affiliated company is a company in which one or more of the directors or substantial
shareholders of Brilliance China Automotive have direct or indirect beneficial interests in the
company or are in a position to exercise significant influence over the company. Parties are also
considered to be affiliated if they are subject to 45




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common control or common significant influence.
The accounting treatment for transactions with these affiliated companies, including sales and
revenue recognition policies, is similar to that for transactions with third parties. Recent Accounting Pronouncements In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4. SFAS No. 151 clarifies that ARB No. 43 requires the recognition of abnormal amounts of
idle facility expense, freight, handling costs, and spoilage as current-period charges and requires
fixed production overheads to be allocated to inventory according to the normal capacity of the
production facilities. The guidance is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. However, earlier application is permitted for inventory costs
incurred during fiscal years beginning after November 23, 2004. The provisions of SFAS No. 151
should be applied prospectively. Brilliance China Automotive considers that SFAS No. 151 will not
have significant impact on its financial statements when it is adopted. In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment. This statement
provides investors and other users of financial statements with more complete and neutral financial
information by requiring that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair value of the
equity or liability instruments issued. SFAS No. 123(R) covers a wide range of share-based
compensation arrangements including share options, restricted share plans, performance-based
awards, share appreciation rights, and employee share purchase plans. SFAS No. 123(R) replaces SFAS
No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees. Public entities (other than those filing as small business issuers)
will be required to apply this statement at the beginning of the fiscal year that begins after June
15, 2005. In March 2005, the SEC has published Staff Accounting Bulletin No. 107, Share-Based
Payment, (SAB 107) to give public entities guidance in applying the provisions of SFAS No.
123(R), and to users of financial statements in analyzing the information provided under SFAS No.
123(R). SAB 107 should be applied upon the adoption of FASB No. 123(R). Brilliance China Automotive
considers that SFAS No. 123(R) and SAB 107 will not have significant impact on its financial
statements when they are adopted. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets  An
Amendment of APB Opinion No. 29. SFAS No. 153 eliminates the exception from fair value measurement
for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,
Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do
not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change significantly as a result
of the exchange. SFAS No. 153 is effective for the fiscal periods beginning after June 15, 2005,
and is required to be adopted by Brilliance China Automotive effective January 1, 2006. Brilliance
China Automotive does not expect SFAS No. 153 to have a material impact on the consolidated results
of operations or financial condition. In January 2003, the FASB issued FIN 46 Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51. Until this interpretation, a company generally includes another
entity in its consolidated financial statements only if it controls the entity through voting
interests. FIN 46 requires a variable interest entity, as defined, to be consolidated by a company
if that company is subject to a majority of the risk of loss from the variable interest entitys
activities or is entitled to receive a majority of the entitys residual returns. In December 2003,
the FASB issued a revised FIN 46. The revised standard, FIN 46R, modifies or clarifies various
provisions of FIN 46 and incorporates many FASB Staff Positions previously issued by the FASB. This
standard replaces the original FIN 46 that was issued in January 2003. Enterprises with variable
interests in variable interest entities created after January 31, 2003, are required to apply FIN
46 or FIN 46R immediately. Calendar-year foreign private issuers with variable interests in
variable interest entities created before February 1, 2003 are required to adopt FIN 46R in
preparing their annual financial statements in the financial period ending December 31, 2004. In
connection with adopting FIN 46R, Brilliance China Automotive has identified a supplier that
Brilliance China Automotive had provided a guarantee of approximately Rmb 300 million (US$36.2
million), which expired in the first quarter of 2005. The annual purchase from the supplier was
approximately Rmb 92 million in 2004. Brilliance China Automotive has made exhaustive but
unsuccessful effort to obtain information necessary to apply FIN 46Rs provisions as Brilliance
China Automotive does not have the contractual or legal right to obtain such information.
Brilliance China Automotives maximum exposure to loss as a result of its involvement with this
supplier is approximately Rmb 300 million (US$36.2 46




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million), representing the guarantee to the
supplier in the event of their liquidation. Except the above inability to obtain the information
from the supplier, the adoption of FIN 46R did not have a material impact on Brilliance Chinas
Automotives financial position or results of operations. In March 2005, the FASB issued FIN 47, Accounting for Conditional Asset Retirement
Obligation, to clarify that an entity must recognize a liability for the fair value of a
conditional asset retirement obligation when incurred if the liabilitys fair value can be
reasonably estimated. FIN 47 also defines when an entity would have sufficient information to
reasonably estimate the fair value of an asset retirement obligation. FIN 47 must be adopted no
later than the end of fiscal years ending after December 15, 2005. Retrospective application of
interim financial information is permitted but is not required. Early adoption of FIN 47 is
encouraged. The adoption of FIN 47 will not have a material impact on Brilliance China Automotives
consolidated financial statements. In November 2003, the FASBs Emerging Issues Task Force (EITF) reached a consensus on EITF
Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments. EITF Issue No. 03-1 establishes additional disclosure requirements for each category
of SFAS No. 115 and 124 investments in a loss position for annual periods ending after December 15,
2003. In March 2004, the EITF also reached a consensus on the additional accounting guidance for
other-than-temporary impairments and its application to debt and equity investments in reporting
periods beginning after June 15, 2004 and the additional disclosures for equity securities that are
not subject to the scope of SFAS No. 115 and not accounted for under the equity method under APB
Opinion 18 and related interpretation (cost method investments) for annual financial statements
for fiscal years ending after June 15, 2004. Comparative information for the periods to initial
application of this issue is not required. In September 2004, the EITF delayed the effective date
to apply the measurement and recognition provisions relating to debt and equity securities until
the FASB issues additional guidance. Brilliance China Automotive had adopted the disclosure
provisions of EITF Issue No. 03-1 for the year ended 2004. In September 2004, the EITF reached a consensus on EITF Issue No. 04-8, The Effect of
Contingently Convertible Instruments on Diluted Earnings per Share. EITF Issue No. 04-8 requires
contingently convertible debt instruments (commonly referred to as Co-Cos) to be included in
diluted earnings per share, if dilutive, regardless of whether a market price contingency for the
conversion of the debt into common shares or any other contingent factor has been met. Prior to
this consensus, such instruments were excluded from the calculation until one or more of the
contingencies were met. EITF Issue No. 04-8 is effective for reporting periods ending after
December 15, 2004, and does require restatement of prior period earnings per unit amounts. The
adoption of EITF Issue No. 04-8 does not have a material impact on Brilliance China Automotives
consolidated financial statements. 
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Directors and Senior Management At the annual general meeting on June 25, 2004, pursuant to the Bye-laws of Brilliance China
Automotive, Mr. Yi Min Li, an independent non-executive director, retired by rotation, and as he
did not offer himself for re-election, his retirement took effect from the close of the annual
general meeting. Following the close of the annual general meeting, Mr. Chen Jianming was appointed
as an independent non-executive director and served until September 17, 2004 when Mr. Song Jian was
appointed in his place. On September 27, 2004, Mr. Jiang Bo was also appointed as an independent
non-executive director. On December 9, 2004, Mr. Yang Mao Zeng resigned as an executive director, Mr. Su Qiang also
resigned as President and Chief Executive Officer and Mr. Lin Xiaogang was appointed as the
President, Chief Executive Officer and an executive director. On January 14, 2005, Mr. He Tao resigned as an executive director, Chief Financial Officer and
Vice President of Brilliance China Automotive and Mr. Zha Jianping was appointed as the Chief
Financial Officer. On May 10, 2005 Mr. Su resigned as an executive director of Brilliance China
Automotive and Mr. Hong Xing tendered his resignation as an executive director, Vice Chairman,
Executive Vice President, Company Secretary and authorized representative of Brilliance China
Automotive, effective June 20, 2005. Effective June 20, 2005, Mr. Lei Xiaoyang, a non-executive
director, was redesignated as an executive director and appointed as authorized representative. Ms.
Lam Yee Wah Eva was appointed as the Company Secretary effective June 20, 2005. As a result 47




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of the
resignation of Mr. Su and Mr. Hong before the annual general meeting on June 24, 2005, Mr. Lei
Xiaoyang is subject to retirement as a director by rotation under the Bye-laws of Brilliance China
Automotive. The directors and senior executive officers of Brilliance China Automotive as of the date of
this annual report are identified below. Year FirstElected or AppointedName
    
    Age
    
    Position
    
    Director or OfficerExecutive DirectorsWu Xiao An
    
    
    43
    
    
    Chairman of the Board and Executive Vice President
    
    
    1994Lin Xiaogang
    
    
    45
    
    
    President, Chief Executive Officer
    
    
    2004Lei Xiaoyang
    
    
    48
    
    
    Director
    
    
    2003Non-Executive DirectorWu Yong Cun
    
    
    42
    
    
    Director
    
    
    2003Independent Non-Executive DirectorsXu Bingjin
    
    
    65
    
    
    Director
    
    
    2003Song Jian
    
    
    48
    
    
    Director
    
    
    2004Jiang Bo
    
    
    45
    
    
    Director
    
    
    2004OthersZha Jianping
    
    
    34
    
    
    Chief Financial Officer
    
    
    2005Zhang Ruiping
    
    
    34
    
    
    Qualified Accountant
    
    
    2004
 Executive Directors Mr. WU Xiao An, age 43, has been Chairman of the Board of Brilliance China Automotive since
June 2002, and a director since 1994. He is responsible for the overall management and strategy of
Brilliance China Automotive. He was the Vice Chairman and the Chief Financial Officer of Brilliance
China Automotive from 1993 to June 2002. He is also a director of Shenyang Automotive. Mr. Wu holds
a Bachelor of Arts degree from the Beijing Foreign Languages Institute and a Master of Business
Administration degree from Fordham University in New York. He served from 1988 to 1993 as Deputy
Manager of the Bank of China, New York Branch. Mr. LIN Xiaogang, age 45, has been the President, Chief Executive Officer and an executive
director of Brilliance China Automotive since December 2004. He is also the Chairman of Shenyang
Automotive. He is currently the Vice Chairman and President of Huachen Automotive Group Holdings
Company Limited. Mr. Lin was appointed as the Vice President of Shenyang Aircraft Industry (Group)
Corporation Ltd. in 1997. Mr. Lin has become the Director of National Defense Science & Technology
Office of Liaoning Provincial Government in 2002. Mr. Lin received a Bachelor of Engineering degree
from Beijing University of Aeronautics & Astronautics and a Master of Business Administration
degree from Tianjin University. Mr. LEI Xiaoyang, age 48, has been an executive director of Brilliance China Automotive since
June 2005. Mr. Lei was a non-executive director of Brilliance China Automotive from June 2003 to
June 2005. Mr. Lei has served as the Deputy Chief Economist as well as General Manager of the
Department of Asset Operations in Huachen since January 2003. He was the Assistant President of
Liaoning International Trust and Investment Corporation from June 1996 to September 2002, and was
in charge of the Financing Department, Accounting Department, Strategic Planning Department and
Securities Department. Mr. Lei holds a Bachelor of Engineering degree from the Shenyang Polytechnic
University and a Master of Science degree from Liaoning University as well as a Master of Business
Administration degree from Roosevelt University. 48




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Non-Executive Director Mr. WU Yong Cun, age 42, has been a non-executive director of Brilliance China Automotive
since June 2003. He is responsible for business planning and development and production management
for Huachen. Mr. Wu has also served as the General Manager of Liaoning Provincial Water Sources
Utility Company, the Assistant Director of Liaoning Provincial Development & Planning Commission
and the Vice Chairman of Liaoning Provincial Science and Technology Association between June 1988
and September 2002. Mr. Wu holds a Bachelor of Engineering degree and a Master of Engineering
degree from Dalian Science and Technology University as well as a Master of Business Administration
degree from California State University, Fullertan School. Mr. Wu also holds the title of Senior
Engineer. Independent Non-Executive Directors Mr. XU Bingjin, age 65, has been an independent non-executive director of Brilliance China
Automotive since June 2003. Since June 27, 2003, he has also served as a member of the Audit
Committee of Brilliance China Automotive. Mr. Xu is currently the Chairman of The Association of
Sino-European Economic and Technical Cooperation and since September 2004 has been the independent
non-executive director of Qingling Motors Co. Ltd., a company listed on The Stock Exchange of Hong
Kong Limited. He was formerly an Assistant Minister of The Ministry of Foreign Trade and Economic
Cooperation, a director of the Office of National Mechanic and Electronic Products Importation and
Exportation and a Senior Consultant of the World Trade Organization Research Association. Mr. Xu
received a Bachelor of Science degree in Engineering Economics from Jilin University of Technology
in 1964 and holds the title of Senior Engineer. Mr. SONG Jian, age 48, has been an independent non-executive director of the Company since
September 2004. Mr. Song is currently the Executive Vice President of the Tsinghua Automotive
Engineering Institute, the Deputy Dean of the Automotive Engineering Department in Tsinghua
University, the Vice Director of the National Laboratory in Automotive Safety and Energy and an
advisor to the Beijing Government in Science and Technology. Mr. Song is currently a professor of
automotive dynamics and control engineering at Tsinghua University. Mr. Song graduated from the
Department of Automotive Engineering of Tsinghua University with a bachelors degree in Engineering
Science and was awarded a doctorate degree in Engineering Science from Tsinghua University. Mr. JIANG Bo, age 45, has been an independent non-executive director of the Company since
September 2004. Mr. Jiang is an accountant, a certified public accountant and a certified public
valuer in the Peoples Republic of China. Mr. Jiang has a Bachelor of Science degree in Mathematics
from Liaoning University and a diploma in Accounting from the Central Finance and Economics
University. Since 1999, Mr. Jiang has been the general manager of Liaoning Reanda Certified Public
Accountants, a firm of certified public accountants in the PRC. From December 1993 to August 1999,
Mr. Jiang was a director of Dandong Zhongpeng Accounting Firm. Mr. Jiang has worked with one of the
Big-4 international accounting firms in the auditing of a state-owned enterprise. Others Mr. ZHA Jianping, age 34, has been the Chief Financial Officer of Brilliance China Automotive
since January 2005. Mr. Zha is also the Chief Financial Officer of JinBei and the General Manager
of Xing Yuan Dong as well as the Vice President in charge of finance of Shenyang Automotive. Mr.
Zha is a qualified accountant in the PRC. He was awarded a bachelor degree in Economics from the
University of Finance and Economics in Shanghai in 1993. Mr. Zha has more than ten years of
financial management experience with extensive experience in corporate finance and strategic
planning. He was in charge of the acquisition and corporate restructuring of Shenyang JinBei
Automotive Co., Ltd., an A-share listed company in the PRC. He formerly served as the Chief
Financial Officer of Xing Yuan Dong and Shenyang Automotive. Prior to joining the group of
companies of Brilliance China Automotive, Mr. Zha worked and handled finance-related matters in a
conglomerate with operation in the PRC, Macau and overseas for seven years. Madam ZHANG Ruiping, age 34, has been the qualified accountant of Brilliance China Automotive
since November 2004. Madam Zhang is the head of the financial department of Brilliance China
Automotive and its subsidiaries. She graduated from Shanghai University of Finance and Economics.
She is a qualified PRC accountant 49




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and also a PRC certified pubic accountant registered as an
individual member with the Shanghai Institute of Certified Public Accountants. She worked at the
financial department of China Merchants Group, Hong Kong from 1996 to 1999 and was the manager of
the finance department of Shanghai Shenhua Holdings Co., Ltd from 1999 to 2003. There is no family relationship between any director or executive officer of Brilliance China
Automotive and any other director or executive officer. Compensation The aggregate amount of compensation, consisting of salary, allowances and benefits in kind,
paid by Brilliance China Automotive to its directors and executive officers during 2004 was
approximately Rmb 16.7 million (US$2.0 million). Board Practices The board of directors of Brilliance China Automotive currently consists of seven members,
one-third of whom are required to retire from office by rotation at each annual general meeting in
accordance with the terms of its Bye-laws. Those directors that retire from office, however, may be
immediately re-elected as directors by the shareholders. Service Agreements On August 21, 2000, Brilliance China Automotive entered into a service agreement with Mr. Wu
Xiao An. This service agreement has a term of five years beginning October 1, 2000 and does not
provide for any benefits or compensation upon termination of employment other than statutory
compensation. Audit Committee Brilliance China Automotive has established an audit committee whose primary duties consist of
reviewing and supervising the financial reporting process of Brilliance China Automotive. The audit
committee currently consists of three independent non-executive directors, Mr. Xu Bingjin, Mr. Song
Jian and Mr. Jiang Bo, and Mr. Xu is the chairman of the committee. Meetings Meetings of the audit committee shall be held at least twice per year, and Brilliance China
Automotives external auditors may request a meeting if they consider that one is necessary. A
quorum for a meeting of the audit committee shall be two members. Brilliance China Automotives
secretary shall serve as secretary of the audit committee and shall circulate to all members of the
board the minutes from any audit committee meeting. Brilliance
China Automotives Chief Financial Officer and a representative of its external auditors shall
normally attend audit committee meetings as well. Other board members also have the right to attend
audit committee meetings. The audit committee shall meet with Brilliance China Automotives
external auditors at least once per year. Authority and Duties The audit committee is authorized by the board to investigate any activity within its scope of
duty. It is authorized to seek any information it requires from any employee and all employees are
directed to cooperate with any request made by the audit committee. The audit committee is
authorized by the board to obtain outside legal or other independent professional advice and to
secure the attendance of outsiders with relevant experience and expertise if it considers this
necessary. The duties of the audit committee are to: 50




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
    
    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;
    
    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 the Company and the Companys
annual reports and accounts, interim reports and, if prepared for publication,
quarterly reports, and to review significant financial reporting judgements contained
in them. In this regard, in reviewing the Company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 the Company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 the Company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 the Company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; 51




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
    
    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;
    
    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 the Company, 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. The audit committee met in April 2002, 2003 and 2004, September 2002, 2003 and 2004 and
December 2004. Remuneration Committee Brilliance China Automotive has established a remuneration committee. The remuneration
committee shall consist of not less than three members, a majority of whom should be independent
non-executive directors. The remuneration committee currently consists of three independent
non-executive directors, Mr. Xu Bingjin, Mr. Song
Jian and Mr. Jiang Bo, and two executive directors, Mr. Wu Xiao An and Mr. Lin Xiaogang. Mr. Xu
Bingjin is the chairman of the committee. Meetings Meetings of the remuneration committee shall be held at least once a year at the request of
any member of the board. A quorum for a meeting of the remuneration committee shall be two members.
Brilliance China Automotives secretary shall serve as the secretary of the remuneration committee
and shall circulate to all members of the board the minutes from any remuneration committee
meeting. Authority and Duties The remuneration committee is authorized by the board to carry out any activity within its
scope of duty. It may request from the management information relating to the compensation and
remuneration packages of employees as appropriate to enable members of the committee to perform
their duties set out herein. The 52




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remuneration committee may consult the chairman and/or chief
executive officer of Brilliance China Automotive regarding any proposed remuneration or
compensation in respect of any executive director of Brilliance China Automotive, as appropriate.
The remuneration committee is also authorized by the board to obtain outside legal or other
independent professional advice and to secure the attendance of other persons with relevant
experience and expertise, at the expense of Brilliance China Automotive. The duties of the remuneration committee are to:  
    
    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. Summary Corporate Governance Differences There are significant differences between Brilliance China Automotives corporate governance
practices and those of domestic companies listed on the New York Stock Exchange. Pursuant to
Section 303A.11 of the New York Stock Exchange Listing Manual, these differences are set forth in
the table below: 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 Hong Kong Stock Exchange, 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 Hong Kong Stock Exchange
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.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 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 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.
 Employees As of December 31, 2004, Brilliance China Automotive had 9 employees located in Hong Kong,
compared with 9 as of both December 31, 2003 and December 31, 2002. These employees are primarily
responsible for overseeing the financial management and operations and for developing strategic
business plans, preparing financial statements and coordinating investor relations for Brilliance
China Automotive. As of December 31, 2004, Brilliance China Automotive and its subsidiaries had a total of 9,112
employees, compared with 9,000 as of December 31, 2003 and 9,200 as of December 31, 2002. As of
December 31, 2004, Shenyang Automotive had a total of 6,731 employees, compared with 6,704 as of
December 31, 2003 and 6,639 as of December 31, 2002. 53




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The following chart sets forth the number of employees of Brilliance China Automotive and its
subsidiaries by functional area as of December 31, 2004: Functional Area
    
    Number of EmployeesAdministrative personnel
    
    
    1,478Technical personnel
    
    
    1,314Production workers
    
    
    6,320Total
    
    
    9,112
 Substantially all of Brilliance China Automotive and its subsidiaries employees are based in
Shenyang, Liaoning Province, China. Brilliance China Automotive and its subsidiaries have not experienced any strikes or other
labor disputes that materially affected their business activities. Brilliance China Automotive
considers its labor relations to be good. Share Ownership As of the date of this annual report, no directors or executive officers own any shares in
Brilliance China Automotive. Employee Share Option Schemes The 1999 Share Option Scheme Upon the listing of Brilliance China Automotives shares on The Stock Exchange of Hong Kong
Limited in September 1999, Brilliance China Automotive adopted the 1999 Share Option Scheme. Under
the 1999 Share Option Scheme, the board of directors of Brilliance China Automotive has the right
to grant options to employees of Brilliance China Automotive and its subsidiaries to subscribe for
Brilliance China Automotives shares at a price which shall be higher of: (1) a price being not
less than 80% of the average closing price of the shares on the relevant securities exchange for
the five trading days immediately preceding the relevant offer date in respect of such options; or
(2) the nominal value of the shares. If an employee decides to accept the offer of an option he or
she must pay HK$1.00 when the option is granted. The maximum number of shares in respect of which
options may be granted (including shares in respect of which options, whether exercised or still
outstanding, have already been granted) under the 1999 Share Option Scheme is the number that
represents 10% of the issued ordinary share capital of Brilliance China Automotive, excluding
shares issued on exercise of options previously granted. The period
during which an option may be exercised will be determined by the directors, except that no option
may be exercised more than ten years from the date of grant of the option. On June 2, 2001, share options were granted to certain directors and employees of Brilliance
China Automotive, entitling them to subscribe for a total of 31,800,000 shares of Brilliance China
Automotives ordinary shares at HK$1.896 per share. The exercisable period of these options is from
June 2, 2001 to June 1, 2011. The compensation expense associated with these grants was
approximately Rmb 15.5 million and was charged to income during the year ended December 31, 2001.
On October 13, 2003, 2,338,000 share options granted to an employee of Brilliance China Automotive
were exercised at an exercise price of HK$1.896 per share in accordance with the terms of the 1999
Share Option Scheme. Accordingly, the common stock and additional paid-in capital were increased by
Rmb 0.2 million and Rmb 4.5 million, respectively. No options were exercised under this stock
option plan in 2004. New Share Option Scheme On June 28, 2002, Brilliance China Automotive adopted a new share option scheme, or the New
Scheme in compliance with the amendments to the listing rules and regulations of The Stock Exchange
of Hong Kong Limited 54




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that became effective on September 1, 2001. The New Scheme became effective on
July 15, 2002 and the 1999 Share Option Scheme was terminated. Pursuant to the 1999 Share Option
Scheme, all the share options granted prior to its termination shall continue to be valid and
exercisable in accordance with its terms. Share options granted after July 15, 2002 are subject to
the terms of the New Scheme. Pursuant to the New Scheme, Brilliance China Automotives Board of
Directors may grant options to the participants (including Brilliance China Automotives employees,
non-executive directors, suppliers and customers, etc.) to subscribe for Brilliance China
Automotives common stock at a price that shall not be lower than the higher of:  (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. The New Scheme allows Brilliance China Automotive to grant options to a wider category of
participants. Under the New Scheme, the board would also have the discretion to set a minimum
period for which an option must be held before the exercise of the subscription rights attached to
that option, as well as any performance targets it considers appropriate before an option can be
exercised. The purpose of the New Scheme is to provide incentives or rewards to participants under
the scheme for their contribution to Brilliance China Automotive and its subsidiaries and to enable
Brilliance China Automotive and its subsidiaries to recruit and retain skilled employees. As of December 31, 2004, no share option had been granted under the New Scheme. Call Option Agreements On December 18, 2002, Huachen entered into a principal agreement with the Chinese Financial
Education Development Foundation, the then substantial shareholder, providing for the purchase from
the Chinese Financial Education Development Foundation of a total of 1,446,121,500 shares of common
stock, representing approximately 39.45% of the then issued share capital of Brilliance China
Automotive and the Chinese Financial Education Development Foundations entire shareholding
interest in Brilliance China Automotive. Completion of the principal agreement took place at
signing on December 18, 2002. In connection with the signing of the principal agreement and after
completion of the sale and purchase of the ordinary shares pursuant thereto, each of Mr. Wu Xiao
An, Mr. Su Qiang, Mr. Hong Xing and Mr. He Tao entered into a call option agreement with Huachen.
Pursuant to the terms of the call option agreements, Huachen granted to each of them a call option
in respect of a specified number of ordinary shares, totaling 346,305,630 shares in aggregate and
representing approximately 9.446% of the then issued
share capital of Brilliance China Automotive, at an exercise price of HK$0.95 per share. Each call
option is exercisable in whole or in part at any time during the period of three years commencing
August 6, 2003. As of December 31, 2004, none of these call options had been exercised. Under the terms of these call option agreements, each of Mr. Wu Xiao An, Mr. Su Qiang, Mr.
Hong Xing and Mr. He Tao may elect to pay the exercise price in full or to pay 10% of the exercise
price at the time of exercise of the option. If these directors elect the latter payment option,
the balance of the exercise price will be payable, without interest, within a three-year period
after the date of completion of the purchase of the relevant ordinary shares, and the shares will
be pledged as security in favor of Huachen until full payment of the exercise price. 
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Major Shareholders The following table sets forth certain information regarding ownership of Brilliance China
Automotives capital stock as of December 31, 2004 by all persons who are known to Brilliance China
Automotive to own 55




