UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

Under the Securities Exchange Act of 1934

(Amendment No. 3)*

China Hydroelectric Corporation

(Name of Issuer)

Ordinary Shares, $0.001 par value per share**

American Depositary Shares

(Title of Class of Securities)

16949D101***

(CUSIP Number)

NewQuest Asia Fund I (G.P.) Ltd.

c/o Walkers Corporate Services Limited

Walker House

87 Mary Street, George Town

Grand Cayman, Cayman Islands KY1-9005

August 30, 2012

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box.  ¨

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

¹ China Environment Fund III Management, L.P. (“CEF III Management”), the general partner of China Environmental Fund III, L.P. (“CEF III”) and China Environment Fund III Holdings Ltd. (“CEF III Holdings”), the general partner of CEF III Management, may each be deemed to have sole power to vote these shares, and Messrs. Donald C. Ye, Shelby Chen, Michael Li, Larry Zhang and Ian Zhu, who comprise the members of the CEF III Investment Committee (the “CEF III Investment Committee Members”), may be deemed to have shared power to vote these shares.

² CEF III Management, the general partner of CEF III, and CEF III Holdings, the general partner of CEF III Management, may each be deemed to have sole power to vote these shares, and the CEF III Investment Committee Members may be deemed to have shared power to vote these shares.

³ CEF III Management, the general partner of CEF III, and CEF III Holdings, the general partner of CEF III Management, may each be deemed to have sole power to vote these shares, and the CEF III Investment Committee Members may be deemed to have shared power to vote these shares.

⁴ CEF III Management, the general partner of CEF III, and CEF III Holdings, the general partner of CEF III Management, may each be deemed to have sole power to vote these shares, and the CEF III Investment Committee Members may be deemed to have shared power to vote these shares.

⁵ CEF III Management, the general partner of CEF III, and CEF III Holdings, the general partner of CEF III Management, may each be deemed to have sole power to vote these shares, and the CEF III Investment Committee Members may be deemed to have shared power to vote these shares.

⁶ CEF III Management, the general partner of CEF III, and CEF III Holdings, the general partner of CEF III Management, may each be deemed to have sole power to vote these shares, and the CEF III Investment Committee Members may be deemed to have shared power to vote these shares.

⁷ CEF III Management, the general partner of CEF III, and CEF III Holdings, the general partner of CEF III Management, may each be deemed to have sole power to vote these shares, and the CEF III Investment Committee Members may be deemed to have shared power to vote these shares.

⁸ CEF III Management, the general partner of CEF III, and CEF III Holdings, the general partner of CEF III Management, may each be deemed to have sole power to vote these shares, and the CEF III Investment Committee Members may be deemed to have shared power to vote these shares.

⁹ Includes 1,980,537 ADSs, representing 5,941,611 Ordinary Shares. In addition, Aqua Resources Asia Holding Limited (“ARAHL”) holds an additional 2 Ordinary Shares of the Company.

¹⁰ Includes 1,980,537 ADSs, representing 5,941,611 Ordinary Shares. In addition, ARAHL holds an additional 2 Ordinary Shares of the Company.

¹¹ Includes 1,980,537 ADSs, representing 5,941,611 Ordinary Shares. In addition, ARAHL holds an additional 2 Ordinary Shares of the Company.

The following constitutes Amendment No. 3 to the Schedule 13D filed by the undersigned. Such Schedule 13D is hereby amended as follows:

Item 3. Source and Amount of Funds or Other Consideration

Item 3 is hereby amended and restated to read as follows:

CPI and NewQuest:

Prior to the Company’s initial public offering, CPI purchased 50,000 series A and 25,000 series B convertible preferred shares of the Company in January 2008 and July 2008, respectively, with cash. The funds for the purchase of the convertible preferred shares of the Company by CPI (the “CPI Pre-IPO Shares”) were provided primarily from the working capital of CPI. Immediately prior to the closing of the Company’s initial public offering on January 28, 2010, the CPI Pre-IPO Shares, and accrued dividends thereon, were converted into an aggregate of 30,858,964 Ordinary Shares.

