20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

OR

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12158

(Exact name of Registrant as specified in its charter)

Sinopec Shanghai Petrochemical Company Limited

(Translation of Registrant’s name into English)

The People’s Republic of China

(Jurisdiction of incorporation or organization)

No. 48 Jinyi Road, Jinshan District, Shanghai, PRC 200540

(Address of principal executive offices)

Mr. Zhang Jingming

No. 48 Jinyi Road, Jinshan District, Shanghai, 200540

The People’s Republic of China

Tel: +86 (21) 57943143

Fax: +86 (21) 57940050

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	Name of each exchange on which registered
American Depositary Shares, each representing 100 Class H Ordinary Shares, par value RMB1.00 per Share Class H Ordinary Shares, par value RMB1.00 per Share	New York Stock Exchange The Stock Exchange of Hong Kong Limited

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

2,330,000,000 H Shares, par value RMB1.00 per Share

4,870,000,000 Domestic Shares, par value RMB1.00 per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or (15) (d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232,405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  x                 Accelerated Filer  ¨                 Non-Accelerated Filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ¨ International Financial Reporting Standards as issued by the International Accounting Standards Board   x Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.        Item 17  ¨        Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		ii
EXCHANGE RATES		ii
CERTAIN TERMS AND CONVENTIONS		ii
PART I		1
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.	1
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE.	1
ITEM 3.	KEY INFORMATION.	1
ITEM 4.	INFORMATION ON THE COMPANY.	9
ITEM 4A.	UNRESOLVED STAFF COMMENTS.	29
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS.	29
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.	45
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.	54
ITEM 8.	FINANCIAL INFORMATION.	56
ITEM 9.	THE OFFER AND LISTING.	57
ITEM 10.	ADDITIONAL INFORMATION.	58
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	74
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.	76
PART II		77
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.	77
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.	77
ITEM 15.	CONTROLS AND PROCEDURES.	77
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT.	79
ITEM 16B.	CODE OF ETHICS.	79
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES.	79
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.	79
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.	79
ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.	80
ITEM 16G.	CORPORATE GOVERNANCE.	80
PART III		83
ITEM 17.	FINANCIAL STATEMENTS.	83
ITEM 18.	FINANCIAL STATEMENTS.	83
ITEM 19.	EXHIBITS.	83

i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Information in this Annual Report which does not relate to historical financial information may be deemed to constitute forward- looking statements. The words or phrases “may”, “will”, “expect”, “anticipate”, “plan”, “will likely result”, “estimate”, “project”, “believe”, “intends to” or similar expressions identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical results and those presently anticipated or projected in the forward-looking statements. We caution readers not to place undue reliance on any forward looking statements, which speak only as of the date made. We undertake no obligations to update any forward-looking statements to reflect events and circumstances after the date on which the statements are made or reflect the occurrence of unanticipated events. Among the factors that could cause our actual results in the future to differ materially from the forward-looking statements are the availability of crude oil supply channels and relevant prices, effects of the macroeconomic policy of The People’s Republic of China, government control of currency conversion and the prices of refined oil products, and other factors discussed in Item 3.D “Key Information - Risk Factors”.

EXCHANGE RATES

Unless otherwise specified, references in this Annual Report to “US dollars” or “US$” are to United States dollars, references to “HK dollars” or “HK$” are to Hong Kong dollars and references to “Renminbi” or “RMB” are to Renminbi yuan, the legal tender currency of the PRC.

We publish our financial statements in Renminbi. Unless otherwise indicated, all translations from Renminbi to US dollars have been made at a rate of RMB6.6000 to US$1.00, the noon buying rate on December 30, 2010 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. We do not represent that Renminbi or US dollar amounts could be converted into US dollars or Renminbi, as the case may be, at any particular rate.

CERTAIN TERMS AND CONVENTIONS

References to “we” or “us” are references to Sinopec Shanghai Petrochemical Company Limited and our subsidiaries, unless the context requires otherwise. Before our formation, these references relate to the petrochemical businesses carried on by Shanghai Petrochemical Complex.

References to “China” or the “PRC” are references to The People’s Republic of China which, for the purpose of this Annual Report and for geographical reference only, excludes Hong Kong, Macau and Taiwan.

References to our “A Shares” are references to 720,000,000 of our domestic shares, par value RMB1.00 per share, which are ordinary shares subscribed for and traded exclusively on the Shanghai Stock Exchange by and between Chinese investors.

References to “ADSs” are references to our American Depositary Shares, which are listed and traded on the New York Stock Exchange. Each ADS represents 100 H Shares.

References to our “domestic shares” are references to all of our domestic shares, par value RMB1.00 per share, which are ordinary shares held by Chinese investors.

References to our “H Shares” are references to our overseas-listed foreign ordinary shares, par value RMB1.00 per share, which are listed and traded on the Stock Exchange of Hong Kong Limited (“HKSE”) under the number “338”.

“Rated Capacity” is the output capacity of a given production plant or, where appropriate, the throughput capacity, calculated by estimating the number of days in a year that the production plant is expected to operate, including downtime for regular maintenance, and multiplying that number by an amount equal to the plant optimal daily output or throughput, as the case may be.

All references to “tons” are to metric tons.

Unless otherwise noted, references to sales volume are to sales to entities other than us or our divisions and subsidiaries.

ii

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.

A. Selected Financial Data.

Our selected consolidated statements of income (except for ADS data) and cash flow data for each of the years ended December 31, 2008, 2009 and 2010 and our selected consolidated balance sheet data as of December 31, 2009 and 2010 are derived from our consolidated financial statements included in Item 17. Financial Statements. Our selected consolidated statements of income and cash flow data for the years ended December 31, 2006 and 2007 and our consolidated balance sheet data as of December 31, 2006, 2007 and 2008 are derived from our consolidated financial statements not included in this Annual Report. Our selected consolidated financial data should be read in conjunction with our consolidated financial statements, and the notes thereto, and Item 5. Operating and Financial Review and Prospects. Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board.

Selected Consolidated Financial Data

(in thousands, except per share and per ADS data)

	Years Ended December 31,
	2006 (RMB)		2007 (RMB)		2008 (RMB)			2009 (RMB)		2010 (RMB)
STATEMENTS OF INCOME DATA
Net sales:
Synthetic fibers		4,711,667		4,328,742		3,662,023			2,823,663		3,906,636
Resins and plastics		15,753,304		15,878,803		14,850,284			12,263,540		14,900,012
Intermediate petrochemicals		6,775,721		9,372,658		10,271,840			8,421,035		17,206,440
Petroleum products		19,387,666		21,036,581		27,552,859			18,917,890		28,733,890
All others		3,289,765		3,637,905		2,992,765			4,919,136		7,348,904
Income/(loss) from operations		552,907		892,656		(7,817,264	)		2,023,476		2,967,092
Earnings/(loss) before income tax		964,200		2,151,352		(8,014,438	)		2,166,509		3,533,376
Net income/(loss) attributable to equity shareholders of the Company		844,407		1,634,080		(6,238,444	)		1,590,988		2,771,646
Net income attributable to non-controlling interests		66,555		49,056		36,717			64,471		25,358
Basic earnings/(loss) per share(a)		0.12		0.23		(0.87	)		0.22		0.38
Basic earnings/(loss) per ADS(a)		11.73		22.70		(86.65	)		22.10		38.50

(a) The calculation of earnings per share is based on the weighted average number of shares outstanding during the year of 7,200,000,000 in each of 2010, 2009, 2008, 2007 and 2006, respectively. Earnings per ADS are calculated on the basis that one ADS is equivalent to 100 shares.

1

	Years Ended December 31,
	2006 (RMB)		2007 (RMB)		2008 (RMB)			2009 (RMB)		2010 (RMB)
CASH FLOW DATA
Net cash generated from/ (used in) operating activities		1,696,615		1,441,998		(3,986,490	)		3,346,890		3,973,719
Capital expenditures		2,008,779		2,134,123		1,511,072			2,120,292		1,356,845
Net proceeds from issuance of corporate bonds		2,977,800		—		—			1,000,000		—
Proceeds from loans and borrowings		13,939,126		17,605,887		32,528,75			29,211,434		39,355,780
Repayment of loans and borrowings		15,910,127		16,166,938		27,377,61			31,849,620		42,631,344
BALANCE SHEET DATA
Current assets		7,563,106		8,936,764		6,511,351			9,061,425		8,531,841
Property, plant and equipment		13,359,862		14,977,237		13,272,899			14,977,205		13,570,559
Total assets		27,406,060		29,853,050		27,533,027			29,908,486		28,568,742
Short-term debt(a)		4,270,337		4,091,969		9,372,725			7,774,673		4,395,438
Current liabilities		7,030,050		8,261,732		13,342,720			14,304,925		10,573,225
Long-term debt (excluding current portion)		1,063,654		639,289		429,021			304,258		175,000
Total equity attributable to equity shareholders of the Company		18,976,343		20,648,038		13,496,933			15,005,018		17,560,664

(a) Including corporate bonds and current portion of long-term debt.

Dividends

The following table sets forth certain information concerning the dividends since January 1, 1994:

Dividend Period	Dividend per Share
January 1, 1994-June 30, 1994	RMB0.04(US$0.0059)
July 1, 1994-December 31, 1994	RMB0.085(US$0.0125)
January 1, 1995-June 30, 1995	RMB0.04 (US$0.0059)
July 1, 1995-December 31, 1995	RMB0.09 (US$0.0132)
January 1, 1996-June 30, 1996	RMB0.04 (US$0.0059)
July 1, 1996-December 31, 1996	RMB0.08 (US$0.0117)
January 1, 1997-December 31, 1997	RMB0.06 (US$0.0088)
January 1, 1998-December 31, 1998	RMB0.03 (US$0.0044)
January 1, 1999-December 31, 1999	RMB0.05 (US$0.0073)
January 1, 2000-December 31, 2000	RMB0.06 (US$0.0088)
January 1, 2001-December 31, 2001	No dividend
January 1, 2002-December 31, 2002	RMB0.05 (US$0.0073)
January 1, 2003-December 31, 2003	RMB0.08 (US$0.0117)
January 1, 2004-December 31, 2004	RMB0.20 (US$0.0293)
January 1, 2005-December 31, 2005	RMB0.10 (US$0.0147)
January 1, 2006-December 31, 2006	RMB0.04 (US$0.0059)
January 1, 2007-December 31, 2007	RMB0.09 (US$0.0132)
January 1, 2008-December 31, 2008	No dividend
January 1, 2009-December 31, 2009	RMB0.03 (US$0.0044)
January 1, 2010-December 31, 2010	RMB0.10 (US$0.0152)

See also Item 8.A. Financial Information – Consolidated Statements and Other Financial Information – Dividend Policy.

Exchange Rates

The Chinese government controls its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. See Item 10.D. Additional Information – Exchange Controls.

2

The following table sets forth information concerning exchange rates between Renminbi and US dollars for the periods indicated:

	Noon Buying Rates (RMB/US$)
Period	Period End		Average(1)		High		Low
2006		7.8041		7.9579		8.0702		7.8041
2007		7.2946		7.5806		7.8127		7.2946
2008		6.8225		6.9477		7.2946		6.7899
2009		6.8259		6.8307		6.8470		6.8176
2010		6.6000		6.7696		6.8330		6.6000
November 2010		6.6670		6.6537		6.6906		6.6233
December 2010		6.6000		6.6497		6.6745		6.6000
January 2011		6.6017		6.5964		6.6364		6.5809
February 2011		6.5713		6.5761		6.5965		6.5520
March 2011		6.5483		6.5645		6.5743		6.5483
April 2011		6.4900		6.5267		6.5477		6.4900

Source: The sources of the exchange rates are: (i) with respect to any period ending on or prior to December 31, 2008, the Federal Reserve Bank of New York, and (ii) with respect to any period ending on or after January 1, 2009, the H.10 statistical release of the Federal Reserve Board.

Note:(1) Determined by averaging the rates on the last business day of each month during the respective period.

B. Capitalization and Indebtedness.

Not applicable.

C. Reasons for the Offer and Use of Proceeds.

Not applicable.

D. Risk Factors.

An investment in our ADSs involves significant risks. The risks and uncertainties described below are not the only ones we face. You should consider carefully all of the information in this annual report, including the risks and uncertainties described below and our consolidated financial statements and related notes, before making an investment in our ADSs. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ADSs could decline, and you may lose all or part of your investment.

Our operations may be adversely affected by the cyclical nature of the petroleum and petrochemical market and by the volatility of prices of crude oil and petrochemical products.

Most of our revenues are attributable to petrochemical products, which have historically been cyclical and sensitive to the availability and price of raw materials and general economic conditions. Markets for many of our products are sensitive to changes in industry capacity and output levels, cyclical changes in regional and global economic conditions, the price and availability of substitute products and changes in consumer demand, which from time to time have had a significant impact on product prices in the regional and global markets. Many of our products have become increasingly subject to the cyclical nature of regional and global petroleum and petrochemical markets, which may adversely affect our operation.

As crude oil costs accounted for RMB39.695 billion or 58.11% of the Group’s annual cost of sales in 2010, changes in crude oil prices can affect the Group’s profitability. In recent years, due to various reasons, the price of crude oil has fluctuated significantly. Furthermore, we cannot rule out the possibility of the occurrence of certain global emergencies which might disrupt our crude oil supply. We expect that the volatility and uncertainty of the prices of crude oil and petrochemical products will continue, and that increasing crude oil prices and declines in prices of petrochemical products may adversely affect our business and results of operations and financial condition.

3

Some of our major products are subject to government price controls, and we are not able to pass on all cost increases from rising crude oil prices through higher product prices.

We consume large amounts of crude oil to manufacture our products of which more than 90% is imported. We attempt to mitigate the effect of increased costs due to rising crude oil prices. However, our ability to pass on these increased costs to our customers is dependent on market conditions and government regulations. Given that the increase of the sales prices of our products may lag behind the increase of crude oil costs, we may fail to completely cover the increased costs by increasing our sales prices, particularly where government regulations restrict the prices of certain of our fuel products. In particular, gasoline, diesel and jet fuel, and liquefied petroleum gas are subject to government price controls at present. In 2008, 2009 and 2010, approximately 43.52%, 47.70% and 34.41% of our net sales were from such products subject to price control. Although we sometimes receive subsidies from the Chinese government to, among other things, cover part of our losses resulting from such price controls, the amount of such subsidies vary substantially from year to year or even quarter to quarter and is difficult to predict. In some years, we receive no subsidy at all. Although the Chinese government has adopted a new pricing mechanism for domestic refined oil products that indirectly links the prices of these products to international crude oil prices (see “—Item 4. Information on the Company – B. Business Overview – Product Pricing”), such pricing mechanism is still not transparent enough and is faced with the risk of inadequate or untimely adjustment. Moreover, the Chinese government controls the distribution of many petroleum products in China. For instance, some of our petroleum products are required to be sold to designated distributors (such as the subsidiaries of China Petroleum & Chemical Corporation). Because we cannot freely sell our fuel products to take advantage of opportunities for higher prices we may not be able to fully cover increases in crude oil prices by increases in the sale prices of our products, which has had and will possibly continue to have a material adverse effect on our financial condition, results of operations and cash flows.

Our development and operation plans have significant capital expenditure and financing requirements, which are subject to a number of risks and uncertainties.

The petrochemical business is a capital intensive business. Our ability to maintain and increase our revenues, net income and cash flows depends upon continued capital spending. Our current business strategy contemplates capital expenditures for 2011 of approximately RMB3.000 billion (US$0.455 billion), which will be provided through financing activities and use of our own capital. Our actual capital expenditures may vary significantly from these planned amounts due to our ability to generate sufficient cash flows from operations, investments and other factors that may be beyond our control. In addition, there can be no assurance as to whether, or at what cost, our capital projects will be completed or the success of these projects if completed.

As of March 31, 2011, we had aggregate outstanding indebtedness of approximately RMB6.018 billion (US$0.912 billion). Most of our loans are with state-controlled banks in China and structured as short-term debt obligations with payment due in one year or less. These banks have generally been willing to provide new short-term loans while we pay off existing loans, as our overall debt level has been reduced slightly since 2009. China Petroleum & Chemical Corporation (“Sinopec Corp”), our controlling shareholder, did not provide any guarantee or credit support for our debt for the year ended December 31, 2010 and for the three-month period ended March 31, 2011.

Our ability to obtain external financing in the future and our ability to make timely repayments of our debt obligations are subject to a variety of uncertainties, including: our future results of operations, financial condition and cash flows; the condition of the economy in China and the markets for our products; the cost of financing and the condition of financial markets; the issuance of relevant government approvals and other project risks associated with the development of infrastructure in China; and the continuing willingness of banks to provide new loans as we pay down existing debt.

While we anticipate that we will rely less on debt to finance capital expenditures and operations as the global economic outlook continues to improve, if we fail to obtain sufficient funding for our operations or development plans or are unable to obtain new short-term debt to pay off existing debt, our business, results of operations and financial condition could be adversely affected.

We could face increased competition.

Our principal market, Eastern China, which is comprised of Shanghai, Jiangsu, Zhejiang, Anhui and Jiangxi, has enjoyed stronger economic growth and a higher demand for petrochemical products than other regions of China. As a result, we believe that competitors will try to expand their sales and build up their distribution networks in our principal market. We believe this will have an adverse impact on the production and sale of our major products. Moreover, Chinese private enterprises have gradually overcome technological and funding barriers to extend their business from the downstream processing sector to the upstream petrochemical field. These enterprises have advantages in many areas such as flexibility in operation costs, preferential policy treatment and regional presence, and may use these advantages to compete with us in markets for our products.

4

Related party transactions; non-competition; conflicts of interests.