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beneficially more than 5% of Brilliance China Automotives shares or ADSs. The
voting rights of Brilliance China Automotives major shareholders are identical to those of its
other shareholders. Number of
    
    Percent ofTitle of Class
    
    Identity of Person or Group
    
    Shares Owned
    
    Capital StockOrdinary Shares
    
    Huachen Automotive Group Holdings Company Limited(1)
    
    
    1,446,121,500
    
    
    
    39.42
    %
 
 (1)
    
    Huachen Automotive Group Holdings Company Limited is a
wholly owned subsidiary of the Liaoning Provincial
Government. On December 18, 2002, Huachen, a wholly owned subsidiary of the Liaoning Provincial
Government, entered into a principal agreement with the Chinese Financial Education Development
Foundation, the then substantial shareholder of Brilliance China Automotive, for the purchase from
the Chinese Financial Education Development Foundation of a total of 1,446,121,500 ordinary shares,
representing approximately 39.45% of the then issued share capital of Brilliance China Automotive
and the Chinese Financial Education Development Foundations entire shareholding interest in
Brilliance China Automotive. Completion of the principal agreement took place at signing on
December 18, 2002. Accordingly, as of December 31, 2003, Huachen is entitled to cast 39.42%
(diluted from the initial 39.45% due to the exercise of certain share options during 2003) of the
votes on all matters to be voted on by the shareholders of Brilliance China Automotive (to the
extent it is not required to abstain from exercising its voting rights under the applicable laws
and regulations), and will therefore exert substantial influence over the election of Brilliance
China Automotives directors, the outcome of actions requiring majority shareholder approval and
the business in general of Brilliance China Automotive. See Item 8  Financial Information  Legal
Proceedings for a description of the litigation relating to this purchase. Related Party Transactions JinBei holds a 49% equity interest in Shenyang Automotive. Shenyang Automotive began operating
as a separate legal entity from JinBei in January 1992. Shenyang Automotive and JinBei are parties
to a trademark license agreement under which JinBei has granted to Shenyang Automotive the license
to use indefinitely the JinBei trademark on its products and marketing materials. On December 29,
2003, Brilliance China Automotive, through Shenyang JinBei Automotive Industry Holdings Co., Ltd.,
or SJAI, and Shenyang Xinjinbei Investment and Development Co., Ltd., or SXID, its 98.0% and 99.0%
indirectly owned subsidiaries, respectively, entered into agreements to acquire the entire equity
interests of Shenyang Automobile Industry Asset Management Company Limited, or SAIAM, and Shenyang
Xinjinbei Investment Co., Ltd, or SXI, which own 29.9% and 11%, respectively,
of the issued share capital of JinBei. Upon receipt of the necessary governmental approvals for
this transaction, Brilliance China Automotive will be effectively interested in approximately 40.1%
of the issued share capital of JinBei, thereby increasing its effective interest in Shenyang
Automotive from its initial 51.0% to approximately 70.7%. This acquisition is expected to be
completed by the end of 2005. In 2004, Brilliance China Automotive purchased Rmb 2,006.7 million of its component parts from
various affiliated companies and paid Rmb 178.7 million subcontracting charge to a jointly
controlled entity. These figures represented a decrease of 31.2% from Rmb 2,916.9 million and an
increase of 927% from Rmb 17.4 million, respectively, from 2003 to 2004. Brilliance China
Automotive believes that its purchases of such parts have been on terms as favorable to Brilliance
China Automotive as it could have obtained from unrelated third parties on an arms-length basis. In December 2001, Brilliance China Automotive entered into an agreement with Brilliance
Holdings Limited for the acquisition of the entire issued share capital of Key Choices Group
Limited at a consideration of approximately Rmb 278.0 million. Key Choices is an investment holding
company and its principal assets are the 100% equity interest in the registered capital of Dongxing
Automotive and a 90% equity interest in the registered capital of Xingchen Automotive Seats.
Dongxing Automotive is a foreign-invested enterprise established in China whose principal products
are automotive components for the use in passenger vehicles. Xingchen Automotive Seats 56




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is a
Sino-foreign joint venture established in China in December 2001 that formerly was principally
engaged in the manufacturing of automotive seats. However, Xingchen Automotive Seats ceased its
operations in the second half of 2002. In December 2001, Xing Yuan Dong entered into an agreement with two affiliated companies to
establish China Zhengtong Investment Holdings Co., Ltd., or Zhengtong. Pursuant to the agreement,
Xing Yuan Dong contributed cash amounting to Rmb 480.0 million to acquire a 47.06% equity interest
in Zhengtong. In December 2002, Xing Yuan Dong disposed of its entire equity interest in Zhengtong
to an affiliated company at cost, or Rmb 480.0 million. Significant transactions between Brilliance China Automotive or its subsidiaries and
affiliated companies in the ordinary course of business during 2002, 2003 and 2004 are set forth
below: 2004
    
    
    2003
    
    
    2002(Rmb 000)Sales to JinBei and its affiliated companies
    
    
    38,127
    
    
    
    150,637
    
    
    
    56,438Purchases from JinBei and its affiliated companies
    
    
    764,311
    
    
    
    986,828
    
    
    
    712,061Sales to Shanghai Shenhua and its affiliated companies
    
    
    1,895,881
    
    
    
    1,984,715
    
    
    
    1,664,156Purchases from Shanghai Shenhua and its affiliated companies
    
    
    214,467
    
    
    
    222,940
    
    
    
    375,402Sales to Shanghai Yuantong Automobile Sales and Service Company
Limited, or Shanghai Yuantong
    
    
    
    
    
    
    
    
    
    
    710,100Sales to other affiliated companies of Brilliance Holdings Limited
    
    
    
    
    
    
    504
    
    
    
    150,390Purchases from a joint venture partner of Shenyang Aerospace
    
    
    39,019
    
    
    
    
    
    
    
    Subcontracting charges to BMW Brilliance
    
    
    178,685
    
    
    
    17,438
    
    
    
    Purchases from other affiliated companies of Brilliance Holdings Limited
    
    
    89,690
    
    
    
    93,498
    
    
    
    99,514Purchases from associated companies and jointly controlled entities
    
    
    898,914
    
    
    
    1,597,289
    
    
    
    1,014,057Sales to affiliated companies of the joint venture partner of Ningbo
Yuming
    
    
    
    
    
    
    5,135
    
    
    
    Purchases from affiliated companies of the joint venture partner of
Ningbo Yuming
    
    
    342
    
    
    
    16,338
    
    
    
    14,580Sales to associated companies and jointly controlled entities
    
    
    205,849
    
    
    
    171,512
    
    
    
    102,024Research and development expenses to third parties under contracts
assumed from an affiliated company of Brilliance Holdings Limited at
original costs
    
    
    
    
    
    
    
    
    
    
    116,000Long-term prepayment for fixed assets to a third party under a contract
assumed from an affiliated company of Brilliance Holdings Limited at
original cost
    
    
    
    
    
    
    
    
    
    
    18,305Consideration 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
    
    
    17,850
    
    
    
    
    
    
    
    Operating lease rental on machineries and equipment charged by a
jointly controlled entity
    
    
    12,840
    
    
    
    12,000
    
    
    
    Operating lease rental from a jointly controlled entity
    
    
    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
    
    
    1,105
    
    
    
    
    
    
    
    Purchase of machinery from JinBei and its affiliated companies
    
    
    58,089
    
    
    
    
    
    
    
    Management expenses reimbursed to and consulting fees paid to
Brilliance Holdings Limited
    
    
    
    
    
    
    
    
    
    
    5,182
 The above transactions were carried out after negotiations between Brilliance China Automotive
and its subsidiaries and the affiliated companies in the ordinary course of business and on the
basis of estimated market value as determined by the directors of Brilliance China Automotive. 57




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During the year ended December 31, 2002, JinBei allowed Shenyang Automotive to use certain
components-related technology in the manufacturing of the Zhonghua sedan. This technology was
transferred from JinBei to Shenyang Automotive in the form of an increase in the registered capital
of Shenyang Automotive in January 2003, and Shenyang Automotive thereby became the legal owner of
this components-related technology. In 2003, Shenyang Automotive transferred the legal titles and ownership of certain buildings
with an aggregate net book value of approximately Rmb 225.2 million to BMW Brilliance in
consideration of approximately Rmb 248.7 million 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, 2004 and 2003 the net book value of the buildings
amounting to approximately Rmb 150.8 million and Rmb 225.2 million respectively were retained as
assets on the consolidated balance sheet of Brilliance China Automotive and the portion of
consideration received from BMW Brilliance up to December 31, 2004 and 2003 amounting to
approximately Rmb 74.6 million was treated as a financing and will be partially offset against the
lease rental payable in future years. The remaining balance of approximately Rmb 99.8 million will
be received from BMW Brilliance and will be accounted for as additional financing. In December 2003, BMW Brilliance purchased for Rmb 384.3 million (US$46.4 million) certain
machinery and equipment from Shenyang Automotive with an aggregate net book value of Rmb 358.6
million (US$43.3 million) for use in the production of BMW sedans. The agreement of sale includes
an option for BMW Brilliance to require Shenyang Automotive to purchase back such machinery and
equipment 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. This machinery and equipment is maintained by BMW Brilliance for the
manufacturing of its products and is also used by Shenyang Automotive for a service fee based on
the number of Zhonghua sedans produced by Shenyang Automotive using this machinery and equipment.
As of December 31, 2004 and 2003, service fees of approximately Rmb 178.7 (US$21.6) and Rmb 17.4
million had accrued, respectively. The operating subsidiaries of Brilliance China Automotive have provided the following
outstanding guarantees to affiliated companies as of December 31, 2004:  
    
    a corporate guarantee of approximately Rmb 296 million (US$35.8 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,
2004;
    
    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 221
million (US$26.7 million) drawn by Shenyang Aerospace that expires 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,
2004;
    
    corporate guarantees for bank loans amounting to Rmb 300 million (US$36.2 million)
drawn by an affiliated company of Brilliance Holdings Limited. The same amount of bank
deposits was pledged as a collateral for the corporate guarantee. However, this
guarantee and the related pledge of bank deposits were both released on March 25, 2005;
    
    corporate guarantees for bank loans amounting to Rmb 100 million (US$12.1 million)
drawn by JinBei. Bank deposits of Rmb 102 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, 2004; and
    
    a guarantee to BMW Holdings BV guaranteeing the performance by SJAI of its
obligations under the joint venture agreement for establishment of BMW Brilliance. 58




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Set forth below is information on amounts due from affiliated companies to Brilliance China
Automotive and its subsidiaries arising from trading activities as of December 31, 2004, 2003 and
2002: 2004
    
    
    2003
    
    
    2002(Rmb 000)Notes receivable from affiliated companiesNotes receivable from affiliated companies of JinBei
    
    
    22,500
    
    
    
    4,505
    
    
    
    6,613Notes receivable from Shanghai Shenhua
    
    
    601,348
    
    
    
    487,770
    
    
    
    156,240Notes receivable from Shanghai Yuantong
    
    
    
    
    
    
    
    
    
    
    3,325Notes receivable from other affiliated companies of Brilliance Holdings
Limited
    
    

    
    
    
    
    
    
    
    
    20,807Notes receivable from associated companies and jointly controlled entities
    
    
    21,295
    
    
    
    31,900
    
    
    
    26,000Notes receivable from an affiliated company of the joint venture partner
of Ningbo Yuming
    
    
    
    
    
    
    3,000
    
    
    
    Total(1)
    
    
    645,143
    
    
    
    527,175
    
    
    
    212,985Amounts due from affiliated companiesDue from affiliated companies of Brilliance Holdings Limited
    
    
    
    
    
    
    
    
    
    
    41,675Due from Shanghai Shenhua and its affiliated companies
    
    
    386,710
    
    
    
    54,967
    
    
    
    63,608Due from Shanghai Yuantong(2)
    
    
    
    
    
    
    355,835
    
    
    
    655,835Due from affiliated companies of the joint venture partner of Ningbo
Yuming
    
    
    
    
    
    
    4,408
    
    
    
    280Due from affiliated companies of JinBei
    
    
    58,312
    
    
    
    53,242
    
    
    
    11,015Due from associated companies and jointly controlled entities
    
    
    75,224
    
    
    
    46,453
    
    
    
    11,376Due from a joint venture partner of Shenyang Aerospace
    
    
    882
    
    
    
    
    
    
    
    Receivable arising from the disposal of machineries and equipment to BMW
Brilliance(3)
    
    
    269,003
    
    
    
    269,003
    
    
    
    Provision for doubtful debts
    
    
    (24,720
    )
    
    
    (9,720
    )
    
    
    (9,723
    )Total
    
    
    765,411
    
    
    
    774,188
    
    
    
    774,066
 
 (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, 2002
and 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. As of December 31, 2004 and December 31, 2003, Brilliance China Automotive had advanced
approximately Rmb 3,580.1 million (US$432.6 million) and Rmb 3,528.1 million (US$426.1 million),
respectively, to its subsidiaries, of which approximately Rmb 2,258.9 million (US$272.9 million)
and Rmb 2,288.9 million (US$276.5 million), bear interest at 5.0% to 5.841%, per annum and 5.0% to
5.8% per annum, respectively. There is no interest payable with respect to the remaining balance. 59




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Set forth below is information on advances from Brilliance China Automotive and its
subsidiaries to affiliated companies as of December 31, 2004, 2003 and 2002: 2004
    
    
    2003
    
    
    2002(Rmb 000)Advances to affiliated companiesAdvances to JinBei and its affiliated companies
    
    
    16,786
    
    
    
    69,748
    
    
    
    6,613Advances to associated companies and jointly controlled entities
    
    
    22,528
    
    
    
    
    
    
    
    Advances to Brilliance Holdings Limited and its affiliated companies
    
    
    
    
    
    
    172,955
    (1)
    
    
    907,191Advances to Zhuhai Brilliance Holdings Company Limited
(non-interest bearing)
    
    
    
    
    
    
    
    (2)
    
    
    360,000Advances to other affiliated companies (non-interest bearing)
    
    
    138
    
    
    
    779
    (3)
    
    
    30,892Provision for doubtful debts
    
    
    (1,975
    )
    
    
    
    
    
    
    Total
    
    
    37,477
    
    
    
    243,482
    
    
    
    1,304,696
 
 (1)
    
    Approximately Rmb 810.0 million of the advances to Brilliance Holdings Limited and its affiliated
companies were settled subsequent to year end 2002.(2)
    
    The balance of Rmb 360.0 million was settled subsequent to year end 2002.(3)
    
    Rmb 30.0 million of the advances to other affiliated companies was settled subsequent to year end 2002. Set forth below is information on advances from affiliated companies to Brilliance China
Automotive and its subsidiaries as of December 31, 2004, 2003 and 2002. 2004
    
    
    2003
    
    
    2002(Rmb 000)Advances from affiliated companiesAdvances from a joint venture partner of Shenyang Aerospace
    
    
    
    
    
    
    
    
    
    
    139,529Advances from affiliated companies of Brilliance Holdings Limited
    
    
    14,319
    
    
    
    15,294
    
    
    
    13,951Advances from an associated company
    
    
    
    
    
    
    
    
    
    
    1,264Advances from an affiliated company of Shanghai Shenhua
    
    
    230
    
    
    
    
    
    
    
    1,586Advances from affiliated companies of JinBei
    
    
    945
    
    
    
    516
    
    
    
    2,092Advances from affiliated companies of the joint venture partner
of Ningbo Yuming
    
    
    
    
    
    
    1,845
    
    
    
    3,998Advances from other affiliated companies
    
    
    382
    
    
    
    382
    
    
    
    Financing received from BMW Brilliance
    
    
    74,605
    
    
    
    74,605
    
    
    
    Total
    
    
    90,481
    
    
    
    92,642
    
    
    
    162,420
 Aside from the financing received from BMW Brilliance, the other advances from affiliated
companies are unsecured, non-interest bearing and have no fixed repayment terms. Amounts due to affiliated companies arising from trading activities consisted of the
following: 2004
    
    
    2003
    
    
    2002(Rmb 000)Notes payable to affiliated companiesNotes payable to affiliated companies of JinBei
    
    
    24,229
    
    
    
    27,272
    
    
    
    Notes payable to associated companies and jointly controlled entities
    
    
    91,892
    
    
    
    8,059
    
    
    
    Notes payable to other affiliated companies
    
    
    925
    
    
    
    100
    
    
    
    Notes payable to Shanghai Shenhua
    
    
    4,116
    
    
    
    
    
    
    
    Total
    
    
    121,162
    
    
    
    35,431
    
    
    
    Amounts due to affiliated companiesDue to JinBei and its affiliated companies
    
    
    195,166
    
    
    
    216,559
    
    
    
    196,186
 60




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2004
    
    
    2003
    
    
    2002(Rmb 000)Due to other affiliated companies of Brilliance Holdings Limited
    
    
    8,705
    
    
    
    2,478
    
    
    
    21,839Due to Shanghai Shenhua and its affiliated companies
    
    
    40,570
    
    
    
    84,417
    
    
    
    101,029Due to affiliated companies of the joint venture partner of Ningbo Yuming
    
    
    
    
    
    
    1,037
    
    
    
    10,225Due to affiliated companies of the joint venture partner of Xinguang
Brilliance
    
    
    
    
    
    
    4,967
    
    
    
    1,567Due to associated companies and jointly controlled entities
    
    
    276,951
    
    
    
    375,396
    
    
    
    398,523Due to other affiliated companies
    
    
    1,330
    
    
    
    
    
    
    
    Total
    
    
    522,722
    
    
    
    684,854
    
    
    
    729,369
 The amounts due to affiliated companies are unsecured, non-interest bearing and have no
fixed repayment terms. As of December 31, 2004, included in prepayments and other current assets were approximately
Rmb 9.5 million (US$1.1 million) (compared to Rmb 26.0 million in 2003) of prepayment for purchases
of raw materials made to an affiliated company of Brilliance Holdings Limited. As of December 31, 2003, included in other receivables was Rmb 20 million of outstanding
proceeds from the disposal of an associated company to an affiliated company. 
 ITEM 8. FINANCIAL INFORMATION Consolidated Statements and Other Financial Information See Item 18  Financial Statements for a list of the financial statements filed with this
document. Legal Proceedings Broadsino Litigation On January 21, 2003, a writ brought by Broadsino, as plaintiff, was filed with the Supreme
Court of Bermuda and an ex parte court order dated January 22, 2003 granted by the Supreme Court of
Bermuda in favor of Broadsino was served on the registered office of Brilliance China Automotive in
Bermuda. The writ alleged that the interest of the Chinese Financial Education Development
Foundation, a former significant shareholder, in 1,446,121,500 shares of Brilliance China
Automotive, representing a 39.45% ownership interest, was held in trust for Broadsino and was
improperly transferred to Huachen. The Court Order restrained Brilliance China Automotive from
among other things: (a) registering the transfer of these shares by the Chinese Financial Education
Development Foundation to Huachen and/or Huachen to certain directors of Brilliance China
Automotive; or (b) if such transfer has already been registered, registering any further dealings
in such shares, in each case pending determination by the Supreme Court of Bermuda of the legal
proceedings initiated by Broadsino against Brilliance China Automotive, the Chinese Financial
Education Development Foundation, Huachen and certain directors of Brilliance China Automotive.
Broadsino claimed that Brilliance China Automotive was aware of the trust arrangement and further
alleged that Brilliance China Automotive knowingly participated in a breach of that trust
arrangement by allowing the transfer of such shares from the Chinese Financial Education
Development Foundation to Huachen. Broadsino sought recovery of these shares and, in the
alternative, damages. Upon application by Brilliance China Automotive, the court order was discharged by a judgment
of the Supreme Court of Bermuda given on February 11, 2003. On February 26, 2003, a statement of
claim was filed by Broadsino as a procedural step in furtherance of the legal proceedings. On March
10, 2003, Brilliance China Automotive took out a summons at the Supreme Court of Bermuda to have
this writ and statement of claim struck out. The strikeout proceedings were duly heard before the
Supreme Court of Bermuda on July 22 and 23, 2003. On a judgment dated December 31, 2003, the
Supreme Court of Bermuda struck out the writ in respect of legal proceedings brought by Broadsino
against Brilliance China Automotive. On March 4, 2004, Broadsino submitted an application for leave
to appeal to the Supreme Court of Bermuda, but at the hearing of the application before the court
on March 9, 2004, Broadsinos application was refused. On June 18, 2004, Broadsino made an ex parte 61




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##### Table of Contents



application for leave to appeal to the Court of Appeal of the Supreme Court of Bermuda. The Court
of Appeal granted Broadsinos application for leave and the matter was been adjourned for an inter
partes hearing. Broadsino subsequently issued a Notice of Appeal dated June 18, 2004 whereby it
sought to appeal to the Court of Appeal of Bermuda, Civil Appellate Jurisdiction the decision of
the Supreme Court of Bermuda dated December 31, 2003. The Court of Appeal of Bermuda ruled in its
judgment of March 14, 2005 in the favor of Brilliance China Automotive and dismissed Broadsinos
appeal. On April 5, 2005, Broadsino submitted a notice of motion for leave to appeal to the Court
of Appeal of Bermuda, which seeks leave to appeal to the Privy Council with respect to the Court of
Appeals judgment. On June 9, 2005, the Court of Appeal directed Broadsino to amend Broadsinos
notice of motion for leave to appeal. On June 27, 2005,
Broadsino was granted leave to appeal the judgment of
the Court of Appeal to the Privy Council in
the United Kingdom, which represents the highest
court of appeal in the Bermuda judicial system. As at
the date of this annual report, the order granting leave
to the Privy Council setting out the issues to
be determined was still to be issued. The directors do not believe that this litigation has had
or will have any significant impact on the financial position of Brilliance China Automotive. Yang Rong Employment Proceedings On or about October 25, 2002, Brilliance China Automotive was served with a claim lodged by
Mr. Yang Rong in the Labour Tribunal in Hong Kong against Brilliance China Automotive. The claim
was for approximately US$4.3 million with respect to loss of salary plus bonuses, share options and
damages for alleged unreasonable dismissal. The claim was initially dismissed by the Labour
Tribunal in Hong Kong but was later transferred to the
High Court in Hong Kong. The High Court ordered Mr. Yang to file and serve his Statement of Claim
and subsequently Brilliance China Automotive filed and served its Defence and Counterclaim.
Although various pretrial motions have followed, there are currently no scheduled court dates. The
directors of Brilliance China Automotive continue to prepare for trial if necessary and intend to
actively defend the case and do not believe the action has had or will have any significant impact
on the financial position of Brilliance China Automotive. Dividends All dividends to holders of ADSs are declared and paid in U.S. dollars. Interim dividends may
be paid at the discretion of Brilliance China Automotives board of directors based on its
evaluation of the financial condition of Brilliance China Automotive, while final dividends are
subject to the approval of the shareholders at a general meeting. Historically, Brilliance China
Automotive has paid a quarterly dividend at the rate of US$0.02 per share in each quarter,
commencing in the first quarter of 1993. Brilliance China Automotive began to pay dividends on a
semi-annual basis in the second half of 1996. The amount of these dividend payments have been
adjusted on a pro rata basis to reflect Brilliance China Automotives 1999 and 2000 bonus share
issuances as well as the increase in earnings per share. The dividend per share and dividend per
ADS amounts paid for 2004 were US$0.00129 per share and US$0.129 per ADS. Under Section 54 of the Companies Act 1981 of Bermuda (as amended), a company shall not
declare or pay a dividend, or make a distribution out of contributed surplus, if there are
reasonable grounds for believing that  
    
    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. Applicable Chinese laws and regulations require that before a foreign-invested enterprise
distributes profits to investors it must:  
    
    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 62




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expansion fund and a staff welfare and employee
bonus fund. During the year ended December 31, 2004, Shenyang Automotive and Ningbo
Yuming were not required to and therefore did not make any additional contributions
into these funds. Distributions of profits to investors are required to be in proportion to each partys
shareholdings in the joint venture; and  
    
    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, 2004, Xing Yuan Dong, Ningbo
Brilliance Ruixing and Mianyang Brilliance Ruian made an additional Rmb 49.4 million
(US$6.0 million) to the general reserve fund, enterprise expansion fund and staff
welfare fund. Significant Changes There have been no significant changes since December 31, 2004, the date of the annual
financial statements in this annual report. 
 ITEM 9. THE OFFER AND LISTING Brilliance China Automotives ordinary shares are listed on The Stock Exchange of Hong Kong
Limited under the stock code 1114, and Brilliance China Automotives ADSs are listed on the New
York Stock Exchange, Inc. under the symbol CBA. The following table sets forth for the periods
indicated the reported high and low sales prices for the ordinary shares and the ADSs on The Stock
Exchange of Hong Kong Limited and the New York Stock Exchange, Inc., respectively: The StockExchange ofHong KongNew York Stock Exchange, Inc.
    