On February 4, 2011, NewQuest entered into two agreements, pursuant to which, (i) on April 14, 2011, NewQuest acquired, among other things, CPI, including its portfolio investment holdings of 30,858,964 Ordinary Shares of the Company, and (ii) on April 15, 2011, following NewQuest’s acquisition of CPI, CPI acquired an additional 7,885,431 Ordinary Shares of the Company in exchange for $13,095,362 in cash. The source of the funds for these acquisitions was NewQuest’s working capital. As a result of such transactions, CPI became a wholly owned subsidiary of NewQuest and directly owned an aggregate of 38,744,395 Ordinary Shares of the Company.

Swiss Re:

Prior to the Company’s initial public offering, Swiss Re purchased 10,000 series A and 15,000 series B convertible preferred shares of the Company in January 2008 and July 2008, respectively, with cash. The funds for the purchase of the convertible preferred shares of the Company by Swiss Re (the “Swiss Re Pre-IPO Shares”) were provided from the working capital of Swiss Re. Immediately prior to the closing of the Company’s initial public offering on January 28, 2010, the Swiss Re Pre-IPO Shares, and accrued dividends thereon, were converted into an aggregate of 10,114,508 Ordinary Shares, which were subsequently converted into 3,371,502 ADSs with 2 Ordinary Shares that were not converted. On August 24, 2012, Swiss Re converted 3,371,502 ADSs into 10,114,506 Ordinary Shares.

CEF III:

Prior to the Company’s initial public offering, CEF III purchased 20,000 series B convertible preferred shares of the Company in August 2008 with cash. The funds for the purchase of the convertible preferred shares of the Company by CEF III (the “CEF III Pre-IPO Shares”) were provided from the working capital of CEF III. Immediately prior to the closing of the Company’s initial public offering on January 28, 2010, the CEF III Pre-IPO Shares, and accrued dividends thereon, were converted into an aggregate of 7,838,595 Ordinary Shares, which were subsequently converted into 2,612,865 ADSs. On August 24, 2012, CEF III converted 2,612,865 ADSs into 7,838,595 Ordinary Shares.

Aqua, ARAHL and FWCM:

Prior to the Company’s initial public offering, ARAHL (a wholly owned subsidiary of Aqua, which is managed by FWCM) purchased 20,000 series C convertible preferred shares of the Company in October 2009, with cash. The funds for the purchase of the convertible preferred shares of the Company by ARAHL (the “ARAHL Pre-IPO Shares”) were provided by way of inter-company loan from its parent company Aqua. Under the terms of the inter-company loan arrangement between Aqua and ARAHL, in addition to repayment of the principal amount of the loan by ARAHL to Aqua, ARAHL is obliged to pay to an amount equal to the aggregate of any net income and any capital gain on the Company shares acquired by ARAHL less the aggregate of any net income loss and any capital loss (subject to certain retentions by ARAHL). The terms of the intercompany loan arrangements do not provide that the Ordinary Shares held by ARAHL are subject to any pledge or other contingency which would give Aqua voting power or investment power over them. The funds used by Aqua in order to make the relevant inter-company loan to ARAHL came from subscriptions by investors for ordinary shares of Aqua on its initial public offering. Immediately prior to the closing of the Company’s initial public offering on January 28, 2010, the ARAHL Pre-IPO Shares, and accrued dividends thereon, were converted into an aggregate of 5,941,613 Ordinary Shares.

Abrax:

Prior to the Company’s initial public offering, Abrax purchased 5,000 series B convertible preferred shares of the Company in August 2008, with cash. The funds for the purchase of the convertible preferred shares of the Company by Abrax (the “Abrax Pre-IPO Shares”) were provided from the working capital of Abrax. Immediately prior to the closing of the Company’s initial public offering on January 28, 2010, the Abrax Pre-IPO Shares, and accrued dividends thereon, were converted into an aggregate of 1,959,649 Ordinary Shares, which were subsequently converted into 653,216 ADSs with one Ordinary Share that was not converted. Including purchases of ADSs on the public market, Abrax acquired a total of 772,001 ADSs. On August 29, 2012, Abrax converted 772,001 ADSs into 2,316,003 Ordinary Shares.

IWU:

Prior to the Company’s initial public offering, IWU purchased 3,000 series B convertible preferred shares of the Company in August 2008, with cash. The funds for the purchase of the convertible preferred shares of the Company by IWU (the “IWU Pre-IPO Shares”) were provided from the working capital of IWU. Immediately prior to the closing of the Company’s initial public offering on January 28, 2010, the IWU Pre-IPO Shares, and accrued dividends thereon, were converted into an aggregate of 1,175,789 Ordinary Shares, which were subsequently converted into 391,929 ADSs with 2 Ordinary Shares that were not converted. On August 29, 2012, IWU converted 361,927 ADSs into 1,085,781 Ordinary Shares.