We have engaged from time to time and will continue to engage in a variety of transactions with Sinopec Corp and China Petrochemical Corporation (“Sinopec Group”), the controlling company of Sinopec Corp, and their various subsidiaries or affiliates who provide a number of services to us, including the supply of raw materials, product distribution and sales agency, project design and installment service, petrochemical industry related insurance and financial services. We also sell oil and petrochemical products to Sinopec Corp and its affiliates. Our transactions with these companies are governed by a Mutual Product Supply and Sales Services Framework Agreement with Sinopec Corp and a Comprehensive Services Framework Agreement with Sinopec Group, the terms of which were negotiated on an arm’s length basis, see Item 7. B. Related Party Transactions – Intercompany Service Agreement and Business-related Dealings. Our business and results of operations could be adversely affected if Sinopec Corp refuses to engage in such transactions or if it seeks to amend the contracts between the parties in a way adverse to us. In addition, Sinopec Corp has interests in businesses which compete or are likely to compete, either directly or indirectly, with our businesses. Because Sinopec Corp is our controlling shareholder and its interests may conflict with our own interests, Sinopec Corp may take actions that favor itself over our interests.

We are controlled by Sinopec Corp, whose interests may not be aligned with yours.

As of April 1, 2011, Sinopec Corp owned 55.56% of our shares. Accordingly, it has voting and management control over us, and its interests may be different from your interests and the interests of our other shareholders. Subject to our Articles of Association and applicable laws and regulations, Sinopec Corp will be in a position to cause us to declare dividends, determine the outcome of corporate actions requiring shareholder approval or effect corporate transactions without the approval of the holders of the H shares and ADSs. Any such increase in our dividend payout would reduce funds available for reinvestment in our business and any such actions or transactions could adversely affect us or our minority shareholders. Additionally, Sinopec Corp may experience changes in its own business strategy and policies. Although we are not currently aware of any specific changes, they could, in turn, lead Sinopec Corp to change its policies or practices toward us in ways that we cannot predict, with corresponding unpredictable consequences for our business.

Our business operations may be adversely affected by present or future environmental regulations.

We are subject to extensive environmental protection laws and regulations in China. These laws and regulations permit:

• the imposition of fees and penalties for the discharge of waste substances;

• the levy of payments and fines for damages for environmental offenses; and

• the government to close or suspend any facility which fails to comply with orders and require it to correct or stop operations causing environmental damage.

Our production operations produce substantial amounts of waste materials. In addition, our production and operations require permits that are subject to renewal, modification and revocation. At present, we believe that our operations substantially comply with all applicable Chinese environmental laws and regulations as they have been previously interpreted and enforced. The Chinese government, however, has moved, and may move further, toward more rigorous enforcement of applicable laws, and toward the adoption of more stringent environmental standards. Chinese national or local authorities may also impose additional regulations or apply more rigorous enforcement of such regulations which would require additional expenditures on environmental matters.

Our business may be limited or adversely affected by government regulations.

The central and local Chinese governments continue to exercise a certain degree of control over the petrochemical industry in China by, among other things:

• mandating distribution channels for our fuel products;

• setting the allocations and pricing of certain resources, products and services;

• assessing taxes and fees payable;

• setting import and export quotas and procedures; and

• setting safety, environmental and quality standards.

5

As a result, we may face significant constraints on our flexibility and ability to expand our business operations or to maximize our profitability. In the past, we have benefited from favorable regulatory policies that have, for example, reduced the competition we face from illegal imports of petroleum products. Existing policies that favor our industry may change in the future and our business could be adversely affected by any such changes.

Our development plans may require regulatory approval.

We are currently engaged in a number of construction and expansion projects. Most of our projects are subject to governmental review and approval. The timing and cost of completion of these projects will depend on numerous factors, including approvals from relevant government authorities and general economic conditions in China.

While in general we attempt to obtain governmental approval as far in advance as practicable, we may not be able to control the timing and outcome of these governmental reviews and approvals. If any of our important projects required for our future growth are not approved, or not approved on a timely basis, our results of operations and financial condition could be adversely affected.

China’s entry into the World Trade Organization, or WTO, may significantly increase foreign competition in our lines of business.

China joined the WTO on December 11, 2001. As part of its membership, China has committed to eliminate some tariff and non-tariff barriers to foreign competition in the domestic petrochemical industry that benefited us in the past. In particular, China:

• has reduced tariffs on imported petrochemicals products that compete with ours;

• increased levels of permitted foreign investment in the domestic petrochemicals industry, allowing foreign investors to own 100% of a domestic petrochemicals company from December 11, 2004;

• has gradually relaxed restrictions on the import of crude oil by non-state owned companies;

• has granted foreign-owned companies the right to import petrochemical products; and

• has permitted foreign-owned companies to distribute and market fuel products in both retail and wholesale markets in China.

As a result of these measures, we face increased competition from foreign companies and imports. In 2011, the impact of the financial crisis will continue, the global market for petrochemical products may be slow to recover, and many overseas petrochemical companies, in particular those from neighboring areas, such as Japan, South Korea and the Middle East, have switched their focus to sales in China, which we believe, will further intensify competition in the Chinese domestic petrochemical market. In addition, tariff reductions could reduce our profit margins or otherwise negatively impact our revenue from certain products, including a small number of significant products. The PRC government may also reduce the tariffs imposed on production equipment that we may import in the future.

Political and economic policies in China could affect our business in unpredictable ways.

The economy of China differs from the economies of most countries belonging to the Organization for Economic Co-operation and Development in a number of respects, including:

• structure;

• level of government involvement;

• level of development;

• level of capital reinvestment;

• control of foreign exchange; and

• allocation of resources.

Before its adoption of reform and open-door policies beginning in 1978, China was primarily a planned economy. Since that time, the Chinese government has been reforming the Chinese economic system, and has also begun reforming the government structure. These reforms have resulted in significant economic growth and social progress. Although the Chinese government still owns a significant portion of the productive assets in China, economic reform policies since the late 1980s have emphasized autonomous enterprises and the utilization of market mechanisms. We currently expect that the Chinese government will continue these reforms, further reduce government intervention and rely more heavily on market mechanisms to allocate resources. Although we believe these reforms will have a positive effect on our overall long-term development, we cannot predict whether changes to China’s political, economic and social conditions, laws, regulations and policies will have any adverse effect on our current or future business or results of operations.

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If the Chinese government changes current regulations that allow us to make payments in foreign currencies, we may be unable to obtain the foreign currency which is necessary for our business.

The Renminbi currently is not a freely convertible currency. We receive most of our revenue in Renminbi. A portion of our Renminbi revenue must be converted into other currencies to meet our foreign currency obligations. We have substantial requirements for foreign currency, including:

• debt service costs on foreign currency-denominated debt;

• purchases of imported equipment;

• payment of any cash dividends declared in respect of the H shares; and

• import of crude oil and other materials.

Under existing foreign exchange regulations in China, we may undertake current account foreign exchange transactions, including the payment of dividends, without prior approval from the State Administration of Foreign Exchange by producing commercial documents evidencing the foreign exchange transactions, provided that they are processed through Chinese banks licensed to engage in foreign exchange transactions. The Chinese government has stated publicly that it intends to eventually make the Renminbi freely convertible in the future. However, uncertainty exists as to whether the Chinese government may restrict access to foreign currency for current account transactions if foreign currency becomes scarce in China.

Foreign exchange transactions under the capital account (international revenues and expenditures that increase or decrease debt or equity, including principal payments in respect of foreign currency-denominated obligations) continue to be subject to limitations and require the prior approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt financing, or to make capital expenditures in foreign currency.

If the Chinese government restricts our ability to make payments in foreign currency, we may be unable to obtain the foreign currency which is necessary for our business. In that case, our business may be materially adversely affected, and we may default on our obligations.

The change of currency policy and the fluctuation of Renminbi might adversely affect our business and operation results.

The exchange rate between the Renminbi and the U.S. Dollar or other foreign currencies might fluctuate and be affected by the change of Chinese political and economic conditions. In July, 2005, the Chinese government changed its policy of pegging the Renminbi to the U.S. Dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Since the adoption of this new policy, the value of the Renminbi has fluctuated daily within a narrow band, but overall has appreciated against the US Dollar. Nevertheless, the PRC government continues to receive significant international pressure to further liberalize its currency policy which could result in a further and more significant appreciation in the value of the Renminbi against the US Dollar.

A small portion of our cash and its equivalents is denominated in foreign currencies (including the U.S. Dollar). The appreciation in the value of Renminbi against foreign currencies (including the U.S. Dollar) may cause a decrease in the value of our cash and its equivalents that are denominated in foreign currencies. In addition, the appreciation of Renminbi may harm the exports of our downstream manufacturers, thus adversely affecting the market demand for our products. Most our revenue is denominated in Renminbi, however, most of our purchase of crude oil and some equipment and certain loan repayments are made in foreign currencies. As such, any depreciation of the Renminbi would increase our cost and adversely affect our capacity of making profits. In addition, any depreciation of the Renminbi could adversely affect the value of the dividends of our H shares and ADSs, which we pay in foreign currencies.

The rejection of the proposed share reforms required of companies listed on the Shanghai Stock Exchange may adversely affect our market image and our ability to effectuate future transactions such as public offerings on the Shanghai Stock Exchange.

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Pursuant to regulations issued by the China Securities Regulatory Commission (the “CSRC”), we were required to gain shareholder approval for and implement certain share reforms in 2006. Under the share reform plans proposed by holders of our non-circulating A Shares in 2006 and 2007, respectively, all non-circulating A Shares would be converted into circulating A Shares and may be sold publicly on the Shanghai Stock Exchange subject to any applicable lock-up period under the condition that holders of our non-circulating A Shares transfer a portion of their A Shares to holders of our circulating A Shares. However, holders of our circulating A Shares rejected both share reform plans for various reasons. No specific new proposals have yet been presented to implement the required share reforms. We are uncertain as to when such share reforms will be completed. On January 8, 2007, the Shanghai Stock Exchange began to impose stricter regulations on its listed companies that are required but unable to complete the share reforms, including imposing a cap and a basket on the price fluctuation rate set at 5% daily, stricter trading information disclosure requirements and more restrictions on future financing abilities. Since March 26, 2007, the Shanghai Stock Exchange has required us to make public announcements periodically regarding the status of our share reforms. In addition, the CSRC is expected to more strictly scrutinize any securities-related applications by publicly listed PRC companies that are required to but have failed to complete such share reforms, their major shareholders and ultimate beneficial owners. The failure to complete the proposed share reforms may adversely affect our market image and our ability to effectuate future transactions such as public offerings on the Shanghai Stock Exchange. The possibility that the CSRC and the Shanghai Stock Exchange will impose more restrictions cannot be eliminated.

Interpretation and enforcement of Chinese laws and regulations is uncertain.

The Chinese legal system is based on statutory law. Under this system, prior court decisions may be cited as persuasive authority, but do not have the binding effect of precedents. Since 1979, the Chinese government has been developing a comprehensive system of commercial laws and considerable progress has been made in the promulgation of laws and regulations dealing with economic matters, such as corporate organization and governance, foreign investment, commerce, taxation and trade. Because these laws, regulations and legal requirements are relatively new and not all accessible to the public and because prior court decisions have little precedential value, the interpretation and enforcement of these laws, regulations and legal requirements involve greater uncertainty than in other jurisdictions.

You may not enjoy shareholders’ protections that you would be entitled to in other jurisdictions.

As most of our business is conducted in China, our operations are governed principally by the laws of China. Despite the ceaseless improvement of the PRC Company Law and Securities Law, Chinese legal provisions for the protection of shareholders’ rights and access to information are different from those applicable to companies formed in the United States, Hong Kong, the United Kingdom and other developed countries or regions. You may not enjoy shareholders’ protections under Chinese law that you would be entitled to in other jurisdictions.

Our Articles of Association require you to submit your disputes with us and other persons to arbitration. You will have no legal right to a court proceeding.

Our Articles of Association require holders of our H shares or ADSs having a claim against, or a dispute with, us, our directors, supervisors, executive officers or a holder of our domestic shares relating to any rights or obligations conferred or imposed by our Articles of Association, the Chinese Company Law or any other Chinese laws or regulations relating to our affairs, to submit such claim or dispute to arbitration with the China International Economic and Trade Arbitration Commission or to the Hong Kong International Arbitration Center. Our Articles of Association further provide that any arbitration decisions with respect to such disputes or claims shall be final and binding on all parties.

We may be or become a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. investors.

We may be classified as a passive foreign investment company (“PFIC”) by the U.S. Internal Revenue Service for U.S. federal income tax purposes. Such characterization could result in adverse U.S. federal income tax consequences to you if you are a U.S. investor. For example, U.S. investors who owned our ADSs during any taxable year in which we were a PFIC generally are subject to increased U.S. tax liabilities and reporting requirements for that taxable year and all succeeding years, regardless of whether we actually continue to be a PFIC, although a shareholder election to terminate such deemed PFIC status may be available in certain circumstances. We do not intend to provide information to permit you to make a qualified electing fund election to avoid the adverse U.S. tax consequences described above. The same adverse U.S. federal income tax consequences will apply to U.S. investors who acquire our ADSs during the current taxable year or any subsequent taxable year if we are treated as a PFIC for that taxable year.

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The determination of whether or not we are a PFIC is made on an annual basis and depends on the composition of our income and assets, from time to time. Specifically, we will be classified as a PFIC for U.S. tax purposes for a taxable year if either (a) 75% or more of our gross income for such taxable year is passive income, or (b) 50% or more of the average percentage of our assets during such taxable year either produce passive income or are held for the production of passive income. For such purposes, if we directly or indirectly own 25% or more of the shares of another corporation, we generally will be treated as if we (a) held directly a proportionate share of the other corporation’s assets, and (b) received directly a proportionate share of the other corporation’s income.

We do not believe that we are currently a PFIC. However, because the PFIC determination is highly fact intensive and made at the end of each taxable year, there can be no assurance that we will not be a PFIC for the current or any future taxable year or that the IRS will not challenge our determination concerning our PFIC status. For further discussion of the adverse U.S. federal income tax consequences of our possible classification as a PFIC, see “Taxation” below.

Negative publicity regarding, and divestments by investors in response to, our affiliation with Sinopec Corp. and Sinopec Group, and their respective business activities in certain countries identified by the U.S. government as state sponsors of terror, may adversely impact our stock price.

We are affiliated with Sinopec Corp. and Sinopec Group, both of which have been identified in the news media as engaging in operations in or purchasing substantial volumes of crude oil sourced from countries identified by the U.S. government as state sponsors of terrorism such as Iran, Syria, Cuba and Sudan. We do not conduct any material operations in, nor do we purchase any material volume of crude oil from these countries. Further, we have no control over the activities of Sinopec Group or Sinopec Corp. in connection with any activities they may have related to Iran, Syria, Sudan or Cuba. Nevertheless, certain articles in the press have identified institutional investors, many of whom have substantial investment portfolios and purchasing power, that may have divested, or intend to divest or otherwise not invest in, our stock because of the alleged operations of our affiliates in such countries. Decisions by such large investors may have the effect of reducing demand for our stock in the market, perhaps significantly, which could cause substantial downward pressure on our stock price. Any such downward pressure likely would result in a reduction of our market capitalization and could impact not only the value of our existing stockholders’ investment in our company, but also potentially our ability to raise equity or debt financing in the future.

ITEM 4. INFORMATION ON THE COMPANY.

A. History and Development of the Company

General Information

We were established in the People’s Republic of China as a joint stock limited company under the Chinese Company Law on June 29, 1993 as Shanghai Petrochemical Company Limited. On October 12, 2000, we changed our name to Sinopec Shanghai Petrochemical Company Limited. Our registered office is at No. 48 Jinyi Road, Jinshan District, Shanghai, China 200540. Our telephone number there is (86-21) 5794-1941.

Our Predecessor

Our predecessor, Shanghai Petrochemical Complex (the “Complex”), was founded in 1972 as one of the first large scale Chinese petrochemical enterprises using advanced imported technology and equipment. Prior to June 29, 1993, the Complex was wholly-owned by China Petrochemical Corporation, at the time a ministerial level enterprise (before its restructuring in 1998, “Sinopec”). The Complex’s location was chosen because of accessibility by water and land transportation to Shanghai, a major industrial city of China, and the availability of reclaimable land. The Complex was initially under the administration of the Ministry of Textile Industry and in 1983 was placed under the administration of Sinopec.

The Complex and we, as its successor, have undergone five major stages of construction. The first stage of construction (1972 -1976) included reclamation of land and the installation of 18 production units. The second stage of construction (1980-1986) increased the Complex’s capacity for processing crude oil and doubled its capacity for synthetic fiber production. The third stage of construction (1987- 1992) primarily consisted of the installation of a 300,000 ton Rated Capacity ethylene unit, an additional crude oil refining unit and other units for the production of petrochemical products. The third stage of construction completed our transition from a synthetic fiber producer to a highly integrated producer of a wide variety of petrochemical products. The fourth stage of construction (2000-2002) mainly included the 700,000 ton Ethylene Expansion Project and Coal-Fired Power Plant Expansion Project. The fifth stage of construction (2003-2009) was mainly designed to optimize our structure and realize sustainable development, and mainly included 3,300,000t/a diesel hydrogenation unit, 1,200,000t/a delayed coking unit and other projects implemented for removing “bottlenecks” in refinery, the building of new 600,000t/a PX hydrocarbon complex unit, 150,000t/a C5 segregation unit, 380,000t/a ethane unit, etc. By implementing the fifth stage of construction, we have further optimized our structure of resources and products, maintained our comprehensive edges based on our integrated refinery and petrochemical production and enhanced our strengths in scale, cost, technology content, product quality and other aspects. See Item 4. Information on the Company – Property, Plant and Equipment – Capital Expansion Program for a description of the fifth stage of construction.

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Over the past thirty-seven years, the Company built up an infrastructure system to support its production needs. The Company has its own facilities to supply water, electricity, steam and other utilities and to treat waste water, as well as ocean and inland waterway wharfs and railroad and road transportation facilities.