    
    Limited(US$)
    
    
    (HK$)Ordinary Shares
    
    
    ADSs
    
    
    Ordinary SharesCalendar Period
    
    High
    
    
    Low
    
    
    High
    
    
    Low
    
    
    High
    
    
    LowThrough
    
    
    Starting from
    
    
    Starting fromApril 14, 2000
    
    
    April 17, 2000
    
    
    October 22, 19992000: 1st quarter
    
    
    3 5/16
    
    
    
    2 5/16
    
    
    
    
    
    
    
    
    
    
    
    27.20
    
    
    
    21.202nd quarter (1)(2)
    
    
    4 3/16
    
    
    
    2 7/8
    
    
    
    19 15/16
    
    
    
    13 11/16
    
    
    
    28.20
    
    
    
    1.133rd quarter
    
    
    
    
    
    
    
    
    
    
    37 5/8
    
    
    
    17 1/4
    
    
    
    2.93
    
    
    
    1.354th quarter
    
    
    
    
    
    
    
    
    
    
    34 3/4
    
    
    
    25 5/8
    
    
    
    2.70
    
    
    
    2.052001: 1st quarter
    
    
    
    
    
    
    
    
    
    
    31.30
    
    
    
    23.50
    
    
    
    2.70
    
    
    
    1.802nd quarter
    
    
    
    
    
    
    
    
    
    
    33.85
    
    
    
    23.29
    
    
    
    2.65
    
    
    
    1.813rd quarter
    
    
    
    
    
    
    
    
    
    
    24.11
    
    
    
    11.66
    
    
    
    1.87
    
    
    
    0.844th quarter
    
    
    
    
    
    
    
    
    
    
    22.70
    
    
    
    14.80
    
    
    
    1.73
    
    
    
    1.142002: 1st quarter
    
    
    
    
    
    
    
    
    
    
    21.32
    
    
    
    16.20
    
    
    
    1.65
    
    
    
    1.272nd quarter
    
    
    
    
    
    
    
    
    
    
    18.50
    
    
    
    12.34
    
    
    
    1.49
    
    
    
    0.983rd quarter
    
    
    
    
    
    
    
    
    
    
    15.15
    
    
    
    12.10
    
    
    
    1.22
    
    
    
    1.014th quarter
    
    
    
    
    
    
    
    
    
    
    19.00
    
    
    
    10.65
    
    
    
    1.49
    
    
    
    0.802003: 1st quarter
    
    
    
    
    
    
    
    
    
    
    25.49
    
    
    
    18.11
    
    
    
    2.03
    
    
    
    1.42
 63




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The StockExchange ofHong KongNew York Stock Exchange, Inc.
    
    
    Limited(US$)
    
    
    (HK$)Ordinary Shares
    
    
    ADSs
    
    
    Ordinary SharesCalendar Period
    
    High
    
    
    Low
    
    
    High
    
    
    Low
    
    
    High
    
    
    LowThrough
    
    
    Starting from
    
    
    Starting fromApril 14, 2000
    
    
    April 17, 2000
    
    
    October 22, 19992nd 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
    
    
    
    3.152nd 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: January
    
    
    
    
    
    
    
    
    
    
    19.45
    
    
    
    16.50
    
    
    
    1.51
    
    
    
    1.29February
    
    
    
    
    
    
    
    
    
    
    22.20
    
    
    
    18.23
    
    
    
    1.78
    
    
    
    1.38March
    
    
    
    
    
    
    
    
    
    
    22.73
    
    
    
    14.76
    
    
    
    1.75
    
    
    
    1.22April
    
    
    
    
    
    
    
    
    
    
    19.25
    
    
    
    15.75
    
    
    
    1.49
    
    
    
    1.26May
    
    
    
    
    
    
    
    
    
    
    18.00
    
    
    
    16.05
    
    
    
    1.43
    
    
    
    1.26June
(through June 27)
    
    
    
    
    
    
    
    
    
    
    20.00
    
    
    
    17.36
    
    
    
    1.61
    
    
    
    1.38
 
 (1)
    
    On April 14, 2000, Brilliance China Automotive issued bonus shares to
all of its shareholders in the amount of nineteen bonus shares for
each share held. This bonus issuance resulted in a significant
decrease in the share prices after this date as shown in the table
above.(2)
    
    On April 14, 2000, all ordinary shares of Brilliance China Automotive
traded through the New York Stock Exchange Inc. were converted into
American depositary shares at the ratio of 100 ordinary shares per ADS
(after taking into account the simultaneous bonus share issuance
described in note 1 above). To the best of Brilliance China Automotives knowledge, as of June 17, 2005, Brilliance China
Automotive had 2,649,731 ADSs outstanding, which were held by 83 registered holders of record in
the United States (including 2,588,869 ADSs held by 3 nominee holders). One ADS is equivalent to
100 ordinary shares. Trading of Brilliance China Automotives shares in Hong Kong and ADSs in New York was
suspended on June 21, 2002 to allow Brilliance China Automotive to confirm and clarify the reports
of its change in management on June 18, 2002. Trading of Brilliance China Automotives shares in Hong Kong was suspended on October 23, 2002
to allow Brilliance China Automotive to clarify issues alleged by a former director regarding
Brilliance China Automotive. Trading of Brilliance China Automotives shares in Hong Kong was suspended from 10:00 a.m.
Hong Kong time on November 11, 2002 to 9:30 a.m. Hong Kong time on November 15, 2002, and trading
of Brilliance China Automotives ADSs in New York was suspended on November 11 through November 13,
2002, to allow Brilliance China Automotive to clarify certain matters relating to a potential sale
of shares of Brilliance China Automotive held by the Chinese Financial Education Development
Foundation. Trading of Brilliance China Automotives shares in Hong Kong was suspended from 10:01 a.m.
Hong Kong time on December 18, 2002 through December 19, 2002, and trading of Brilliance China
Automotives ADSs in New York was suspended on December 18, 2002 and December 19, 2002, pending the
release of an announcement in relation to a conditional mandatory cash offer by CLSA Limited on
behalf of Huachen Automotive Group Holdings Company Limited and certain directors of Brilliance
China Automotive, to acquire all issued shares, including shares represented by ADSs, in the share
capital of Brilliance China Automotive, other than those already owned by these parties or parties
acting in concert with them. Trading of Brilliance China Automotives shares in Hong Kong was suspended from January 24,
2003 through January 27, 2003 and trading of Brilliance China Automotives ADSs in New York was
also suspended on January 24, 2003 to allow Brilliance China Automotive to clarify the impact of
the court order obtained by Broadsino Finance Company Limited against Brilliance China Automotive,
the Management Directors, the Chinese Financial Education Development Foundation and Huachen
Automotive Group Holdings Company Limited restraining the registration of any sale or transfer of
shares of Brilliance China Automotive. 64




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Trading of Brilliance China Automotives shares in Hong Kong was suspended from 2:36 p.m. Hong
Kong time October 2, 2003 through October 3, 2003 and trading of Brilliance China Automotives ADSs
in New York was suspended on October 2, 2003 pending the release of an announcement in relation to
the placement of an aggregate of 113,640,000 shares of Brilliance China Automotive by certain
directors of Brilliance China Automotive. Trading of Brilliance China Automotives shares in Hong Kong was suspended on December 31,
2003 pending the release of an announcement in relation to the acquisition by Brilliance China
Automotive, through its indirectly owned subsidiaries SJAI and SXID, of the entire equity interests
of SAIAM and SXI. There were no suspensions of trading in 2004. 
 ITEM 10. ADDITIONAL INFORMATION Memorandum of Association and Bye-laws Described below is a summary of certain provisions of Brilliance China Automotives memorandum
of association and Bye-laws, as currently in effect. General Brilliance China Automotive was incorporated in Bermuda under the Companies Act as an exempted
company with limited liability on June 9, 1992. Its headquarters are located at Suites 1602-05,
Chater House, 8 Connaught Road Central, Hong Kong and it is registered with the Registrar of
Companies in Hong Kong as an overseas company under Part XI of the Companies Ordinance. Brilliance China Automotives memorandum of association also sets out its objects, including
acting as a holding and investment company, and its powers, including the powers set out in the
First Schedule of the Companies Act. As an exempted company, Brilliance China Automotive will be
carrying on business outside Bermuda, although it maintains a registered office in Bermuda.
Brilliance China Automotives Bye-laws were conditionally adopted on September 18, 1999. Directors Disclosure of interests in contracts with Brilliance China Automotive or its subsidiaries A director may not vote or be counted in the quorum on any resolution of the board of
directors concerning his own appointment as the holder of any office or place of profit with
Brilliance China Automotive or any other company in which Brilliance China Automotive is
interested. A director who to his knowledge is in any way, whether directly or indirectly, interested in a
contract or arrangement or proposed contract or arrangement with Brilliance China Automotive must
declare the nature of his interest at the meeting of the board of directors at which the question
of entering into the contract or arrangement is first taken into consideration, if he knows his
interest then exists, or in any other case at the first meeting of the board of directors after he
knows that he is or has become so interested. Save as otherwise provided by the Bye-laws, a director may not vote (nor be counted in the
quorum) on any resolution of the board of directors in respect of any contract, proposal or
arrangement in which he or any of his associates are materially interested, and if he does so his
vote may not be counted (nor shall he be counted in the quorum), but this prohibition will not
apply to any of the following matters:  
    
    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 65




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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 The directors are entitled to receive remuneration for their services a sum determined by
Brilliance China Automotive in general meeting, such sum (unless otherwise directed by the
resolution by which it is voted) to be divided amongst the directors in such proportions and in
such manner as the board of directors may agree, or failing agreement, equally, except that in such
event any director holding office for less than the whole of the relevant period in respect of
which the remuneration is paid shall only rank in such division in proportion to the time during
the period for which he has held office. Borrowing powers Subject to the provisions of the Companies Act, the board of directors may exercise all the
powers of Brilliance China Automotive to raise or borrow or to secure the payment of any sum or
sums of money for the purposes of Brilliance China Automotive and to mortgage or charge its
undertaking, property and uncalled capital or any part thereof. The board of directors may raise or
secure the payment or repayment of such sum or sums in such manner and upon such terms and
conditions in all respects as it thinks fit and in particular by the issue of debentures, debenture
stock, bonds or other securities of Brilliance China Automotive, whether outright or as collateral
security for any debt, liability or obligation of Brilliance China Automotive or of any third
party. Alterations to constitutional documents The memorandum of association of Brilliance China Automotive may, with the consent of the
Minister of Finance of Bermuda, be altered by Brilliance China Automotive in general meeting. The
Bye-laws may be amended 66




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by the directors subject to the approval of Brilliance China Automotive in
general meeting. The Bye-laws state that a special resolution is required to alter the memorandum
of association on to approve any amendment of the Bye-laws. Variation of rights of existing shares or classes of shares If at any time the capital is divided into different classes of shares, all or any of the
special rights (unless otherwise provided for by the terms of issue of that class) attached to any
class may, subject to the provisions of the Companies Act, be varied or abrogated either with the
consent in writing of the holders of not less than three-fourths in nominal value of the issued
shares of that class or with the sanction of a special resolution passed at a separate general
meeting of the holders of the shares of that class. To every separate general meeting the
provisions of the Bye-laws relating to general meetings will apply, but so that the necessary
quorum is not less than two persons holding or representing by proxy one-third in nominal value of
the issued shares of the class, and that any holder of shares of the class present in person or by
proxy or by a duly authorized corporate representative may demand a poll. Special resolutions  majority required A special resolution of Brilliance China Automotive must be passed by a majority of not less
than three-fourths of the votes cast of such members as, being entitled so to do, vote in person,
or by a duly authorized corporate representative, or where proxies are allowed, by proxy at a
general meeting of which not less than 21 days notice, specifying the intention to propose the
resolution as a special resolution, has been duly given. However, if it is so agreed by a majority
in number of the members having a right to attend and vote at such meeting, being a majority
together holding not less than 95% in nominal value of the shares giving that right, a resolution
may be proposed and passed as a special resolution at a meeting of which less than 21 days notice
has been given. Voting rights and right to demand a poll Subject to any special rights, privileges or restrictions as to voting attached to any class
or classes of shares, at any general meeting on a show of hands every member who is present in
person or by a duly authorized corporate representative shall have one vote and on a poll, every
member present in person or by a duly authorized corporate representative or by proxy shall have
one vote for every share of which he is the holder which is fully paid up or credited as fully paid
(but so that no amount paid up or credited as paid up on a share in advance of calls or
installments is treated for the foregoing purposes as paid up on the share). On a poll, a member
entitled to more than one vote need not use all his votes or cast all the votes in the same way. At any general meeting a resolution put to the vote of the meeting shall be decided on a show
of hands unless a poll is required under The Rules governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited or demanded (before or at the declaration of the result of the show
of hands or on the withdrawal of any other demand for 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. 67




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Requirements for annual general meetings An annual general meeting must be held once in every year and within not more than fifteen
months after the last preceding annual general meeting. Notices of annual general meetings An annual general meeting and any special general meeting at which it is proposed to pass a
special resolution must be called by at least 21 days notice in writing and any other special
general meeting shall be called by at least 14 days notice in writing (in each case exclusive of
the day on which the notice is served or deemed to be served and of the day for which it is given).
The notice shall specify the place, the day and the hour of meeting and, in the case of special
business, the general nature of that business. Quorum for meetings and separate class meetings For all purposes the quorum for a general meeting shall be two members present in person or by
a duly authorized corporate representative or by proxy and entitled to vote. In respect of a
separate class meeting convened to sanction the modification of class rights, the necessary quorum
shall not be less than two persons holding or representing by proxy or by a duly authorized
corporate representative one-third in nominal value of the issued shares of that class and that any
holder of shares of the class present in person by proxy or by a duly authorized corporate
representative may demand a poll. Dividends Brilliance China Automotive in general meeting may declare dividends in any currency but no
dividends may exceed the amount recommended by the board of directors. Unless and to the extent that the rights attached to any shares or its terms of issue
otherwise provide, all dividends will be apportioned and paid pro rata according to the amounts
paid or credited as paid up on the shares during any portion or portions of the period in respect
of which the dividend is paid. No amount paid upon a share in advance of calls will for this
purpose be treated as paid up on the shares. The board of directors may retain any dividends or
other moneys payable on or in respect of a share upon which Brilliance China Automotive has a lien,
and may apply the same in or towards satisfaction of the debts, liabilities or engagements in
respect of which the lien exists. The board of directors may deduct from any dividend or bonus
payable to any member all sums of money, if any, presently payable by him to Brilliance China
Automotive on account of calls, installments or otherwise. Whenever the board of directors or Brilliance China Automotive in general meeting has resolved
that a dividend be paid or declared, the board of directors may further resolve either:  
    
    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. Brilliance China Automotive may also, upon the recommendation of the board of directors, by a
special resolution resolve in respect of any one particular dividend of Brilliance China Automotive
that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up
without offering any right to members to elect to receive a dividend in cash in lieu of an
allotment. Whenever the board of directors or Brilliance China Automotive in general meeting has resolved
that a dividend be paid or declared the board of directors may further resolve that such dividend
be satisfied wholly or in part by the distribution of specific assets of any kind. 68




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All dividends or bonuses unclaimed for one year after having been declared may be invested or
otherwise made use of by the board of directors for the benefit of Brilliance China Automotive
until claimed and Brilliance China Automotive may not be constituted a trustee. All dividends or
bonuses unclaimed for six years after having been declared may be forfeited by the board of
directors and must revert to Brilliance China Automotive. Procedures on liquidation A resolution that Brilliance China Automotive be wound up by the court or be wound up
voluntarily must be a special resolution. If Brilliance China Automotive is wound up, the surplus
assets remaining after payment to all creditors are to be divided among the members in proportion
to the capital paid up on the shares held by them respectively, and if the surplus assets are
insufficient to repay the whole of the paid up capital, they are to be distributed so that, as
nearly as may be, the losses shall be borne by the members in proportion to the capital paid up on
the shares held by them respectively, all subject to the rights of any shares issued on special
terms and conditions. If Brilliance China Automotive is wound up (whether the liquidation is voluntary or by the
court) the liquidator may, with the sanction of a special resolution, divide among the members in
specie or kind the whole or any part of the assets of Brilliance China Automotive and whether the
assets consist of property of one kind or consists of properties of different kinds and the
liquidator may, for such purposes, set such value as he deems fair upon any one or more class or
classes of property to be divided and may determine how such division is to be carried out as
between the members or different classes of members and the members within each class. With the
like sanction, the liquidator may vest any part of the assets in trustees upon such trusts for the
benefit of members as the liquidator but so that no member shall be compelled to accept any shares
or other assets upon which there is a liability. Transfer of shares Subject to the Companies Act, all transfers of shares must be effected by transfer in writing
in the usual or common form or in any other form acceptable to the board of directors and may be
under hand or by means of mechanically imprinted signatures or such other manner as the board of
directors may approve. An instrument of transfer must be executed by or on behalf of the transferor
and by or on behalf of the transferee and the transferor, providing that the board may dispense
with the execution of the instrument of transfer by the transferee in any case in which it thinks
fit, in its absolute discretion to do so, shall be deemed to remain the holder of the share until
the name of the transferee is entered in the register of members. The board of directors may, in its absolute discretion, transfer any share upon the principal
register to any branch register or any share on any branch register to the principal register or
any other branch register. Unless the board of directors otherwise agrees, no shares on the principal register shall be
transferred to any branch register nor shall shares on any branch register be transferred to the
principal register or another branch register. All transfers and other documents of title must be
lodged for registration and registered, in the case of shares on a branch register, at the relevant
registration office and, in the case of shares on the principal register, at the transfer office in
Bermuda. The board of directors may in its absolute discretion and without assigning any reason, refuse
to register any transfer of any shares (not being fully paid shares) to a person of whom it does
not approve, or any share issued under any share option scheme for employees upon which a restraint
on transfer still applies, and it may refuse to register the transfer of any shares (not being
fully paid shares) on which Brilliance China Automotive has a lien. The board of directors may also
refuse to register a transfer of shares (whether fully paid or not) in favor of more than four
persons jointly. If the board of directors refuses to register a transfer, it will within two
months after the date on which the transfer was lodged with Brilliance China Automotive send to the
transferor and transferee notice of the refusal. The board of directors may decline to recognize any instrument of transfer unless: 69




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
    
    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. The registration of transfers may, on giving notice by advertisement in an appointed newspaper
in Bermuda and in one or more newspapers circulating in Hong Kong, be suspended at times and for
periods as the board of directors may determine and either generally or in respect of any class of
shares. The register of members must not be closed for more than thirty days in any year. Recent Amendments to the Bye-laws Recent Amendments In 2003, the Companies Act 1981 of Bermuda (as amended) was amended to permit companies to
offer their shareholders a summary financial report in place of the complete annual report and
accounts. On February 17, 2002, The Stock Exchange of Hong Kong Limited announced amendments to the
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, or the
Listing Rules, which will allow companies to distribute to their shareholders a summary financial
report instead of the longer report. On February 5, 2002, The Stock Exchange of Hong Kong Limited
also announced amendments to its Listing Rules that allow companies to distribute corporate
communications to their shareholders via electronic means. As a result of these amendments, the
board of directors of Brilliance China Automotive amended the Bye-laws of Brilliance China
Automotive to permit Brilliance China Automotive to take advantage of these changes to the Listing
Rules by allowing shareholders to choose to receive a summary financial report in place of the
longer, complete annual report and to receive copies of corporate communications by electronic
means or by relying on the versions of those documents published on Brilliance China Automotives
website instead of printed copies of such documents. These amendments were approved by the
shareholders of Brilliance China Automotive by way of a special resolution at the special general
meeting held on June 28, 2002. At the annual general meeting held on June 25, 2004, the shareholders of Brilliance China
Automotive approved amendments to the Bye-laws in order to reflect certain recent amendments to the
Listing Rules, which came into effect on March 31, 2004. A brief description of these amendments to
the Bye-laws is as follows:  
    
    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 70




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
    
    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 In light of the numerous changes listed above as well as those from prior amendments, the
shareholders adopted at the same annual general meeting a fully restated set of the Bye-laws
incorporating all previous amendments thereto passed at the special general meeting held on June
28, 2002 and the amendments approved at the annual general meeting on June 25, 2004, in
substitution for the existing Bye-laws. Recently, the directors of Brilliance China Automotive proposed to amend the Bye-laws in order
to reflect certain amendments to the Listing Rules of The Stock Exchange of Hong Kong Limited,
which came into effect on
January 1, 2005. A circular containing details of the amendments was dispatched to the shareholders
of Brilliance China Automotive on April 29, 2005. A brief description of the amendments is as
follows:  
    
    Bye-law 6(A): To be updated to reflect the existing authorized share capital of
Brilliance China Automotive
    
    Bye-law 70: To be amended 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: 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 These amendments were approved at the annual general meeting held on June 24, 2005. Material Contracts The following contracts, not being contracts in the ordinary course of business, have been
entered into by Brilliance China Automotive and/or its subsidiaries within the two years preceding
the date of this annual report and are or may be material.  (a)
    
    Purchase Agreement, dated October 28, 2003, between Brilliance China Automotive
Finance Ltd. (formerly, Gainfair Finance Limited), Brilliance China Automotive and
Citigroup Global Markets Limited relating to the sale of US$200 million in zero coupon
guaranteed convertible bonds due 2008 by Brilliance China Automotive Finance Ltd.;(b)
    
    Trust Deed, dated November 28, 2003, between Brilliance China Automotive
Finance Ltd., Brilliance China Automotive and The Bank of New York relating to the zero
coupon guaranteed convertible bonds due 2003 issued by Brilliance China Automotive
Finance Ltd.;(c)
    
    Amended Joint Venture Agreement dated February 26, 2003 between Brilliance
China Automotive Holdings Limited and Shenyang JinBei Automotive Company Limited
relating to Shenyang Brilliance JinBei Automobile Co., Ltd.;(d)
    
    Equity Transfer Agreement dated December 16, 2003 between (i) Shenyang
Automobile Industry Asset Management Company Limited (SAIAM), (ii) Shenyang
XingYuanDong Automobile Component Co., Ltd. (Xing Yuan Dong) and (iii) Shenyang JinBei
Automotive Industry Co., Ltd. (SJAI), regarding the transfer of SAIAMs 9% and 1%
ownership interests in Shenyang Xinjinbei Investment and Development Co. Ltd. (SXID) to
Xing Yuan Dong and SJAI, respectively; 71




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(e)
    
    Equity Transfer Contract dated December 29, 2003 between Shenyang Industry
State-owned Asset Management Co., Ltd., SJAI and SXID regarding transfer of 90% and 10%
of the equity interest of SAIAM to SJAI and SXID, respectively;(f)
    
    Equity Transfer Contract dated December 29, 2003 between Shenyang JinSheng
Enterprise Group Co., Ltd. (SJEG) and SXID, regarding the transfer of SJEGs 10%
ownership interest in SXI to SXID;(g)
    
    Equity Transfer Contract dated December 29, 2003 between Shenyang Automobile
Industry Equity Investment Co., Ltd. (SAIEIC) and SJAI regarding the transfer of
SAIEICs 90% ownership interest in SXI to SJAI; and(h)
    
    Letter of Guarantee dated as of December 2, 2003 between Brilliance China
Automotive and BMW Holding, regarding Brilliance China Automotives guarantee of the
performance by SJAI of its obligations under the joint venture contract;(i)
    
    Equity Interest Transfer Agreement dated October 19, 2004 between Madam Chen
Qiuling and Beston Asia Investment Limited in relation to the transfer of Madam Chens
49% interest in Ningbo Yuming Machinery Industrial Co., Ltd. to Beston Asia Investment
Limited. Exchange Controls Brilliance China Automotive has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority, whose permission was obtained for the issue of the
ordinary shares and ADSs of Brilliance China Automotive to persons not resident in Bermuda for
exchange control purposes. The transfer of shares between persons regarded as residents outside Bermuda for exchange
control purposes and the issue of shares to or by such persons may be effected without specific
consent under the Exchange Control Act 1972 of Bermuda (as amended) and regulations thereunder.
Issues and transfers of shares involving any person regarded as resident in Bermuda for exchange
control purposes require specific prior approval under the Exchange Control Act. There are no limitations on the rights of non-Bermuda owners of Brilliance China Automotives
capital stock to hold or vote their shares. Because Brilliance China Automotive has been designated
as a non-resident for Bermuda exchange control purposes, there are no restrictions on its ability
to transfer funds in and out of Bermuda or to pay dividends to United States residents who are
holders of Brilliance China Automotives ordinary shares, other than in respect of local Bermuda
currency. In accordance with Bermuda law, share certificates are only issued in the names of
corporations or individuals. In the case of an applicant acting in a special capacity (for example,
as an executor or trustee), certificates may, at the request of the applicant, record the capacity
in which the applicant is acting. Notwithstanding the recording of any such special capacity,
Brilliance China Automotive is not bound to investigate or incur any responsibility in respect of
the proper administration of any such estate or trust. Brilliance China Automotive will take no notice of any trust applicable to any of its shares
whether or not it had notice of such trust. As an exempted company, Brilliance China Automotive is exempted from Bermuda laws that
restrict the percentage of share capital that may be held by non-Bermudians, but as an exempted
company, Brilliance China Automotive may not participate in certain business transactions,
including:  
    
