SHANGHAI LUJIAZUI FINANCE & TRADE ZONE DEVELOPMENT CO., LTD.

(incorporated in the People’s Republic of China)

INDEPENDENT INTERNATIONAL AUDITORS’ REPORT

AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED

31ST DECEMBER 2003

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SHANGHAI LUJIAZUI FINANCE & TRADE ZONE DEVELOPMENT CO., LTD.

Contents / Pages
Independent International auditors’ report / 1
Consolidated income statement / 2
Consolidated balance sheet / 3 - 4
Consolidated statement of changes in shareholders’ equity / 5
Consolidated cash flow statement / 6
Notes to the financial statements / 7 – 31
Supplementary financial information / 32

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INDEPENDENT INTERNATIONAL AUDITORS’ REPORT

TO THE MEMBERS OF SHANGHAI LUJIAZUI FINANCE & TRADE ZONE

DEVELOPMENT CO., LTD.

(incorporated in the People’s Republic of China with limited liability)

Basis of opinion

We have audited the accompanying consolidated balance sheet of Shanghai Lujiazui Finance & Trade Zone Development Co., Ltd. (the “Company”) and its subsidiaries (collectively referred to as the “Group”) as of 31st December 2003 and the related consolidated income statement, consolidated statement of changes in shareholders’ equity and consolidated cash flow statement for the year then ended. These financial statements set out on pages 2 to 31 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. This report is solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with International Standards on Auditing. 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.

Audit opinion

In our opinion, the financial statements give a true and fair view of the financial position of the Group as of 31st December 2003 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong,

7th April 2004

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SHANGHAI LUJIAZUI FINANCE & TRADE ZONE DEVELOPMENT CO., LTD.

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31ST DECEMBER 2003

Note / 2003 / 2002
RMB’000 / RMB’000
Turnover / 3 / 1,990,886 / 1,962,008
Cost of sales / 5 / (1,262,848) / (1,347,407)
──────── / ────────
Gross profit / 728,038 / 614,601
Gain on disposal of associates / - / 40,530
Net other operating income / 4 / 97,036 / 54,537
Selling expenses / (15,238) / (17,242)
Administrative expenses / (117,761) / (84,233)
──────── / ────────
Operating profit / 5 / 692,075 / 608,193
Net finance income / 6 / 85,819 / 15,113
Share of results of associates before taxation / 14 / 10,911 / (19,121)
──────── / ────────
Profit before taxation / 788,805 / 604,185
Taxation / 7 / (119,535) / (88,662)
──────── / ────────
Profit after taxation / 669,270 / 515,523
Minority interests / 28 / (17,284) / (6,902)
──────── / ────────
Net profit for the year / 651,986 / 508,621
════════ / ════════
Earnings per share / 9 / RMB0.35 / RMB0.27
════════ / ════════


SHANGHAI LUJIAZUI FINANCE & TRADE ZONE DEVELOPMENT CO., LTD.

CONSOLIDATED BALANCE SHEET

AS AT 31ST DECEMBER 2003

Note / 2003 / 2002
RMB’000 / RMB’000
Assets
Non - current assets
Goodwill / 10 / 8,211 / 1,844
Properties under development / 11 / 2,145,869 / 2,180,051
Fixed assets / 12 / 781,892 / 724,464
Land use rights / 13 / 39,958 / 42,626
Investments in associates / 14 / 92,064 / 81,257
Other investments / 15 / 344,425 / 320,917
Deferred tax assetS / 16 / 2,076 / 3,590
──────── / ────────
3,414,495 / 3,354,749
------/ ------
Current assets
Properties held for sale / 17 / 1,894,418 / 2,237,807
Trade investments / 18 / 6,573 / 93,739
Accounts receivable / 19 / 37,626 / 370
Loans receivable / 20 / 41,609 / 52,975
Advance to sub-contractors / 68,380 / 100,796
Amount due from an associate / 21 / 1,576 / 1,162
Amounts due from fellow subsidiaries / 21 / 20,296 / 14,869
Amount due from a related company / 21 / 467 / -
Other receivables and prepayments / 74,061 / 146,798
Cash and bank balances / 3,381,603 / 1,766,821
──────── / ────────
5,526,609 / 4,415,337
------/ ------
Total assets / 8,941,104 / 7,770,086
════════ / ════════


SHANGHAI LUJIAZUI FINANCE & TRADE ZONE DEVELOPMENT CO., LTD.