Item 4. Purpose of Transaction

Item 4 is hereby amended to add the following:

On August 30, 2012, the Consortium sent a follow-up letter to its Joint Letter (the “Follow-up Letter”) informing the Company that it has formally called an EGM scheduled for September 28, 2012. The Consortium attached an amended and restated EGM Notice and Proxy Materials to the Follow-up Letter. The Follow-up Letter and the amended and restated EGM Notice and Proxy Materials are attached hereto as Exhibit 99.2 and Exhibit 99.3, respectively, and each are incorporated herein by reference in its entirety. A form of the ordinary shareholder proxy card and ADS Voting Instruction Card are attached hereto as Exhibits 99.6 and 99.7, respectively.

Item 5. Interest in Securities of the Issuer

Item 5 is hereby amended and restated as follows:

(a) The foregoing calculations of percentage ownership are based on 161,989,097 Ordinary Shares issued and outstanding as represented by the Company in its Annual Report on Form 20-F filed on April 27, 2012.

CPI and NewQuest:

CPI directly beneficially owns 38,744,395 Ordinary Shares, or approximately 23.9% of the Ordinary Shares. NewQuest, its sole general partner, NewQuest GP, and NewQuest Management, an investment manager of NewQuest GP, may be deemed to beneficially own such 38,744,395 Ordinary Shares, which represents approximately 23.9% of the Ordinary Shares. Due to CPI’s participation in the Voting Agreement and ARAHL Letter of Support (each as described below), CPI, NewQuest, NewQuest GP and NewQuest Management may additionally be deemed to beneficially own a total of 66,040,898 Ordinary Shares, which represents approximately 40.8% of the total outstanding Ordinary Shares of the Company.

Swiss Re:

Swiss Re directly beneficially owns 10,114,508 Ordinary Shares, or approximately 6.2% of the total outstanding Ordinary Shares of the Company. Due to Swiss Re’s participation in the Voting Agreement (as described below), it may additionally be deemed to beneficially own a total of 66,040,898 Ordinary Shares, which represents approximately 40.8% of the total outstanding Ordinary Shares of the Company.

CEF III:

CEF III directly beneficially owns 7,838,595 Ordinary Shares, or approximately 4.8% of the total outstanding Ordinary Shares of the Company. CEF III Management, the general partner of CEF III, CEF III Holdings, the general partner of CEF III Management, and the CEF III Investment Committee Members, may be deemed to beneficially own such 7,838,595 Ordinary Shares, or approximately 4.8% of the total outstanding Ordinary Shares of the Company. Due to CEF III’s participation in the Voting Agreement (as described below), CEF III, CEF III Management, CEF III Holdings and the CEF III Investment Committee Members may additionally be deemed to beneficially own a total of 66,040,898 Ordinary Shares, which represents approximately 40.8% of the total outstanding Ordinary Shares of the Company.

ARAHL:

ARAHL directly beneficially owns: (i) 1,980,537 ADSs, representing 5,941,611 Ordinary Shares; and (ii) two Ordinary Shares, which together represents approximately 3.7% of the total outstanding Ordinary Shares of the Company. Aqua (the parent company of ARAHL), FWCM (the discretionary investment manager of Aqua), the non-executive directors of ARAHL and the members of the FWCM Aqua Investment Committee, may be deemed to beneficially own such: (i) 1,980,537 ADSs, representing 5,941,611 Ordinary Shares; and (ii) two Ordinary Shares, which together represents approximately 3.7% of the Ordinary Shares. Due to ARAHL’s participation in the ARAHL Letter of Support (defined in Item 5 below), Aqua, ARAHL, FWCM, the non-executive directors of ARAHL and the members of the FWCM Aqua Investment Committee may additionally be deemed to beneficially own a total of 66,040,898 Ordinary Shares, which represents approximately 40.8% of the total outstanding Ordinary Shares of the Company.

ARAHL (by virtue of its participation in the ARAHL Letter of Support), Aqua (by virtue of its being the parent of ARAHL) and FWCM (by virtue of its being the discretionary investment manager of Aqua) may be deemed to be members of a group with respect to the Company or the Ordinary Shares for purposes of Section 13(d) of the Act. Each of ARAHL, Aqua, FWCM, the non-executive directors of ARAHL and the members of the FWCM Aqua Investment Committee, expressly disclaims any such group membership for purposes of Section 13(d) of the Act or otherwise.