Our Initial Public Offering and Listing

We were established as a subsidiary of Sinopec on June 29, 1993. In preparation for our initial public offering of ordinary shares, all assets and liabilities of the Complex were transferred either to us or to Sinopec Shanghai Jinshan Industrial Company (“JI”), a separate subsidiary of Sinopec. The Complex’s non-core businesses and assets, such as housing, stores, schools, transportation and medical services were transferred to JI. The Complex’s core business and assets was transferred to us. The Complex then ceased to exist as a legal entity. In 1998, Sinopec was restructured into a limited liability company under the name of China Petrochemical Corporation (“Sinopec Group”). On February 25, 2000, Sinopec Group transferred its interest in us to its subsidiary, Sinopec Corp. In 1997, JI was restructured and its subsidiaries were either transferred to Sinopec or Shanghai Jinshan District. Sinopec Group now provides community services to us that were formerly provided by JI.

Our H Shares were listed on the HKSE on July 26, 1993. Our ADSs, each representing 100 H Shares, are listed on the New York Stock Exchange (“NYSE”). Our A Shares are listed on the Shanghai Securities Exchange. We were the first Chinese joint stock limited company to have securities concurrently traded in Hong Kong, the United States and China. On November 8, 1993, our A Shares were included in the Shanghai Securities Exchange Stock Index.

Description of Principal Capital Expenditures and Divestitures

In the fourth quarter of 2001, we established a Sino-foreign equity joint venture, Shanghai Secco Petrochemical Company Limited (“Secco”), together with BP Chemicals East China Investments Limited (“BP”) and Sinopec Corp. We own 20%, while BP and Sinopec Corp own 50% and 30% of the equity interest of Secco, respectively. Secco was established to build and operate a 900,000 ton Rated Capacity ethylene petrochemical manufacturing facility in order to manufacture and market ethylene, polyethylene, styrene, polystyrene, propylene, acrylonitrile, polypropylene, butadiene, aromatics and by-products; provide related after-sales services and technical advice with respect to such petrochemical products and by products; and engage in polymers application development. Secco completed construction in 2005. Secco’s registered capital is US$901,440,964 of which we were obligated to contribute an amount in Renminbi equivalent to US$180,287,952 prior to the end of 2005. As of December 31, 2005, we had contributed such amount in full. For a description of capital expansion projects related to our facilities, see Item 4. Information on the Company – Property, Plant and Equipment – Capital Expansion Program.

B. Business Overview

We are one of the largest petrochemical companies in China based on 2010 net sales and ethylene production. Our highly integrated petrochemical complex processes crude oil into a broad range of products in four major product areas:

• synthetic fibers,

• resins and plastics,

• intermediate petrochemicals, and

• petroleum products.

Based on 2010 sales volumes, we are a leading Chinese producer of synthetic fibers and resins and plastic products. We believe that we are also a leading competitor in sales of petroleum products and intermediate petrochemicals in our regional markets.

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Our net sales by product category, as a percentage of total net sales in each of 2010, 2009 and 2008 are summarized as follows:

Net Sales of RMB72,095.9 million in 2010

Synthetic fibers	5.42	%
Resins and plastics	20.67	%
Intermediate petrochemicals	23.87	%
Petroleum products	39.86	%
All others	10.18	%
Total	100.00	%

Net Sales of RMB47,345.3 million in 2009

Synthetic fibers	5.96	%
Resins and plastics	25.90	%
Intermediate petrochemicals	17.79	%
Petroleum products	39.96	%
All others	10.39	%
Total	100.00	%

Net Sales of RMB59,330 million in 2008

Synthetic fibers	6.17	%
Resins and plastics	25.03	%
Intermediate petrochemicals	17.31	%
Petroleum products	46.44	%
All others	5.05	%
Total	100.00	%

We derive a substantial portion of our revenues from customers in Eastern China (principally Shanghai and its six neighboring provinces), an area that has experienced economic growth above the national average in recent years. We believe that we are well- positioned to take advantage of opportunities which may arise through the growth of economy of China generally and in this area in particular. Shown by geographic region and exports, our net sales by product category as a percentage of total net sales for each of 2010, 2009 and 2008 are as follows:

2010 Net Sales by Region (%)
	Eastern China		Other parts of China		Exports
Synthetic fibers		85.05		14.08		0.87
Resins and plastics		87.20		12.80		0
Intermediate petrochemicals		83.07		14.08		2.85
Petroleum products		99.55		0.45		0
Total net sales		92.32		7.01		0.67
2009 Net Sales by Region (%)
	Eastern China		Other parts of China		Exports
Synthetic fibers		83.00		16.04		0.96
Resins and plastics		86.66		13.34		0
Intermediate petrochemicals		83.78		14.49		1.73
Petroleum products		99.84		0.16		0
Total net sales		92.74		6.92		0.34
2008 Net Sales by Region (%)
	Eastern China		Other parts of China		Exports
Synthetic fibers		80.84		17.12		2.04
Resins and plastics		86.06		13.94		0
Intermediate petrochemicals		84.88		13.79		1.33
Petroleum products		99.55		0.45		0
Total net sales		92.32		7.30		0.38

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Business Strategy

2011 marks the commencement of the “Twelfth Five-year Plan”. We will actively capitalize on a relatively favorable market environment and other opportunities; focus on safety, environmental protection, energy conservation and emissions reduction; promote a green and healthy environment; continue to maintain safe and stable production and operations; improve sophisticated management standards on an ongoing basis; steadily push forward various internal reform programs; fully proceed with the construction of the Phase 6 Project; further strengthen staff team building; continue to maintain the harmony and stability of the enterprise; and endeavor to achieve stable growth in profitability.

To achieve our business objectives in 2011, we will conscientiously carry out the tasks in the following areas:

(a) Consistently devoting efforts to HSE (health, safety and environment), energy conservation and emissions reduction work.

We will devote efforts to production safety, environmental protection, occupational health, energy conservation and emissions reduction as we have done in the past. We will put safety and environmental protection work as our priority by fully implementing the all-staff HSE accountability system to strictly prevent safety and environment-related accidents and control the discharge of pollutants; continue to step up troubleshooting, prevention and control by increasing efforts to strengthen safety and environmental monitoring in key areas, key plants and vital parts; and improve the archives of occupational health of employees and implement prevention and control measures for occupational hazards. In accordance with the control objectives for energy conservation and emissions reduction set in the “Twelfth Five-year Plan”, we will further proceed with various tasks and fully enforce the responsibilities and measures for energy conservation and emissions reduction.

(b) Continuously optimizing production and operations for profitability.

We will continue to leverage our overall strength in the oil refining-petrochemical integrated industry chain, endeavor to maintain high-load and stable operation of our oil refining and petrochemical plants, and further increase the total physical production volume of our products. We will continue to improve the management and optimization of production and operations, establishing and strengthening the PIMS system to improve the overall efficiency of production and operations. We will further push forward the optimization and adjustment of raw and auxiliary materials, product mix, fuel, power and other aspects, further enhancing the standards for major technical and economic indicators. We will endeavor to reduce the procurement costs of crude oil, bulk raw materials of petrochemicals and fuels, as well as the operating costs of plants and various production and operation expenses; make efforts on product sales and after-sales service; and increase market shares, with a view to improving profitability.

(c) Pushing forward in full scale the construction of the Phase 6 Project and the progress on corporate technology.

In accordance with our requirements for “sound and fast development”, we will push forward the construction of the Phase 6 Project which comprises the refinery renovation project as the principal component. We will strengthen the all-process management of the project construction and put emphasis on controls over safety, progress, quality and costs, endeavoring to build the Phase 6 Project as a “safe, quality, profitable and sunshine project”. We will continue to focus on “bottle necks” in production operations and “short board” in market competition; accomplish practical technology development, new technology applications as well as research and development of high value-added products; and seek to explore a new direction and a new way for industry and product mix adjustments. We will continue to further the application of the computerization project and strive to rank at the top in Sinopec Corp’s evaluation on corporate information system development and application standards.

(d) Pushing forward sophisticated management on an ongoing basis

With reference to international and domestic advanced levels of management, we will deepen our work that to improve corporate sophisticated management standards on an ongoing basis. We will formulate plans for implementing recommendations to improve our operations, and integrate such recommendations into every segment of production, operations and management. We will establish a system governing cost objective indicators, and a plan to push forward the management of cost objectives for all staff on an ongoing basis. We will further improve budget management; and strengthen the formulation, control, analysis and evaluation of budget. It will lay down standardized operations that regulate internal control processes and push forward a full-scale implementation of the internal control system for all staff and in all processes within the Company.

(e) Further enhancing management systems and mechanisms

We will modify and improve the management system and mechanism to further enhance organizational performance. We will integrate various elements and resources of management; regulate our organizational structure, job responsibilities, staffing and operation flow; and build a three-tier management model at the “company-management-workshop” levels. We will commence the establishment of an integrated management system in full scale; systematically streamline and comprehensively modify the existing system; and complete the standardization reform for the system within the year. We will improve on our all-staff performance appraisal system to further strengthen the appraisal of organizational performance. We will reinforce the management of foreign investment businesses to enable them to become leading, specialized and superior enterprises that support the principal operations. We will continue to accomplish good tracking management of reformed enterprises to facilitate the continuous improvement of their capabilities and standards for self-management, self-operation and self-development.

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(f) Proactively maintaining a cohesive, harmonious and stable corporate atmosphere.

We will conscientiously implement our development outline for building a corporate culture. We will vigorously carry out practical education activities for corporate culture, and proactively nurture an institutional culture and behavioral style being consistent with corporate values and philosophy, thereby creating a positive, harmonious, stable, striving and dedicated atmosphere. We will continue to reinforce the building of the operation management team, the professional technical team and the skills operation team; further improve and optimize the restructuring of human resources; streamline the path for the development of technical and skilled staff; improve the remuneration and benefits systems for staff; and improve the working environment and living conditions for staff, with a view to fully mobilizing the enthusiasm and creativity of different staff members and continuously enhancing the cohesiveness and sense of belonging among staff so as to ensure the safety, stability and harmony of the enterprise.

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Principal Products

We produce four principal types of products with different specifications, including synthetic fibers, resins and plastics, intermediate petrochemicals and petroleum products. We use many of the important petroleum products and intermediate petrochemicals we produce in producing our own downstream products. The following table shows our 2010 net sales by major products as a percentage of total net sales together with the typical uses of these products.

Product	% of net sales		Typical Use
SYNTHETIC FIBERS
Polyester staple fiber		0.93	Textiles and apparel
Acrylic staple fiber		4.21	Woven into fabrics or blended with other material fabrics to make fabric or acrylic top
Others		0.28
Sub-total		5.42
RESINS AND PLASTICS
Polyester chips		5.85	Polyester fibers, films and containers
PE pellets		7.88	Films, ground sheeting, wire and cable compound and other injection molding products such as housewares and toys
PP pellets		5.95	Extruded films or sheets, injection molded products such as housewares, toys and household electric appliance and automobile parts
PVA		0.59	PVA fibers, building coating materials and textile starch
Others		0.40
Sub-total		20.67
INTERMEDIATE PETROCHEMICALS
Ethylene		2.42	Feedstock for Polyethylene, EG, PVC and other intermediate petrochemicals which can be further processed into resins and plastics and synthetic fiber.
Ethylene oxide		2.02	Intermediate for chemical and pharmaceutical industry, dyes, detergents and auxiliary agents
Benzene		3.55	Intermediate petrochemical products, styrene, plastics, explosives, dyes, detergents, epoxies and nylon
Paraxylene		5.64
Butadiene		2.45	Synthetic rubber and plastics
Ethylene glycol		1.83	Fine chemicals
Others		5.96
Sub-total		23.87
PETROLEUM PRODUCTS
Gasoline		7.06	Transportation fuels
Diesel		22.43	Transportation fuels and agricultural fuels
Jet Fuel		3.87	Transportation fuels
Others		6.50
Sub-total		39.86
ALL OTHERS		10.18
Total		100.00

Production Processes

The key sectors in our vertically integrated production plants are the ethylene units which produce ethylene and propylene, and our aromatics plants which principally produce paraxylene (“PX”) and benzene. Ethylene is the major raw material in the production of polyethylene (“PE”) and monoethylene glycol (“MEG”) which, together with pure terephthalic acid (“PTA”), is used to manufacture polyester. Propylene is the major raw material in the production of acrylonitrile and polypropylene (“PP”). These products are produced through the processing of a series of petrochemical units from crude oil. Our production processes are shown in the flow chart below.

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Our refinery units refine crude oil into five basic components: (1) naphtha, (2) kerosene, (3) atmospheric gas oil (“AGO”), (4) VGO, and (5) residual oil. Part of the Naphtha and part of the AGO is fed to the ethylene units primarily to produce ethylene and propylene. Part of the Naphtha is fed to the reforming prehydrogenation units to produce refined Naphtha which shall be used for the production of Aromatics. The other part of the AGO is processed into diesel oil, and kerosene is fed to the jet fuel sweetening unit to produce jet fuel. Part of the VGO is further processed in a hydrocracking unit producing mainly light and heavy naphtha, liquefied petroleum gas (“LPG”), diesel oil, various aromatic hydrocarbon products and jet fuel. The other part of the VGO and residual oil can be further processed into gasoline, diesel oil, LPG, propylene and other products.

Intermediate Petrochemicals

Ethylene – Ethylene is either directly processed into PE resins or processed into other intermediate petrochemicals. The most important of these is MEG. MEG is a key ingredient in polyester. It is produced by oxidizing ethylene in the ethylene oxide (“EO”)/ethylene glycol (“EG”) unit. Ethylene is also used to produce vinyl acetate which is processed into PVA.

Propylene – Propylene is either processed directly into PP resins or is further processed into other intermediate petrochemicals such as acrylonitrile, acetonitrile, hydroxyl acetonitrile and sodium cyanide. Acrylonitrile is used in producing acrylics.

Vacuum gas oil – VGO is passed through the hydrocracker, and the resulting heavy naphtha is fed into the aromatics plants to produce PX and benzene. PX is processed into PTA, one of the principal raw materials in producing polyester.

Resins and Plastics and Synthetic Fibers

We process our intermediate petrochemical products into five kinds of synthetic fiber raw materials: (1) polyester, (2) acrylonitrile, (3) PP, (4) PE and (5) PVA. Each of these five products has its own production line or lines. We further process polyester and acrylonitrile into various types of synthetic fibers.

Polyester – MEG and PTA are fed into a polymerization unit which produces polyester chips and polyester melt. Both chips and melt are used as raw materials in the production of polyester staple and filaments. Some chips are also sold to third parties.

Polyester staple fiber is a multi-strand fiber cut into short lengths which can be spun into fabric on its own or blended with cotton, wool or flax to produce textiles. Polyester filaments are a class of more highly processed polyester materials which have been drawn and oriented to produce a long thread-like fiber.

Acrylonitrile – We produce polyacrylonitrile by feeding acrylonitrile into a polymerization unit. By passing the polyacrylonitrile through the fiber unit, acrylic fiber and acrylic staple fiber are produced, including cotton and wool type staple fibers. Wool acrylic staple fiber can be processed into acrylic wool strips.

Polypropylene – We produce PP resins by feeding propylene into a polymerization unit. Our fiber grade PP resin is the main ingredient for PP fiber production.

Polyethylene – We have three sets of units producing PE, two of which produce LDPE using the kettle type process, and the other unit produces all density PE products using the Borstar bimodal process.

Polyvinyl acetate – PVA granules are produced from vinyl acetate (“VAC”), derived from ethylene.

Raw Materials

Crude Oil

Crude oil is our primary raw material and the most significant raw material we purchase from outside sources. In 2010, crude oil accounted for approximately 58.11 % of our total cost of sales. Accordingly, the supply and price of crude oil are key factors in determining our profitability.

Allocation and Transportation – All crude oil required by us, whether from domestic or foreign sources, is purchased through the channels of Sinopec Corp. as an agent. During 2010, we did not experience any significant problems in obtaining sufficient crude oil to meet our production needs.

Sinopec Group is responsible for preparing an annual plan on demand and supply for crude oil and petroleum products that forms the basis of the Chinese government’s annual “balancing plan” which effectively dictates our planned volume of crude oil processing in each year. Likewise, under the “balancing plan”, some of our petroleum products are designated for sale to the subsidiaries of Sinopec Group or other designated customers at market prices and we must consult Sinopec Group to sell elsewhere.

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We have received confirmation from Sinopec Corp that we will receive an allocation of 0.8 million tons of domestic offshore crude oil and 10.4 million tons of foreign crude oil in 2011. Sinopec Corp has further confirmed that, subject to China’s national crude oil policy and our actual production needs, it will continue to allocate sufficient quantities and appropriate kinds of crude oil to us, including domestic offshore and foreign crude oil, to satisfy our anticipated annual needs. We anticipate fully utilizing our 2011 allocation of crude oil. We believe that the mix of crude oil feedstocks currently available is satisfactory for our 2011 production capacity and targets. Additionally, as part of China’s commitment at its accession into WTO, certain non-state-owned enterprises have been granted an increasing quota to import crude oil. Although we do not expect to obtain crude oil through this channel in the foreseeable future due to the current crude oil allocation system, this may provide us with an alternative source of crude oil supply.

Crude Oil Mix – Our refining equipment is designed to process certain grades of crude oil. Therefore, the origin and quality of the crude oil available can be important to our business. We believe, as we are significantly increasing usage of foreign crude oil, we will continue to be able to obtain from the market such foreign crude oil that is compatible with our refining equipment. The overall mix of foreign versus domestic crude oil we process in 2011 will depend on a variety of factors, including the amount of future allocations of domestic offshore crude oil and the availability, price, quality, processing profitability and compatibility with our refining capabilities of foreign crude oil. Provided there are no significant modifications to the existing channels of crude oil acquisition, we believe that sufficient supplies of crude oil will be available on the domestic or international markets for our 2011 production capacity and goals.