    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; 72




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
    
    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. The Bermuda government actively encourages foreign investment in exempted entities such as
Brilliance China Automotive that are based in Bermuda but do not operate in competition with local
business. In addition to having no restrictions on the degree of foreign ownership, Brilliance
China Automotive is subject neither to taxes on
its income or dividends nor to any foreign exchange controls in Bermuda. In addition, there is no
capital gains tax in Bermuda, and profits can be accumulated by Brilliance China Automotive, as
required, without limitation. The Chinese government imposes control over its foreign currency reserves in part through
direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on
foreign trade. Effective January 1, 1994, the dual foreign exchange system in China was abolished
in accordance with the notice of the Peoples Bank of China concerning future reform of the foreign
currency control system issued December 1993. The conversion of Renminbi into U.S. dollars in China
currently must be based on the Peoples Bank of China rate. The Peoples Bank of China rate is set
based on the previous days Chinese interbank foreign exchange market rate and with reference to
current exchange rates on the world financial markets. Taxation Income tax Brilliance China Automotive is an exempted company incorporated in Bermuda with limited
liability, but conducts its operations primarily in China. In Bermuda, there are no taxes on
profits, income or dividends, nor is there any capital gains tax, estate duty or death duty.
Furthermore, Brilliance China Automotive has received from the Minister of Finance of Bermuda under
the Exempted Undertakings Tax Protection Act of 1966, as amended, an undertaking that, in the event
that Bermuda enacts any legislation imposing tax computed on profits or income, or computed on any
capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax,
then the imposition of such tax shall not be applicable to Brilliance China Automotive or any of
its operations, or the shares, debentures or other obligations of Brilliance China Automotive,
until March 28, 2016. This assurance does not, however, prevent the imposition of any such tax or
duty on such persons as are ordinarily resident in Bermuda and holding such shares, debentures or
obligations of Brilliance China Automotive or on land in Bermuda leased or let to Brilliance China
Automotive. As an exempted company, Brilliance China Automotive is liable to pay to the Bermuda government
an annual government fee calculated on a sliding-scale basis by reference to its assessable
capital, that is, its authorized capital plus any share premium as at August 31st of the preceding
year. On the basis that Brilliance China Automotives assessable capital exceeds US$100,000,001,
but does not exceed US$500,000,000, Brilliance China Automotive is required to pay the government
fee at an annual rate of US$16,695. Brilliance China Automotive also provides for Hong Kong profits tax at the rate of 17.5% based
on estimated assessable profit arising in Hong Kong. However, no provision of Hong Kong profits tax
has been made to the Brilliance China Automotive as Brilliance China Automotive has no estimated
assessable profits tax in 2004. Shenyang Automotive is subject to state and local income taxes in China at standard rates of
15% and 3%, respectively, based on the taxable income reported in its statutory financial
statements in accordance with the relevant state and local income tax laws applicable to
Sino-foreign joint venture enterprises. Shenyang Automotive is exempted from the local income tax
of 3% as it was designated as a Technologically-Advanced Enterprise. As a result, Shenyang
Automotives effective tax rate was 15% for the years 2002, 2003 and 2004. 73




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Ningbo Yuming is subject to state and local income taxes in China at standard rates of 15% and
1.5%, respectively, based on the taxable income reported in its statutory financial statements in
accordance with the relevant state and local income tax laws applicable to foreign-invested
enterprises. Under the relevant income tax laws in China, Ningbo Yuming was fully exempted from
state enterprise income tax for two years starting from the year ended December 31, 1997, followed
by a 50% reduction of enterprise income tax for the following three years. In addition, Ningbo
Yuming is also fully exempted from local enterprise income tax for the same five-year period. This
tax holiday expired at the end of 2001. As a result, Ningbo Yumings effective income tax rate was
16.5% in 2002, 2003 and 2004. Xing Yuan Dong is subject to state and local income taxes in China at standard rates of 30%
and 3%, respectively, based on the taxable income reported in its statutory financial statements in
accordance with the relevant state and local income tax laws applicable to foreign-invested
enterprises. During 1999, Xing Yuan Dong received official designation by the local tax authorities
as a New and Technologically-Advanced Enterprise. In
2001, Xing Yuan Dong was further designated by the local authority to be a foreign-invested
enterprise engaged in manufacturing activities. As a result, the effective combined state and local
enterprise income tax rate for Xing Yuan Dong was 7.5% in 2002 and 2003 and 15% in 2004. Mianyang Brilliance Ruian is subject to state and local income taxes in China at standard
rates of 30% and 3%, respectively, based on the taxable income reported in its statutory financial
statements in accordance with enterprise income tax laws. In 2001, Mianyang Brilliance Ruian
received official designation by the local tax authority as a foreign-invested enterprise engaged
in manufacturing activities. In 2004, Mianyang Brilliance Ruian was also designated as an
encouraged industry under the Catalogue for the Guidance of Foreign Investment Industries and
located in the western area of China. As a result, the applicable state income tax rate for
Mianyang Brilliance Ruian is 15% from 2004 to 2010. In addition, Mianyang Brilliance Ruian is also
exempted from state and local enterprise income taxes for two years starting from the first
profitable year followed by a 50% reduction of enterprise income tax for the next three years.
Mianyang Brilliance Ruian is also exempted from local enterprise income tax for the same five-year
period. As a result, the effective tax rate for Mianyang Brilliance Ruian was 15% and 7.5% in 2003
and 2004, respectively. Mianyang Brilliance Ruian was exempted from income tax in 2002. Dongxing Automotive is subject to state and local income taxes in China at standard rates of
30% and 3%, respectively, based on the taxable income reported in its statutory financial
statements in accordance with enterprise income tax laws. Dongxing Automotive received official
designation by the local tax authority as a New and Technologically 3⁄4 Advanced Enterprise
and a foreign-invested enterprise engaged in manufacturing activities. Under relevant income tax
laws in China, Dongxing Automotive is exempted from state enterprise income tax for two years
starting from the first profitable year in 1999 followed by a 50% reduction of state enterprise
income tax for the next three years. In addition, Dongxing Automotive is also fully exempted from
local enterprise income tax for the same five-year period. As a result, the effective tax rate for
Dongxing Automotive was 7.5% in 2002 and 2003 and 15% in 2004. Other subsidiaries in China are subject to state and local income taxes within China at
standard rates of 30% and 3%, respectively, based on the taxable income reported in their statutory
financial statements in accordance with the relevant state and local income tax laws applicable to
foreign-invested enterprises. Value Added Tax and Consumption Tax Under the Provisional Regulations on Value Added Tax in the Peoples Republic of China,
which came into effect on January 1, 1994, all subsidiaries are subject to value added tax, which
is the principal indirect tax on the sale of tangible goods. The general value added tax rate
applicable to sales and purchases of minibuses, sedans and automotive components in China is 17%.
Sales of minibuses and sedans are also subject to consumption tax at standard rates ranging from 3%
to 8%. Customs Duties See Item 11  Quantitative and Qualitative Disclosures About Market Risk  Tariff Reductions
for a discussion of the import tariffs that generally apply to Brilliance China Automotive and its
subsidiaries. 74




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As of December 31, 2002, Shenyang Automotive had placed bank security deposits amounting to
approximately Rmb 48 million and issued bank guarantees of Rmb 50 million at the request of the
General Administration of Customs, pending an assessment of the eligibility of exemptions from VAT
and custom duties for certain imported fixed assets. During 2003, Shenyang Automotive agreed with
the relevant governmental authorities to pay custom duties and VAT for those imported fixed assets
to be used by Shenyang Automotive while the imported fixed assets to be sold to BMW Brilliance for
their own use were to be exempt from custom duty and VAT and the governmental authorities agreed to
release all of the bank security deposits and bank guarantees. Brilliance China Automotive and its
subsidiaries paid approximately Rmb 59.0 million as custom duty in 2004. Documents on Display Brilliance China Automotive is subject to the informational requirements of the U.S.
Securities and Exchange Act of 1934, as amended, or the Exchange Act, and, in accordance with the
Exchange Act, Brilliance China Automotive files annual reports on Form 20-F within six months of
its fiscal year end, and submit other reports and information under cover of Form 6-K with the SEC.
You may read and copy this information at the SECs public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Recent filings and reports are also available free of charge through
the EDGAR electronic filing system at www.sec.gov. You can also request copies of the documents,
upon payment of a duplicating fee, by writing to the public reference section of the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference
room or accessing documents through EDGAR. As a foreign private issuer, Brilliance China Automotive
is exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy
statements to shareholders. 
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Exchange Rates In the year ended December 31, 2004, approximately 5.5%, 2.4% and 7.7% of Shenyang
Automotives costs of sales were denominated in Japanese Yen, U.S. dollars and Euros, respectively.
These costs related primarily to the purchase and importation of equipment and components from
foreign suppliers. Shenyang Automotive pays a Japanese Yen price for the components and spare parts
imported from Toyota through Japanese Yen-denominated letters of credit issued by the Bank of China
and other Chinese banks. Because the Renminbi is not directly convertible into Japanese Yen, these
letters of credit are funded by Shenyang Automotive in U.S. dollars. However, because Shenyang
Automotives products are sold in China primarily in Renminbi transactions, its revenues and
profits are predominantly in Renminbi, requiring Shenyang Automotive to convert a portion of its
Renminbi earnings into U.S. dollars and Euros. Accordingly, Shenyang Automotive is exposed to
Renminbi/U.S. dollar exchange rate risk, U.S. dollar/Japanese Yen exchange rate risk and U.S.
dollar/Euro exchange rate risk. The value of the Japanese Yen and the Euro relative to the U.S. dollar have both increased in
2004. The U.S. dollar/Renminbi exchange rate has remained stable over the past year and the
prospect of a devaluation of the Renminbi has been repeatedly ruled out by the Chinese government.
In fact, the European Union and the United States have recently been lobbying the Chinese
government to allow the Renminbi to appreciate and such revaluation is widely expected to occur
imminently. An appreciation of the Renminbi versus the Japanese Yen, U.S. dollar or Euro would make
purchases of foreign-produced components and payments denominated in foreign currency less
expensive for Shenyang Automotive in Renminbi terms, thereby marginally improving its results of
operations. A devaluation of the Renminbi would have the opposite effect. While there can be no
assurance that the exchange rates will continue their current trends or that a devaluation or
appreciation of the Renminbi will not occur, Brilliance China Automotive does not believe that such
occurrences would, in any event, have any material adverse effect on Brilliance China Automotives
earnings. Other than US$200 million zero coupon convertible bonds issued in 2003, Brilliance China
Automotive and its subsidiaries currently have no foreign currency-denominated borrowings from
third parties, but have outstanding letters of credit of Yen 450 million and US$2.0 million and
Euro 2 million from local banks. Brilliance China Automotive also advanced shareholders loans to
its subsidiaries in the amounts of approximately HK$615 million, Rmb 1,216 and US$198 million in
2004. 75




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Since Brilliance China Automotive does not believe that exchange rate fluctuations have any
material effect on the overall financial performance of Brilliance China Automotive, and the amount
of foreign currency that it requires is not significant, Brilliance China Automotive does not enter
into any hedging transactions with respect to its exposure to foreign currency movements. Interest Rates Funds not required by Brilliance China Automotive in the short term are kept as temporary
demand or time deposits in commercial banks. Brilliance China Automotive does not hold any market
risk-sensitive instruments for trading purposes. As of December 31, 2004, Brilliance China
Automotive had no bank loans outstanding. The average annual rate for discounting notes receivables
with banks in 2004 was approximately 0.28% per month,
which rate is fixed separately for each transaction. Brilliance China Automotive did not have any
variable rate loans or commitments outstanding as of December 31, 2004. For the year ended December 31, 2004, Brilliance China Automotives interest income was Rmb
58.8 million (US$7.1 million) and its interest expense was Rmb 182.5 million (US$22.1 million). A
10% change in interest rates would result in a change in interest income of approximately Rmb 5.9
million (US$0.7 million) and a change in interest expense of approximately Rmb 18.3 million (US$2.2
million). Tariff Reductions The Chinese government imposes restrictions, quotas and tariffs on the import of foreign-made
motor vehicles, as well as motor vehicle components. However, as a result of Chinas admission to
the WTO, which regulates trading and tariffs among its signatory states, in November 2001, China
committed to reducing its import restrictions on motor vehicles and motor vehicle components. In
addition, China will be required to conform its import tariffs to the uniform tariffs under the
WTO. Effective January 1, 2002, China has reduced its import tariffs on motor vehicles and
automotive components from between 80% to 100% and between 18% to 40%, respectively, to between
43.8% to 50.7% and between 14% to 31.4%, respectively. This range was lowered further to between
4.8% and 25% for automotive components effective January 1, 2003. In addition, tariffs on vehicles
with nine seats or less and engine sizes of three liters or below fell from 43.9% in 2002 to 38.2%
for 2003, while tariffs on vehicles with more than nine seats and engines of more than three liters
decreased from 50.7% in 2002 to 43.0% for 2003. In 2004, tariffs were 34.2% for vehicles with nine
seats or less and engine sizes of three liters or less and 37.6% for vehicles with more than nine
seats and engines of more than three liters. In 2005 tariffs have been fixed at 30% for all motor
vehicles. These tariffs levels are scheduled to be further reduced in 2006. Although lower tariffs
and reduced import restrictions may benefit Brilliance China Automotive in terms of lower cost of
imported components, lower tariffs and reduced import restrictions could also lead to a substantial
increase in the number of minibuses, sport utility vehicles, sedans and other motor vehicles
imported into China, thereby significantly increasing competition in Brilliance China Automotives
current and proposed markets. Except as described above, Brilliance China Automotives management believes that at present
and in its normal course of business, Brilliance China Automotive is not subject to any other
market-related risks. 
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. 
 PART II 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. 76




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ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Material Modifications to the Rights of Security Holders None. Use of Proceeds Not applicable. 
 ITEM 15. DISCLOSURE CONTROLS AND PROCEDURES The Chief Executive Officer and Chief Financial Officer of Brilliance China Automotive are
responsible for establishing and maintaining disclosure controls and procedures (as defined in the
Exchange Act Rules 13a-14(c) and 15d-14(c)). Within 90 days prior to the date of this annual
report, the management of Brilliance China Automotive carried out an evaluation, under the
supervision and with the participation of its Chief Executive Officer and Chief Financial Officer,
of the effectiveness of Brilliance China Automotives disclosure controls and procedures pursuant
to Exchange Act Rule 13a-14. Based on that evaluation, they have concluded that these disclosure
controls and procedures are effective to ensure that material information required to be included
in our periodic SEC reports relating to Brilliance China Automotive is made known to them. There have been no significant changes in internal controls, or in factors that could
significantly affect internal controls, subsequent to the date the Chief Executive Officer and
Chief Financial Officer completed their evaluation. 
 ITEM 16. [RESERVED] 
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT The Board of Directors of Brilliance China Automotive has determined that Brilliance China
Automotive does not have an audit committee financial expert, as defined by the SEC, serving on its
audit committee. Brilliance China Automotive is seeking to appoint a director who would serve as
the audit committee financial expert on the audit committee. However as of the date of this annual
report, no suitable candidate has been identified. 
 ITEM 16B. CODE OF ETHICS Brilliance China Automotive has not adopted a code of ethics that applies to the principal
executive officer, the principal financial officer and the principal accounting officer or
controller. However, the board of directors of Brilliance China Automotive has adopted or follows
the following written standards for purposes of corporate governance:  
    
    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; 77




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
    
    Guide for Independent Non-Executive Directors issued by The Hong Kong Institute of
Directors in 2000; and
    
    Guidelines for Directors issued by The Hong Kong Institute of Directors in 2005. 
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES PricewaterhouseCoopers acted as Brilliance China Automotives independent auditors for the
fiscal years ended December 31, 2003 and 2002. Moores Rowland Mazars has acted as Brilliance China
Automotives independent auditors for the fiscal year ended December 31, 2004. The chart below sets
forth the total amount billed to us by PricewaterhouseCoopers and Moores Rowland Mazars. Total Fees2004
    
    
    2003
    
    
    2002Rmb 000
    
    
    Rmb 000
    
    
    Rmb 000Audit fees
    
    
    4,452
    
    
    
    3,807
    
    
    
    2,664Audit-related fees
    
    
    662
    
    
    
    662
    
    
    
    952Tax fees
    
    
    
    
    
    
    11
    
    
    
    11Other fees
    
    
    
    
    
    
    248
    
    
    
    Total
    
    
    5,114
    
    
    
    4,728
    
    
    
    3,627
 Audit Fees Audit fees are the aggregate fees billed by the auditors for the annual financial statement
audit and other procedures required to be performed by the auditors so as to form an opinion on
Brilliance China Automotives annual financial statements. Audit fees also include fees billed in
connection with the issuance of comfort letters. Audit-Related Fees Audit-related fees are the aggregate fees billed by the auditors in relation to agreed-upon
procedures performed on Brilliance China Automotives interim financial statements and internal
control reviews. Tax Fees Tax fees are the aggregate fees billed by the auditors for tax compliance on Hong Kong profits
tax matters. Other Fees Other fees are the aggregate fees billed by the auditors in relation to the delivery of a
training session to Brilliance China Automotive on high-level risk and control assessment. Pre-Approval Policies and Procedures As part of its duties, the Audit Committee considers the appointment of the external auditor
and the audit fee and discusses with the external auditor, before the audit commences, the nature
and scope of the audit. The Audit Committee pre-approves the fees and services provided by the
external auditor through meetings or written resolutions presented to the Board of Directors. 78




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ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE Not applicable. 
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Not applicable. 
 PART III 
 ITEM 17. FINANCIAL STATEMENTS Brilliance China Automotive has elected to provide the financial statements and related
information specified in Item 18 in lieu of Item 17. 
 ITEM 18. FINANCIAL STATEMENTS See pages F-1 to F-57 following Item 19. 
 ITEM 19. EXHIBITS The following exhibits are furnished along with annual report or are incorporated by reference
as indicated.  1.1
    
    Amended and Restated Bye-Laws of Brilliance China Automotive, dated June 25,
2004.2.1
    
    Trust Deed, dated November 28, 2003, between Brilliance China Automotive
Finance Ltd., Brilliance China Automotive and The Bank of New York relating to the zero
coupon guaranteed convertible bonds due 2003 issued by Brilliance China Automotive
Finance Ltd.***4.1
    
    Service Agreement for Executive Director, dated August 21, 2000 between
Brilliance China Automotive and Mr. Wu Xiao An.*4.2
    
    Capital Increase Agreement dated January 10, 2003 between Brilliance China
Automotive Holdings Limited and Shenyang JinBei Automotive Company Limited relating to
the capital increase of Shenyang Brilliance JinBei Automobile Co., Ltd.**4.3
    
    Amended Joint Venture Agreement dated February 26, 2003 between Brilliance
China Automotive and Shenyang JinBei Automotive Company Limited relating to Shenyang
Brilliance JinBei Automobile Co., Ltd.**4.4
    
    Joint Venture Contract dated March 27, 2003 between SJAI and BMW Holding,
relating to the proposed joint venture for the production and sale of BMW-designed and
branded sedans in China.**4.5
    
    Agreement dated April 28, 2003 between Shenyang Xinjinbei Investment and
Development Co., Ltd. and Shenyang JinBei Automobile Industry Company Limited relating
to the acquisition of 9% of the registered capital of SJAI.** 79




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##### Table of Contents



4.6
    
    Purchase Agreement, dated October 28, 2003, between Brilliance China Automotive
Finance Ltd. (formerly, Gainfair Finance Limited), Brilliance China Automotive and
Citigroup Global Markets Limited relating to the sale of US$200 million in zero coupon
guaranteed convertible bonds due 2008 by Brilliance China Automotive Finance Ltd.***4.7
    
    English translation of Equity Transfer Agreement dated December 16, 2003
between (i) Shenyang Automobile Industry Asset Management Company Limited (SAIAM), (ii)
Shenyang XingYuanDong Automobile Component Co., Ltd. (Xing Yuan Dong) and (iii)
Shenyang JinBei Automotive Industry Co., Ltd. (SJAI) regarding the transfer of SAIAMs
9% and 1% ownership interests in Shenyang Xinjinbei Investment and Development Co. Ltd.
(SXID) to Xing Yuan Dong and SJAI, respectively.***4.8
    
    English translation of Equity Transfer Agreement dated December 29, 2003
between Shenyang Industry State-owned Asset Management Co., Ltd., SJAI and SXID
regarding transfer of 90% and 10% of the equity interest of SAIAM to SJAI and SXID,
respectively.***4.9
    
    English translation of Equity Transfer Agreement dated December 29, 2003
between Shenyang JinSheng Enterprise Group Co., Ltd. (SJEG) and SXID regarding the
transfer of SJEGs 10% ownership interest in SXI to SXID.***4.10
    
    English translation of Equity Transfer Agreement dated December 29, 2003
between Shenyang Automobile Industry Equity Investment Co., Ltd. (SAIEIC) and SJAI
regarding the transfer of SAIEICs 90% ownership interest in SXI to SJAI.***4.11
    
    Letter of Guarantee dated as of December 2, 2003 between Brilliance China
Automotive and BMW Holding regarding Brilliance China Automotives guarantee of the
performance by SJAI of its obligations under the joint venture contract.***4.12
    
    English translation of Equity Interest Transfer Agreement dated October 19,
2004 between Madam Chen Qiuling and Beston Asia Investment Limited in relation to the
transfer of Madam Chens 49% interest in Ningbo Yuming Machinery Industrial Co., Ltd.
to Beston Asia Investment 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, 2004.12.1
    
    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 27, 2002.**
    
    Incorporated by reference from the Registrants annual report on Form 20-F
filed with the SEC on June 26, 2003.***
    
    Incorporated by reference from the Registrants annual report on Form 20-F
filed with the SEC on June 24, 2004. 80




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##### Table of Contents



SIGNATURE The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its
behalf. BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED/s/ Wu Xiao AnWU Xiao AnChairmanDate: June 28, 2005




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##### 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 25, 2005
    
    
    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, 2004, 2003 and 2002
    
    
    F-4Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    
    F-5Consolidated Statements of Cash Flows
For the years ended December 31, 2004, 2003 and 2002
    
    
    F-7Consolidated Statements of Changes in Shareholders Equity
For the years ended December 31, 2004, 2003 and 2002
    
    
    F-11Notes to Consolidated Financial Statements
    
    
    F-12
 F-1




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##### Table of Contents



Report of the Independent Registered Public Accounting Firm of Moores Roland Mazars,
dated April 25, 2005 To the Shareholders of
Brilliance China Automotive Holdings Limited We have audited the accompanying consolidated balance sheet of Brilliance China Automotive
Holdings Limited (a Bermuda corporation) and its subsidiaries (the Group) as of December 31,
2004, and the related consolidated statements of income and comprehensive income, cash flows and
changes in shareholders equity for the year ended December 31, 2004. These financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion. In our
opinion, the 2004 consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Brilliance China Automotive Holdings Limited and its
subsidiaries as of December 31, 2004, and the results of their operations and their cash flows for
the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Moores Rowland MazarsChartered Accountants
Certified Public Accountants Hong Kong, April 25,
2005, except for note 20(c)(iv) to the financial statements, as
to which the date is June 28, 2005. 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 We have audited the accompanying consolidated balance sheet of Brilliance China Automotive
Holdings Limited (a Bermuda corporation) and its subsidiaries (the Group) as of December 31,
2003, and the related consolidated statements of income and comprehensive income, cash flows and
changes in shareholders equity for the years ended December 31, 2003 and 2002. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 2003 and 2002 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Brilliance China Automotive Holdings
Limited and its subsidiaries as of December 31, 2003, and the results of their operations and their
cash flows for the years ended December 31, 2003 and 2002, in conformity with accounting principles
generally accepted in the United States of America. PricewaterhouseCoopersCertified Public Accountants Hong Kong, April 22, 2004 F-3




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##### Table of Contents



Consolidated Statements of Income and Comprehensive IncomeFor the years ended December 31, 2004, 2003 and 2002 Year ended December 31,2004
    
    
    2003
    
    
    2002RMB000
    
    

RMB000
    
    

RMB000(except for share and ADS data)Sales to third parties
    
    
    4,402,141
    
    
    
    7,797,054
    
    
    
    4,636,347Sales to affiliated companies
    
    
    2,139,857
    
    
    
    2,312,503
    
    
    
    2,683,108Total sales
    
    
    6,541,998
    
    
    
    10,109,557
    
    
    
    7,319,455Cost of sales (include purchases of goods and subcontracting
charges from affiliated companies: 2004: RMB2,185,428,000;
2003: RMB2,934,331,000; 2002: RMB2,215,614,000)
    
    
    (5,491,250
    )
    
    
    (7,727,125
    )
    
    
    (5,411,308
    )Gross profit
    
    
    1,050,748
    
    
    
    2,382,432
    
    
    
    1,908,147Selling, general and administrative expenses
    
    
    (1,510,442
    )
    
    
    (1,410,067
    )
    
    
    (1,067,154
    )Interest expense
    
    
    (182,458
    )
    
    
    (167,111
    )
    
    
    (171,286
    )Interest income
    
    
    58,800
    
    
    
    52,672
    
    
    
    43,617Equity in earnings of associated companies and jointly
controlled entities, net
    
    
    126,261
    
    
    
    109,471
    
    
    
    138,145Subsidy income
    
    
    1,815
    
    
    