Abrax:

Abrax directly beneficially owns 2,316,004 Ordinary Shares, or approximately 1.4% of the total outstanding Ordinary Shares of the Company. Due to Abrax’s participation in the Voting Agreement (as described below), it may additionally be deemed to beneficially own a total of 66,040,898 Ordinary Shares, which represents approximately 40.8% of the total outstanding Ordinary Shares of the Company.

IWU:

IWU directly beneficially owns 1,085,783 Ordinary Shares, or approximately 0.7% of the total outstanding Ordinary Shares of the Company. Due to IWU’s participation in the Voting Agreement, it may additionally be deemed to beneficially own a total of 66,040,898 Ordinary Shares, which represents approximately 40.8% of the total outstanding Ordinary Shares of the Company.

Each of CPI, Swiss Re, CEF III, ARAHL, Abrax and IWU by virtue of the Shareholders Agreement (as described below), may be deemed to be members of a group with respect to the Company or the Ordinary Shares for purposes of Section 13(d) of the Act. Each of CPI, Swiss Re, CEF III, ARAHL, Abrax and IWU expressly disclaims any such group membership for purposes of Section 13(d) of the Act or otherwise.

The Consortium may be deemed to be members of a group with respect to the Company or the Ordinary Shares for purposes of Section 13(d) of the Act, by virtue of CPI, Swiss Re, CEF III, Abrax and IWU entering into that certain Voting Agreement, dated August 21, 2012 (the “Voting Agreement”), a copy of which is attached hereto as Exhibit 99.4 and incorporated herein by reference, and by virtue of CPI and ARAHL entering into that certain Letter of Support, dated August 21, 2012 (the “ARAHL Letter of Support”), a copy of which is attached hereto as Exhibit 99.5 and incorporated herein by reference. Each of the members of the Consortium expressly disclaims any such group membership for purposes of Section 13(d) of the Act or otherwise.

The Reporting Persons declare that neither the filing of this Statement nor anything herein shall be construed as an admission that such person is, for the purposes of Section 13(d) of the Act or any other purpose, (i) acting (or has agreed or is agreeing to act together with any other person) as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding or disposing of securities of the Company or otherwise with respect to the Company or any securities of the Company or (ii) a member of any group with respect to the Company or any securities of the Company.

(b) Number of shares as to which each Reporting Person has:

See Item 7 on the cover page(s) hereto.

See Item 8 on the cover page(s) hereto.

See Item 9 on the cover page(s) hereto.

See Item 10 on the cover page(s) hereto.

Each of the Reporting Persons, by virtue of the Shareholders Agreement (as described below), may be deemed to have shared power to vote those Ordinary Shares attributable to the other parties to the Shareholders Agreement. Each of Reporting Persons expressly disclaims beneficial ownership of the Company’s securities except to the extent of their own pecuniary interest.

Each of the Reporting Persons, by virtue of the Voting Agreement and the ARAHL Letter of Support, may be deemed to have shared power to vote those Ordinary Shares attributable to the other Reporting Persons. Each of the Reporting Persons expressly disclaims beneficial ownership of the Company’s securities except to the extent of their own pecuniary interest.

(c) None of the Reporting Persons and, to the best of the Reporting Persons’ knowledge, none of the Listed Persons, has effected any transaction in the ADSs or Ordinary Shares during the past 60 days.

(d) No other person is known by the Reporting Persons to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, Ordinary Shares that may be deemed to be beneficially owned by the Reporting Persons.

(e) Not applicable.

Item 7. Material to be Filed as Exhibits.

The following exhibits are filed as exhibits hereto:

SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

EXHIBIT 99.1

JOINT FILING AGREEMENT

Pursuant to and in accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations thereunder, each party hereto hereby agrees to the joint filing, on behalf of each of them, of any filing required by such party under Section 13 or Section 16 of the Exchange Act or any rule or regulation thereunder (including any amendment, restatement, supplement, and/or exhibit thereto) with the Securities and Exchange Commission (and, if such security is registered on a national securities exchange, also with the exchange), and further agrees to the filing, furnishing, and/or incorporation by reference of this agreement as an exhibit thereto. This agreement shall remain in full force and effect until revoked by any party hereto in a signed writing provided to each other party hereto, and then only with respect to such revoking party.