CONSOLIDATED BALANCE SHEET (CONTINUED)

AS AT 31ST DECEMBER 2003

Note / 2003 / 2002
RMB’000 / RMB’000
Capital and reserves
Share capital / 26 / 1,867,684 / 1,867,684
Share premium / 1,304,360 / 1,304,360
Reserve funds / 27 / 1,044,274 / 849,527
Retained profits / 1,115,299 / 770,121
Proposed dividends / 8 / 112,061 / 93,384
──────── / ────────
5,443,678 / 4,885,076
------/ ------
Minority interests / 28 / 506,171 / 585,607
Non-current liabilities
Borrowings / 24 / 213,000 / -
──────── / ────────
213,000 / -
------/ ------
Current liabilities
Deposits received from customers / 1,240,565 / 1,162,038
Accounts payable / 296,847 / 163,637
Other payables and accruals / 859,894 / 651,949
Amounts due to a fellow subsidiary / 21 / - / 9,584
Amount due to ultimate holding company / 22 / 117,558 / 53,894
Provision for staff bonus and welfare fund / 23 / 16,319 / 2,667
Provision for taxation / 72,072 / 76,634
Borrowings / 24 / 175,000 / 179,000
──────── / ────────
2,778,255 / 2,299,403
------/ ------
Total liabilities / 2,991,255 / 2,299,403
------/ ------
Total equity and liabilities / 8,941,104 / 7,770,086
════════ / ════════
On behalf of the Board
……………………………. ………………………………
Director Director


SHANGHAI LUJIAZUI FINANCE & TRADE ZONE DEVELOPMENT CO., LTD.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEAR ENDED 31ST DECEMBER 2003

Share / Share / Reserve / Retained
Note / capital / premium / Funds / Profits / Total
RMB’000 / RMB’000 / RMB’000 / RMB’000 / RMB’000
At 1st January 2002 / 1,867,684 / 1,304,360 / 702,266 / 502,145 / 4,376,455
Profit for the year / - / - / - / 508,621 / 508,621
Transfer from retained profits to reserve funds / 27 / - / - / 147,261 / (147,261) / -
──────── / ──────── / ──────── / ──────── / ────────
Balance at 31st December 2002 / 1,867,684 / 1,304,360 / 849,527 / 863,505 / 4,885,076
════════ / ════════ / ════════ / ════════ / ════════
At 1st January 2003 / 1,867,684 / 1,304,360 / 849,527 / 863,505 / 4,885,076
Profit for the year / - / - / - / 651,986 / 651,986
Dividends / 8 / - / - / - / (93,384) / (93,384)
Transfer from retained profits to reserve funds / 27 / - / - / 194,747 / (194,747) / -
──────── / ──────── / ──────── / ──────── / ────────
Balance at 31st December 2003 / 1,867,684 / 1,304,360 / 1,044,274 / 1,227,360 / 5,443,678
════════ / ════════ / ════════ / ════════ / ════════


SHANGHAI LUJIAZUI FINANCE & TRADE ZONE DEVELOPMENT CO., LTD.

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31ST DECEMBER 2003

Note / 2003 / 2002
RMB’000 / RMB’000

Cash flows from operating activities

Cash generated from operations / 32(a) / 1,600,501 / 609,423
Interest paid / (18,678) / (46,212)
Tax paid / (121,080) / (39,892)
──────── / ────────
Net cash from operating activities / 1,460,743 / 523,319
------/ ------

Cash flows from investing activities

Acquisition of a subsidiary / 32(d) / 7,692 / -
Establishment of a subsidiary / 32(f) / 200 / 36,000
Decrease in properties under development / 4,040 / 1,046,551
Purchase of fixed assets / (73,687) / (2,200)
Investments in associates / (74,000) / -
Purchase of other investments / (210) / -
Proceeds from disposal of fixed assets / 22,794 / 743
Proceeds from disposal of associates / 46,500 / 127,569
Proceeds from disposal of other investments / 7,024 / 72
Bank interest received / 29,860 / 13,528
Dividends received / 20,457 / 16,154
──────── / ────────
Net cash (used in)/from investing activities / (9,330) / 1,164,189
------/ ------