    48,497
    
    
    
    Other income, net
    
    
    25,709
    
    
    
    78,293
    
    
    
    1,009Impairment loss on intangible assets
    
    
    (50,000
    )
    
    
    
    
    
    
    Impairment loss on goodwill
    
    
    (47,320
    )
    
    
    
    
    
    
    (Loss) income before taxation and minority interests
    
    
    (526,887
    )
    
    
    1,094,187
    
    
    
    852,478(Provision) benefit for income taxes
    
    
    63,110
    
    
    
    (144,140
    )
    
    
    (146,610
    )Minority interests
    
    
    464,991
    
    
    
    (169,205
    )
    
    
    (95,403
    )Net income
    
    
    1,214
    
    
    
    780,842
    
    
    
    610,465Other comprehensive incomeFair value adjustment for securities available held-for-sales
    
    
    28,468
    
    
    
    
    
    
    
    Comprehensive income
    
    
    29,682
    
    
    
    780,842
    
    
    
    610,465Basic earnings per share
    
    RMB0.0003
    
    
    RMB0.2130
    
    
    RMB0.1665Basic earnings per ADS
    
    RMB0.03
    
    
    RMB21.30
    
    
    RMB16.65Diluted earnings per share
    
    RMB0.0003
    
    
    RMB0.2116
    
    
    RMB0.1665Diluted earnings per ADS
    
    RMB0.03
    
    
    RMB21.16
    
    
    RMB16.65Weighted average number of shares outstanding
    
    
    3,668,390,900
    
    
    
    3,666,539,983
    
    
    
    3,666,052,900Weighted average number of ADSs outstanding
    
    
    36,683,909
    
    
    
    36,665,400
    
    
    
    36,660,529Net income adjusted for the dilutive effect of convertible
bonds
    
    
    N/A
    
    
    
    783,515
    
    
    
    N/AWeighted average number of shares outstanding adjusted for
dilutive effect of stock options and convertible bonds
    
    
    3,683,795,968
    
    
    
    3,702,398,310
    
    
    
    3,666,052,900Weighted average number of ADSs outstanding adjusted for
dilutive effect of stock options and convertible bonds
    
    
    36,837,960
    
    
    
    37,023,983
    
    
    
    36,660,529
 The accompanying notes are an integral part of these consolidated statements of income and
comprehensive income. F-4




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##### Table of Contents



Consolidated Balance SheetsAs of December 31, 2004 and 2003 2004
    
    
    2003RMB000
    
    
    RMB000AssetsCurrent assetsCash and cash equivalents
    
    
    1,244,499
    
    
    
    1,832,298Short-term bank deposits
    
    
    1,008,602
    
    
    
    1,670,596Pledged short-term bank deposits
    
    
    2,777,191
    
    
    
    2,264,584Deferred expenses  current portion
    
    
    8,920
    
    
    
    8,920Notes receivable
    
    
    620,899
    
    
    
    827,452Notes receivable from affiliated companies
    
    
    645,143
    
    
    
    527,175Accounts receivable, net
    
    
    55,632
    
    
    
    90,017Due from affiliated companies
    
    
    765,411
    
    
    
    774,188Inventories
    
    
    1,577,048
    
    
    
    1,228,364Other receivables
    
    
    474,617
    
    
    
    500,887Prepayments and other current assets
    
    
    127,080
    
    
    
    318,523Income tax recoverable
    
    
    44,285
    
    
    
    Other tax recoverable
    
    
    41,468
    
    
    
    Advances to affiliated companies
    
    
    37,477
    
    
    
    243,482Total current assets
    
    
    9,428,272
    
    
    
    10,286,486Property, plant and equipment
    
    
    4,295,576
    
    
    
    3,863,384Intangible assets
    
    
    952,440
    
    
    
    1,220,476Interests in associates and jointly controlled entities
    
    
    1,792,590
    
    
    
    1,723,411Investment securities
    
    
    49,911
    
    
    
    17,305Goodwill
    
    
    418,400
    
    
    
    414,464Prepayment for a long-term investment
    
    
    600,000
    
    
    
    600,000Deferred tax assets
    
    
    114,005
    
    
    
    39,555Deferred expenses  non-current portion
    
    
    25,273
    
    
    
    34,193Long-term prepayment for rental of land
    
    
    76,126
    
    
    
    71,972Other long-term assets
    
    
    23,833
    
    
    
    16,990Total assets
    
    
    17,776,426
    
    
    
    18,288,236
 F-5




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##### Table of Contents



Consolidated Balance Sheets (Continued)As of December 31, 2004 and 2003 2004
    
    
    2003RMB000
    
    
    RMB000Liabilities and shareholders equityCurrent liabilitiesNotes payable
    
    
    5,727,216
    
    
    
    4,783,966Notes payable to affiliated companies
    
    
    121,162
    
    
    
    35,431Accounts payable
    
    
    732,978
    
    
    
    1,124,053Due to affiliated companies
    
    
    522,722
    
    
    
    684,854Customer advances
    
    
    265,489
    
    
    
    216,833Other payables
    
    
    363,584
    
    
    
    563,735Dividends payable
    
    
    3,478
    
    
    
    34,117Accrued expenses and other current liabilities
    
    
    274,183
    
    
    
    188,774Income tax payable
    
    
    43,974
    
    
    
    115,887Taxes payable
    
    
    42,391
    
    
    
    190,725Advances from affiliated companies
    
    
    90,481
    
    
    
    92,642Total current liabilities
    
    
    8,187,658
    
    
    
    8,031,017Convertible bonds
    
    
    1,667,888
    
    
    
    1,655,487Commitments and contingencies (Note 20)
    
    
    
    
    
    
    Total liabilities
    
    
    9,855,546
    
    
    
    9,686,504Minority interests
    
    
    1,063,226
    
    
    
    1,715,425Shareholders 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, 2004 and 2003)
    
    
    303,388
    
    
    
    303,388Additional paid-in capital
    
    
    2,325,690
    
    
    
    2,325,690Accumulated other comprehensive income
    
    
    67,647
    
    
    
    39,179Dedicated capital
    
    
    158,352
    
    
    
    112,168Capital reserve
    
    
    120,000
    
    
    
    120,000Retained earnings
    
    
    3,882,577
    
    
    
    3,985,882Total shareholders equity
    
    
    6,857,654
    
    
    
    6,886,307Total liabilities and shareholders equity
    
    
    17,776,426
    
    
    
    18,288,236
 The accompanying notes are an integral part of these consolidated balance sheets. F-6




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##### Table of Contents



Consolidated Statements of Cash FlowsFor the years ended December 31, 2004, 2003 and 2002 Year ended December 31,2004
    
    
    2003
    
    
    2002RMB000
    
    

RMB000
    
    

RMB000(except for share and ADS data)Cash flows from operating activities:Net income
    
    
    1,214
    
    
    
    780,842
    
    
    
    610,465Adjustments to reconcile net income to net cash provided by
operating activities:Deferred income tax
    
    
    (74,450
    )
    
    
    (1,514
    )
    
    
    (38,041
    )Depreciation of property, plant and equipment
    
    
    365,638
    
    
    
    447,094
    
    
    
    213,776Amortization of long-term prepayment for rental of land
    
    
    2,369
    
    
    
    2,153
    
    
    
    Amortization of intangible assets
    
    
    226,041
    
    
    
    227,077
    
    
    
    56,784Amortization of deferred expenses
    
    
    8,920
    
    
    
    1,486
    
    
    
    Minority interests in net income of consolidated subsidiaries
    
    
    (464,991
    )
    
    
    169,205
    
    
    
    95,403Provision for doubtful debts and write off of bad debts
    
    
    55,292
    
    
    
    4,825
    
    
    
    18,921Write back of provision for doubtful debts
    
    
    (1,000
    )
    
    
    (5,679
    )
    
    
    (265
    )Provision for impairment of intangible assets
    
    
    50,000
    
    
    
    
    
    
    
    Provision for impairment of property, plant and equipment
    
    
    10,000
    
    
    
    6,027
    
    
    
    2,547Provision for impairment of investment in jointly controlled entities
    
    
    47,320
    
    
    
    
    
    
    
    Provision for impairment of investment securities
    
    
    
    
    
    
    
    
    
    
    8,500Write back of provision for inventories sold
    
    
    (15,522
    )
    
    
    
    
    
    
    (Gain)/Loss on disposal of property, plant and equipment
    
    
    12,519
    
    
    
    (14,004
    )
    
    
    5,147Gain on disposal of an associated company
    
    
    
    
    
    
    
    
    
    
    (6,014
    )Amortization of deferred compensation expenses
    
    
    
    
    
    
    173,213
    
    
    
    10,329Equity in earnings of associated companies and jointly controlled
entities, net
    
    
    (126,261
    )
    
    
    (109,471
    )
    
    
    (138,145
    )
 F-7




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##### Table of Contents



Consolidated Statements of Cash Flows (Continued)For the years ended December 31, 2004, 2003 and 2002 Year ended December 31,2004
    
    
    2003
    
    
    2002RMB000
    
    

RMB000
    
    

RMB000(except for share and ADS data)(Increase)/decrease in operating assets:Accounts receivable
    
    
    32,858
    
    
    
    (73,888
    )
    
    
    8,279Notes receivable
    
    
    206,553
    
    
    
    (357,708
    )
    
    
    (234,577
    )Notes receivable from affiliated companies
    
    
    (117,968
    )
    
    
    (314,190
    )
    
    
    473,884Due from affiliated companies
    
    
    (10,157
    )
    
    
    268,881
    
    
    
    (163,354
    )Inventories
    
    
    (328,154
    )
    
    
    (460,040
    )
    
    
    (161,396
    )Other receivables
    
    
    50,625
    
    
    
    (40,307
    )
    
    
    11,486Prepayments and other current assets
    
    
    191,443
    
    
    
    118,612
    
    
    
    (88,568
    )Increase in non-current assets
    
    
    (6,843
    )
    
    
    (13,786
    )
    
    
    Increase/(decrease) in operating liabilities:Accounts payable
    
    
    (391,075
    )
    
    
    48,461
    
    
    
    409,376Due to affiliated companies
    
    
    (162,132
    )
    
    
    (29,516
    )
    
    
    237,290Notes payable to affiliated companies
    
    
    
    
    
    
    35,431
    
    
    
    Customer advances
    
    
    48,656
    
    
    
    (85,206
    )
    
    
    218,480Other payables
    
    
    (121,962
    )
    
    
    81,715
    
    
    
    68,928Accrued expenses and other current liabilities
    
    
    85,409
    
    
    
    (69,474
    )
    
    
    184,518Import tariff and taxes payable
    
    
    (306,000
    )
    
    
    (36,871
    )
    
    
    109,215Interest payable on convertible bonds
    
    
    12,401
    
    
    
    
    
    
    
    Net cash (used in)/provided by operating activities
    
    
    (719,257
    )
    
    
    753,368
    
    
    
    1,912,968
 F-8




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##### Table of Contents



Consolidated Statements of Cash Flows (Continued)For the years ended December 31, 2004, 2003 and 2002 Year ended December 31,2004
    
    
    2003
    
    
    2002RMB000
    
    

RMB000
    
    

RMB000(except for share and ADS data)Cash flows from investing activities:Capital expenditures
    
    
    (999,058
    )
    
    
    (955,887
    )
    
    
    (798,759
    )Proceeds from disposal of property, plant and equipment
    
    
    18,204
    
    
    
    118,301
    
    
    
    15,600(Increase)/decrease in short-term bank deposits
    
    
    661,994
    
    
    
    (897,207
    )
    
    
    (773,389
    )(Increase)/decrease in pledged short-term bank deposits
    
    
    (512,607
    )
    
    
    (914,584
    )
    
    
    575,805Decrease/(increase) in advances to affiliated companies
    
    
    204,030
    
    
    
    1,061,214
    
    
    
    (987,516
    )Increase in long term investment
    
    
    (4,138
    )
    
    
    
    
    
    
    Increase in other long-term assets
    
    
    (6,523
    )
    
    
    (874
    )
    
    
    (1,684
    )Decrease/(increase) in other receivables arising from
short-term investments
    
    
    
    
    
    
    500,000
    
    
    
    (500,000
    )Increase in interests in associated companies and
jointly controlled entities
    
    
    (12,250
    )
    
    
    (702,278
    )
    
    
    Dividend received from an associated company
    
    
    15,103
    
    
    
    
    
    
    
    Payment for acquisition of further interest in 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
    
    
    
    200,000
    
    
    
    260,000Advance to minority shareholder
    
    
    (97,156
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (722,401
    )
    
    
    (2,491,315
    )
    
    
    (2,209,943
    )
 F-9




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##### Table of Contents



Consolidated Statements of Cash Flows (Continued)For the years ended December 31, 2004, 2003 and 2002 Year ended December 31,2004
    
    
    2003
    
    
    2002RMB000
    
    

RMB000
    
    

RMB000(except for share and ADS data)Cash flows from financing activities:Proceeds from short-term bank loans
    
    
    900,000
    
    
    
    
    
    
    
    1,746,930Repayment of short-term bank loans
    
    
    (900,000
    )
    
    
    (150,000
    )
    
    
    (2,002,430
    )Issuance of bank notes payable
    
    
    12,405,435
    
    
    
    8,674,563
    
    
    
    7,658,304Repayment of bank notes payable
    
    
    (11,376,454
    )
    
    
    (7,828,000
    )
    
    
    (7,020,901
    )(Decrease)/increase in advances from affiliated companies
    
    
    (2,161
    )
    
    
    (144,383
    )
    
    
    108,144Financing received from a jointly controlled entity
    
    
    
    
    
    
    74,605
    
    
    
    Proceeds from issuance of common stock
    
    
    
    
    
    
    4,701
    
    
    
    Dividends paid
    
    
    (88,974
    )
    
    
    (43,634
    )
    
    
    (35,295
    )Dividends paid to joint venture partners
    
    
    (83,987
    )
    
    
    (113,284
    )
    
    
    (88,853
    )Proceeds from issuance of convertible bonds
    
    
    
    
    
    
    1,654,300
    
    
    
    Payment of direct expenses incurred in connection with
the issuance of convertible bonds
    
    
    
    
    
    
    (44,599
    )
    
    
    Capital contributions from joint venture partners
    
    
    
    
    
    
    196,826
    
    
    
    Net cash provided by financing activities
    
    
    853,859
    
    
    
    2,281,095
    
    
    
    365,899Net (decrease)/increase in cash and cash equivalents
    
    
    (587,799
    )
    
    
    543,148
    
    
    
    68,924Cash and cash equivalents, beginning of year
    
    
    1,832,298
    
    
    
    1,289,150
    
    
    
    1,220,226Cash and cash equivalents, end of year
    
    
    1,244,499
    
    
    
    1,832,298
    
    
    
    1,289,150
 The accompanying notes are an integral part of these consolidated statements of cash flows. F-10




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##### Table of Contents



Consolidated Statements of Changes in Shareholders EquityFor the years ended December 31, 2004, 2003 and 2002 AccumulatedAdditional
    
    
    Deferred
    
    
    
    
    
    
    
    
    
    
    otherNumber of shares
    
    
    
    
    
    
    paid-in
    
    
    stock
    
    
    Dedicated
    
    
    Capital
    
    
    comprehensive
    
    
    Retainedissued
    
    
    Amount
    
    
    capital
    
    
    compensation
    
    
    capital
    
    
    reserve
    
    
    income
    
    
    earnings
    
    
    TotalRMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000Balance at December
31, 2001
    
    
    3,666,052,900
    
    
    
    303,194
    
    
    
    2,137,641
    
    
    
    
    
    
    
    71,356
    
    
    
    
    
    
    
    39,179
    
    
    
    2,868,433
    
    
    
    5,419,803Deferred
compensation
related to stock
options
    
    
    
    
    
    
    
    
    
    
    183,542
    
    
    
    (183,542
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of
deferred
compensation
expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,329
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,329Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    610,465
    
    
    
    610,465Transfer to
dedicated capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,823
    
    
    
    
    
    
    
    
    
    
    
    (60,823
    )
    
    
    Dividends declared
and paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,295
    )
    
    
    (35,295
    )Balance at 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 at 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
    
    
    
    1,214Net unrealized gain
on marketable
equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,468
    
    
    
    
    
    
    
    28,468Transfer to
dedicated capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,184
    
    
    
    
    
    
    
    
    
    
    
    (46,184
    )
    
    
    Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,335
    )
    
    
    (58,335
    )Balance at December
31, 2004
    
    
    3,668,390,900
    
    
    
    303,388
    
    
    
    2,325,690
    
    
    
    
    
    
    
    158,352
    
    
    
    120,000
    
    
    
    67,647
    
    
    
    3,882,577
    
    
    
    6,857,654
 The accompanying notes are an integral part of these consolidated statements of changes in
shareholders equity. F-11




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##### Table of Contents



Notes to Consolidated Financial Statements  1.
    ORGANIZATION, PRINCIPAL ACTIVITIES AND OPERATING ENVIRONMENT Brilliance China Automotive Holdings Limited (the Company) was incorporated in Bermuda on June 9,
1992 with limited liability. The Companys ADSs and shares are traded on The New York Stock
Exchange Inc. and The Stock Exchange of Hong Kong Limited (SEHK), respectively. The Company is an
investment holding company. The principal activities of the Companys subsidiaries are the
manufacture and sale of minibuses, sedans and automotive components in the Peoples Republic of
China (the PRC). Details of the Companys principal subsidiaries as of December 31, 2004 are as follows: Percentage ofequity interest/votingright attributable 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 power
trainsShenyang 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-12




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) Details of the Groups interests in associated companies and jointly controlled entities are
included in Note 13. For the years ended December 31, 2004 and 2003, no consolidated revenue was generated from Shanghai
Yuantong Automobile Sales and Service Company Limited (Shanghai Yuantong), an affiliated company.
For the years ended December 31, 2002, approximately 10% of the consolidated revenue was generated
from Shanghai Yuantong. For the years ended December 31, 2004, 2003 and 2002, approximately 29%,
20% and 23% of the consolidated revenue was generated from Shanghai Shenhua Holdings Co., Ltd.
(Shanghai Shenhua), an affiliated company.  2.
    BASIS OF PRESENTATION The financial statements are prepared in accordance with generally accepted accounting principles
in the United States of America (U.S. GAAP). The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. This basis of accounting
differs from that used in the statutory financial statements of the Companys subsidiaries, which
were prepared in accordance with the relevant accounting principles and financial reporting
regulations applicable to foreign investment enterprises as established by the Ministry of Finance
in the PRC. Certain accounting principles stipulated under U.S. GAAP are not applicable in the PRC. The principal adjustments made to conform the statutory financial statements to U.S. GAAP included
the following:  .
    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 prepayment
for rental of land 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 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 The consolidated financial statements of the Group include the financial statements of the Company
and the enterprises that it controls. This control is normally evidenced when the Group has the
power to govern the financial and operating policies of an F-13




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) enterprise so as to benefit from its
activities. The results of subsidiaries acquired or disposed of during the period are consolidated
from or to their effective dates of acquisition or disposal. The equity and net income attributable
to minority shareholders interests are shown separately in the Groups balance sheet and income
statement respectively. In 2003, the FASB issued Interpretation No. (FIN) 46R, Consolidation of Variable Interest
Entities  an interpretation of ARB No. 51. The Group adopted the provisions of these
interpretations effective December 31, 2004. Please refer to Note 3(z) for details. Intragroup balances and transactions, including sales to companies within the Group and resulting
unrealized profits, are eliminated in full. Unrealized losses resulting from intragroup
transactions are eliminated unless the cost cannot be recovered. Consolidated financial statements
are prepared using uniform accounting policies for like transactions and other events in similar
circumstances.  (b)
    Sales Sales represent the invoiced value of goods, net of consumption tax, discounts and returns, and are
recognized when goods are delivered to the customers and the significant risks and rewards of
ownership of the goods have been transferred to customers. Provisions for sales allowances and
rebates are made at the time of sales of goods and are recognized as a reduction of sales. Costs
related to shipping and handling are included in selling, general and administrative expenses for
all periods presented.  (c)
    Cash, cash equivalents and short-term bank deposits Cash represents cash on hand and deposits with financial institutions which are repayable on
demand. Cash equivalents represent short-term, highly liquid investments which are readily
convertible into known amounts of cash and which are subject to an insignificant risk of changes in
value. Bank deposits with original maturity between three and twelve months are classified as short-term
deposits.  (d)
    Inventories Inventories are carried at the lower of cost or market. Costs comprises all costs of purchase,
costs of conversion and other costs incurred in bringing the inventories to their present location
and condition. Cost is calculated on the moving-average basis, except for costs of work-in-progress
and finished goods of sedans and minibuses, which are calculated by the specific identification
basis with effect from July 1, 2004. The effect of this change in estimate is not significant to
the consolidated financial statements. The Group provides allowance for excess, slow moving and
obsolete inventory and reduces the carrying value of its inventory to the lower of cost or market. When inventories are sold, the carrying amount of those inventories is recognized as an expense in
the period in which the related revenue is recognized.  (e)
    Property, plant and equipment and long-term prepayment for rental of land Property, plant and equipment are stated at cost less accumulated depreciation. The cost of an
asset comprises its purchase price and any directly attributable costs of bringing the asset to its F-14




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) working condition and location for its intended use. Expenditure incurred after the assets have
been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to
the income statement in the period in which it is incurred. In situations where it can be clearly
demonstrated that the expenditure has resulted in an increase in the future economic benefits
expected to be obtained from the use of the assets beyond its originally assessed standard of
performance, the expenditure is capitalized as an additional cost of the assets. Depreciation is calculated on a straight-line basis, at annual rates estimated to write off the
cost less estimated residual value of 10% of each asset over its expected useful life. The annual
rates are as follows: Buildings
    
    
    5
    %Machinery and equipment (excluding special tools and moulds)
    
    
    10
    %Furniture, fixtures and office equipment
    
    
    20
    %Motor vehicles
    
    
    20
    %
 The costs of special tools and moulds included in machinery and equipment are amortized over their
estimated productive periods. When property, plant and equipment are sold or retired, their cost and accumulated depreciation are
eliminated from the accounts and any gain or loss resulting from their disposal is included in the
income statement. Construction-in-progress consists of factories and office buildings under construction and
machinery pending installation and includes the costs of construction, machinery and equipment, and
any interest charges arising from borrowings used to finance these assets during the period of
construction or installation. No provision for depreciation is made on construction-in-progress
until such time as the relevant assets are completed and ready for their intended use. Long-term prepayment for rental of land is amortized on a straight-line basis over the term of
lease.  (f)
    Intangible assets Purchased intangible assets with finite lives are amortized using the straight-line method over the
estimated economic lives of the assets of 7 years.  (g)
    Impairment of long-lived assets Long-lived assets, such as property, plant and equipment and purchased intangible assets with
finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable from its undiscounted future cash flow. If
such assets are considered to be impaired, the impairment to be recognized is measured as the
amount by which the carrying amount of the assets exceeds the fair value of the assets.  (h)
    Goodwill Goodwill represents the excess of the purchase price over the fair value of the net assets
resulting from the Companys acquisitions of interests in its subsidiaries. Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, which was effective for the Group for year 2002, prohibits the amortization of goodwill
and purchased intangible assets with indefinite useful lives. The Group reviews goodwill for
impairment annually at the year end and whenever events or F-15




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) changes in circumstances indicate the
carrying value of an asset may not be recoverable in accordance with SFAS No. 142. The Group performs a two-step impairment test. In the first step, the Group compares the fair value
of each reporting unit to its carrying value. The Group determines the fair value of its reporting
units based on the present value of estimated future cash flows. If the fair value of the reporting
unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired
and no further testing is performed. If the carrying value of the net assets assigned to the
reporting unit exceeds the fair value of the reporting unit, then the Group must perform the second
step impairment test in order to determine the implied fair value of the reporting units goodwill.
If the carrying value of a reporting units goodwill exceeds its implied fair value, the Group
records an impairment loss equal to the difference.  (i)
    Investments in associated companies and jointly controlled entities An associated company is a company in which the Group has significant influence, but not control or
joint control, and thereby has the ability to participate in the investees financial and operating
policy decisions. A jointly controlled entity is a company in which the Group has joint control
with the other joint venture partners. Investments in associated companies and jointly controlled
entities are accounted for using the
equity method (equity method investment). Goodwill arising on the acquisition of interests in
associated companies and jointly controlled entities (equity method goodwill) is included in the
carrying cost of the investment. The Group considers whether the fair values of any of its equity
method investments have declined below their carrying value whenever adverse events or changes in
circumstances indicate that recorded values may not be recoverable. In assessing the recoverability
of equity method investments (including equity method goodwill), the Company uses discounted cash
flow models. If the fair value of the equity investee is determined to be lower than carrying
value, an impairment is recognized.  (j)
    Investment securities The Groups investment securities consist of marketable available-for-sale securities and
investments in unlisted equity securities. Securities classified as available-for-sale under,
Accounting for Certain Investments in Debt and Equity Securities, SFAS No. 115 are carried at
fair value, with unrealized gains and losses, net of income taxes, recorded in the accumulated
other comprehensive income (loss), a separate component of statement of changes in shareholders
equity, until realized. The fair values of individual investments in marketable securities are
determined based on market quotations. Gain or losses on securities sold are based on the specific
identification method. Equity securities that are restricted for more than one year or not publicly
traded are recorded at cost. The Group periodically reviews its investments in non-marketable
equity securities and available-for-sale securities for impairment. A decline in value of these
securities below cost that is deemed to be other than temporary results in an impairment charge to
earnings that reduces the carrying amount of the securities to fair value establishing a new cost
basis. F-16