IN WITNESS WHEREOF, each party hereto, being duly authorized, has caused this agreement to be executed and effective as of the date first written above.

IN WITNESS WHEREOF, each party hereto, being duly authorized, has caused this agreement to be executed and effective as of the date first written above.

IN WITNESS WHEREOF, each party hereto, being duly authorized, has caused this agreement to be executed and effective as of the date first written above.

IN WITNESS WHEREOF, each party hereto, being duly authorized, has caused this agreement to be executed and effective as of the date first written above.

IN WITNESS WHEREOF, each party hereto, being duly authorized, has caused this agreement to be executed and effective as of the date first written above.

IN WITNESS WHEREOF, each party hereto, being duly authorized, has caused this agreement to be executed and effective as of the date first written above.

Exhibit 99.2

JOINT LETTER TO BOARD OF DIRECTORS DATED AUGUST 30, 2012

Sent via post, facsimile & electronic mail

The Board of Directors of

China Hydroelectric Corporation

Building A #2105,

Ping’An International Finance Center

No.3 Xinyuan South Road, Chaoyang District

Beijing, People’s Republic of China 10027

Fax: +86 10 8444 2788

August 30, 2012

Re:   China Hydroelectric Corporation (the “Company”)

Dear Members of the Board of Directors,

We, the undersigned shareholders of the Company representing over 40% of the outstanding shares of the Company (collectively, the “Shareholders”), are writing to follow-up on our joint letter to the Board of Directors of the Company (the “Board”) dated August 21, 2012 (the “August 21 Joint Letter”). Since August 21, we have made repeated requests to the Company and members of the Board to discuss the concerns raised in our August 21 Joint Letter; however, we have yet to receive any meaningful response to these requests from either the Company or the Board. Instead, the Company announced that, on August 22, 2012, “James” Tie Li resigned as President of the Company “for reasons unrelated to actions recently taken by certain shareholders of the Company” and that the Board had received the August 21 Joint Letter and “[was] currently evaluating the letter and plans to respond to the Shareholder Group in due course.”

Given the Board and the Company’s lack of formal response to either the August 21 Joint Letter or our subsequent requests to discuss our concerns set forth therein as well as developments at the Company since our delivery of the August 21 Joint Letter to the Board, we believe we have no other choice but to take the actions articulated in this letter.

Accordingly, the Shareholders hereby notify the Company of certain actions and reiterate their concerns, as follows:

1. The Shareholders formally call an EGM to be held on September 28, 2012 and amend and restate the EGM Notice and Proxy Card filed on August 21, 2012

The Shareholders hold ordinary shares of the Company comprising over one-third of the issued and outstanding ordinary shares of the Company. Accordingly, in order to address the concerns raised in this letter as well as the August 21 Joint Letter, the Shareholders hereby notify the Company and the Board that they have called an extraordinary general meeting (“EGM”) of the Company to be held on September 28, 2012 pursuant to the Company’s articles of association (the “Articles”). The Shareholders attach as Exhibit A hereto an amended and restated Notice of Extraordinary General Meeting of the Shareholders and Proxy Statement (the “EGM Materials”) to be delivered to the shareholders of the Company who are entitled to vote their Company shares at the EGM. The purpose of the EGM is to remove certain current directors of the Company in favor of the election of a slate of directors to be nominated by the Shareholders, as further specified in the EGM Materials.

2. The Shareholders have set the record date as of August 29, 2012

Pursuant to the Articles, the Shareholders have set August 29, 2012 (the “Record Date”) as the record date for the purpose of determining shareholders of the Company who are entitled to notice of or to vote at the EGM scheduled for September 28, 2012.

3. On August 30, 2012, the Shareholders first mailed the EGM Materials to shareholders of the Company who held ordinary shares of the Company as of the Record Date

The Shareholders hereby inform the Board that on August 30, 2012, the Shareholders first mailed the EGM Materials to shareholders of the Company who held ordinary shares of the Company as of the Record Date, and that, pursuant to the Articles and Cayman Islands law, notice of the EGM will be deemed to have been properly provided as of August 31, 2012, which is the date following the date that the EGM Materials were first mailed to the shareholders of the Company.