In 2010, our crude oil was sourced as follows:

Domestic offshore crude oil	9.87	%
Foreign crude oil	90.13	%
Total:	100.00	%

In 2010, a minimal amount of our foreign crude oil was sourced from Iran, which is a country identified by the U.S. State Department as a state sponsor of terrorism and subject to U.S. economic sanctions and export controls. Details of the purchase volume and purchase expenses are provided below:

	Volume (thousand  tons)		% of total		Amount (RMB  billion)		% of total
Iran		139.2		1.5		0.480		1.4
Others		8,843.0		98.5		34.580		98.6
Total		8,982.2		100.0		35.060		100.0

As a result of a consistent decrease in the supply of domestic crude oil, we expect that we will continue to rely principally on foreign sources for our crude oil supply. However, we believe that we will be able to maintain our processing efficiency through technological adjustments of our equipment and quality control and that increased use of imported oil will not materially adversely impact our business and results of operations.

Foreign and domestic offshore crude oil is supplied by tanker and pipeline to our oil terminal wharf and oil storage tank. See Item 4.D. Property, Plants and Equipment -Wharfs.

In the past, we have not experienced disruption in our crude oil supply. We have on-site crude oil storage tanks at Chenshan wharf capable of storing approximately 300,000 cubic meters of crude oil, primarily to provide crude oil to our No. 2 atmosphere vacuum distillation facility. This crude oil storage can provide us with approximately a 2-week supply of crude oil. The crude oil for our No. 3 atmosphere vacuum distillation facility is mainly supplied from the Ningbo-Shanghai-Nanjing oil pipeline. Due to our ability to obtain crude oil from multiple sources, we are able to meet our normal requirements for crude oil.

Pricing – The price of domestic offshore crude oil is controlled by China National Offshore Oil Corporation (“CNOOC”) and Sinopec Group based on government pricing policies and by reference to the price of the crude oil of the same quality in the international market, while imported crude oil is generally sold to us at prevailing international market prices. The average cost of foreign and domestic offshore crude oil in 2010 was RMB3,921 (US$594) per ton and RMB3,966 (US$601) per ton, respectively. In 2010, we processed 9.56 million tons of foreign crude oil and 960 thousand tons of domestic offshore crude oil.

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Until March 2001 the Chinese government implemented a unified pricing system for crude oil. Each month, the National Development and Reform Commission (“NDRC”) would establish an indicative price for each grade of domestic onshore crude oil based on comparable international market prices, inclusive of any duties that would have been imposed had the oil been imported. The actual price for domestic onshore oil would be such indicative price plus a surcharge. This surcharge was determined by CNPC and Sinopec Group to reflect any transportation and other miscellaneous costs that would have been incurred in having the oil delivered to various refineries. Beginning March 2001, the NDRC ceased publishing an indicative price. Instead, the indicative price for domestic onshore oil is calculated and determined directly by CNPC and Sinopec Group based on the principles and methods formerly applied by the NDRC.

Sinopec Corp will allocate crude oil to us in sources selected and quantities confirmed by the Company at market prices. On this basis, we believe that changes in crude oil prices should not have a material effect on our competitiveness with other domestic producers. Nevertheless, any increase in the price of crude oil could have an adverse impact on our profitability to the extent that we are unable to pass cost increases on to our customers.

Coal

Most of the coal used for electricity generation is purchased through a unified system of procurement by Sinopec Corp, and the rest is purchased directly by us from mines. Coal is transported by rail from the mines to Qinhuangdao port and shipped by barge to Jinshanwei where it is delivered to the plant via a wharf and conveyer system. Our cost of coal is primarily dependent on coal price and transportation charges. Although coal may be purchased from alternative sources, railroad transportation must be obtained by allocation from the Chinese government on a monthly basis.

We expect that our total requirement for coal to generate electricity in 2011 will be approximately 2.1 million tons. In 2010, we consumed approximately 2.03 million tons of coal, an increase from 2009 of 0.24 million tons.

Other Raw Materials

We produce most of the raw materials used as feedstock for our operations. If any of these raw materials, other than ethylene, becomes unavailable from internal production, we believe that there are sufficient alternative sources at reasonable prices and the unavailability of raw materials from internal sources will not have a significant effect on our operations and profitability.

We purchase some ancillary raw materials from outside sources. These raw materials include natural gas, MX, methanol, ammonia, sodium hydroxide, sulfur, acetone, acrylonitrile, PTA, propylene and a variety of catalytic agents. In 2010, the total cost of these materials accounted for approximately 21.52% of our total cost of sales. We do not expect any difficulties in obtaining a supply of any of these ancillary raw materials in amounts sufficient to meet our needs in the foreseeable future.

Sales and Marketing

Distribution

The distribution of our fuel products is subject to government regulations. We are required to sell certain refined products to the subsidiaries of Sinopec Group or customers designated by Sinopec Group. Since the second half of 2005, Sinopec Group has executed reforms to its system of selling petrochemical products and implemented what it refers to as a “Five Consolidations” strategy featuring “consolidated marketing strategy, consolidated promotion, consolidated logistics optimization, consolidated sales and consolidated branding”. As a result, the sales of our major petrochemical products are now conducted in a consolidated manner by sales agents designated by Sinopec Group. However, we have the autonomy to decide on the distribution method of our other products in accordance with market conditions. The products we sold in 2010 that were subject to planned distribution by Sinopec Group, sales by agents and sales based on our own discretion accounted for 49.93%, 42.06% and 8.01%, respectively, of the total products we sold.

We generally sell our products to larger trading companies and industrial users with whom we have long-standing relationships, including Sinopec Group or customers designated by Sinopec Group. We believe that the transition to sales of major petrochemical products by agents designated by Sinopec Group will increase our distribution efficiency, reduce horizontal competition and enhance our overall bargaining power, by allowing us to benefit from Sinopec Group’s extensive and highly specialized sales network. It will also allow us to focus more of our resources on reducing production costs and enhancing our technical support.

We use long-term contracts to sell most of our products. We did not experience significant write-offs or defaults on our accounts receivable or other trade accounts in 2010. In general we managed to keep a stable link between production and sales in 2010.

Product breakdown

Synthetic Fibers – In 2010, 11.22% of our synthetic fiber products were purchased by provincial and municipal government trading companies that act as intermediaries between us and end-users. No single customer accounted for more than 16.68% of our sales of synthetic fibers in 2010.

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Resins and Plastics – In 2010, approximately 5.57% of our resins and plastics sales were to provincial and municipal government trading companies and approximately 60.38% were sold to industrial users. No single customer accounted for more than 2.87% of our sales of resins and plastics in 2010.

Intermediate Petrochemicals – We sell a variety of intermediate petrochemical products, none of which were sold in substantial quantities.

Shanghai Chlor-Alkali Chemical Co. Ltd. (“Chlor-Alkali”) is the principal outside consumer of our ethylene. In 2010, we sold 80.6 thousand tons of ethylene, representing 8.28% of our total 2010 production of such product, to Chlor-Alkali at prices mutually agreed upon by both parties.

Petroleum Products – In 2010, our primary gasoline and diesel customer was Sinopec Huadong Sales Company Limited. We sold residual oil directly to industrial end-users for use as industrial fuel and as feedstock to produce light petroleum products.

Product Pricing

Most of our products are permitted to be sold at market prices. However, four types of petroleum products (gasoline, diesel and jet fuel, and liquefied petroleum gas) that we sell are subject to varying degrees of government pricing control and are, accordingly, sold at prices set by the Chinese government, which may sometimes be below our costs. In 2008, 2009 and 2010, approximately 43.52%, 47.70 % and 34.41%, of our net sales were from products subject to price controls. Price controls may apply to these products in various ways. Such pricing controls are sometimes applied exclusively to our products, exclusively to our competitors’ products or sometimes applied to neither our products nor our competitors’ products. The Chinese government has adopted changes to the pricing mechanism for domestic refined oil to be indirectly aligned with international crude oil prices in a controlled manner through use of certain formula(s).

For products that are not subject to price controls, we set our prices with reference to prices in the major Chinese chemical commodities markets in Shanghai and other parts of China. We also monitor pricing developments in major international commodities markets, particularly in Southeast Asia. In most cases, we revise product prices each month, or more frequently during periods of price volatility. Due to our economies of scale, brand recognition and high quality of products, we believe that we can continue to price our products competitively.

Competition

We compete principally in the Chinese domestic market where 99.63% of our products in volume were sold in 2010. In addition, the limited transportation infrastructure in China and the difficulties involved in transporting petrochemical products force companies to compete primarily on a regional basis. In 2010, 92.32 % of our net sales were made to customers in Eastern China.

Our Competitive Advantages

We believe our primary competitive advantages are quality of product, pricing, brand recognition, geographic location and vertical integration. We have received many prizes and awards from both central and local government authorities for high product quality. Furthermore, our location on the outskirts of the densely populated and highly industrialized Shanghai area places us in close proximity to many of our customers. This location also gives us convenient access to ocean transport and inland waterways, which results in a competitive advantage in terms of transportation cost and reliability and punctuality of product delivery.

We believe that our vertical integration represents a significant competitive advantage over non-integrated competitors in China, both in terms of reliability in delivery and price. For most downstream products, our vertical integration results in significant savings on transportation and storage costs which would be incurred by less vertically integrated facilities.

The Domestic Competitive Environment

Prior to 1993, because distribution and pricing of our products were determined in accordance with the State Plan, we did not operate in a competitive environment. With the liberalization of control over pricing and product allocation by the Chinese government, competition in the domestic market has been gradually increasing. At the same time, Chinese private enterprises have gradually overcome technological and funding barriers to extend their business from the downstream processing sector to the upstream petrochemical field. These enterprises have advantages in many areas such as flexibility in operation costs, preferential policy treatment and regional presence, and may use these advantages to compete with us in markets for our products.

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Foreign Competition and the World Trade Organization

China joined the WTO on December 11, 2001. As part of its membership commitments, China agreed to eliminate certain tariff and non-tariff barriers to foreign competition in the domestic petrochemical industry that benefited us in the past. In accordance with its WTO commitments, China has made the following changes:

• foreign investors are now permitted to wholly-own domestic petrochemical companies;

• restrictions on the import of crude oil by non-state owned companies are gradually relaxed;

• foreign-owned companies are granted the right to import petrochemical products; and

• foreign-owned companies are permitted to distribute and market petroleum products in both retail and wholesale markets in China.

As a result of these measures, we are facing increased competition from foreign companies and importation. Changes in crude oil importation and distribution have affected our existing supply arrangements with Sinopec Corp.

Prior to its entry into the WTO, the Chinese government took early steps to reduce protection from import barriers. Tariffs have been gradually reduced beginning in 1997. Foreign imports result in the increased competition of domestic petrochemical products. Nevertheless, we believe that our products have been, and will continue generally to be, competitive with imports. These early steps, including tariff reductions, have exposed us to international competition and should help us meet increased competition.

In addition to tariff reductions, China is liberalizing the import of crude oil and the distribution of processed oil and other petrochemical products. Import and export of crude oil has historically been limited to designated state-owned companies. China has allocated 7.2 million tons of crude oil to non-state owned traders in 2002 and will increase this amount by 15% each year for 10 years, at which time the growth rate will be reviewed by interested WTO member countries. Similarly, several categories of processed oil are also subject to limitation requiring trade through state owned traders. China will allocate 4.0 million tons of processed oils to non-state owned traders and increase this amount by 15% annually for 10 years.

In concurrent commitments, China has agreed that minority foreign-owned enterprises would receive trading rights by December 11, 2002, majority foreign-owned enterprises would receive trading rights by December 11, 2003 and wholly foreign- owned enterprises would receive trading rights by December 11, 2004. These changes have enabled the Company to obtain more alternative sources of crude oil. We also expect that they will create additional foreign investment in China’s petrochemical industry and additional competition for us.

Overall, we think that China’s WTO entry will create substantial amounts of new investment and business in China, with a corresponding increase in sales opportunities for us.

Our Competitive Position

In the following discussion, internal consumption of resins and intermediate petrochemicals produced by integrated manufacturers in the production of downstream products are treated as sales.

Synthetic Fibers

In 2010, we had an approximate 1.02% share and imports had an approximate 1.96% share of total domestic polyester and acrylic consumption.

The following table summarizes the competitive position of our principal synthetic fibers according to domestic sales in 2010.

Product	Our share  of domestic consumption			Our competitive ranking		Location of principal domestic competitor	Principal domestic competitor’s share of consumption			Imports’ share  of consumption
	(%)						(%)			(%)
Acrylic		19.57	%		1	Jilin Province		18	%		23.11	%

Sources: Statistics provided to us by the Sinopec Group and the China National Council of Textiles.

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Resins and Plastics

In 2010, we had an approximate 3.94% share and imports had an approximate 27.78% share of total domestic resins and plastics consumption. The following table summarizes the competitive position of our principal resins and plastics products according to domestic sales in 2010.

Product	Our share  of domestic consumption			Our competitive ranking		Location of principal domestic competitor	Principal Domestic competitor’s Share of consumption			Imports’ share of consumption
	(%)						(%)			(%)
Polyester chips		4.74	%		25	Jiangsu Province		6	%		2.4	%
PE		3.56	%		3	Guangdong Province		8.55	%		43.14	%
PP		3.72	%		5	Guangdong Province		5.5	%		29.87	%

Sources: Statistics provided to us by Sinopec Group.

Intermediate Petrochemicals

In 2010, we were one of the largest sellers of intermediate petrochemicals in China and held an approximate 5.41% share of the total domestic consumption. Imports had an approximate 28.02% share of domestic consumption. Ethylene, benzene and butadiene are our major intermediate petrochemical products. In 2010, we were a major ethylene producer in China. The following table summarizes the competitive position of our principal intermediate petrochemicals according to domestic sales in 2010.

Product	Our share  of domestic consumption			Our competitive ranking		Location of principal domestic competitor	Principal Domestic competitor’s Share of consumption			Imports’ share of consumption
	(%)						(%)			(%)
Ethylene glycol		4.59	%		1	Jiangsu Province		3	%		74	%

Petroleum Products

In 2010, we had an approximate 2.15% share of the total domestic petroleum products market while imports had an approximate 4.28% share. Although we have one of the largest refining capabilities in China, we use most of our refining capacity to produce feedstock for our own downstream processing of petrochemical products.

The domestic markets for each of our major petroleum products are geographically concentrated because these markets tend to be highly localized with individual producers controlling a large share of the markets in their locality. In 2010, we sold approximately 99.55% of our petroleum products in Eastern China.

Investments

We established Secco, a Sino-foreign equity joint venture, in late 2001 together with BP and Sinopec Corp, primarily to build and operate a 900,000 ton Rated Capacity ethylene petrochemical manufacturing facility. Secco completed construction and commenced its manufacturing operations in 2005. In 2009, Secco has expanded the capacity of certain facilities up to 1,090,000 tons of ethylene per annum. We own 20% of the equity interest of Secco.

In 2010, Secco achieved a total sales revenue of RMB29.169 billion, representing an increase of 77.45% from its sales revenue of RMB16.438 billion in 2009. The increase of sales revenue was attributable to an expansion and upgrade of production capacity in 2010. Secco produced 1,294,300 tons of ethylene in 2010, representing an increase of 419,000 tons over the previous year, up 47.87%. Secco achieved a net profit of RMB2,722 million in 2010, as compared to a net profit of RMB695 million in 2009. The increase in net profit was primarily due to the effect of a significant increase in sales volume.

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Environmental Protection

We are subject to national and local environmental protection regulations, which currently impose a graduated schedule of fees for the discharge of waste substances, require the payment of fines for pollution and provide for the forced closure of any facility that fails to comply with orders requiring it to cease or cure certain environmentally damaging practices. We have established environmental protection systems which consist of pollution control facilities to treat certain of our waste materials and to safeguard against accidents. Because of the nature of our business, however, we store a significant amount of waste substances in the plants and discharge them into the environment after making such waste substances meet the discharge standards. During 2010, we were assessed a total of RMB34.087 million (US$5.165 million) in fees for discharges of waste substances. As of April 1, 2011, we had not been assessed any fines for environmental violations and there were no actions pending or, to our knowledge, threatened which would result in the assessment of such a fine.

We believe our environmental protection facilities and systems are adequate for the existing national and local environmental protection regulations. However, there can be no assurance that Chinese national or local authorities will not impose additional regulations that would require additional expenditures in respect of environmental matters in the future.

Insurance

We currently participate in a package of insurance coverage plan through Sinopec Group as its controlled subsidiary, which, as of December 31, 2010, was approximately RMB28.326 billion (US$4.292 billion) on our property and facilities and approximately RMB1.967 billion (US$0.298 billion) on our inventory. In addition, we maintain insurance policies for such assets as the engineering construction projects and products in transit with third-party’s commercial insurance company. The Sinopec Group insurance coverage is compulsory and applies to all enterprises controlled by Sinopec Group, pursuant to guidelines of Sinopec Group which may not be legally enforceable against Sinopec Group. Thus, there are uncertainties under Chinese law as to what percentage insurance claims we may demand against Sinopec Group.

We do not carry any third party liability insurance to cover claims in respect of personal injury, property or environmental damage arising from accidents on our property or relating to our operations other than on our transportation vehicles. We have not had a third party liability claim filed against us during the last five years. Since business interruption insurance is not customary in China, we do not carry such insurance.

Government Regulations

Following the development of several major oil fields and a growth in demand for petroleum and petrochemical products in China in the early 1970’s, the Chinese government organized petroleum refining and petrochemical production and processing plants into large complexes that would permit integrated production of petroleum products, intermediate petrochemicals, resins and plastics, and synthetic fibers.