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)  (k)
    Taxation Income Tax The Company was incorporated under the laws of Bermuda and has received an undertaking from the
Minister of Finance in Bermuda pursuant to the provisions of the Exempted Undertakings Tax
Protection Act, 1966, which exempts the Company and its shareholders, other than shareholders
ordinarily residing in Bermuda, from any Bermuda taxes computed on profit, income or any capital
asset gain or appreciation, or any tax in the nature of estate duty or inheritance tax, at least
until year 2016. No provision for Hong Kong profits tax has been made to the Company as the Company has no estimated
assessable profit for the year. The subsidiaries are subject to state and local income taxes in the PRC at their respective tax
rates, based on the taxable income reported in their statutory financial statements in accordance
with the relevant state and local income tax laws applicable. Shenyang Automotive is subject to state and local income taxes in the PRC at standard rates of 15%
and 3%, respectively, in accordance with enterprise income tax laws applicable to Sino-foreign
equity joint venture enterprises. Shenyang Automotive is exempted from local income tax of 3% as it
was designated as a Technologically-Advanced Enterprise. As a result, the effective enterprise
income tax rate for Shenyang Automotive was 15% for the years ended December 31, 2004, 2003 and
2002. Ningbo Yuming and Ningbo Ruixing are subject to state and local income taxes in the PRC at standard
rates of 30% and 3% respectively in accordance with enterprise income tax laws applicable. Pursuant
to the relevant income tax laws in the PRC, the applicable state and local income tax rates were
reduced to 15% and 1.5%, respectively. As a result, the effective enterprise income tax rate for
Ningbo Yuming and Ningbo Ruixing was 16.5% for the years ended December 31, 2004, 2003 and 2002. Xing Yuan Dong is subject to state and local income taxes in the PRC at standard rates of 30% and
3%, respectively, in accordance with enterprise income tax laws. Xing Yuan Dong received official
designation by the local tax authority as a New and Technologically-Advanced Enterprise in 1999.
During 2001, Xing Yuan Dong was further designated by the local tax authority as a foreign-invested
enterprise engaged
in manufacturing activities. As a result, the effective enterprise income tax rate for Xing Yuan
Dong was 15%, 7.5% and 7.5% for the years ended December 31, 2004, 2003 and 2002, respectively. Mianyang Ruian is subject to state and local income taxes in the PRC at standard rates of 30% and
3%, respectively, in accordance with enterprise income tax laws. During 2001, Mianyang Ruian
received official designation by the local tax authority as a foreign-invested enterprise engaged
in manufacturing activities. In 2004, Mianyang Ruian was also designated as an encouraged
industries under Catalogue for the Guidance of Foreign Investment Industries and located in the
Western area of the PRC. As a result, the applicable state income tax rate for Mianyang Ruian is
15% from 2004 to 2010. In addition, Mianyang Ruian is also exempted from state and local enterprise
income taxes for two years starting from the first profitable year followed by a 50% reduction of
enterprise income tax for the next F-17




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) three years. Mianyang Ruian is also exempted from local
enterprise income tax for the same five-year period. As a result, the effective tax rate for
Mianyang Ruian was 7.5% and 15% for the year ended December 31, 2004 and 2003 respectively. For the
year ended December 31, 2002, Mianyang Ruian was exempted from income tax. Dongxing Automotive is subject to state and local income taxes in the PRC at standard rates of 30%
and 3%, respectively, in accordance with enterprise income tax laws. Dongxing Automotive received
official designation by the local tax authority as a New and Technologically-Advanced Enterprises
and a foreign-invested enterprise engaged in manufacturing activities. Pursuant to the relevant
income tax laws in the PRC, Dongxing Automotive is exempted from state enterprise income tax for
two years starting from the first profitable year in 1999 followed by a 50% reduction of state
enterprise income tax for the next three years. In addition, Dongxing Automotive is also exempted
from local enterprise income tax for the same five-year period. As a result, the effective tax rate
for Dongxing Automotive was 15%, 7.5% and 7.5% for the years ended December, 2004, 2003 and 2002
respectively. Other principal subsidiaries operating in the PRC are subject to state and local income taxes in
the PRC at standard rates of 30% and 3%, respectively, based on the respective taxable income
reported in their statutory financial statements in accordance with the relevant state and local
income tax laws applicable to foreign-invested enterprises. Value Added Tax (VAT) and Consumption Tax The general VAT rate applicable to sales and purchases of minibuses, sedans and automotive
components in the PRC is 17%. Sales of minibuses and sedans are also subject to consumption tax at standard rates of 3% to 8%.  (l)
    Deferred taxation Deferred income taxes are provided using the liability method in which deferred income taxes are
recognized for temporary differences between the tax and financial statement bases of assets and
liabilities. The tax consequences of those differences expected to occur in subsequent years are
recorded as assets and liabilities on the balance sheet. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered
more likely than not that some portion of, or all of, the deferred tax assets will not be realized.  (m)
    Foreign currency translation The functional currency of the Company and its subsidiaries is RMB. Transactions denominated in
foreign currencies are translated into RMB at the unified exchange rates quoted by the Peoples
Bank of China prevailing at the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies are translated into RMB using the applicable unified exchange
rates prevailing at the balance sheet dates. The resulting exchange differences are included in the
determination of income. Non-monetary assets and
liabilities denominated in foreign currencies are translated into RMB using the applicable exchange
rates prevailing at the time of transaction. F-18




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Notes to Consolidated Financial Statements (Continued) Foreign currency translation adjustments in other comprehensive income arose from the Companys
change in functional currency in previous years.  (n)
    Warranty A provision is recognized when an enterprise has a present obligation (legal or constructive) as a
result of a past event and it is probable (i.e. more likely than not) that an outflow of resources
embodying economic benefits will be required to settle the obligation, and a reliable estimate can
be made of the amount of the obligations. Provisions are reviewed at each balance sheet date and
adjusted to reflect the current best estimate. Where the effect of the time value of money is
material, the amount of a provision is the present value of the expenditures expected to be
required to settle the obligation. Shenyang Automotives minibuses are sold with a 24-month or 50,000 kilometers (2003: 24-month or
50,000 kilometers; 2002: 18-month or 30,000 kilometers) first-to-occur limited warranty. The
Zhonghua sedans are sold with a 36-month or 60,000 kilometers (2003: 36-month or 60,000
kilometers) first-to-occur limited warranty plus any extended warranty specially offered by
Shenyang Automotive during the year. During the warranty period, Shenyang Automotive pays service
stations for parts 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, including handling and transportation costs.
The factors used to estimate warranty expenses are reevaluated periodically in light of actual
experience. The reconciliation of the changes in the warranty obligation is as follows: 2004
    
    
    2003RMB000
    
    
    RMB000Balance as of January 1
    
    
    23,643
    
    
    
    18,854Accrual for warranties issued during the year
    
    
    45,088
    
    
    
    87,405Settlement made during the year
    
    
    (47,673
    )
    
    
    (82,616
    )Balance as of December 31
    
    
    21,058
    
    
    
    23,643
  (o)
    Advertising expenses Advertising expenses are written off as incurred. For the years ended December 31, 2004, 2003 and
2002, advertising expenses of approximately RMB206.9 million, RMB201.1 million and RMB123.6
million, respectively, have been charged to selling, general and administrative expenses.  (p)
    Research and development expenses Research and development expenses are expensed as incurred. For the years ended December 31, 2004,
2003 and 2002, research and development expenses of approximately RMB479.9 million, RMB191.4
million and RMB304.9 million, respectively, have been charged to selling, general and
administrative expenses.  (q)
    Operating leases Leases where substantially all the rewards and risks of ownership remain with the lessor are
accounted for as operating leases. Payment made under operating leases net of any incentives
received from the lessor are charged to the income statement on a straight-line basis over the
period of the relevant leases. F-19




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Notes to Consolidated Financial Statements (Continued) Assets leased out under operating leases are included in property, plant and equipment in the
balance sheet. They are depreciated over the expected useful lives on a basis consistent with
similar owned fixed assets. Rental income (net of any incentives given to lessees) is recognized on
a straight-line basis over the lease terms.  (r)
    Stock based compensation The Company accounts for stock-based employee compensation arrangements in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25 Accounting for Stock Issued to
Employee, which states that compensation expense related to employee stock options is recorded if,
on the date of grant, the quoted market value of the underlying stock exceeds the exercise price.
The Company adopted the disclosure-only requirements of SFAS No. 123 Accounting for Stock-Based
Compensation and the related amendments under the provisions of SFAS No. 148 Accounting for
Stock-Based Compensation, Transition and Disclosure which allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro-forma net income or loss and pro-forma earnings or
loss per share disclosures for employee stock grants as if the fair-value-based method of
accounting as prescribed in SFAS No. 123 and SFAS No. 148 was adopted. No stock options have been
granted by the Company under the Plan during the year 2004. Had compensation cost for the Companys stock options granted been determined based on the fair
value of the stock options at the grant date, consistent with the provisions of SFAS No. 123 and
SFAS No. 148, the Companys net income and earnings per share for the years ended December 31, 2003
and 2002 would have been adjusted to the pro-forma amounts indicated below: 2003
    
    
    2002RMB000
    
    
    RMB000Net income as reported
    
    
    780,842
    
    
    
    610,465Add: Adjustments for APB Opinion No. 25
    
    
    173,213
    
    
    
    10,329Less: Fair value of stock options
    
    
    (210,711
    )
    
    
    (12,565
    )Pro-forma net income
    
    
    743,344
    
    
    
    608,229
 2003
    
    
    2002RMB000
    
    
    RMB000Basic earnings per ADS:As reported
    
    
    21.30
    
    
    
    16.65Pro-forma
    
    
    20.27
    
    
    
    16.59Diluted earnings per ADS:As reported
    
    
    21.16
    
    
    
    16.65Pro-forma
    
    
    20.15
    
    
    
    16.59Basic earnings per share:As reported
    
    
    0.2130
    
    
    
    0.1665Pro-forma
    
    
    0.2027
    
    
    
    0.1659Diluted earnings per share:As reported
    
    
    0.2116
    
    
    
    0.1665Pro-forma
    
    
    0.2015
    
    
    
    0.1659
  (s)
    Earnings per share and earnings per ADS The calculation of basic earnings per share is based on the net income for the year and the
weighted average number of shares of common stock outstanding during the year. The calculation of diluted earnings per share is based on the net income for the year and the
weighted average number of shares of common stock F-20




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) mentioned above and adjusted for the effects of
all dilutive potential shares of common stock outstanding during the year. A reconciliation of the net income used in calculation of basic and diluted earnings per share/ADS
is as follows: 2004
    
    
    2003
    
    
    2002RMB000
    
    
    RMB000
    
    
    RMB000Net income during the year
    
    
    1,214
    
    
    
    780,842
    
    
    
    610,465Add: accrued interest
expense related to the convertible bonds
    
    
    
    
    
    
    1,187
    
    
    
    Amortization of deferred expenses
    
    
    
    
    
    
    1,486
    
    
    
    Net income during the year adjusted for
accrued interest expense related to the
convertible bonds and amortization of
deferred expenses
    
    
    1,214
    
    
    
    783,515
    
    
    
    610,465
 A reconciliation of the weighted average number of shares of common stock used in calculation of
basic and diluted earnings per share is as follows: 2004
    
    
    2003
    
    
    2002Weighted average number of shares
of common stock used in calculation
of basic earnings per share
    
    
    3,668,390,900
    
    
    
    3,666,539,983
    
    
    
    3,666,052,900Dilutive effect of stock options
    
    
    15,405,068
    
    
    
    3,338,970
    
    
    
    Dilutive effect of convertible bonds
    
    
    
    
    
    
    32,519,357
    
    
    
    Weighted average number of shares
of common stock adjusted for
dilutive effect of stock options
and convertible bonds used in
calculation of diluted earnings per
share
    
    
    3,683,795,968
    
    
    
    3,702,398,310
    
    
    
    3,666,052,900
 In 2002, the Company has not included the convertible bonds in the computation of diluted
earnings per share/ADS because these were issued in 2003 (see Note 16 below).
The effect of the assumed conversion of the potential common stock outstanding for the year
ended December 31, 2002 arising from stock option is anti-dilutive. The diluted earnings per share/ADS calculation includes the impact of shares that would result from
the conversion of convertible bonds. In addition, the related interest on convertible bonds is
added back to income, since these would not be paid if the bonds were converted to share. The effect of the assumed conversion of the potential stock outstanding for the year ended December
31, 2004 arising from the convertible bonds is anti-dilutive. The calculation of earnings per ADS is based on the weighted average number of ADSs outstanding
during the years presented. The weighted average number of ADS outstanding is calculated based on
the assumption that all of the outstanding ordinary shares were held in the form of ADSs (at the
ratio of 100 shares for each ADS). F-21




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Notes to Consolidated Financial Statements (Continued) A reconciliation of the weighted average number of ADSs for calculation of basic and diluted
earnings per ADS is as follows: 2004
    
    
    2003
    
    
    2002Weighted average number of ADSs
used in calculation of basic
earnings per ADS
    
    
    36,683,909
    
    
    
    36,665,400
    
    
    
    36,660,529Dilutive effect of stock options
    
    
    154,051
    
    
    
    33,390
    
    
    
    Dilutive effect of convertible bonds
    
    
    
    
    
    
    325,193
    
    
    
    Weighted average number of ADSs
adjusted for dilutive effect of
stock options and convertible bonds
used in calculation of diluted
earnings per ADS
    
    
    36,837,960
    
    
    
    37,023,983
    
    
    
    36,660,529
  (t)
    Segmental information Segmental information is presented in accordance with SFAS No. 131 Disclosures about Segments of
an Enterprise and Related Information which establishes standards for reporting information about
operating segments on a basis consistent with the Companys internal organization structure as well
as information about geographic areas and major customers. Disclosure of segmental information in
accordance with SFAS No. 131 is made in Note 29.  (u)
    Comprehensive income SFAS No. 130 Reporting Comprehensive Income requires the components of comprehensive income to be
disclosed in the financial statements. Comprehensive income consists of net income, the net
unrealized gains or losses on available-for-sale marketable securities, foreign currency
translation adjustments, minimum pension liability adjustments and unrealized gains and losses on
financial instruments qualifying for hedge accounting. For the Group, such items consist primarily
of unrealized gains and losses on marketable equity investments and foreign currency translation
adjustments. The Group has disclosed comprehensive income, which encompasses net income in the
statement of income and comprehensive income. There was no other comprehensive income or loss for the years ended December 31, 2003 and 2002
other than net income for the two years.  (v)
    Convertible bonds Convertible bonds were issued at par and are stated in the balance sheet at face value plus accrued
interest expense. Direct expenses in connection with the issuance of convertible bonds are
capitalized as deferred expenses on the balance sheet and are amortized over the life of the
convertible bonds.  (w)
    Guarantees Guarantees issued by the Group are initially recognized on the balance sheet as a liability at the
fair value, or market value, of the obligations the Group assumed under that guarantee in
accordance with FASB FIN 45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 is applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. FIN 45 also contains disclosure
provisions surrounding existing guarantees, which are effective for financial statements with
periods ended after December 15, 2002. As of December 31, 2004 and 2003, the fair values of the
guarantees the Group have entered into since December 31, 2002 are not material to the Groups
financial position. Please refer to Note 3(n) and Note 20(c) for details. F-22




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)  (x)
    Allowance for doubtful accounts Accounts receivable are stated at the amount billed to customers. The Group recognizes allowance
for doubtful accounts to ensure trade and other receivables are not overstated due to
uncollectibility. The Companys estimate is based on a variety of factors, including historical
collection experience, existing economic conditions and a review of the current status of the
receivable. Accounts past due more than the Groups general credit period are considered
delinquent. Delinquent receivables are written off based on individual credit evaluation and
specific circumstances of the customer.  (y)
    Fair value of financial instruments The estimated fair values for financial instruments under SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, are determined at discrete points in time based on relevant market
information. These estimates involve uncertainties and cannot be determined with precision. The
estimated fair values of the Companys financial instruments, which include cash, accounts
receivable, convertible debt, intercompany receivables and payables and other payables, approximate
their carrying values in the financial statements.  (z)
    Other new accounting pronouncements In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4. SFAS No. 151 clarifies that ARB No. 43 requires the recognition of abnormal amounts of
idle facility expense, freight, handling costs, and spoilage as current-period charges and requires
fixed production overheads to be allocated to inventory according to the normal capacity of the
production facilities. The guidance is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005; however, earlier application is permitted for inventory costs
incurred during fiscal years beginning after November 23, 2004. The provisions of SFAS No. 151
should be applied prospectively. The Group considers that SFAS No. 151 will not have significant
impact on its financial statements when it is adopted. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. This
statement provides investors and other users of financial statements with more complete and neutral
financial information by requiring that the compensation cost relating to share-based payment
transactions be recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. SFAS No. 123(R) covers a wide range of
share-based compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase plans. SFAS 123(R)
replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No.
25, Accounting for Stock Issued to Employees. Public entities (other than those filing as small
business issuers) will be required to apply this statement at the beginning of next fiscal year
that begins after June 15, 2005. In March 2005, the SEC have published Staff Accounting Bulletin
No. 107, Share-Based Payment, (SAB 107) to give public entities guidance in applying the
provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards
Statement No. 123R, Share-Based Payment, and to users of financial statements in analyzing the
information provided under that Statement. The SAB should be applied upon the adoption of Statement F-23




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) 123(R). The Group considers that SFAS No. 123(R) and SAB 107 will not have significant impact on
its financial statements when it is adopted. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets  An Amendment of
APB Opinion No. 29. SFAS No. 153 eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,
Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do
not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change significantly as a result
of the exchange. SFAS No. 153 is effective for the fiscal periods beginning after June 15, 2005,
and is required to be adopted by the Group effective January 1, 2006. The Group does not expect
SFAS No. 153 to have a material impact on the consolidated results of operations or financial
condition. In January 2003, the FASB issued Interpretation No. 46 (FIN 46) Consolidation of Variable
Interest Entities  an interpretation of ARB No. 51. Until this interpretation, a company
generally included another entity in its consolidated financial statements only if it controlled
the entity through voting interests. FIN 46 requires a variable interest entity, as defined, to be
consolidated by a company if that company is subject to a majority of the risk of loss from the
variable interest entitys activities or is entitled to receive a majority of the entitys residual
returns. In December 2003, the FASB issued a revised FIN 46. The revised standard, FIN 46R,
modifies or clarifies various provisions of FIN 46 and incorporates many FASB Staff Positions
previously issued by the FASB. This standard replaces the original FIN 46 that was issued in
January 2003. Enterprises with variable interests in variable interest entities created after
January 31, 2003, are required to apply FIN 46 or FIN 46R immediately. The effective dates of FIN
46R for calendar-year foreign private issuers with variable interests in variable interest entities
created before February 1, 2003 is for annual financial statements for period ending December 31,
2004. In connection with adopting FIN46R, the Group has identified a supplier that the Group had provided
a guarantee of approximately RMB 300 million, which was expired in the first quarter of 2005. The
annual purchase from the supplier was approximately RMB92 million in 2004. The Group made and
continued to make exhaustive but unsuccessful effort to obtain information necessary to apply the
FIN 46Rs provision as the Group does not have the contractual or legal right to obtain such
information. The Groups maximum exposure to loss as a result of its involvement with this supplier
is approximately RMB300 million, representing the guarantee to the supplier in the event of their
liquidation. Except the above inability to obtain the information of
the supplier, the adoption of FIN 46R did not have a material impact on the
Groups financial position or results of operations. In March 2005, the FASB issues Interpretation No. 47 (FIN 47), Accounting for Conditional Asset
Retirement Obligation to clarify that an entity must recognize a liability for the fair value of a
conditional asset retirement obligation when incurred if the liabilitys fair value can be

reasonably estimated. FIN 47 also defines when an entity would have sufficient information to
reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later
than the end of fiscal years ending F-24




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) after December 15, 2005. Retrospective application of interim
financial information is permitted but is not required. Early adoption of this Interpretation is
encouraged. The adoption of FIN 47 will not have a material impact on the Groups consolidated
financial statements. In November 2003, the FASBs Emerging Issues Task Force (EITF) reached a consensus on EITF Issue
No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments. EITF Issue No. 03-01 establishes additional disclosure requirements for each category
of SFAS No. 115 and 124 investments in a loss position for annual periods ending after December 15,
2003. In March 2004, the EITF also reached a consensus on the additional accounting guidance for
other-than-temporary impairments and its application to debt and equity investments in reporting
periods beginning after June 15, 2004 and the additional disclosures for equity securities that are
not subject to the scope of SFAS No. 115 and not accounted for under the equity method under APB
Opinion 18 and related interpretation (cost method investments) for annual financial statements
for fiscal years ending after June 15, 2004. Comparative information for the periods prior to
initial application of this issue is not required. In September 2004, the EITF delayed the
effective date to apply the measurement and recognition provisions relating to debt and equity
securities until the FASB issues additional guidance. The Group had adopted the disclosure
provisions of EITF 03-1 for the year 2004 (see Note 14 below). In September 2004, the EITF reached a consensus on EITF Issue No. 04-8, The Effect of Contingently
Convertible Instruments on Diluted Earnings per Share. The issue requires contingently convertible
debt instruments (commonly referred to as Co-Cos) to be included in diluted earnings per share, if
dilutive, regardless of whether a market price contingency for the conversion of the debt into
common shares or any other contingent factor has been met. Prior to this consensus, such
instruments were excluded from the calculation until one or more of the contingencies were met.
EITF 04-8 is effective for reporting periods ending after December 15, 2004, and does require
restatement of prior period earnings per unit amounts. The adoption of this EITF does not have a
material impact on the Groups consolidated financial statements.  4.
    SUBSIDY INCOME In 2004, the Companys subsidiaries were granted government subsidies of RMB1,815,000. In 2003, the
Company was granted subsidies in the form of tax refunds on re-investments amounting to
approximately RMB48,497,000 in relation to the Companys re-investment of the dividends declared by
certain subsidiaries of the Company to those subsidiaries as additional capital contributions by
foreign investors. Such subsidies were approved by the relevant local tax bureaus in accordance
with the relevant income tax laws in the PRC. All of the approved subsidies were received by the
Group during the year and were recorded as income.  5.
    INCOME TAXES For the years ended December 31, 2004, 2003 and 2002, certain of the Companys subsidiaries were
subject to income taxes in the PRC at the applicable statutory tax rates on allowable losses or
taxable income as reported in the statutory financial statements adjusted for the reduced tax rates
and exemptions described in Note 3(k). F-25




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) The amount of (provision) benefit for income taxes in the consolidated income statement represents: 2004
    
    
    2003
    
    
    2002RMB000
    
    
    RMB000
    
    
    RMB000Current taxation
    
    
    (11,340
    )
    
    
    (145,654
    )
    
    
    (184,651
    )Deferred taxation
    
    
    74,450
    
    
    
    1,514
    
    
    
    38,04163,110
    
    
    
    (144,140
    )
    
    
    (146,610
    )
 The reconciliation of the Groups effective income tax rate, based on income before taxes and
minority interests, to its statutory income tax rate for years ended December 31, 2004, 2003 and
2002 are as follows: 2004
    
    
    2003
    
    
    2002%
    
    
    %
    
    
    %Average statutory tax rate (including state and local income tax)
    
    
    17.44
    
    
    
    21.71
    
    
    
    18.58Effect of statutory tax holiday
    
    
    15.44
    
    
    
    (12.66
    )
    
    
    (9.30
    )Effect of non-deductible expenses
    
    
    (5.38
    )
    
    
    3.29
    
    
    
    6.91Effect of valuation allowances
    
    
    (15.06
    )
    
    
    (2.11
    )
    
    
    (1.00
    )Others, not individually significant
    
    
    (0.46
    )
    
    
    2.94
    
    
    
    2.01Effective tax rate
    
    
    11.98
    
    
    
    13.17
    
    
    
    17.20
 F-26




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) The average statutory tax rates for the relevant periods represented the weighted average tax rates
of the Companys subsidiaries calculated on the basis of the relative amount of net income and the
applicable statutory tax rate of each subsidiary. Components of deferred tax assets were as follows: As of December 31,2004
    
    
    2003RMB000
    
    
    RMB000Deferred tax asset:Research and development costs
    
    
    45,683
    
    
    
    Provisions and accruals
    
    
    47,633
    
    
    
    30,181Provision for impairment of fixed assets
    
    
    2,751
    
    
    
    2,751Amortization and provision for impairment of intangible assets
    
    
    58,942
    
    
    
    29,731Tax losses carry forward
    
    
    61,460
    
    
    
    216,469
    
    
    
    62,663Valuation allowance (Note)
    
    
    (102,464
    )
    
    
    (23,108
    )Net deferred tax assets
    
    
    114,005
    
    
    
    39,555
 Note: At December 31, 2004, valuation allowances of approximately RMB61,460,000 and RMB41,004,000
were made for deferred tax assets recognised in respect of the unused tax loss and deductible
temporary difference because it is more likely than not that the tax benefit will not be realized
in the foreseeable future. All the tax losses will expire in 2009. The net change in valuation
allowances for the year ended December 31, 2004 was increased by approximately RMB79,356,000. F-27