4. The Shareholders hereby request that the Company release the Register of Members as of the Record Date, and formally notify New York Stock Exchange, Inc. (the “NYSE”) that the record date of the EGM has been set as August 29, 2012

The Shareholders hereby formally demand that the Company release, to the Shareholders, the Company’s Register of Members as of August 29, 2012, and promptly notify the NYSE that the record date of the EGM has been set as of August 29, 2012.

5. The Shareholders reiterate the concerns set forth in the August 21 Joint Letter

The Shareholders maintain their concerns for the Company as set forth in the August 21 Joint Letter, and reiterate those same concerns, which are replicated in Exhibit B hereto. Further, to help address their concerns, the Shareholders believe an EGM to remove certain directors and appoint new directors in accordance with the EGM Materials attached hereto as Exhibit A is in the best interests of the Company.

The Shareholders continue to request that the Board make itself available to discuss the concerns and requests set forth in this letter and the August 21 Joint Letter. The Shareholders are hopeful that the Board is cognizant of its fiduciary duties, and will exercise the duties and powers of directors in a manner that is in the best interest of the Company and its shareholders, and in particular, to avoid any mergers, acquisitions, dilutive issuances or other similar transactions during the period prior to the EGM that would be deemed as actions solely to thwart the Shareholders’ ability to vote for and support the initiatives highlighted in this letter.

* * * * *

Sincerely,

Cc: John Kuhns, Chairman and CEO

Exhibit A

Incorporated herein by reference to Exhibit 99.3 of this Schedule 13D.

Exhibit B

1. Failure to create shareholder value with 92.2% decline in stock price

Since the Company’s IPO, the Company’s stock price has declined 92.2% to US$1.15 per American Depositary Share (“ADS”) as of August 17, 2012 versus the IPO price of US$14.80 per ADS. During that same period, the Halter USX China Index of comparable US-listed Chinese companies declined only 20.5% and the S&P500 increased by 29.3%.

The Shareholders believe that this severe decline in stock price is a reflection of the Company’s inconsistent financial performance, lack of growth strategy, and lack of leadership. We believe the Board and the Management of the Company can no longer rely on the excuse that its stock underperformance is a result of the general negative public sentiment of US-listed Chinese companies as similarly situated companies (as indicated by the Halter USX China Index) have not suffered nearly as much of a decline in stock price over the relevant period.

CHC stock performance versus S&P500 and Halter USX China Index

Source: Capital IQ.

2. Increase in General and Administrative Expenses while profits declined and asset based remained the same

As members of the Board are aware, some of the Shareholders have individually communicated to the Management and certain Board members their concerns regarding the high cash and total G&A Expenses of the Company, particularly the expenses attributable to the Company’s presence and operations in the United States. We further note that during recent years, the Company has continued to increase its G&A Expenses despite a similar sized asset base while its performance has dramatically declined and its market capitalization has eroded significantly. Moreover, the Management has displayed an unwillingness to discuss or even entertain with the Shareholders any possible meaningful line-by-line reductions in G&A Expenses and has instead brushed off Shareholder concerns in this regard.

G&A Expenses

Source: Company SEC filings.

(1) Represents continuing operations only.

(2) Excludes share-based compensation expense.

CHC Market Capitalization

Source: Company IPO prospectus and Capital IQ.

(1) Based on IPO price of US$14.80 per ADS.

Rather than decrease G&A Expenses, based on the Company’s own SEC filings reflected above, it has increased G&A Expenses by approximately US$10M in FY2011 as compared to FY2010 despite the Company’s (a) similar sized asset base, (b) worsening financial performance, and (c) concerns regarding its ability to continue as a going concern. The increase in G&A Expenses was partially attributed to a share option exchange which rewarded employees by converting their share options with an exercise price of US$7.70 per share to share options with an exercise price of US$0.46 per share that became fully vested on December 21, 2011 (a year during which the Company reported a net loss of US$55M and had its worst historical performance to date). Moreover, in addition to the share option exchange program, the Company took on additional expenses and issued over 9 million additional options to purchase shares with an exercise price of US$0.62 per share – primarily to four senior management employees – immediately after announcing the worst financial performance of the Company and highlighting the going concern issues related to the Company. Furthermore, the options were issued only a few weeks before announcing positive news of tariff hikes at various hydropower plants owned by the Company and shortly before the Company formally announced that its revenue has increased substantially due to higher rainfall.