Although the Chinese government is liberalizing its control over the petroleum and petrochemical industries in China, significant government regulations that limit the business strategies available to us remain. Central government agencies and their local or provincial level counterparts do not own or directly control our production plants. However, they exercise significant control over the petrochemical industry in areas such as pricing, production quotas, quality standards, allocation of raw materials and finished products, allocation of foreign exchange and Renminbi loans for capital construction projects. The Chinese government’s intentions with respect to the development objectives and policies for the petrochemical industry are stated as part of the Five Year Plans for National Economic and Social Development formulated every five years. These plans at both the national and Shanghai municipality level have identified the petrochemical industry as a “development industry” which may qualify companies in the petrochemical industry for preferential treatment by governmental agencies.

Historically, we were supervised by Sinopec, a ministry-level enterprise under the direct supervision of the State Council, China’s highest administrative body. As a result of a governmental restructuring in 1998, we became subject to the administration of the State Bureau of Petroleum and Chemical Industry. After its functions were terminated in March 2001, we became subject to the administration of the State Economic and Trade Commission. The State Economic and Trade Commission was dissolved in March 2003 and its function in directing the reform and management of state-owned enterprises were assumed by the State Assets Regulatory and Management Commission, its function in industry planning and policy making were assumed by NDRC, and its functions in administering domestic trade, coordinating and implementing import and export plans of critical industrial products and raw materials were assumed by the Ministry of Commerce. Since then, we have been subject to the industrial oversight of these three new governmental agencies at the national level.

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As part of this restructuring, Sinopec was also restructured in July 1998. The succeeding entity, Sinopec Group, was authorized to conduct a petrochemical business and to control the exploration of crude oil and natural gas and crude oil refining, mainly in the southern and eastern regions of China. China Petroleum and Natural Gas Corporation, another major state-owned petrochemical company, was also restructured, renamed China National Petroleum Corporation and authorized to conduct the same type of business, mainly in the northern and western regions of China. On December 31, 1999, Sinopec Group completed a reorganization pursuant to which certain of its core oil and gas and chemical operations and businesses and related assets and liabilities were transferred to its subsidiary, Sinopec Corp, currently our controlling shareholder.

C. Organizational Structure.

Our Subsidiaries

Our significant subsidiaries are listed below. All of the subsidiaries named below are incorporated in China.

Subsidiary Name	Our ownership interest and voting power
	(%)
Shanghai Petrochemical Investment Development Company Limited		100.00
China Jinshan Associated Trading Corporation		67.33
Shanghai Jinchang Engineering Plastics Company Limited		50.38
Shanghai Golden Phillips Petrochemical Company Limited		60.00
Zhejiang Jin Yong Acrylic Fiber Company Limited		75.00
Shanghai Golden Conti Petrochemical Company Limited		100.00

Sinopec Corp

We are a member of a group (defined as a parent and all its subsidiaries) for purposes of the disclosure rules of the Securities and Exchange Commission. The parent company of this group is Sinopec Corp, our controlling shareholder. Sinopec Corp is operated by separate management and from time to time uses its interest as a shareholder to direct our policies and management. We have extracted the following information regarding Sinopec Corp from its public filings:

Overview

Sinopec Corp is an integrated petroleum and petrochemical company with upstream, midstream and downstream operations. Based on trading volume in 2010, Sinopec Corp is one of the largest publicly listed companies in China and one of the largest petroleum and petrochemical companies in both China and Asia. Sinopec Corp is one of the largest refiners, distributors and marketers of gasoline, diesel, jet fuel and most other major refined products in China and Asia with principal markets in the eastern and southern regions of China. Sinopec Corp is also a producer and distributor of petrochemicals in China and additionally explores, develops and produces crude oil and natural gas principally to supply its refining and chemical operations.

Subsidiaries

Details of Sinopec Corp’s principal subsidiaries are given in the table below. Except for Sinopec Kantons Holdings Limited and Sinopec (Hong Kong) Limited, which are incorporated in Bermuda and Hong Kong respectively, all of the below principal subsidiaries are incorporated in China.

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				Percentage of equity
Name of company	Particulars of issued capital		Type of legal entity	held by Sinopec Corp.		held by Sinopec Corp.’s Subsidiary		Principal activities
	(millions)			(%)		(%)
China Petrochemical International Company Limited		RMB1,400	Limited Company		100.00		—	Trading of petrochemical products and equipments
Sinopec Sales Company Limited		RMB1,700	Limited Company		100.00		—	Distribution of refined oil products
Sinopec Yangzi Petrochemical Company Limited		RMB16,337	Limited Company		100.00		—	Manufacturing of intermediate petrochemical products and petroleum products
Sinopec Zhongyuan Petroleum Company Limited		RMB2,400	Limited Company		93.51		—	Exploration and production of crude oil and natural gas
Fujian Petrochemical Company Limited		RMB4,769	Limited Company		50.00		—	Manufacturing of plastics, intermediate petrochemical products and petroleum products

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				Percentage of equity
Name of company	Particulars of issued capital		Type of legal entity	held by Sinopec Corp.		held by Sinopec Corp.’s Subsidiary		Principal activities
	(millions)			(%)		(%)
Sinopec Shanghai Petrochemical Company Limited		RMB7,200	Limited company		55.56		—	Manufacturing of synthetic fibers, resin and plastics, intermediate petrochemical products and petroleum products
Sinopec Kantons Holdings Limited		HK$104	Limited company		72.34		72.34	Trading of crude oil and petroleum products
Sinopec Yizheng Chemical Fiber Company Limited		RMB4,000	Limited company		42.00		—	Production and sale of polyester chips and polyester fibers
Sinopec International Petroleum Exploration and Development Company Limited		RMB8,000	Limited company		100.00		—	Investment on exploration, trade and manufacturing of petroleum and nature gas
Sinopec Shell (Jiangsu) Petroleum Sales Company Limited		RMB830	Limited company		60.00		—	Distribution of refined oil products
BP Sinopec (Zhejiang) Petroleum Company Limited		RMB800	Limited Company		60.00		—	Distribution of refined oil products
Sinopec Qingdao Refining and Chemical Company Limited		RMB5,000	Limited company		85.00		—	Manufacturing of intermediate petrochemical products and petroleum products
China International United Petroleum and Chemical Company Limited		RMB3,040	Limited company		100.00			Trading of crude oil and petrochemical products
Sinopec Hainan Refining and Chemical Company Limited		RMB3,986	Limited company		75.00			Manufacturing of intermediate petrochemical products and petroleum products
Sinopec (Hong Kong) Limited		HK$5,477	Limited company		100.00		—	Trading of crude oil and petrochemical products
Sinopec Senmei (Fujian) Petroleum Ltd.		RMB1,840	Limited company		—		55.00	Marketing and distribution of refined petroleum products
Sinopec Fuel Oil Sales Corporation Limited		RMB2,200	Limited company		100.00		—	Distribution of fuel oil products

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D. Property, Plant and Equipment.

Real Property

Our corporate headquarters and production facilities, occupying an area of approximately 7.03 square kilometers, are located in Jinshanwei, approximately 75 kilometers from downtown Shanghai. The total gross floor area of all our production and other facilities is approximately 2 million square meters. We own all of the buildings and facilities located at the site. We have the right to use the land upon which our buildings and facilities are located for a term of 50 years beginning in 1993 without the payment of any rent or usage fees other than land use taxes. We also have the right to transfer our land use rights to third parties without any payment to the Chinese government, so long as the use of the land remains the same as when the land use right was granted to us and the terms of the land use right we received will be applicable to any transferee.

Plants and Facilities

The following charts set forth the Rated Capacities of our principal production units. The actual production capacity of a production unit can exceed Rated Capacity and may be further increased without increasing the Rated Capacity through technical improvements or expansion of such unit. The utilization rate of a production unit is based upon Rated Capacity rather than actual production capacity and may vary with technical enhancements, changes in production management and scheduling of maintenance.

The following table sets forth the Rated Capacities and weighted average utilization rates of our principal production units for petroleum products and intermediate petrochemicals in 2010:

Production Unit (number of units)	Rated Capacity (tons)		Utilization Rate (%)
Crude oil distillation units (2)		14,000,000		70.54
Hydrocracker (2)		3,000,000		85.39
Ethylene units (2)		850,000		105.14
Aromatics unit		835,000		99.64
PTA unit		400,000		97.90
EO/EG unit (2)		525,000		90.36
Acrylonitrile unit		130,000		107.16
Acetaldehyde unit		42,000		79.56
Acetic acid unit		45,000		45.44
Cracking and catalyzing		1,000,000		101.51
Delayed Coking (2)		2,200,000		108.14
Reforming prehydrogenation unit		750,000		104.63
C5 segregation unit (2)		205,000		101.81

Our two crude oil distillation units were designed and built in China. In 2010, the actual amount of crude oil we processed was approximately 10.52 million tons. Our hydrocracker uses technology from United Oil Products Corporation of the United States. Our first ethylene unit uses technology from Mitsubishi Petrochemical Corporation of Japan. The second ethylene unit uses technology from ABB Lummus Global Inc. of the United States. The aromatics unit uses technology from Universal Oil Products Corporation of the United States. The PTA unit uses technology from Mitsui Petrochemical Corporation of Japan. The EO/EG unit was constructed using technology from Scientific Design Corporation of the United States.

The following table sets forth the Rated Capacities and weighted average utilization rates of our principal production units for resins and plastics and synthetic fibers in 2010:

Production Unit (number of units)	Rated Capacity (tons)		Utilization Rate (%)
Polyester units (3)		550,000		102.18
Polyester staple units (2)		154,000		69.39
Polyester filament units		21,000		84.70
Acrylic staple fiber units (4)		191,000		80.66
PE units (3)		408,000		101.27
PP units (3)		400,000		105.46
Vinyl acetate unit (2)		102,000		111.97

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Our polyester units use technology from Kanebo Corporation of Japan and E.I. Dupont DeNemours & Co. Inc. (“Dupont”) of the United States. The polyester staple units use technology from Teijin of Japan and Jima of Germany as well as Chinese technology. The polyester filament units use technology from Murata Manufacturing Company Limited and Teijin Corporation of Japan, Barmag AG of Germany and Dupont. We produce polyethylene in three units, two LDPE units which use technology from Mitsubishi Petrochemical Corporation of Japan and BASF LDPE of Germany and one HDPE unit uses the Borstar bimodal polyethylene technology from Northern European Chemical Engineering Company.

The acrylic fiber units were built domestically, based on a design of equipment which had been imported into China in the 1960s and that we substantially improved. In 1996, we acquired two additional acrylic fiber units which use technology from the Kawasaki Corporation of Japan. We produce PP in three identical units using technology from Himont Corporation of Italy. The PVA unit uses technology acquired from Kuraray Corporation of Japan.

Power Facilities

Our electricity requirements are currently supplied by our own 425 megawatt coal-fired power plant and petroleum coke power plant. These power plants are designed to supply power needed by our facilities. We are connected to the East China electricity grid, which provides a back-up source of power in case of a shortfall in our power supply.

Other Facilities

We also have facilities to produce industrial water, steam, hydrogen, oxygen and nitrogen which we use in our production facilities.

Maintenance

We engage in production stoppages for facility maintenance and repairs and implement our routine monthly maintenance and repair plans according to the needs of our production facilities, our requirements for product quality, and our commitment to security and environmental protection, The technicians in our facility management department have responsibility for the daily management of maintenance and repair work. We also outsource facility maintenance and repair projects to qualified contractors.

Transportation-Related Fixtures

Crude oil, our principal raw material, is transported by pipeline and oil tanker to a crude oil terminal wharf and storage tanks. Our products leave the factory by water, rail, road and pipeline. In 2010, approximately 49.18% of our products by sales volume were collected by customers from our premises, and we delivered the balance. Our major ethylene customer is supplied via a pipeline. Some of the products collected by customers were also transported using our facilities.

Wharfs

We own two chemical wharfs at Jinshan with four berths of 3,000, 5,000, 10,000 and 25,000 tons. We also own a connecting pipeline capable of loading up to approximately 1.4 million tons of chemical products annually onto ocean-going barges and ships. In 2010, products representing 23.37% of total sales volume were shipped from the wharf. We also have a facility to load ships and barges which use the region’s inland waterways. In 2010, products representing 5.37% of total sales volume were shipped from these facilities. We believe that we have a competitive advantage because a greater proportion of our products are shipped by water as opposed to rail and truck, which is subject to capacity constraints on China’s rail and highway networks. Additionally, we own facilities for receiving crude oil and coal at docks that we own and transporting such materials by pipeline or conveyor to our production facilities.

We own an oil terminal wharf at Chenshan in Zhejiang Province, which is comprised of two berths, each of which is capable of handling 45,000 ton vessels. Two 25 kilometer pipelines connect this oil terminal wharf with our facilities.

Rail

We own a railroad loading depot with an annual capacity of 50,000 tons. The depot provides access via a spur line to the national Chinese railway system. In 2010, products representing 1.39% of total sales volume were transported from the factory by rail. Our ability to transport products by rail is limited because of China’s overburdened railway system, the allocation of use of which remains strictly controlled by the Chinese government.

Capital Expansion Program

Our principal capital expansion projects for the near term are summarized in the table and further described below. In aggregate, we expect that total investment in the projects described will be approximately RMB3 billion in 2011. This amount will be funded by our own capital and by bank loans.

27

Name of Project	Rated Capacity (tons/year) Date		Start		Expected Completion Date		Status
Refining Capacity Expansion
Refinery Reconstruction Project		N/A		2010		2012		Basic design submitted
Expansion of New and Existing Downstream Production Facilities
PAN Carbon Fiber Project with annual output of 1.5 thousand tons		1,500		2010		Phase I 2013		Under construction
Jin Chang Company M-PP Project with annual output of 30 thousand tons		30,000		2010		2011		Under construction
Ethanolamine Project with annual output of 50 thousand tons		50,000		2011		2012		Basic design being prepared
10,000t/a isopentene unit		10,000		2011		2011		Under construction
100,000t/a EVA project		100,000		2012		2014		Feasibility study report submitted
Other Projects
Secondary desulphurization for No. 5 and No. 6 furnaces		N/A		2011		2011		Pending approval of feasibility study report
Project of No. 2 Oxidation Unit Transformation for System Optimization, Energy Saving and Consumption Reduction		N/A		2009		2011		Under construction
No. 2 and No. 3 aromatic hydrocarbon unit transformation for improving energy efficiency		N/A		2011		2012		Feasibility study report submitted
Oxidized waste water processing facilities reconstruction		N/A		2010		2011		Under construction

N/A – not applicable.

In 2008, 2009 and 2010, we invested RMB1.511 billion, RMB2.120 billion, and RMB1.357 billion, respectively, in capital expansion projects.

Refining Capacity Expansion Plans

With a view to accommodating the adjustment in our product mixes, we process the heavy and low-quality crude oil we purchase in order to control our cost, improve the overall processing procedures, enhance our reprocessing capacity, and continuously increase the operating adaptability and overall efficiency of our refining facilities. We are promoting the construction of the “Phase VI” project, which focuses on the reconstruction of refining facilities, fine chemicals, structure adjustment and system perfection.

Through implementing a refining facilities reconstruction project, we plan to further enhance the reprocessing capacity and overall capacity of refining facilities. In March 2010, Sinopec Corp. approved the feasibility study report for this reconstruction project; at present, the basic design for this project is pending approval by Sinopec Corp.; pile foundation construction was commenced in December 2010; and we plan to commence civil engineering in May 2011 and complete the construction in 2012.

Expansion of New and Existing Downstream Petrochemical Products

As a fully integrated petrochemical complex, we produce a wide range of intermediate and downstream petrochemical products. We plan to utilize the currently available resources and develop higher-margin downstream products and fine chemicals, with raw materials including cracking carbon 5, carbon 4, epoxy ethane, vinyl acetate and acrylonitrile. With a view towards enhancing our competitive power and the ability to keep sustainable development, we plan to further increase the overall resource utility rate and adjust and improve our company’s industrial structure through the measures discussed below.

To take advantage of our specialty in production of acrylics fiber and to improve our industrial structure and upgrade certain products, we plan to construct a PAN carbon fiber manufacturing facility with an annual output of 1.5 thousand tons. Sinopec Corp. approved the basic design for this project in December 2010; pile foundation construction was commenced in December 2010; civil engineering was commenced in February 2011; and one series of facility under phase I is planned to be put into production in February 2012.

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We plan to utilize our own technology to construct an M-PP project with an annual output of 30 thousand tons at the site of the Jing Chang Company. Sinopec Corp. approved the basic design for this project in May 2010; the project is implemented in two phases; the civil engineering of phase I was commenced in December 2010, and this phase is scheduled to be commissioned in October 2011; and it’s planned that phase II will be completed by March 2012.

To take advantage of our possession of epoxyethane and the current manufacturing conditions, we plan to utilize foreign technologies to construct an ethanolamine facility with an annual output of 50 thousand tons. Sinopec Corp. approved the feasibility study report for this project in October 2010; and the construction is scheduled to commence in 2011 and be completed in 2012.

We plan to construct a set of new 10,000t/a isopentene units relying on the light C5 materials produced by the C5 units and using our own technology. Sinopec Corp. approved the basic design for this project in September 2010; pile foundation construction was commenced in February 2011; and it is planned that the conditions required for commissioning will be satisfied within this year.

We plan to construct a new 100,000t/a EVA production unit with imported technology. The feasibility study report for this project was submitted to Sinopec Corp. in May 2010. The construction of this project is scheduled to be commenced in 2012 and completed in 2014.

Other Projects

The basic design for the No. 2 oxidation unit transformation project for the purpose of further energy saving, consumption reduction, cost cutting and efficiency improvement, was approved by Sinopec Corp in May 2010. The Company started civil engineering in 2010 and plans to complete this project in 2011. The feasibility study report for No. 2 and No. 3 aromatic hydrocarbon unit transformation for improving energy efficiency was submitted to Sinopec Corp. in July 2010; and this project is scheduled to be commenced in December 2011 and completed in December 2013.