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)  6.
    PLEDGED SHORT-TERM BANK DEPOSITS As of December 31, 2004 and 2003, approximately RMB2,777.2 million and RMB2,264.6 million,
respectively, of the short-term bank deposits were pledged as security for banking facilities,
corporate guarantees for bank loans drawn by affiliated companies and letter of credits issued
(Notes 18 and 20).  7.
    ACCOUNTS RECEIVABLE, NET Accounts receivable consist of: 2004
    
    
    2003RMB000
    
    
    RMB000Accounts receivable
    
    
    103,350
    
    
    
    136,289Less: Allowance for
doubtful debts
    
    
    (47,718
    )
    
    
    (46,272
    )55,632
    
    
    
    90,017
 Movements of allowance for doubtful debts during the years ended December 31, 2004 and 2003 are: 2004
    
    
    2003RMB000
    
    
    RMB000Balance, beginning of year
    
    
    46,272
    
    
    
    51,749Additional provision
    
    
    2,526
    
    
    
    4,825Write-back of provision
    
    
    (1,000
    )
    
    
    (5,679
    )Written off against accounts receivable
    
    
    (80
    )
    
    
    (4,623
    )Balance, end of year
    
    
    47,718
    
    
    
    46,272
  8.
    NOTES RECEIVABLE Notes receivable are primarily notes received from customers for the settlement of trade receivable
balances. As of December 31, 2004 and 2003, all notes receivable were guaranteed by established
banks in the PRC and have maturities of six months or less. The fair value of the notes receivable
approximated their carrying value. Approximately RMB614 million (2003: RMB281 million) of the notes
receivable both from third parties and affiliated companies were pledged for the issuance of notes
payable (Note 18).  9.
    OTHER RECEIVABLES Included in other receivables as of December 31, 2004 and 2003 was an amount of RMB300 million
advanced to Shenyang Automobile Industry Asset Management Company Limited (SAIAM) which will
become a subsidiary of the Group after the completion of the proposed acquisition of SAIAM as
detailed in Note 15. During 2002, Xing Yuan Dong disposed of its entire equity interest in Zhengtong Investment Holdings Co., Ltd. to an affiliated
company at original investment cost of Xing Yuan Dong of RMB480 million (the Consideration). As
of December 31, 2003, other receivables include outstanding Consideration of RMB20 million. F-28




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)  10.
    INVENTORIES 2004
    
    
    2003RMB000
    
    
    RMB000Inventories consist of:Raw materials
    
    
    888,378
    
    
    
    709,996Work-in-progress
    
    
    97,362
    
    
    
    111,459Finished goods
    
    
    591,308
    
    
    
    406,9091,577,048
    
    
    
    1,228,364
  11.
    PROPERTY, PLANT AND EQUIPMENT AND LONG-TERM PREPAYMENT FOR RENTAL OF LAND Property, plant and equipment consist of: 2004
    
    
    2003RMB000
    
    
    RMB000Buildings
    
    
    1,126,073
    
    
    
    1,040,460Machineries and equipment
    
    
    3,450,089
    
    
    
    3,105,226Motor vehicles
    
    
    101,715
    
    
    
    93,867Furniture, fixtures and office equipment
    
    
    390,197
    
    
    
    292,840Construction-in-progress
    
    
    789,145
    
    
    
    570,2335,857,219
    
    
    
    5,102,626Less: Provision for
impairment losses
    
    
    (47,949
    )
    
    
    (37,949
    )5,809,270
    
    
    
    5,064,677Less: Accumulated
depreciation
    
    
    (1,513,694
    )
    
    
    (1,201,293
    )Net book value
    
    
    4,295,576
    
    
    
    3,863,384
  (a)
    During the years ended December 31, 2004, 2003 and 2002, capitalized interest expenses
amounted to approximately RMB18.4 million, RMBNil and RMB0.8 million, respectively.(b)
    Buildings amounting to approximately RMB41,022,000 and long-term prepayment for rental of
land 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 27).(c)
    In December 2003, Shenyang Automotive disposed of certain machineries and equipment with an
aggregate net book value of approximately RMB358,643,000 to the Groups jointly controlled
entity, BMW Brilliance Automotive Ltd (BMW Brilliance), at a consideration of approximately
RMB384,290,000, which was 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 F-29




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)  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 the 2003 financial statements, the basis of service fees has not yet been
finalized and service fees of approximately RMB17,438,000 have been accrued as of December 31,
2003.(d)
    In 2003, Shenyang Automotive transferred the legal titles and ownership of certain buildings
with an aggregate net book value of approximately RMB225,185,000 to BMW Brilliance in
consideration of
approximately RMB248,684,000 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, 2004 and 2003 the net book
value of the buildings amounting to approximately RMB150,763,000 and RMB225,185,000
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, 2004 and 2003 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
(2003: RMB174,079,000) will be received from BMW Brilliance and will be accounted for as
additional financing.12.
    INTANGIBLE ASSETS 2004
    
    
    2003RMB000
    
    
    RMB000CostBeginning of year
    
    
    1,504,337
    
    
    
    681,750Additions
    
    
    8,005
    
    
    
    822,587End of year
    
    
    1,512,342
    
    
    
    1,504,337Accumulated amortizationBeginning of year
    
    
    (283,861
    )
    
    
    (56,784
    )Amortization for the year
    
    
    (226,041
    )
    
    
    (227,077
    )End of year
    
    
    (509,902
    )
    
    
    (283,861
    )Accumulated impairmentBeginning of year
    
    
    
    
    
    
    Impairment loss provision for the year
    
    
    (50,000
    )
    
    
    End of year
    
    
    (50,000
    )
    
    
    Net book valueEnd of year
    
    
    952,440
    
    
    
    1,220,476Beginning of year
    
    
    1,220,476
    
    
    
    624,966
 F-30




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) Included in the intangible assets were mainly:  (a)
    Sedan design right represents rights, titles and interests in certain design and
engineering agreements and technical assistance agreement in relation to Zhonghua sedans; and(b)
    Components and parts technology right represents rights, title and interests in the design of
the components and spare parts for Zhonghua sedans injected by a joint venture partner as
capital into a subsidiary of the Company in 2003. Due to the operations in the manufacture and sale of Zhonghua sedans had resulted in loss in 2004,
the Group critically assessed the future economic benefit of the intangible assets in relation to
Zhonghua sedans mentioned in (a) to (b) by assessing the net cash inflow the manufacture and sale
of Zhonghua sedans will bring to the Group in the future. Accordingly, impairment loss provision of
RMB50 million in total was provided for these intangible assets. For each of the five years ending December 31, 2009, the estimated amortization expense of the
intangible assets in existence as of December 31, 2004 will be approximately RMB227 million. F-31




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) 13. INTERESTS IN ASSOCIATES AND JOINTLY CONTROLLED ENTITIES Interests in associates and jointly controlled entities as of December 31, 2004 consist of: PercentageofequityinterestPlace of
    
    heldName of company
    
    Establishment
    
    indirectly
    
    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
sedansShenyang HuaBao Automotive Sales
Service Co., Ltd. (Huabao)
    
    Shenyang, the PRC
    
    
    49.005
    %
    
    Trading of BMW sedansShanghai Kowin Automotive
Component Co., Ltd. (Kowin)
    
    Shanghai, the PRC
    
    
    25.5
    %
    
    Trading of automotive
components
 F-32




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) The carrying values of interests in associates and jointly controlled entities are: 2004
    
    
    2003RMB000
    
    
    RMB000Interests in associates:Shenyang Aerospace
    
    
    364,158
    
    
    
    321,636Chongqing Fuhua
    
    
    9,518
    
    
    
    4,276Chongqing Baosheng
    
    
    3,640
    
    
    
    377,316
    
    
    
    325,912Interests in jointly controlled entities:Mianyang Xinchen
    
    
    387,812
    
    
    
    358,368Xinguang Brilliance
    
    
    447,823
    
    
    
    478,864Huabao
    
    
    4,922
    
    
    
    7,735BMW Brilliance
    
    
    570,375
    
    
    
    550,032Kowin
    
    
    4,342
    
    
    
    Shenyang ChenBao Automotive Sales Service Co., Ltd.
    
    
    
    
    
    
    2,5001,415,274
    
    
    
    1,397,4991,792,590
    
    
    
    1,723,411
 The acquisitions of associated companies and jointly controlled entities have been accounted for
using the purchase method of accounting. The tangible assets were valued in the acquisitions at
their estimated fair values. The excess of the purchase price over the fair values of the net
assets acquired has been accounted for as goodwill. The carrying values of goodwill of the acquired
associated companies and jointly controlled entities, which are included in the carrying amount of
investments in associated companies and jointly controlled entities, are: 2004
    
    
    2003RMB000
    
    
    RMB000Shenyang Aerospace
    
    
    31,983
    
    
    
    31,983Mianyang Xinchen
    
    
    91,410
    
    
    
    91,410Xinguang Brilliance
    
    
    252,373
    
    
    
    299,694375,766
    
    
    
    423,087
 Before the adoption of SFAS No. 142 as of January 1, 2002, equity method goodwill was amortized on
a straight-line basis over the expected future economic life. Since January 1, 2002, goodwill
ceased to be amortized. In 2004, the Group recorded an impairment charge of
RMB47,320,000 for equity method goodwill associated with its operation serving in minibuses and
automotive components segment due to lower than expected projected operating profits and cash
flows. F-33




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) The equity shares in the income (loss) of the associated companies and jointly controlled entities
in 2004 and 2003 are: 2004
    
    
    2003RMB000
    
    
    RMB000Associated companies:Shenyang Aerospace
    
    
    57,854
    
    
    
    132,331Chongqing Fuhua
    
    
    (8
    )
    
    
    526Chongqing Baosheng
    
    
    (860
    )
    
    
    56,986
    
    
    
    132,857Jointly controlled entities:Mianyang Xinchen
    
    
    33,331
    
    
    
    68,662Xinguang Brilliance
    
    
    17,173
    
    
    
    33,388Huabao
    
    
    (2,334
    )
    
    
    235BMW Brilliance
    
    
    21,764
    
    
    
    (125,671
    )Kowin
    
    
    (659
    )
    
    
    69,275
    
    
    
    (23,386
    )126,261
    
    
    
    109,471
 Combined unaudited financial information of the associated companies is summarized as
follows: 2004
    
    
    2003RMB000
    
    
    RMB000Revenue
    
    
    2,221,460
    
    
    
    2,343,593Profit before taxation, net
    
    
    296,835
    
    
    
    635,046Net income
    
    
    272,213
    
    
    
    631,546Current assets
    
    
    1,135,531
    
    
    
    1,156,831Non-current assets
    
    
    1,509,527
    
    
    
    1,194,894Total assets
    
    
    2,645,058
    
    
    
    2,351,725Current liabilities
    
    
    (743,600
    )
    
    
    (531,350
    )Long-term liabilities
    
    
    (396,927
    )
    
    
    (431,791
    )Total liabilities
    
    
    (1,140,527
    )
    
    
    (963,141
    )Total shareholders equity
    
    
    1,504,531
    
    
    
    1,388,584
 F-34




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) Combined unaudited financial information of the jointly controlled entities is summarized as
follows: 2004
    
    
    2003RMB000
    
    
    RMB000Revenue
    
    
    5,070,023
    
    
    
    3,211,424Profit/(loss) before taxation, net
    
    
    135,455
    
    
    
    (31,905
    )Net income/(loss)
    
    
    128,882
    
    
    
    (47,943
    )Current assets
    
    
    6,686,994
    
    
    
    4,668,626Non-current assets
    
    
    1,277,418
    
    
    
    1,268,248Total assets
    
    
    7,964,412
    
    
    
    5,936,874Current liabilities
    
    
    (5,934,842
    )
    
    
    (4,297,464
    )Long-term liabilities
    
    
    (320,000
    )
    
    
    Total liabilities
    
    
    (6,254,842
    )
    
    
    (4,297,464
    )Total shareholders equity
    
    
    1,709,570
    
    
    
    1,639,410
 14. INVESTMENT SECURITIES The aggregate cost, gross unrealized gain and fair value pertaining to available-for-sales
securities are as follows: As of December 31,2004
    
    
    2003RMB000
    
    
    RMB000Available-for-sale securities
    
    
    17,305
    
    
    
    17,305Gross unrealized gain
    
    
    28,468
    
    
    
    45,773
    
    
    
    17,305Unlisted securities at cost
    
    
    4,138
    
    
    
    49,911
    
    
    
    17,305
 The change in net unrealized gain reported as a separate component of accumulated other
comprehensive income was RMB28.5 million as of December 31, 2004. Investments with an aggregate cost of RMB4 million were not evaluated for impairment because (a)
the Group did not estimate the fair value of those investments in accordance with paragraphs 14 and
15 of SFAS No. 107 and (b) the Group did not identify any events or changes in circumstances that
may have had a significant adverse effect on the fair value of those investments. F-35




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) 15. PREPAYMENT FOR A LONG-TERM INVESTMENT On December 29, 2003, SJAI (a 98.01% indirectly-owned subsidiary of the Company) and SXID (a 99.0%
indirectly-owned subsidiary of the Company) entered into the agreements with the respective sellers
in relation to the acquisition of the entire equity interests of SAIAM and Shenyang XinJinBei
Investment Co., Ltd. (SXI), respectively. SAIAM is interested in 29.9% and SXI is interested in
11% of the equity interest in Shenyang JinBei Automotive Company Limited (JinBei), a company
listed on the Shanghai Stock Exchange. The consideration for the acquisitions was RMB600 million
and was determined after arms length negotiations between the parties taking into account the net
liabilities position and net asset value of SAIAM and SXI, respectively. Although the acquisition have been approved by State-Owned Assets Supervision and Administration
Commission of Liaoning Provincial Government, the transfer of the entire interest of SAIAM is
subject to the approval of State-Owned Assets Supervision and Administration Commission of the
State Council and the acquisitions are subject to the granting of a waiver to SXID and SJAI from
making an offer for all of the shares of JinBei under Regulation on Acquisitions of Listed
Companies by the China Securities Regulatory Commission. Upon completion of the acquisitions, the
Group will be effectively interested in an aggregate of approximately 40.13% of the equity
interests of JinBei. As of December 31, 2004 and 2003, the Group has paid RMB600 million to the shareholders of SAIAM
and SXI and the amount was recorded as prepayment for a long-term investment by the Group. 16. CONVERTIBLE BONDS 2004
    
    
    2003RMB000
    
    
    RMB000Convertible bonds issued at par
    
    
    1,654,300
    
    
    
    1,654,300Accrued interest expense
    
    
    13,588
    
    
    
    1,1871,667,888
    
    
    
    1,655,487
 On November 28, 2003, the Company, through its wholly owned subsidiary, Brilliance China Automotive
Finance Ltd., issued Zero Coupon Guaranteed Convertible Bonds due 2008 (the Bonds) with principal
amount of US$200,000,000 (equivalent to approximately RMB1,654.3 million). The Bonds are listed on
the Luxembourg Stock Exchange. The Bonds are convertible into fully paid ordinary shares of US$0.01 each of the Company at an
initial conversion price of HK$4.60 per share and the total potential number of shares was
336,956,522, subject to the following two events, at any time on or after January 8, 2004, and up
to and including November 14, 2008, unless the Bonds previously have been redeemed or previously
have matured.  (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 F-36




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)  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 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. As of December 31, 2004, none of the Bonds had been converted into the ordinary shares of the
Company. 17. DEFERRED EXPENSES 2004
    
    
    2003RMB000
    
    
    RMB000Direct expenses incurred in connection with the
issuance of convertible bonds (Note 16)
    
    
    44,599
    
    
    
    44,599Amortization of deferred expenses
    
    
    (10,406
    )
    
    
    (1,486
    )34,193
    
    
    
    43,113Non-current portion
    
    
    25,273
    
    
    
    34,193Current portion
    
    
    8,920
    
    
    
    8,92034,193
    
    
    
    43,113
 18. NOTES PAYABLE As of December 31, 2004 and 2003, certain notes payable were bank notes secured by short-term bank
deposits of approximately RMB2,375 million and RMB1,857 million, respectively, and notes receivable
both from third parties and affiliated companies of approximately RMB614 million and RMB281
million, respectively. 19. TAXES PAYABLE Taxes payable consist of: 2004
    
    
    2003RMB000
    
    
    RMB000Income taxes payable
    
    
    43,974
    
    
    
    115,887VAT payable
    
    
    13,249
    
    
    
    24,942Others
    
    
    29,142
    
    
    
    165,78342,391
    
    
    
    190,72586,365
    
    
    
    306,612
 20. COMMITMENTS AND CONTINGENCIES (a) Commitments As of December 31, 2004, the Group had approximately RMB2,201.5 million in outstanding commitments
of which certain items are denominated in Deutsch Marks, Japanese Yen, U.S. Dollars and Euros. The
amount included contracted but not provided for capital commitment for construction projects,
investment and acquisition, purchase of equipment, and others amounting to F-37




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) approximately RMB551.2
million and authorized but not contracted for capital commitment amounting to approximately
RMB1,585.8 million. As of December 31, 2004, the future aggregate minimum lease payments under non-cancellable
operating leases are detailed as follows: RMB000Within one year
    
    
    10,510One to two years
    
    
    4,663Two to three years
    
    
    3,641Three to four years
    
    
    3,268Four to five years
    
    
    3,268Over five years
    
    
    39,21164,561
 (b) Operating lease income Operating leases arise from the leases for certain buildings to BMW Brilliance (see also Note
24(g)). The lease terms are generally 180 months. Depreciation expense for assets subject to operating leases is provided primarily on the
straight-line method over the estimated useful life of the assets. Depreciation expense relating to
the buildings held as investments in operating leases was RMB4.7 million for the year ended
December 31, 2004 respectively. Investments in operating leases are as follows: As of December 31, 2004RMB000Buildings
    
    
    97,358Accumulated depreciation
    
    
    (6,544
    )Net investment in operating leases
    
    
    90,814
 Future minimum rental payments to be received on non-cancellable operating leases are contractually
due as follows: As of December 31, 2004RMB000Within one year
    
    
    14,152One to two years
    
    
    14,152Two to three years
    
    
    14,152Three to four years
    
    
    14,152Four to five years
    
    
    14,152Thereafter
    
    
    119,112Total
    
    
    189,872
 There were no contingent rentals under the respective lease contracts. F-38




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) (c) Contingent liabilities  (i)
    The Group had endorsed or discounted bank notes which were not yet honored by the issuers as
of December 31, 2004 and 2003 amounting to approximately RMB6,118 million and RMB1,492
million, respectively.(ii)
    As of December 31, 2004, the Group had provided the following guarantees:  (1)
    Corporate guarantees of approximately RMB296 million (2003: RMB690 million) for
revolving bank loans and notes drawn by affiliated companies of 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, 2004, the guarantee provided for the bank loans and
notes drawn by affiliated companies of Shanghai Shenhua was approximately RMB296 million
(2003: RMB690 million), which is also the maximum potential amount of future payments
under the guarantee as of December 31, 2004. 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, 2004.  (2)
    A joint and several proportional guarantee with all the joint venture partners of
Shenyang Aerospace on a long-term bank loan of approximately RMB221 million (2003: RMB344
million) drawn by Shenyang Aerospace which will expire in 2008: The guarantee was provided by the joint venture partners 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 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, 2004, the guarantee
provided for the outstanding bank loan of Shenyang Aerospace was RMB221 million (2003:
RMB344 million), which is also the maximum potential amount of future payments under the
guarantee as of December 31, 2004.
However, default by Shenyang Aerospace is considered remote F-39




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) by management and therefore
no liability for the guarantors obligation under the guarantee existed as of December
31, 2004.  (3)
    Corporate guarantees for bank loans amounting to RMB300 million, which is also the
maximum potential amount of future payments under the guarantee as of December 31, 2004,
drawn by an affiliated company of BHL. The same amount of bank deposits were pledged as a
collateral for the corporate guarantees. However, default by the affiliated company of
BHL is considered remote by management and therefore no liability for the guarantors
obligation under the guarantee existed as of December 31, 2004. The pledge of bank
deposits and the corporate guarantees were released on March 25, 2005.(4)
    Corporate guarantees of bank loans amounting to RMB100 million, which is also the
maximum potential amount of future payments under the guarantee as of December 31, 2004,
drawn by JinBei. Bank deposits of 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, 2004.  (iii)
    As of December 31, 2004, subsidiaries of the Group had issued letter of credits amounting to
approximately RMB11 million (2003: RMB32 million). Approximately RMBNil million (2003: RMB7.2
million) of the issued letter of credits was secured by pledged bank deposits.(iv)
    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
and an ex parte Court Order dated January 22, 2003 (the Court Order) granted by the Supreme
Court of Bermuda in favour of Broadsino was served on the registered office of the Company in
Bermuda. The Writ 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). The Court Order restrained the Company from, among other
things, (a) registering the transfer of the Sale Shares by the Foundation to Huachen and/or
Huachen to certain directors of the Company; or (b) if such transfer has already been
registered, registering any further dealings in such Sale Shares, in each case pending
determination by the Supreme Court of Bermuda of the legal proceedings initiated by Broadsino
against the Company, the Foundation, Huachen and certain directors of the Company. Broadsino
claimed that the Company was aware of the trust arrangement and further alleged that the
Company knowingly participated in a breach of that alleged trust arrangement by allowing the
transfer of the Sale Shares from the Foundation to Huachen. Broadsino sought recovery of the
Sale Shares and, in the alternative, damages. F-40




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) Upon an application by the Company, the Court Order was discharged by a judgement of the
Supreme Court of Bermuda given on February 11, 2003. On February 26, 2003, a statement of
claim was filed by Broadsino as a procedural step in furtherance of the legal proceedings. On
March 10, 2003, the Company took out a summons (the Strikeout Summons) at the Supreme Court
of Bermuda to have the Writ and the statement of claim struck out. The strikeout proceedings
were duly heard before the Supreme Court of Bermuda on July 22 and 23, 2003. On December 31,
2003 the Supreme Court of Bermuda issued its judgement on the strikeout proceedings, and
struck out the Writ in respect of legal proceedings brought by Broadsino against the Company.
Broadsino submitted an application for leave to appeal to the Supreme Court of Bermuda, but at
the hearing of the application before the court on March 9, 2004, Broadsinos application was
refused. Broadsino subsequently issued a Notice of Appeal dated June 18, 2004, whereby it sought to
appeal to the Court of Appeal of Bermuda, Civil Appellate Jurisdiction the decision of the
Supreme Court of Bermuda dated December 31, 2003. The Company responded with a notice of cross
appeal dated July 21, 2004. Following further submissions from each of Broadsino and the
Company, the appeal was considered at a hearing in the Court of Appeal on March 7, 8, 9, 2005,
in respect of which Broadsino was required to provide security for the Companys costs of
appeal. The Court of Appeal of Bermuda ruled in its judgment of March 14, 2005 in the Companys favour
and dismissed Broadsinos appeal. The Court of Appeal determined: (a) that Broadsino never had
any beneficial interest in Companys shares and as such there could be no express or resulting
trust in Broadsinos favour when the shares were transferred to the Foundation; (b) that
Broadsino was paid for its interest in Shenyang Automotive and therefore there was no basis
for a trust; (c) that event if Broadsino had not been paid for its interests in Shenyang
Automotive there was no basis for a trust but instead a contractual claim in debt; and (d)
that there was no evidence before the Court of Appeal that the Company by its directors knew
of the alleged trust. On April 5, 2005, Broadsino acting through its Bermuda counsel, has submitted a notice of
motion for leave to appeal to the Court of Appeal of Bermuda, which seeks leave to appeal to
the Privy Council with respect to the Court of Appeals
judgement. On June 9, 2005, the Court of Appeal directed Broadsino
to amend Broadsinos notice of motion for leave to appeal. On
June 27,
2005, Broadsino was granted leave to appeal the judgment of the Court
of Appeal to the Privy Council in the United Kingdom, which represents the highest
court of appeal in the Bermuda judicial system. As at the
date of this annual report, the order granting leave to the Privy
Council setting
out the issues to be determined was still to be issued. 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, and intend to
continue the defence of this legal action.  (v)
    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 F-41




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) 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 the 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. The directors of the Company
do not believe the Action will have any significant impact on the financial position of the
Company and of the Group. The directors of the Company intend to continue vigorously defending
the Action. F-42




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) 21. CAPITAL STOCK 2004
    
    
    2003
    
    
    2002Number 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
    
    
    
    3,666,053
    
    
    RMB303,194
 During 2003, an employee of the Group exercised certain of his stock options and as a result
2,338,000 shares of common stock of US$0.01 each were issued at a price of HK$1.896 per share (Note
22). These new shares ranked pari passu with existing shares. F-43