While in the Company’s recent quarterly earnings announcement, the Company does show a decrease in G&A Expenses over the past two quarters of 2012, the Company has attributed such decrease, in part, to lower stock-based compensation expense (the “ESOP Expense”) in such period as a result of unamortized cost of stock-based compensation pertaining to 2009 and 2010 stock option grants being written off in the fourth quarter of 2011. In short, the primary reason for the G&A Expense decrease in the first two quarters of 2012 was because the Company took that entire ESOP Expense in the fourth quarter of 2011 as opposed to amortizing such ESOP Expense during this same period. In fact, excluding the ESOP Expense (which is a non-cash item), the Company actually increased its G&A Expenses from the first half of FY2012 when compared with the first half of FY2011.

The Shareholders believe that current G&A Expenses continue to be excessive based on the Company’s installed capacity. An increase by US$10 million in G&A Expenses in FY2011 with similar size of installed capacity should be deemed a failure on the part of the Board and Management to control costs in a year where the Company lost US$55 million and the auditors have raised going concern issues. The Shareholders believe it is incumbent on the Board and Management to control such costs and expenses particularly in a period where there are going concern issues.

3. The Company has failed to secure adequate long term funding to meet its liquidity needs

In its 2011 Form 20-F, the Company reported that its “liquidity position poses risk to [its] operations” with a working capital deficiency of approximately US$138.7 million, and further disclosed that the Company’s auditors raised doubt about its ability to continue as a going concern. As you are aware, one of the Shareholders has made numerous written proposals offering to support the Company’s liquidity needs by investing up to its pro rata share in any new financing at premiums to the then current share price. Indeed, on the Company’s request, such Shareholder even introduced potential third party institutional investors to help fill the Company’s financing gap.

However, despite such support from this Shareholder and interest from various third party institutional investors, the Company has yet to consummate any such financing. Instead, based on the 2011 Form 20-F, it appears that Management has opted to meet the Company’s liquidity needs by securing financing in a piecemeal fashion, including obtaining short-term loans from banks and other non-financial institutions at interest rates as high as 21.6% annually. This type of “emergency” financing is very expensive when compared with a more deliberate and considered financing plan, and has been value destructive to shareholders of the Company.

Moreover, in the Company’s recent quarterly earnings announcement, the Company disclosed that it still maintained a working capital deficiency of US$127.5 million, but only secured US$74.2 million of new financings. In fact, in the same earnings report, the Company notes that its “liquidity condition raises substantial doubt about its ability to remain a going concern.”

The Shareholders would like to re-iterate that they still have faith in the business prospects of the Company despite its liquidity condition. Indeed, certain Shareholders are even willing to infuse more capital at premium to current market prices and are willing to consider terms at least comparable or better than other financing terms the Company may be considering to assist the Company’s liquidity condition. We request the Board and Management to give equal chance to all shareholders to provide additional financing to the Company.

4. The Company has not properly aligned interests of key management in China

As disclosed in its 2011 Form 20-F, the Company approved an option exchange program whereby it cancelled 10,384,000 partially unvested share options at an exercise price of US$7.70 per share, and reissued 416,956 share options at an exercise price of US$0.46 per share to the same employees and non-employee consultants. The reissued share options not only had a lower exercise price, but also were fully vested as of December 21, 2011. Moreover, the Company incurred an immediate expense of US$6.8 million for the existing options at the time of the exchange.

In addition, on May 1, 2012, the Company announced that the Board had issued an additional 9,979,998 stock options with an exercise price of US$0.62 per share from the share options that were cancelled in the option exchange described above to certain employees and non-employee consultants. Additionally, out of the total new share options issued, 95% of those share options went to four management employees and more than 50% of the share options went to employees who are neither based in China nor have any day to day responsibilities in the operations of the Company in China. These new options were issued after the announcement of one of the worst financial performances in the Company’s history in the 2011 Form 20-F.

The Shareholders do not believe the exchange and issue of options in view of the Company’s current financial predicament and in light of the continued underperformance of its share price demonstrates proper alignment of interests of key management with the interest of shareholders and the overall performance of the Company. In addition, the Shareholders believe that the underperformance of the share price after announcing the issuance of employee stock options despite positive news of tariff hikes at various hydropower plants owned by the Company is reflective of the market’s similar concerns with actions taken by Management in restructuring these employee options.