To address the disposal of waste water produced in the manufacturing process of polyester fiber, the basic design for the relevant project was approved by Sinopec Corp. in June 2010; the construction of the project was completed in September 2010; and it is planned that intermediate handover was completed in April 2011.

Sinopec Corp. approved the feasibility study report for project of flue gas desulfurization unit construction for No. 5 and No. 6 furnaces in December 2010. The Company plans to commence the construction of pile foundation in May 2011 and complete this project in December 2011.

ITEM 4A. UNRESOLVED STAFF COMMENTS.

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

General

Our financial performance has been affected by factors arising from operating in a planned economy which are beyond our control. However, with China’s WTO accession, the impact of these factors has gradually been decreasing.

You should read the following discussion and analysis in conjunction with our audited financial statements and our selected financial data, in each case, together with the accompanying notes included elsewhere in this annual report. Our audited financial statements have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board.

29

Critical Accounting Policies

The following discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements. The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during 2010. Our financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of our financial statements. We based our assumptions and estimates on historical experience and on various other assumptions that we believe to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, our management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

Our principal accounting policies are set forth in Note 2 to our consolidated financial statements. The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our financial statements. To enhance our readers’ understanding of our business activities, we have identified critical accounting policies. We believe the following critical accounting policies involve the most significant judgements and estimates used in the preparation of our financial statements.

Impairments for long-lived assets

If circumstances indicate that the net book value of a long-lived asset may not be recoverable, the asset may be considered “impaired”, and an impairment loss may be recognized in accordance with International Accounting Standard No.36 “Impairment of Assets”. Long-lived assets are reviewed for impairment at the end of each reporting period or whenever events or changes in circumstance have indicated that their carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. For goodwill, the recoverable amount is estimated annually. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling prices because quoted market prices for our assets or cash-generating units are not readily available. In determining the value in use, expected cash flows generated by the asset or the cash-generating unit are discounted to their present value, which requires significant judgement relating to level of sale volume, selling price and amount of operating costs. We use all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sale volume, selling price and amount of operating costs. During the years ended December 31, 2008, 2009 and 2010, we recognized impairment charges on property, plant and equipment of RMB441 million, RMB98 million and RMB238 million, respectively.

Depreciation

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual values. We review the estimated useful lives of the assets annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on our historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates. There were no significant changes in these estimates during the years ended December 31, 2008, 2009 and 2010.

Impairment for bad and doubtful debts

We estimate impairment losses for bad and doubtful debts resulting from the inability of the customers to make the required payments. We base the estimates on the aging of the accounts receivable balance, customer credit-worthiness and historical write-off experience. If the financial condition of the customers were to deteriorate, actual impairment losses would be higher than estimated. Impairment provisions for bad and doubtful debts were nil, nil and a reversal of RMB3 million, during the years ended December 31, 2008, 2009 and 2010, respectively.

Allowance for diminution in value of inventories

If the costs of inventories fall below their net realizable values, an allowance for diminution in value of inventories is recognized. Net realizable value represents the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. We base the estimates on all available information, including the current market prices of the finished goods and raw materials and historical operating costs. If the actual selling prices were to be lower or the costs of completion were to be higher than the estimates, the actual allowance for diminution in value of inventories could be higher than estimated. Provisions for diminution in the value of inventories were RMB745 million, RMB58 million and RMB12 million during the years ended December 31, 2008, 2009 and 2010, respectively.

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Income tax

In June 2007, the State Administrative of Taxation issued a tax circular (Circular No.664) to the local tax authorities requesting the relevant local tax authorities to rectify the applicable enterprise income tax (“EIT”) for nine listed companies, which included us. After the notice was issued, we were required by the relevant tax authority to settle the EIT for 2007 at a rate of 33 percent. To date, we have not been requested by the tax authorities to pay additional EIT in respect of any years prior to 2007. There is no further development of this matter during the year ended December 31, 2010. No provision has been made in the financial statements at December 31, 2010 for this uncertainty because we believe it is not probable that the Group will be required to pay additional EIT for tax years prior to 2007.

Recognition of deferred tax assets

Deferred tax assets are recognized in respect of temporary deductible differences and the carryforward of unused tax losses. We recognize deferred tax assets only to the extent that it is probable that future taxable profit will be available against the assets which can be realized or utilized. At the end of each reporting period, we assess whether previously unrecognized deferred tax assets should be recognized. The Group recognizes a previously unrecognized deferred tax asset to the extent that it is probable that future taxable profit will allow the deferred tax asset to be utilized. In addition, we assess the carrying amount of deferred tax assets that are recognized at the end of each reporting period. The Group reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available for the deferred tax asset to be utilized.

In making the assessment of whether it is probable the Group will realize or utilize the deferred tax assets, we primarily rely on the generation of future taxable income to support the recognition of deferred tax assets. In order to fully utilize the deferred tax assets recognized at December 31, 2010, the Group would need to generate future taxable income of at least RMB3,310 million, of which RMB2,606 million is required to be generated by 2013 prior to the expiration of the unused tax losses. Based on estimated forecast and historical experience, management believes that it is probable that the Group will generate sufficient taxable income before the unused tax losses expire.

Government Policies

The impact of government economic, fiscal, and monetary policies can materially affect our financial condition, results of operations, and cash flows (see “Item 3. Key Information – D. Risk Factors”).

In particular, we consume large amounts of crude oil to manufacture our products of which more than 90% is imported. We attempt to mitigate the effect of increased costs due to rising crude oil prices. However, our ability to pass on these increased costs to our customers is dependent on government regulations, among other factors. Given that the increase of the sales prices of our products can lag behind the increase of crude oil costs, we sometimes fail to completely cover the increased costs by increasing our sales prices, particularly where government regulations restrict the prices of certain of our fuel products such as gasoline, diesel and jet fuel, and liquefied petroleum gas. In 2008, 2009 and 2010, approximately 43.52%, 47.70% and 34.41% of our net sales were from such products subject to price controls. Although we do receive subsidies from the Chinese government to, among other things, cover part of our losses resulting from such price controls, the amount of such subsidies vary substantially from year to year or even quarter to quarter and is difficult to predict. Although the Chinese government has adopted a new pricing mechanism for domestic refined oil products that indirectly links the prices of these products to international crude oil prices (see “—Item 4. Information on the Company – B. Business Overview – Product Pricing”), such pricing mechanism is still not transparent. Moreover, the Chinese government controls the distribution of many petroleum products in China. For instance, some of our petroleum products are required to be sold to designated distributors (such as the subsidiaries of China Petroleum & Chemical Corporation). Because we cannot freely sell our fuel products to take advantage of opportunities for higher prices we sometimes are not be able to fully cover increases in crude oil prices by increases in the sale prices of our products, which has had and will continue to have a material adverse effect on our financial condition, results of operations and cash flows.

In addition, the exchange rates between the Renminbi and the U.S. Dollar or other foreign currencies are affected by Chinese government policies. In particular, the value of the Renminbi is only permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. In recent years, the trend has been for the Renminbi to appreciate in value relative to other currencies, and the PRC government continues to receive significant international pressure to liberalize its currency policy. Most of our revenue is denominated in Renminbi, however, most of our purchase of crude oil and some equipment and certain loan repayments are made in foreign currencies. In general, the trend for appreciation of the Renminbi has been helpful to us since our foreign crude oil purchases constitute such a large portion of our total costs. By contrast, any depreciation of the Renminbi would increase our costs and adversely affect our capacity of making profits. In addition, any depreciation of the Renminbi could adversely affect the value of the dividends of our H shares and ADSs, which we pay in foreign currencies. Further appreciation in the value of Renminbi against foreign currencies (including the U.S. Dollar) may cause a decrease in the value of our cash and its equivalents that are denominated in foreign currencies.

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Summary

The following table sets forth our sales volumes and net sales for the years indicated:

	For the years ended December 31
	2008						2009						2010
	Sales Volume (‘000 tons)		Net Sales (Millions of RMB)		% of Total Net Sales		Sales Volume (‘000  tons)		Net Sales (Millions of RMB)		% of Total Net Sales		Sales Volume (‘000 tons)		Net Sales (Millions of RMB)		% of Total Net Sales
Synthetic Fibers		278.4		3,662.0		6.2		245.8		2,823.7		6.0		255.9		3,906.6		5.4
Resins and Plastics		1,462.6		14,850.3		25.0		1,543.3		12,263.6		25.9		1,620.2		14,900.0		20.7
Intermediate Petrochemicals		1,347.1		10,271.8		17.3		1,519.4		8,421.0		17.8		2,386.5		17,206.4		23.9
Petroleum Products		5,747.0		27,552.9		46.4		5,271.4		18,917.9		39.9		6,342.8		28,733.9		39.9
All others		—		2,992.8		5.1		—		4,919.1		10.4		—		7,349.0		10.1
Total		8,835.1		59,329.8		100.0		8,579.9		47,345.3		100.0		10,605.4		72,095.9		100.0

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The following table sets forth a summary statement of the Group’s consolidated statements of income for the years indicated:

	For the years ended December 31
	2008						2009						2010
	Millions of RMB			% of Net sales			Millions of RMB			% of Net sales			Millions of RMB			% of Net sales
Synthetic fibers
Net sales		3,662.0			6.2			2,823.7			6.0			3906.6			5.4
Operating expenses		(5,313.5	)		(9.0	)		(2,812.3	)		(5.9	)		(3,471.0	)		(4.8	)
Segment (loss)/profit		(1,651.5	)		(2.8	)		11.4			0.1			435.6			0.6
Resins and plastics
Net sales		14,850.3			25.0			12,263.6			25.9			14,900.0			20.7
Operating expenses		(17,027.0	)		(28.7	)		(11,419.3	)		(24.1	)		(13,908.9	)		(19.3	)
Segment (loss)/profit		(2,176.7	)		(3.7	)		844.3			1.8			991.1			1.4
Intermediate petrochemicals
Net sales		10,271.8			17.3			8,421.0			17.8			17,206.4			23.9
Operating expenses		(10,314.5	)		(17.4	)		(8,230.2	)		(17.4	)		(16,841.3	)		(23.4	)
Segment (loss)/profit		(42.7	)		(0.1	)		190.8			0.4			365.1			0.5
Petroleum Products
Net sales		27,552.9			46.4			18,917.9			39.9			28,733.9			39.9
Other income		2,312.2			3.9			—			—			—			—
Operating expenses		(33,811.0	)		(57.0	)		(18,113.0	)		(38.3	)		(27,593.6	)		(38.3	)
Segment (loss)/profit		(3,945.9	)		(6.7	)		804.9			1.6			1,140.3			1.6
Others
Net sales		2,992.8			5.1			4,919.1			10.4			7,349.0			10.1
Operating expenses		(2,993.3	)		(5.1	)		(4,747.0	)		(10.0	)		(7,314.0	)		(10.1	)
Segment (loss)/profit		(0.5	)		0.0			172.1			0.4			35.0			(0.0	)
Total
Net sales		59,329.8			100.0			47,345.3			100.0			72,095.9			100.0
Other income		2,312.2			3.9			—			—			—			—
Operating expenses		(69,459.3	)		(117.1	)		(45,321.8	)		(95.7	)		(69,128.8	)		(95.9	)
(Loss)/ income from operations		(7,817.3	)		(13.2	)		2,023.5			4.3			2,967.1			4.1
Net financing costs		(330.4	)		(0.6	)		(321.1	)		(0.7	)		(95.2	)		(0.1	)
Investment income		131.8			0.2			222.8			0.5			0.2			0.0
Share of profits of associates and jointly controlled entities		1.5			0.0			241.3			0.5			661.3			0.9
(Loss)/earnings before income tax		(8,014.4	)		(13.5	)		2,166.5			4.6			3,533.4			4.9
Income tax		1,812.7			3.1			(511.0	)		(1.1	)		(736.4	)		(1.0	)
Net (loss)/ income		(6,201.7	)		(10.4	)		1,655.5			3.5			2,797.0			3.9
Attributable to:
Equity shareholders of the Company		(6,238.4	)		(10.5	)		1,591.0			3.4			2,771.6			3.8
Non-controlling interests		36.7			0.1			64.5			0.1			25.4			0.1
Net (loss)/ income		(6,201.7	)		(10.4	)		1,655.5			3.5			2,797.0			3.9

(1) Net sales represent sales revenue of the respective segments after sales taxes and surcharges. Operating expenses represent cost of sales, selling and administrative expenses and other operating expenses /income, as allocated to respective segments.

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Results of Operations

Year ended December 31, 2010 compared with year ended December 31, 2009.

Net sales

In 2010, our net sales amounted to RMB72,095.9 million, representing an increase of 52.28% from RMB47,345.3 million of the previous year. In 2010, the global economy experienced a slow recovery under the impact of large-scale economic stimulus policies launched by various nations amid a complex environment. The world’s petroleum and petrochemical industry gradually emerged from the shadow of the global financial crisis, showing signs of recovery and slowly regaining strength. The policy package introduced by China to cope with the impact of the global financial crisis came into full effect. Thereby, there was a significant increase in the supply and demand of petrochemical products, with the overall market supply and demand remaining stable and production and sales being carried out smoothly. Prices tended to stay on a steady rise and the overall price level in petroleum and chemical industry increased for the year. For the year ended December 31, 2010, the weighted average prices (excluding tax) of our synthetic fibers, resins and plastics, intermediate petrochemical products and petroleum products increased by 32.89%, 15.73%, 30.09% and 26.23% respectively over the previous year.

(i) Synthetic fibers

In 2010, the net sales of synthetic fiber products amounted to RMB3,906.6 million, representing a 38.35% increase compared to RMB2,823.7 million in the previous year. The weighted average price of synthetic fibers increased by 32.89% as compared to the previous year. In particular, the price of acrylic fiber, the principal product of synthetic fiber of the Group, increased by 36.57% over the previous year driven by the price increase in cotton. In addition, the total sales volume of synthetic fibers increased by 4.09% as compared to the previous year due to the fact that sales volumes of major synthetic fiber products rose to various degrees resulting from an increase of domestic market demand.

Net sales of synthetic fiber products accounted for 5.40% of our total net sales in 2010, representing a decrease of 0.60 percentage point as compared to the previous year.

(ii) Resins and plastics

The net sales of resins and plastics amounted to RMB14,900.0 million in 2010, representing an increase of 21.50% as compared to RMB12,263.6 million in 2009. The weighted average price of resins and plastics in 2010 increased by 15.73% and sales volume in 2010 increased by 4.99%. Among resins and plastics products, the average sales price of polyester pellet for 2010 increased by 21.13% and sales volume increased by 8.25%; the average sales price of polypropylene increased by 17.96% and sales volume increased by 2.10%. The sales of polyester pellet and polypropylene accounted for 28.35% and 28.85% of the total sales of resins and plastics respectively.

Net sales of resins and plastics accounted for 20.70% of our total net sales in 2010, representing a decrease of 5.20 percentage points as compared to the previous year.

(iii) Intermediate petrochemicals

The net sales of intermediate petrochemical products amounted to RMB17,206.4 million in 2010, representing an increase of 104.33% as compared to RMB8,421.0 million in 2009, with the weighted average price of intermediate petrochemical products increasing by 30.09% as compared to the previous year. Following the commencement of operation of the 600,000-ton/year PX aromatics complex in the second half of 2009, the production volume and sales volume of intermediate petrochemical products increased significantly with a year-on-year increase of 57.07% in sales volume. Among the intermediate petrochemical products, weighted average prices of purified petroleum benzene and butadiene increased by 32.98% and 80.50%, respectively. The sales of purified petroleum benzene and butadiene accounted for 14.89% and 10.27% of the total sales of intermediate petrochemical products, respectively.

34

Net sales of intermediate petrochemical accounted for 23.90% of our total net sales in 2010, representing an increase of 6.10 percentage points as compared to the previous year.

(iv) Petroleum products

The net sales of petroleum products amounted to RMB28,733.9 million in 2010, representing an increase of 51.89% as compared to RMB18,917.9 million in the previous year, with weighted average product prices increasing by 26.23% as compared to 2009 while sales volume increased by 20.32%. Due to the impact of a significant increase in demand from the domestic market, the market demand for diesel and gasoline increased as compared to the previous year which led to increases of 25.32% and 18.04% in the Group’s sales volume of diesel and gasoline respectively. The sales of diesel and gasoline accounted for 58.36% and 19.19% of the total sales of petroleum products respectively.

Net sales of petroleum products accounted for 39.90% of our total net sales in 2010, basically at par with the previous year.

(v) Other activities

The net sales of other activities amounted to RMB7,349.0 million in 2010, representing an increase of 49.40% as compared to RMB4,919.1 million in the previous year. Such increase in the net sales was mainly attributed to a significant increase in the trading volume of petrochemical products as compared to the previous year.

Net sales of other activities accounted for 10.10% of our total net sales in 2010, basically at par with the previous year.

Operating Expenses

Our operating expenses are comprised of cost of sales, selling and administrative expenses, other operating expenses and other operating income.

Our operating expenses increased substantially by 52.53% to RMB69,128.8 million in 2010 as compared to RMB45,321.8 million in 2009. The operating expenses of synthetic fibers, resins and plastics, intermediate petrochemicals, petroleum products and other activities amounted to RMB3,471.0 million, RMB13,908.9 million, RMB16,841.3 million, RMB27,593.6 million and RMB7,314.0 million, respectively, representing increases of 23.42%, 21.80%, 104.63%, 52.34% and 54.08%, respectively, as compared to 2009.

(i) Synthetic fibers

The operating expenses of synthetic fibers in 2010 increased by RMB658.7 million as compared to the previous year, primarily due to increased unit prices for raw materials (e.g. acrylonitrile) for producing synthetic fibers and an increase in production volume.