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) 22. STOCK OPTIONS Original share option scheme approved in 1999 Upon the listing on the Companys shares on the SEHK, the Company adopted an employee share option
scheme (the Scheme). Pursuant to the Scheme, the Companys Board of Directors may grant options
to employees of the Group to subscribe for the Companys common stock at a price which shall be the
higher of:  (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. The maximum number of shares on which options may be granted may not exceed 10% of the issued share
capital of the Company excluding any shares issued on the exercise of the option from time to time. On June 2, 2001, share options were granted to certain directors and employees of the Group,
entitling them to subscribe for a total of 31,800,000 shares of the Companys common stock at
HK$1.896 per share. The exercisable period of these options is from June 2, 2001 to June 1, 2011.
The compensation expense associated with these grants was fully vested and was charged to income
during the year ended December 31, 2001. During the year ended December 31, 2003, 2,338,000 shares
of the above share options were exercised. Accordingly, the common stock and additional paid-in
capital were increased by approximately RMB194,000 and RMB4,507,000, respectively. No option was
granted under this scheme in 2004 and 2003. No. of stock optionsAs of January 1, 2003
    
    
    17,828Granted
    
    
    Exercised
    
    
    (2,338
    )Cancelled/lapsed
    
    
    As of December 31, 2003
    
    
    15,490Granted
    
    
    Exercised
    
    
    Cancelled/lapsed
    
    
    (1,000
    )As of December 31, 2004
    
    
    14,490
 New share option scheme approved in 2002 On June 28, 2002, the Company adopted a new share option scheme (the New Scheme) in compliance
with the amendments to the listing rules and regulations of SEHK which came into effect on
September 1, 2001. The New Scheme has come into effect on July 15, 2002 and the original share
option scheme adopted by the Company on September 18, 1999 (as described above) was terminated. Any
new share option granted after July 15, 2002 will be in accordance with the terms of the New
Scheme, but the outstanding share options granted in 2001 will not be affected. Pursuant to the New
Scheme, the Companys board of directors may grant options to the participants (include the Groups
employees, non- F-44




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) executive directors, suppliers and customers, etc.) to subscribe for the Companys common stock at
a price which shall not be lower than the higher of:  (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. As of December 31, 2004, no share option was granted under the New Scheme. Call Option Agreements On December 18, 2002, Huachen entered into a principal agreement (the Principal Agreement) with
the Foundation to purchase from the Foundation a total of 1,446,121,500 shares of common stock,
representing approximately 39.446% of the then issued share capital of the Company and the
Foundations entire shareholding interest in the Company. Completion of the Principal Agreement
took place upon signing. On December 18, 2002, each of Mr. Wu Xiao An, Mr. Su Qiang, Mr. Hong Xing and Mr. He Tao (the
Management Directors) entered into a call option agreement (Call Option Agreements) with
Huachen, immediately after the Principal Agreement was entered into and after completion of the
sale and purchase of the common stocks pursuant thereto. Pursuant to the terms of the Call Option
Agreements, Huachen granted to each of the Management Directors a call option in respect of a
specified number of shares of common stock, totaling 346,305,630 shares in aggregate and
representing approximately 9.446% of the then issued share capital of the Company, at an exercise
price of HK$0.95 per share. Each call option is exercisable in whole or in part at any time during
the period of 3 years commencing from the date falling 6 months after February 6, 2003, the closing
date of the general offer made to the remaining shareholders by Huachen and the Management
Directors dated December 18, 2002. Under the terms of the Call Option Agreements, the Management Directors may elect to pay the
exercise price in full or to pay 10% of the exercise price at the time of exercise of the option.
If the Management Directors elect the latter payment option, the balance of the exercise price will
be payable, without interest, within a 3-year period after the date of completion of the purchase
of the relevant common stock, and the shares will be pledged as security in favor of Huachen until
full payment of the exercise price. As a result of the Call Option Agreements entered into between Huachen and the Management
Directors, compensation expense associated with these call options is being recognized by the
Company on a straight-line basis from December 18, 2002 to August 6, 2003, the date that the call
options become fully vested. Accordingly, compensation expenses of approximately RMB173.2 million
and RMB10.3 million were charged to the income statements for the years ended December 31, 2003 and
2002, respectively. As of December 31, 2004, none of the call options had been exercised. F-45




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) Pro-forma disclosures setting forth compensation expense assuming the Company had determined it
based on the fair value of the stock options in accordance with SFAS No. 123 and No. 148 are
presented in Note 3(r). The fair value of each option granted is estimated using the Black-Scholes option pricing model.
The weighted average assumptions used for grants of share options in 2002 is as follows: Risk-free interest rate
    
    
    4.96
    %Expected option life
 Issued on December 18, 2002
    
    1 yearExpected dividend yield
    
    
    4.11
    %Volatility
    
    
    48.01
    %
 23. DISTRIBUTION OF PROFIT As stipulated by the relevant laws and regulations for foreign-invested enterprises in the PRC, the
Companys subsidiaries are required to maintain discretionary dedicated capital, which includes a
general reserve fund, an enterprise expansion fund and a staff welfare and incentive bonus fund.
The dedicated capital is to be appropriated from statutory net income as stipulated by statute or
by the board of directors of respective subsidiaries and recorded as a component of shareholders
equity. For the years ended December 31, 2004, 2003 and 2002, the subsidiaries of the Company
appropriated approximately RMB46.2 million, RMB100.0 million and RMB60.8 million, respectively, to
the general reserve fund. No appropriation to the enterprise expansion fund was made by the
subsidiaries for the years ended December 31, 2004, 2003 and 2002. In 2003, as approved by the board of directors of Xing Yuan Dong in accordance with the relevant
laws and regulations, dedicated capital of Xing Yuan Dong amounting to RMB120 million was released
for capitalization as paid-in capital of Xing Yuan Dong. Such release was credited to the capital
reserve, which represents the capitalization of the retained earnings of Xing Yuan Dong and is a
non-distributable reserve of the Group. The Companys share of undistributed earnings retained in the associated companies and jointly
controlled entities amounted to approximately RMB110.8 million and RMB29.8 million as of December
31, 2004 and 2003, respectively. Dividends declared by the Company during 2004 and 2003 consist of: 2004
    
    
    2003RMB000
    
    
    RMB0002003 and 2002 final dividends of HK$0.01 and HK$0.01 per share, respectively
    
    
    38,885
    
    
    
    39,2102004 and 2003 interim dividends of HK$0.005 and HK$0.01 per share, respectively
    
    
    19,450
    
    
    
    38,54158,335
    
    
    
    77,751
 On April 25, 2005, the Company proposed a final dividend of RMB0.005 per share totaling
approximately RMB19,450,000. F-46




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) 24. 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
 An affiliated company is a company in which one or more of the directors or substantial
shareholders of the Company have direct or indirect beneficial interest in the Company or are in a
position to exercise significant influence over the Company. Parties are also considered to be
affiliated if they are subject to common control or common
significant influence. Save as disclosed
elsewhere in the financial statements, particulars of significant transactions with affiliated
companies (these affiliated companies and the Company have certain directors in common and/or other
relationships as specified) are summarized below: (b) Due from affiliated companies arising from trading activities: 2004
    
    
    2003RMB000
    
    
    RMB000Due from related parties: Shanghai Yuantong Automobile Sales and Service Company Limited
    
    
    
    
    
    
    355,835 Shanghai Shenhua and its affiliated companies
    
    
    386,710
    
    
    
    54,967 Affiliated companies of JinBei
    
    
    58,312
    
    
    
    53,242 Affiliated companies of the joint venture partner of Ningbo Yuming
    
    
    
    
    
    
    4,408 Associated companies and jointly controlled entities
    
    
    75,224
    
    
    
    46,453 A joint venture partner of Shenyang Aerospace
    
    
    882
    
    
    
     BMW Brilliance arising from the sale of machineries and equipment (note (i))
    
    
    269,003
    
    
    
    269,003790,131
    
    
    
    783,908Provision for doubtful debts
    
    
    (24,720
    )
    
    
    (9,720
    )765,411
    
    
    
    774,188
 F-47




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)   (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: 2004
    
    
    2003RMB000
    
    
    RMB000Notes receivable from related parties: Affiliated companies of JinBei
    
    
    22,500
    
    
    
    4,505 Shanghai Shenhua
    
    
    601,348
    
    
    
    487,770 Affiliated companies of the joint venture partner of Ningbo Yuming
    
    
    
    
    
    
    3,000 Associated companies and jointly controlled entities
    
    
    21,295
    
    
    
    31,900645,143
    
    
    
    527,175
 All the notes receivable from affiliated companies are guaranteed by banks in the PRC and have
maturities of six months or less. The fair value of the notes receivable approximates their
carrying value.  (d)
    As of December 31, 2004, included in prepayments and other current assets were approximately
RMB9.5 million (2003: RMB26 million) of prepayments for purchases of raw materials made to an
affiliated company of BHL. As of December 31, 2003, included in other receivables were outstanding proceeds of RMB20
million arising from the disposal of an associated company to an affiliated company in
December 2002.  (e)
    Amounts due to affiliated companies arising from trading activities consisted of the
following: 2004
    
    
    2003RMB000
    
    
    RMB000Due to related parties: Associated companies and jointly controlled entities
    
    
    276,951
    
    
    
    375,396 Shanghai Shenhua and its affiliated companies
    
    
    40,570
    
    
    
    84,417 JinBei and its affiliated companies
    
    
    195,166
    
    
    
    216,559 Other affiliated companies of BHL
    
    
    8,705
    
    
    
    2,478 Affiliated companies of the joint venture partner of Ningbo Yuming
    
    
    
    
    
    
    1,037 Affiliated companies of the joint venture partner of Xinguang Brilliance
    
    
    
    
    
    
    4,967 Other affiliated companies
    
    
    1,330
    
    
    
    522,722
    
    
    
    684,854
 F-48




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) The amounts due to affiliated companies are unsecured, non-interest bearing and have no fixed
repayment terms.  (f)
    Notes payable to affiliated companies arising from trading activities consisted of the
following: 2004
    
    
    2003RMB000
    
    
    RMB000Notes payable to related parties: Shanghai Shenhua
    
    
    4,116
    
    
    
     Affiliated companies of JinBei
    
    
    24,229
    
    
    
    27,272 Associated companies and jointly controlled entities
    
    
    91,892
    
    
    
    8,059 Other affiliated companies
    
    
    925
    
    
    
    100121,162
    
    
    
    35,431
  (g)
    Save as disclosed elsewhere in the financial statements, significant transactions with
affiliated companies consisted of: 2004
    
    
    2003
    
    
    2002RMB000
    
    
    RMB000
    
    
    RMB000Sales of goods: JinBei and its affiliated companies
    
    
    38,127
    
    
    
    150,637
    
    
    
    56,438 Shanghai Shenhua and its affiliated companies
    
    
    1,895,881
    
    
    
    1,984,715
    
    
    
    1,664,156 Other affiliated companies of BHL
    
    
    
    
    
    
    504
    
    
    
    150,390 Shanghai Yuantong
    
    
    
    
    
    
    
    
    
    
    710,100 Associated companies and jointly controlled entities
    
    
    205,849
    
    
    
    171,512
    
    
    
    102,024 Affiliated companies of the joint venture partner of Ningbo Yuming
    
    
    
    
    
    
    5,135
    
    
    
    2,139,857
    
    
    
    2,312,503
    
    
    
    2,683,108
 2004
    
    
    2003
    
    
    2002RMB000
    
    
    RMB000
    
    
    RMB000Purchase of goods: JinBei and its affiliated companies
    
    
    764,311
    
    
    
    986,828
    
    
    
    712,061 Shanghai Shenhua and its affiliated companies
    
    
    214,467
    
    
    
    222,940
    
    
    
    375,402 Other affiliated companies of BHL
    
    
    89,690
    
    
    
    93,498
    
    
    
    99,514 Associated companies and jointly controlled entities
    
    
    898,914
    
    
    
    1,597,289
    
    
    
    1,014,057 Affiliated companies of the joint venture partner of Ningbo Yuming
    
    
    342
    
    
    
    16,338
    
    
    
    14,580 A joint venture partner of Shenyang Aerospace
    
    
    39,019
    
    
    
    
    
    
    
    Subcontracting charges to a jointly controlled entity
    
    
    178,685
    
    
    
    17,438
    
    
    
    2,185,428
    
    
    
    2,934,331
    
    
    
    2,215,614Consideration 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
    
    
    17,850
    
    
    
    
    
    
    
    Operating lease rental on machineries and equipment charged by a
jointly controlled entity
    
    
    12,840
    
    
    
    12,000
    
    
    
    Operating lease rental from a jointly controlled entity
    
    
    15,364
    
    
    
    
    
    
    
    Proceeds from sale of property, plant and equipment JinBei and its affiliated companies
    
    
    4,407
    
    
    
    
    
    
    
     A jointly controlled entity
    
    
    1,105
    
    
    
    
    
    
    
    Purchase of machinery from affiliated companies of JinBei
    
    
    58,089
    
    
    
    
    
    
    
    
 F-49




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) 2004
    
    
    2003
    
    
    2002RMB000
    
    
    RMB000
    
    
    RMB000Research and development expenses to third parties under contracts
assumed from an affiliated company of BHL at original cost
    
    
    
    
    
    
    
    
    
    
    116,000Long-term prepayment for fixed assets to a third party under a
contract assumed from an affiliated company of BHL at original cost
    
    
    
    
    
    
    
    
    
    
    18,305Management expenses reimbursed to and consultancy fees paid to BHL
    
    
    
    
    
    
    
    
    
    
    5,182
 The above transactions were carried out after negotiations between the Group and the affiliated
companies in the ordinary course of business and on the basis of estimated market value as
determined by the directors. During the year ended December 31, 2002, JinBei allowed Shenyang Automotive to use the technology
of components in the manufacturing of Zhonghua sedans. Other significant transactions with affiliated companies consisted of: i. Trademark license Pursuant to a trademark license agreement, JinBei granted Shenyang Automotive the right to use the
JinBei trademark on its products and marketing materials indefinitely. F-50




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) ii. Guarantees provided to affiliated companies Please refer to Note 20 (c)
(ii) for details of the guarantees provided to affiliated
companies. (h) The advances to affiliated companies consisted of: 2004
    
    
    2003RMB000
    
    
    RMB000Advances to related parties: Associated companies and jointly controlled entities
    
    
    22,528
    
    
    
     BHL and its affiliated companies
    
    
    
    
    
    
    172,955 Affiliated companies of JinBei
    
    
    16,786
    
    
    
    69,748 Other affiliated companies
    
    
    138
    
    
    
    77939,452
    
    
    
    243,482Less: Provision for doubtful
debt
    
    
    (1,975
    )
    
    
    37,477
    
    
    
    243,482
 The advances to affiliated companies are unsecured, non-interest bearing and have no fixed
repayment terms. F-51




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued)  (i)
    The advances from affiliated companies consisted of: 2004
    
    
    2003RMB000
    
    
    RMB000Advances from related parties: Affiliated companies of BHL
    
    
    14,319
    
    
    
    15,294 An associated company
    
    
    
    
    
    
     An affiliated company of Shanghai Shenhua
    
    
    230
    
    
    
     Affiliated companies of JinBei
    
    
    945
    
    
    
    516 Affiliated companies of the joint venture partner of Ningbo Yuming
    
    
    
    
    
    
    1,845 Other affiliated companies
    
    
    382
    
    
    
    382 Financing received from BMW Brilliance (Note 11(d))
    
    
    74,605
    
    
    
    74,60590,481
    
    
    
    92,642
 Save for the financing received from BMW Brilliance as detailed in Note 11(c), other advances from
affiliated companies are unsecured, non-interest bearing and have no fixed repayment terms.  (j)
    As of December 31, 2004 and 2003, the Company had advanced approximately RMB3,580.1 million
and RMB3,528.1 million, respectively, to its subsidiaries, of which approximately RMB2,258.9
million and RMB2,288.9 million bear interest at 5.0% to 5.841% per annum and 5.0% to 5.8% per
annum, respectively. 25. RETIREMENT PLAN AND EMPLOYEES BENEFIT As stipulated by the regulations of the PRC government, the Companys subsidiaries in the PRC have
defined contribution retirement plans for their employees. The PRC government is responsible for
the pension liability to these retired employees. The Companys subsidiaries are required to make
specified contributions for the state-sponsored retirement plan at 20% to 23.5% of the basic salary
costs of their staff for 2004 (2003: 22% to 23.5%; 2002: 23.5% to 25%) payable to a Chinese
insurance company. The retirement plan contributions payable for the years ended December 31, 2004,
2003 and 2002 were approximately RMB37.5 million, RMB50.4 million and RMB26.8 million,
respectively. In addition to the pension contributions, pursuant to the relevant laws and
regulations of the PRC, the Companys subsidiaries are required to provide benefits such as housing
funds, medical insurance and unemployment insurance for their PRC employees. These provisions,
which were approximately RMB35 million, RMB46.5 million and RMB21.2 million for the years ended
December 31, 2004, 2003 and 2002, respectively, were calculated at a certain percentage
(approximately 14.8% to 23.4% in 2004, 13% to 18% in 2003 and 11% to 18.9% in 2002) of the
employees basic salaries. The Groups Hong Kong employees are covered by the mandatory provident fund which is managed by an
independent trustee. The Group and its Hong Kong employees each makes monthly contribution to the
scheme at 5% of the employees salary with F-52




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##### Table of Contents



Notes to Consolidated Financial Statements (Continued) maximum contributions by each of the Group and the
employees limited to HK$1,000 per month. The retirement benefit scheme cost charged to the
consolidated income statement represents contributions payable by the Company to the fund. During
the years ended December 31, 2004, 2003 and 2002, contributions amounting to approximately
HK$147,000, HK$150,000 and HK$146,000, respectively, were made. 26. EXECUTIVE BONUS PLAN Certain officers of the Company are participants in the Executive Bonus Plan (the Plan). The Plan
provides that up to 5% of the Companys net income be set aside each year for distribution among
plan participants based upon performance as determined by the Companys board of directors. The
allocation of bonuses among participants is determined at the discretion of the President of the
Company. For the year ended December 31, 2004, no performance bonus was allocated. For the years
ended December 31, 2003 and 2002, the Company accrued RMB34.4 million and RMB21.6 million,
respectively, under the Plan. 27. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Year ended December 31,2004
    
    
    2003
    
    
    2002RMB000
    
    
    RMB000
    
    
    RMB000Cash paid for:Interest
(net of amount capitalized: 2004: RMB18,369,000; 2003: RMB Nil; 2002: RMB800,000)
    
    
    154,041
    
    
    
    165,924
    
    
    
    202,968Income taxes
    
    
    127,538
    
    
    
    163,687
    
    
    
    112,579
 During the years ended December 31, 2004, 2003 and 2002, major non-cash transactions included: In 2003, as approved by the joint venture partners of Shenyang Automotive, the registered
capital and total investment of Shenyang Automotive was increased by approximately RMB2,260
million, which was contributed by the Company and JinBei in proportion to their original equity
interests in Shenyang Automotive. The Company contributed 51% of the increase in paid-in capital by
way of capitalization of its dividend receivable from a subsidiary amounting to approximately
RMB1,152.6 million. JinBei contributed the remaining 49% of the paid-in capital by injecting
buildings amounting to approximately RMB41.0 million (Note 11(b)), long-term prepayment for rental
of land amounting to approximately RMB64.4 million (Note 11(b)), components and parts technology
right amounting to RMB820 million (Note 12(b)) and approximately RMB182 million in cash. F-53




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Notes to Consolidated Financial Statements (Continued) 28. OTHER SUPPLEMENTAL INFORMATION The following items are charged to the consolidated statements of income: Year ended December 31,2004
    
    
    2003
    
    
    2002RMB000
    
    
    RMB000
    
    
    RMB000Import tariffs
    
    
    56,857
    
    
    
    104,598
    
    
    
    68,168Research and development costs
    
    
    479,928
    
    
    
    191,433
    
    
    
    304,936Foreign exchange losses/(gains)
    
    
    6,011
    
    
    
    (120
    )
    
    
    2,786Provision for impairments of property, plant and equipment
    
    
    10,000
    
    
    
    6,027
    
    
    
    2,547Provision for impairment of investment securities
    
    
    
    
    
    
    
    
    
    
    8,500Provision for doubtful debts and write off of bad debts
    
    
    55,292
    
    
    
    4,825
    
    
    
    18,921
 29. SEGMENT INFORMATION SFAS No. 131 establishes standards for reporting information about operating segments in financial
statements. Operating segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief operating decision
maker, or decision making group, in deciding how to allocate resources and in assessing
performance. The Group began manufacturing and selling Zhonghua sedans and BMW sedans, respectively, which are
managed separately because each of them represents a strategic business unit that serves a
different market in the automobile industry. Therefore, the Groups reportable operating segments
consist of i) manufacture and sale of minibuses and automotive components; ii) manufacture and sale
of Zhonghua sedans; and iii) manufacture and sale of BMW sedans. The accounting policies of each operating segment are the same as those described in the summary of
significant accounting policies. The Group evaluates performance based on stand-alone operating
segment net income and generally accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market prices. The Groups activities are
conducted predominantly in the PRC. Accordingly, no geographical segmentation analysis is provided. The Group provides services to a broad range of automobiles and its components. The Groups credit
risk primarily consists of receivables from a variety of customers including state and local
agencies, municipalities and private industries. The Company had one customer and its affiliates
(see Note 24(g)) that accounted for more than ten percent of revenues. The Company reviews its
accounts receivable and provides estimates of allowances as deemed necessary. F-54




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Notes to Consolidated Financial Statements (Continued) Business segments  2004 Manufacture and sale of
    
    
    Manufacture and
    
    
    Manufacture andminibuses and
    
    
    sale of Zhonghua
    
    
    sale of BMWautomotive components
    
    
    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
prepayment for
rental of land
    
    
    2,368
    
    
    
    
    
    
    
    
    
    
    
    2,368Amortization on
intangible assets
    
    
    905
    
    
    
    225,137
    
    
    
    
    
    
    
    226,042Impairment of
equity method
goodwill
    
    
    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
    
    
    418,400
    
    
    
    
    
    
    
    
    
    
    
    418,400
 F-55




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Notes to Consolidated Financial Statements (Continued) Business segments  2003 Manufacture and sale of
    
    
    Manufacture and
    
    
    Manufacture andminibuses and
    
    
    sale of Zhonghua
    
    
    sale of BMWautomotive components
    
    
    sedans
    
    
    sedans
    
    
    TotalRMB000
    
    
    RMB000
    
    
    RMB000
    
    
    RMB000Total revenues from
reportable segments
    
    
    6,942,411
    
    
    
    3,345,332
    
    
    
    
    
    
    
    10,287,743Elimination of intersegment
revenues
    
    
    (178,186
    )
    
    
    
    
    
    
    
    
    
    
    (178,186
    )Revenues from external
customers
    
    
    6,764,225
    
    
    
    3,345,332
    
    
    
    
    
    
    
    10,109,557Segment income (loss)
before taxation and
minority interests
    
    
    1,386,980
    
    
    
    133,614
    
    
    
    (124,910
    )
    
    
    1,395,684Unallocated amounts 
corporate expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (301,497
    )Income before taxation and
minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,094,187Segment assets as of
December 31, 2003
    
    
    12,030,065
    
    
    
    5,555,963
    
    
    
    564,543
    
    
    
    18,150,571Unallocated amounts 
corporate assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137,665Total assets as of December
31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,288,236Other disclosures:Depreciation of fixed assets
    
    
    197,073
    
    
    
    250,021
    
    
    
    
    
    
    
    447,094Amortization of long-term
prepayment for rental of
land
    
    
    2,153
    
    
    
    
    
    
    
    
    
    
    
    2,153Amortization on intangible
assets
    
    
    1,546
    
    
    
    225,531
    
    
    
    
    
    
    
    227,077Interest income
    
    
    49,535
    
    
    
    3,137
    
    
    
    
    
    
    
    52,672Interest expense
    
    
    166,074
    
    
    
    1,037
    
    
    
    
    
    
    
    167,111Capital expenditure
    
    
    1,023,356
    
    
    
    1,005,709
    
    
    
    
    
    
    
    2,029,065Equity in earnings of
associated companies and
jointly controlled entities
    
    
    102,050
    
    
    
    132,331
    
    
    
    (124,910
    )
    
    
    109,471Equity method goodwill
(Note 13)
    
    
    391,104
    
    
    
    31,983
    
    
    
    
    
    
    
    423,087Goodwill
    
    
    414,464
    
    
    
    
    
    
    
    
    
    
    
    414,464
 F-56




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Notes to Consolidated Financial Statements (Continued) 30. ACCUMULATED OTHER COMPREHENSIVE INCOME SFAS No. 130 requires the components of comprehensive income to be disclosed in the financial
statements. Comprehensive income consists of net income and other gains and losses affecting
shareholders equity that, under generally accepted accounting principles, are excluded from net
income. For the Group, comprehensive income only represents its net income for the years ended
December 31, 2004, 2003 and 2002. Unrealized gain on marketable
    
    
    Foreign currency
    
    
    Accumulative otheravailable-for-sale securities
    
    
    translation adjustments
    
    
    comprehensive incomeRMB000
    
    
    RMB000
    
    
    RMB000Balance at December
31, 2002
    
    
    
    
    
    
    39,179
    
    
    
    39,179Current year change
    
    
    
    
    
    
    
    
    
    
    Balance at December
31, 2003
    
    
    
    
    
    
    39,179
    
    
    
    39,179Current year change
    
    
    28,468
    
    
    
    
    
    
    
    28,468Balance at December
31, 2004
    
    
    28,468
    
    
    
    39,179
    
    
    
    67,647
 31. COMPARATIVE FIGURES Certain comparative figures reported in previous years have been reclassified to conform to the
fiscal 2004 presentation. 32. APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the board of directors on April 25, 2005. F-57