Cash flows from financing activities

/ 32(c)
Bank loans obtained / 295,000 / 175,000
Repayment of bank loans / (175,000) / (1,186,767)
Loans from a minority shareholder of a subsidiary / 93,000 / -
Advance from ultimate holding company / 57,980 / 19,226
Dividends paid / (92,061) / -
Dividends distributed to minority shareholders / 28 / (11,550) / (3,953)
──────── / ────────
Net cash from/(used in) financing activities / 167,369 / (996,494)
------/ ------
Increase in cash and cash equivalents / 1,618,782 / 691,014
Cash and cash equivalents at beginning of year / 1,762,821 / 1,071,807
──────── / ────────
Cash and cash equivalents at end of year / 32(b) / 3,381,603 / 1,762,821
════════ / ════════


SHANGHAI LUJIAZUI FINANCE & TRADE ZONE DEVELOPMENT CO., LTD.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31ST DECEMBER 2003

1 Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This basis of accounting differs from that used in the preparation of the statutory financial statements in the People’s Republic of China (“PRC”). The statutory financial statements of the Group were prepared in accordance with the PRC accounting regulations. Appropriate restatements have been made to these consolidated financial statements to conform with IFRS. Differences arising from these restatements are not incorporated in the accounting records of the companies comprising the Group.

In addition, these consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of trade investments.

2 Principal accounting policies

(a) Basis of consolidation

Subsidiaries which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated.

Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated.

Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.

(b) Goodwill/negative goodwill

Goodwill on acquisition of a subsidiary represents the excess of the acquisition cost over the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition is recognised as an intangible asset and is amortised by equal annual instalments over its estimated economic useful life of 10 years. Where an indication of an impairment exists, the carrying amount of goodwill is assessed and written down immediately to its recoverable amount.

Negative goodwill on acquisition of a subsidiary represents the excess of the Group’s share of the net assets acquired over the acquisition cost at the date of acquisition. Negative goodwill on acquisition of a subsidiary is presented in the same balance sheet classification as goodwill. To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the Group’s plan for the acquisition and can be measured reliably, but which do not represent identifiable liabilities at the date of acquisition, that portion of negative goodwill is recognised in the consolidated income statement when the future losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair values of the identifiable non-monetary assets acquired, is recognised in the consolidated income statement over the remaining weighted average useful life of those identifiable acquired depreciable/amortisable assets; negative goodwill in excess of the fair values of those identifiable non-monetary assets is recognised in the consolidated income statement immediately.

Negative goodwill on acquisition of an associate represents the excess of the fair value of the Group’s share of the net assets acquired over the acquisition cost at the date of acquisition. Negative goodwill on acquisition of an associate is presented as a reduction from the share of the net assets of the associate under the investments in associates in the consolidated balance sheet. Negative goodwill is recognised in the consolidated income statement over the remaining weighted average useful life of those identifiable acquired depreciable/amortisable assets of the associate.


SHANGHAI LUJIAZUI FINANCE & TRADE ZONE DEVELOPMENT CO., LTD.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31ST DECEMBER 2003

2 Principal accounting policies (Continued)

(c) Properties under development

Properties under development comprise land use rights and relevant construction expenditure on land resumption, development, infrastructural work and interest capitalised less accumulated foreseeable losses. Properties under development are not depreciated and stated at costs less any foreseeable losses. On completion, properties are transferred to investment properties or properties held for sale and are accounted for as set out in note 2(d)(i) and 2(i) respectively.

(d) Fixed assets

(i) Investments properties

Investment properties are interests in buildings in respect of which construction work and development have been completed, and which are held for their long term investment purpose, any rental income being negotiated at arm’s length.

In previous years, investment properties including both buildings and leasehold land were stated at estimated open market values at the balance sheet date on an aggregation basis.

Land use rights in respect of investment properties are accounted for as separate assets at cost less amortisation. The building component of investment properties are stated at cost after deducting accumulated depreciation and impairment losses.

Depreciation of investment properties is calculated to write off their cost less impairment losses over 30 years on a straight line basis.