(ii) Resins and plastics

Our operating expenses of resins and plastics in 2010 increased by RMB2,489.6 million as compared to the previous year, which was primarily due to increased unit costs for raw materials such as ethylene and propylene.

(iii) Intermediate petrochemicals

The operating expenses of intermediate petrochemicals in 2010 increased by RMB8,611.1 million as compared to the previous year, which was mainly attributable to a significant increase in sales volume of intermediate petrochemical products, and the corresponding increases in costs and expenses of intermediate petrochemical products resulting from the increase in unit cost of intermediate petrochemical products following the increase in average unit cost of crude oil during 2010.

(iv) Petroleum products

The operating expenses of petroleum products in 2010 increased by RMB9,480.6 million as compared to the previous year, primarily due to the increase in crude oil prices (which was our major production raw material) and an increased processing volume, which directly led to an increase in the operating expenses of petroleum products.

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(v) Other activities

The Group’s operating expenses of other activities in 2010 increased by RMB2,567.0 million as compared to the previous year, which was primarily attributable to increased costs and expenses of petrochemical products resulting from a significant increase in external sales volume of petrochemical products.

• Cost of sales

The cost of sales amounted to RMB68,313.9 million in 2010, representing a significant increase of 51.77% compared to RMB45,010.2 million in 2009, primarily due to an increase in crude oil prices in 2010 which was our major raw material and a significant increase in product sales volume. Cost of sales accounted for 94.75% of the net sales for 2010.

(i) Crude Oil

In 2010, we processed 10,520,700 tons of crude oil (including 408,900 tons of crude oil processed on a sub-contracting basis), representing an increase of 1,762,900 tons as compared to 8,757,800 tons in the previous year. The volumes of imported crude oil and domestic offshore crude oil processed by us were 9,560,300 tons and 960,400 tons, respectively.

The total cost of crude oil processed by us in 2010 amounted to RMB39,694.6 million, representing a significant increase of 50.07% as compared to RMB26,450.0 million in the previous year and accounting for 58.11% of the total cost of sales. The weighted average cost of our crude oil was RMB3,925.56 per ton, representing an increase of 29.98% as compared to the previous year. The average costs of imported crude oil and domestic offshore crude oil were RMB3,921.28 per ton and RMB3,966.34 per ton, respectively.

(ii) Other expenses

The expenses for other auxiliary raw materials were RMB14,699.0 million in 2010, representing a significant increase of 90.28% as compared to RMB7,724.9 million in the previous year, which was primarily attributable to an increase in the cost of auxiliary raw materials as a result of the increase in the crude oil price, and an increase in the consumption of ancillary materials as a result of the increase in the crude oil processing volume.

• Selling and administrative expenses

Selling and administrative expenses amounted to RMB628.8 million in 2010, representing an increase of 39.61% as compared to RMB450.4 million in the previous year, mainly due to an increase in the sales transportation expenses as a result of an increase in our sales volume during 2010, and an increase in agency fees with respect to product sales in routine (continuing) connected transactions resulted from the increase in production volume.

• Other operating income

Other operating income amounted to RMB109.8 million in 2010, a decrease of 60.39% compared to RMB277.2 million in the previous year, which was primarily due to an income of RMB91.8 million generated from the disposal of lease prepayments on land and an income of RMB72.2 million generated from the disposal of other investment in 2009, which did not occur during 2010.

• Other operating expenses

Other operating expenses increased from RMB138.3 million in the previous year to RMB296.0 million in 2010, representing an increase of 114.03%, which was primarily due to an increase of RMB139.7 million in our impairment losses of fixed assets during 2010 period as compared to the previous year. In addition, our loss on disposal of fixed assets during 2010 increased by RMB28.6 million as compared to the previous year.

Income from operations

Income from operations amounted to RMB2,967.1 million in 2010, representing a significant increase of RMB943.6 million as compared to RMB2,023.5 million in the previous year, which was primarily due to a significant increase in our operating efficiency during 2010.

Net financing costs

Our net financing costs were RMB95.2 million in 2010, representing a significant decrease of 70.35% as compared to RMB321.1 million in previous year, which was primarily attributable to an increase of RMB157.2 million in net foreign exchange gain during 2010 period, and a decrease of RMB84.0 million in interest expense as compared to the previous year.

Investment income

Our investment income was RMB0.2 million in 2010. In 2009 our investment income was RMB222.8 million, which was mainly comprised of gain on disposal of available-for-sale financial assets.

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Earnings before income tax

Our earnings before income tax was RMB3,533.4 million in 2010, representing a substantial increase of RMB1,366.9 million as compared to RMB2,166.5 million in the previous year.

Income tax

Our income tax expense was RMB736.4 million in 2010, representing an increase of RMB225.4 million as compared to RMB511.0 million in the previous year. The change was in line with the increase on our taxable income.

In accordance with the PRC Income Tax Law (as amended) which took effect from January 1, 2008, the income tax rate of the Group in 2010 was 25% (2009: 25%).

Net Income

Our net income was RMB2,797.0 million in 2010, representing a substantial increase of RMB1,141.5 million as compared to RMB1,655.5 million in the previous year.

Year ended December 31, 2009 compared with year ended December 31, 2008.

Net sales

Our total net sales decreased by 20.20% to RMB47,345.3 million in 2009 compared to RMB59,329.8 million in 2008. In early 2009, the impact of the global financial crisis on the real economy became more apparent. With decreasing demand and plummeting prices, the domestic petrochemical market continued with the downward trend of late 2008. A package of stimulus policies aimed at “expanding domestic demand and maintaining growth” implemented by the Chinese government helped cause demand in the market to bounce back from the bottom in March. Since then, the overall market trends have been better. The demand for some staple products gradually increased and consumption of products continued to recover. The prices of petrochemical products in the market also began to increase. However, in general, the average price of various petrochemical products in 2009 decreased slightly as compared to 2008. For the year ended December 31, 2009, the weighted average prices (excluding tax) of our synthetic fibers as well as resins and plastics, intermediate petrochemicals and petroleum products decreased by 12.66%, 21.74%, 27.32% and 25.14%, respectively as compared to 2008.

(i) Synthetic fibers

The net sales of synthetic fiber products decreased to RMB2,823.7 million in 2009, representing a 22.89% decrease compared to RMB3,662.0 million in 2008. The weighted average price of synthetic fibers decreased by 12.66% as compared to 2008. As a result of the global economic crisis, the sales volume of our synthetic fibers in 2009 further decreased, which led to a decrease of 11.71% in the total sales of synthetic fibers as compared to 2008. With the recovery of the textile market in the second half of 2009, the demand in the market for the synthetic fiber products increased slightly. In the fourth quarter of 2009, the market price for acrylic fiber, the main product of synthetic fiber, was close to reaching its highest price in history.

Net sales of synthetic fiber products accounted for 6.00% of our total net sales in 2009, representing a decrease of 0.20 percentage points as compared to 2008.

(ii) Resins and plastics

The net sales of resins and plastics decreased to RMB12,263.6 million in 2009, representing a decrease of 17.42% compared to RMB14,850.3 million in 2008. Weighted average sales price of resins and plastics in 2009 decreased by 21.74% compared to 2008 and sales volume in 2009 increased by 5.52% compared to 2008. Among our resins and plastics products, the average sales price of polyester chips for 2009 decreased by 16.60% compared to 2008 and the sales volume increased by 4.76% compared to 2008. The average sales price of polyethylene for 2009 decreased by 21.89% as compared to 2008 and the sales volume increased by 4.66% as compared to 2008. The sales volume of polyester chips and polyethylene accounted for 26.25% and 29.09% of our total sales of resins and plastics in 2009 respectively. With the implementation of a national government investment plan in an amount of RMB4,000 billion, the demand for resins and plastics in the market should increase steadily as compared to 2008.

Net sales of resins and plastics accounted for 25.90% of our total net sales in 2009, representing an increase of 0.90 percentage points as compared to 2008.

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(iii) Intermediate petrochemicals

The net sales of intermediate petrochemicals decreased to RMB8,421.0 million in 2009, representing a decrease of 18.02% compared to RMB10,271.8 million in 2008, with the weighted average price of intermediate petrochemicals decreasing by 27.32% compared to 2008 and sales volume increasing by 12.79% as compared to 2008. Among our intermediate petrochemicals, the weighted average sales prices of pure benzene and ethylene oxide decreased by 34.28% and 37.71% respectively as compared to 2008. The sales volume of pure benzene and ethylene oxide accounted for 14.65% and 12.87% of our total sales of intermediate petrochemicals in 2009 respectively.

The net sales of intermediate petrochemicals accounted for 17.80% of our total net sales in 2009, representing an increase of 0.50 percentage points as compared to 2008.

(iv) Petroleum products

The net sales of petroleum products decreased to RMB18,917.9 million in 2009, representing a decrease of 31.34% compared to RMB27,552.9 million in 2008, with a decrease of 25.14% in the weighted average price as compared to 2008, and with a decrease of 8.28% in the sales volume. As a result of the global economic crisis, the demand for diesel oil in the market decreased as compared to 2008, which led to a decrease of 19.06% in our sales volume of diesel oil. Diesel oil is mainly used for the transportation industry. According to relevant statistics, the business volume for the Chinese transportation industry in 2009 decreased by 20% as compared to 2008.

The net sales of petroleum products accounted for 39.90% of our total net sales in 2009, representing a decrease of 6.50 percentage points as compared to 2008.

(v) Other activities

The net sales from other activities increased to RMB4,919.1 million in 2009, representing an increase of 64.36% compared to RMB2,992.8 million in 2008 primarily due to a significant increase in our trading volume of petrochemical products at one subsidiary as compared to 2008.

Operating Expenses

Our operating expenses are comprised of cost of sales, selling and administrative expenses, other operating expenses and other operating income.

Our operating expenses significantly decreased by 34.75% to RMB45,321.8 million in 2009 compared to RMB69,459.3 million in 2008. The cost of sales and expenses of synthetic fibers, resins and plastics, intermediate petrochemicals, and petroleum products amounted to RMB2,812.3 million, RMB11,419.3 million, RMB8,230.2 million and RMB18,113.0 million, respectively, representing decreases of 47.07%, 32.93%, 20.21% and 46.43%, respectively, as compared to 2008. The operating expenses of other activities amounted to RMB4,747.0 million, representing an increase of 58.59% as compared to 2008.

(i) Synthetic fibers

The operating expenses of synthetic fibers decreased by RMB2,501.2 million compared to 2008, primarily due to a decrease in the unit price of raw materials for producing synthetic fibers.

(ii) Resins and plastics

The operating expenses of resins and plastics decreased by RMB5,607.7 million as compared to 2008, primarily due to decreased unit costs for raw materials such as ethylene and propylene.

(iii) Intermediate petrochemicals

The operating expenses of intermediate petrochemicals decreased by RMB2,084.3 million compared to 2008, which was mainly attributable to a decrease in unit cost of intermediate petrochemicals resulting from the decrease in the annual average unit cost of crude oil, which directly led to a decrease in the operating expenses of intermediate petrochemicals.

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(iv) Petroleum products

The operating expenses of petroleum products decreased by RMB15,698.0 million compared to 2008, primarily due to the decrease in crude oil prices (which is our major production raw material) which directly led to a significant decrease in the operating expenses of petroleum products.

(v) Other activities

The operating expenses of other activities increased by RMB1,753.7 million compared to 2008, which was primarily attributable to the significant increase of trading volume of petrochemical products at one subsidiary.

• Cost of sales

Cost of sales significantly decreased to RMB45,010.2 million in 2009, representing a decrease of 34.35% compared to RMB68,556.4 million in 2008, and the cost of sales accounted for 95.07% of the net sales for 2009, primarily due to the significant decrease in crude oil prices in 2009, which was our major raw material.

(i) Crude Oil

In 2009, we processed 8,757,800 tons of crude oil (no imported crude oil was processed on a sub-contracting basis during the year), representing a decrease of 480,500 tons compared to 9,238,300 tons in 2008. The volumes of imported crude oil and offshore crude oil processed by us were 8,076,900 tons and 680,900 tons, respectively.

The total cost of crude oil processed by us in 2009 amounted to RMB26,450.0 million, representing a significant decrease of 46.02% compared to RMB48,997.0 million in 2008 and accounting for 58.76% of the total cost of sales. The weighted average cost of crude oil for us was RMB3,020.15 per ton, representing a significant decrease of 43.06% as compared to 2008. The average cost of imported crude oil and offshore crude oil processed by us were RMB3,053.40 per ton and RMB2,625.79 per ton, respectively. Because our offshore crude oil is mainly purchased in the first half year, the average cost of the offshore crude oil processed by us was relatively lower.

(ii) Other expenses

The expenses for other ancillary materials were RMB7,724.9 million in 2009, representing a decrease of 22.59% compared to RMB9,978.8 million in 2008, which was primarily attributable to the decrease of the cost of ancillary materials resulting from the decreased crude oil price.

• Selling and administrative expenses

Selling and administrative expenses amounted to RMB450.4 million, representing a decrease of 3.76% compared to RMB468.0 million in 2008 primarily due to a decrease in the sales operation fees resulting from the decrease of sales volume and a decrease in our sales agency fees for daily (continuous) related party transactions during 2009.

• Other operating income

Other operating income amounted to RMB277.2 million in 2009, representing an increase of 90.91% compared to RMB145.2 million in 2008, which was primarily due to income of RMB92.0 million from the disposal of land use right and an increase in income from other investments during 2009.

• Other operating expenses

Other operating expenses decreased from RMB580.0 million in 2008 to RMB138.3 million in 2009, representing a decrease of 76.16%, primarily due to a decrease of RMB342.5 million in our provision made for impairments of fixed assets during 2009 as compared to 2008. On the other hand, our employee reduction expenses during 2009 decreased by RMB77.3 million as compared to 2008.

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Income/ (loss) from operation

We earned an operating profit of RMB2,023.5 million in 2009, representing a significant increase of RMB 9,840.8 million compared to an operating loss of RMB7,817.3 million in 2008, which was primarily due to a significant decrease in cost of sales and other expenses during 2009.

Net financing costs

Our net financing costs were RMB321.1 million in 2009, representing a decrease of 2.81% compared to RMB330.4 million in 2008.

Investment income

Our investment income was RMB222.8 million in 2009, mainly due to income from the disposal of financial assets.

Earnings/(loss) before income tax

We obtained a profit before tax of RMB2,166.5 million in 2009, representing a significant increase of RMB10,180.9 million compared to a pre-tax loss of RMB8,014.4 million in 2008.

Income tax

We had an income tax of RMB511.0 million in 2009. Our income tax credit from 2008 was RMB1,812.7 million, which was primarily due to the fact that we recognized deferred income tax asset for tax losses generated in 2008. We earned a profit in 2009 and realized part of the deferred income tax assets in respect of tax losses carried forward and provision for inventories.

In accordance with the revised “Enterprise Income Tax Law of the People’s Republic of China” with effect from January 1, 2008, the income tax rate of the Company for 2009 was 25% (2008: 25%).

Net income/(loss)

We earned a net income after tax of RMB1,655.5 million in 2009, an increase of RMB7,857.2 million compared to an after-tax loss of RMB6,201.7 million in 2008.

B. Liquidity and Capital Resources.

We strive to always have sufficient liquidity to meet our liabilities when due, preparing for both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation.

Our primary sources of funding have been cash provided by our operating activities, short-term and long-term loans. Our primary uses of cash have been for working capital, capital expenditures and repayment of short-term and long-term loans. We prepare monthly cash flow budgets to ensure that we will always have sufficient liquidity to meet our financial obligations as they become due. We arrange and negotiate financing with financial institutions and maintain a certain level of standby credit facilities to reduce liquidity risk. We believe that our current cash on hand, expected cash flows from operations and available standby credit facilities from financial institutions will be sufficient to meet our working capital requirements and repay our short term debts and obligations when they become due. In addition, we will continue to optimize our fund raising strategy from short and long-term perspectives to take advantage of low interest rates by issuing corporate bonds or debts with low financing costs.

The following table sets forth a condensed summary of our consolidated statement of cash flows for the year ended December 31, 2009 and 2010.

	Year Ended December 31,
Cash flow data	2009			2010
	(Millions of RMB)
Net cash generated from operating activities		3,346.9			3,973.7
Net cash used in investing activities		(2,175.4	)		(463	)
Net cash used in financing activities		(1,673.3	)		(3,535.9	)
Net decrease in cash and cash equivalents		(501.8	)		(25.5	)

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Net cash generated from operating activities

The net cash generated from operating activities amounted to RMB3,973.7 million in 2010, representing an increase in cash inflows of RMB626.8 million as compared to the net cash inflows of RMB3,346.9 million in the previous year. Due to the significant improvement in our operating activities during 2010, net cash inflows from profit before tax (net of depreciation and impairment losses of fixed assets) amounted to RMB5,426.8 million in 2010, representing an increase of RMB1,513.0 million of cash inflows compared to net cash inflows of RMB3,913.8 million in the previous year. Our decreased inventory balance led to an increase in operating cash inflow of RMB1,512.8 million in 2010 (as compared to a decrease in operating cash inflow of RMB2,391.6 million due to increased inventories at the end of the previous year). Increases in the year-end balances of debtors, bills receivable and prepayments led to a decrease in operating cash inflow of RMB1,571.1 million in 2010 (as compared to an increase in operating cash inflow of RMB202.9 million during the previous year as a result of a decrease in such year-end balances). Decreases in the year-end net balances of amounts due to related parties led to an increase in operating cash outflow of RMB1,881.4 million (as compared to a decrease in operating cash outflow of RMB1,362.4 million during the previous year as a result of an increase in such year-end balances).

Net cash used in investing activities

Net cash outflow from investing activities decreased from RMB2,175.4 million in 2009 to RMB463.3 million in 2010, mainly representing: (i) a decrease in capital expenditure of RMB 763.4 million, (ii) an increase in cash inflow of RMB193.9 million due to the proceeds from disposal of investments and (iii) a decrease in cash outflow of RMB837.0 million as there was no purchase of investments and associates during 2010.

Net cash used in financing activities

Net cash outflow from financing activities increased from RMB1,673.3 million in 2009 to RMB3,535.9 million in 2010, mainly representing an increase in repayment of loans and borrowings.

Borrowings and banking facilities

As a result of the global economic downturn after the financial crisis, we had to take on an increased amount of borrowings in 2008 and 2009. In 2010, as the global and domestic general economic conditions recovered, we expanded and upgraded our production capacity, enhanced capital management, controlled the size of monetary funds and interest-paid debts and facilitated cash turnover. During 2010, our total borrowings decreased and our cash flow maintained sustainable growth, and our overall economic efficiency increased.

Our total borrowing at the end of 2010 amounted to RMB4,570.4 million, representing a decrease of RMB3,508.5 million as compared to the end of the previous year, of which short-term debts decreased by RMB3,379.2 million, and long-term debts decreased by RMB129.2 million. The primary use of the proceeds of our short-term debt instruments is to finance working capital and capital expenditure needs. We have generally been able to arrange short-term loans with several PRC financial institutions as necessary. The short-term debt obligations, as of December 31, 2010 and 2009 were as follows.

	Year Ended December 31,
Short-term debt instruments	2009		2010
	(Millions of RMB)
Short-term bank loans (1)		6,460.4		2,885.4
Short-term loans from a related party (2)		240.0		410.0
Short-term corporate bonds (3)		1,000.0		1,000.0
Current portion of long-term bank loans		74.3		100.0
		7,774.7		4,395.4

(1) All the short-term bank loans were credit loans, which were due in 2011. We obtained a credit rating of AA- for financing loans, assessed by Centrus Business Credit Consulting Co., Ltd, a credit rating agency authorized by the People’s Bank of China. As of December 31, 2010, we had standby credit facilities of RMB9,300.0 million (2009: RM9,100.0 million), which are effective until the end of 2011. Out of the total banking facilities granted, amounts totaling RMB2,363.3 million had been utilized as of December 31, 2010 (2009: RMB4,458.0 million). We believe that we will be able to renew these facilities when they expire based on our well-established relationships with various lenders.

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(2) We borrowed short-term loans from a subsidiary of Sinopec Group, Sinopec Finance Company Limited, on terms no less favorable than terms available from the other commercial banks in China. We have entered into the Comprehensive Services Framework Agreement with Sinopec Group so as to obtain financial services from Sinopec Finance Company Limited for the three years ending December 31, 2011, 2012 and 2013.

(3) We issued RMB1,000.0 million 365-day unsecured corporate bonds to corporate investors in the PRC interbank debenture market on June 23, 2010. The bonds were issued at 100% of face value, with an effective yield of 3.27% per annum, and mature on June 23, 2011. In February 2006, December 2006 and April 2009, we issued unsecured corporate bonds of RMB1,000.0 million, RMB2,000.0 million and RMB1,000.0 million respectively and with maturity of 270 days, 365 days, and 330 days respectively. The above-mentioned corporate bonds were repaid on a timely basis. We obtained a credit rating of AA+ for corporate bonds, assessed by Shanghai Brilliance Credit Rating & Investors Service Co., Ltd., a credit rating agency recognized by the People’s Bank of China to provide the credit rating service in China market.

Our ability to renew our short-term loans and obtain additional external financing in the future and the cost of such financing are subject to a variety of uncertainties, including:

• the cost of financing and the condition of financial markets;

• our future operating performance, financial condition and cash flows; and

• potential changes in monetary policy of the PRC government with respect to bank interest rates and lending practices.

If we fail to rollover, extend or refinance our short-term debts as necessary in a timely manner, we may be unable to meet our obligations in connection with debt servicing, trade and bills payable and/or other liabilities when they become due. See also Item 3.D. Key Information - Risk Factors - Our development and operation plans have significant capital expenditure and financing requirements, which are subject to a number of risks and uncertainties.

In light of our good credit standing and various financing channels, we believe that we will not experience any difficulty in financing.

We managed to maintain our asset-liability ratio at a safe level by enhancing controls over both liabilities (including borrowings) and financing risks. We generally does not experience any seasonality in borrowings. However, due to the nature of the capital expenditures plan, long-term bank loans can be arranged in advance of expenditures while short-term borrowings and corporate bonds are used to meet operational needs. The terms of our existing borrowings do not restrict its ability to pay dividends on its shares.

Liability-to-asset ratio

As at December 31, 2010, our liability-to-asset ratio was 37.62% (2009: 48.85%). The ratio is calculated using this formula: total liabilities/total assets.

Inventory management

At the beginning of every year, the management determines the appropriate levels of inventories to maintain on the basis of annual production and operating plans, financial budgets and market conditions. Every six months, the management conducts an inventory status analysis in conjunction with its supply, production, marketing, financial and other departments. Together, the team develops a plan for keeping inventories at a regular level.

Management assesses the realizability of our inventories based on the estimates of the net realizable value of the inventories at the end of each reporting period. Net realizable value represents the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. We base the estimates on all available information, including the current market prices of the finished goods and raw materials and historical operating costs. Any excess of the cost over the net realizable value of each item of inventories is recognized as a provision for diminution in the value of inventories. If the actual selling prices were to be lower or the costs of completion were to be higher than the estimates, the actual allowance for diminution in value of inventories could be higher than estimated. In addition, management periodically reviews inventory aging information to assess if any obsolete inventories are required to be written down at the period end. Based on our assessments, we recorded write-down of inventories of RMB745 million, RMB58 million, and RMB12 million respectively for the years ended December 31, 2008, 2009 and 2010. The large amount of write-downs recognized in 2008 was mainly driven by the significant decrease in crude oil prices from the last quarter of 2008 to early 2009 as a result of the global economic slowdown. Barring unforeseeable changes that may occur to the current economic environment in either China or worldwide, our management does not anticipate encountering major difficulties with our attempt to realize by the end of 2011 the bulk of our inventories as of December 31, 2010 after deducting for diminution in values.

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Capital expenditure

In 2010, our capital expenditures amounted to RMB1,356.8 million, representing a decrease of 36.01% as compared RMB2,120.3 million in capital expenditures in 2009. Major projects include the following:

Project	Total project investment RMB million		Project progress as at December 31, 2010
Natural Gas Integrated Utilization Project		195.0		Completed
The Refinery Upgrade Project		6,628.0		Preliminary work
The Carbon Fiber-Project with a Capacity of 1,500 tons/year		848.0		Preliminary work
Upgrade Project for Optimization of Energy Saving and Consumption Reduction for No. 2 Oxidation Device system		186.0		Under construction
Total		7,857.0

Our capital expenditure for 2011 is estimated at approximately RMB3,000.0 million.

C. Research and Development, Patents and Licenses, etc.

We maintain a number of technology development units, including the Petrochemical Research Institute, the Plastics Research Institute, the Polyester Fiber Research Institute, the Acrylic Fiber Research Institute and the Environmental Protection Research Institute. These units are charged with various research and development tasks with respect to new technology, new products, new production processes and equipment and environmental protection. Our research and development expenditures in 2008, 2009 and 2010 were RMB47.3 million, RMB40.3 million and RMB58.2 million, respectively, representing approximately 0.1% of the total sales for those years.

We are not, in any material aspect, dependant on any patents, licenses, industrial, commercial or financial contracts, or new production processes.

D. Trend Information

In 2010, the global economy is expected to continue to resume growth, but the deep-rooted impact of the global financial crisis has not completely passed away. The economy will be characterized by increasing instabilities and uncertainties, a slow, complex and uneven recovery process and a slowed growth rate. In a very complex international environment, the economy of China, however, has maintained favorable conditions for steady and relatively fast development. It is expected that the improving macroeconomic situation will be further consolidated and the implementation of the Twelfth Five-year Plan should inject new vitality and impetus into the economy. Macro economic planning for strategic emerging industries, accelerated development on urbanization and industrialization, and increased consumption of residents will boost domestic demand further. The application of a proactive fiscal policy and a prudent monetary policy will make macro controls more specific, flexible and effective. The overall competitiveness of enterprises has been enhanced in the aftermath of the global financial crisis. However, the economy of China is facing a number of conflicts and problems as well, such as the fact that the endogenous growth momentum for the economy has not been fully restored, that inflation persists, that the marginal effect of the stimulus policy is gradually decreasing, that potential financial risks remain, and that certain structural problems are still present. The economic growth rate of China in 2011 is anticipated to decline from 2010.

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The overall trend of international crude oil prices could rally upward in 2011 due to a number of factors such as a gradual recovery of the global economy, continuous growth in oil demand with a relatively tight supply, coupled with rising inflationary pressures, increased geopolitical risks, intensified climate change, continuous weakness of the U.S. dollar and speculation by speculative funds. The global petroleum and petrochemical industry will continue to maintain the recovery momentum, with a growth rate higher than that of global economic growth. The stable and relatively fast growth momentum of China’s petroleum and petrochemical industry will be sustained as the focus of the macro-control policy is changed from expansion to steady development, but the development environment remains very challenging. With respect to favorable factors, the macroeconomic situation will improve further and planning for the development of strategic emerging industries such as energy conservation, environmental protection, new generation of information technology, biotechnology, high-end equipment manufacturing, new energy, new materials and new energy vehicles will give rise to the commencement of a large number of investment projects for industrial upgrade, and a number of new industrial growth drivers will drive increasing demand from the domestic market for petroleum and petrochemical products. As to unfavorable aspects, international crude oil prices will continue to stay high; the growth in the petrochemical industry will slow as cost pressures in the oil refining industry have not been fully relieved from high oil prices; and the increase in demand from the domestic market should slow in general although such demand should still continue to rise. Market competition will become more intense due to structural overcapacity, a surge in petrochemical imports from the Middle East and neighboring countries and regions, and an accelerated development pace for alternative energy such as coal-to-oil and non-petroleum chemicals such as coal-to-alkene. Inflationary pressures should tend to increase; international trade conflicts should intensify due to limited room for growth in external demand; with pressure is mounting on energy conservation and emissions reduction.

E. Off-balance Sheet Arrangements

As of December 31, 2010, we had no contingent liabilities in respect of guarantees issued to banks in favor of our associated companies and other unlisted investments (December 31, 2009: nil). Other than our contingencies disclosed in Note 26(b) in our consolidated financial statements included in Item 17. Financial Statements, we do not have any other off-balance sheet arrangements.

F. Contractual Obligations and Commercial Commitments

The following table sets forth our obligations to make future payments under contracts effective as of December 31, 2010.

			As of December 31, 2010 Payment Due by period
	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
	(RMB’000)		(RMB’000)		(RMB’000)		(RMB’000)		(RMB’000)
Contractual obligations
Short-term loans		3,295,438		3,295,438		—		—		—
Short-term corporate bonds		1,000,000		1,000,000		—		—		—
Long-term loans (including current portion)		275,000		100,000		175,000		—		—
Total contractual obligations		4,570,438		4,395,438		175,000		—		—
Estimated future interest payments
Fixed rate		69,526		69,526		—		—		—
Variable rate		81,797		63,023		18,774		—		—
Total estimated future interest payments		151,323		132,549		18,774		—		—
Other commercial commitments
Capital commitments (note)		6,998,314		3,000,000		3,998,314		—		—
Total commercial commitments		6,998,314		3,000,000		3,998,314		—		—

Note: Capital commitments refer to commitments for purchase of property, plant and equipment and investment.

G. Other Information

Employees

Our staff costs for 2010 were RMB1,441.3 million.

As at December 31, 2010, we had 16,369 employees in total, among whom there were 9,023 production staff, 6,014 sales representatives, financial personnel and other personnel and 1,332 administrative staff. 37.16% of our employees had tertiary qualifications or above. The company has 13,710 retired employees who are under retirement insurance plans, details of which are provided under Item 6. D.

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Purchase, Sale and Investment

Except as disclosed in this report, during the year 2010, we engaged in no material purchase or sale of our subsidiaries or associated companies or any other material investments.

Pledge of Assets

As of December 31, 2010, we have not pledged any of our property or equipment.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

A. Directors and Senior Management.

The following table sets forth certain information concerning our directors, executive officers and members of our supervisory committee (“Supervisory Committee”). The current term for our directors, executive officers and members of our Supervisory Committee is three years, which term will end in June 2011.

Name	Age	Position
Directors
Rong Guangdao	55	Chairman of the Board of Directors
Wang Zhiqing	48	Vice Chairman of the Board of Directors and President
Wu Haijun	48	Vice Chairman of the Board of Directors
Li Honggen	54	Director and Vice President
Shi Wei	51	Director and Vice President
Dai Jinbao	54	Director
Lei Dianwu	48	External Director
Xiang Hanyin	56	External Director
Chen Xinyuan	46	Independent Director and Director of the Audit Committee
Sun Chiping	52	Independent Director
Jiang Zhiquan	60	Independent Director
Zhou Yunnong	68	Independent Director and Director of the Remuneration and Appraisal Committee
Other Executive Officers
Zhang Zhiliang	57	Vice President
Zhang Jianping	48	Vice President
Tang Chengjian	55	Vice President
Ye Guohua	42	Chief Financial Officer
Zhang Jingming	53	Secretary of the Company and General Legal Counsel
Supervisory Committee
Gao Jinping	44	Chairman of the Supervisory Committee
Zhang Chenghua	55	Supervisor
Wang Yanjun	50	Supervisor
Zhai Yalin	46	External Supervisor
Wu Xiaoqi	54	External Supervisor
Liu Xiangdong	59	Independent Supervisor
Yin Yongli	71	Independent Supervisor

Directors

Rong Guangdao, 55, is Chairman, Secretary of the Communist Party Committee of the Company. Mr. Rong joined the Shanghai Petrochemical Complex (the “Complex”) in 1973 and has held various positions, including Deputy Director of the No.1 Chemical Plant and Deputy Director and Director of the Ethylene Plant. In April 1994 he was appointed Vice President of the Company, and in June 1995 he was elected Director of the Company. In October 2003, Mr. Rong was appointed President of the Company. In May 2004, Mr. Rong was elected Chairman of the China Jinshan Associated Trading Corporation. From June 2004 to June 2005, Mr. Rong served as Vice Chairman of the Company. From April 2005 to July 2010, Mr. Rong served as Deputy Secretary of the Communist Party Committee. In June 2005, Mr. Rong was elected as Chairman of the Company. In November 2006, Mr. Rong was appointed Director and Vice Chairman of Shanghai Secco Petrochemical Company Limited (“Shanghai Secco”). In August 2008, he was appointed Director and Chairman of Shanghai Chemical Industrial Park Development Company Limited. In July 2010, Mr. Rong was appointed Secretary of the Communist Party Committee. Mr. Rong has rich experience in management of large-scale petrochemical enterprise operations. In 1985 Mr. Rong graduated from the Automated Instrument Department of the Shanghai Petrochemical College for Workers and Staff Members. In 1997 he obtained an MBA from China Europe International Business School. He is a senior engineer by professional title.

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Wang Zhiqing, 48, currently Vice Chairman, President and Deputy Secretary of the Communist Party Committee of the Company. Mr. Wang commenced work in 1983 and held various positions including Deputy Leader of preparatory team for the chemical fiber plant of Luoyang Petrochemical Complex, Deputy Chief Engineer of Luoyang Petrochemical Complex cum Officer-in-Charge of the preparatory team for the complex’s chemical fiber plant, and then Deputy Chief Engineer of the complex cum Director of the chemical fiber plant. From June 1999 to December 2001, Mr. Wang was Chief Engineer of Luoyang Petrochemical Complex. From February 2000 to December 2001, Mr. Wang was Vice President cum Chief Engineer of Sinopec Luoyang Company. From December 2001 to October 2006, Mr. Wang was President of Sinopec Luoyang Company. From July 2005 to May 2007, Mr. Wang was the Leader of the preparatory team for a Sinopec refinery project in Guangxi. From October 2006 to December 2008, Mr. Wang was President of Sinopec Jiujiang Company. From October 2006 to July 2010, Mr. Wang was President of Jiujiang Petrochemical Complex. From December 2008 to July 2010, Mr. Wang was General Manager of Sinopec Jiujiang Company. Mr. Wang was appointed President and Deputy Secretary of the Communist Party Committee of the Company in July 2010. Mr. Wang was appointed

Director and Vice Chairman of the Company in December 2010. Mr. Wang graduated from the East China Petroleum Institute with a Bachelor of Engineering in 1983, majoring in refinery engineering, and graduated from China University of Petroleum (East China) with a Doctorate in Engineering in 2006, majoring in chemical engineering and technology. He is a senior engineer by professional title.

Wu Haijun, 48, currently Vice Chairman of the Company, Director and President of Shanghai Secco Petrochemical Company Limited. Mr. Wu joined the Complex in 1984 and held various positions including Deputy Director and Director of the Company’s No.2 Chemical Plant as well as manager of the Chemical Division. He was Vice President of the Company from May 1999 to March 2006 and Director of the Company from June 2004 to June 2006. He was manager and Secretary of the Communist Party Committee of the Chemical Sales Branch Office of Sinopec Corp. from December 2005 to March 2008. From December 2005 to April 2010, he was Director of the Chemical Business Department of Sinopec Corp. In April 2010, he was appointed as Director and President of Shanghai Secco Petrochemical Company Limited. In June 2010, he was appointed Director and Vice Chairman of the Company. Mr. Wu graduated from the East China Institute of Chemical Technology in 1984, majoring in chemical engineering, and obtained a Bachelor of Engineering degree. In 1997, he obtained an MBA from the China Europe International Business School. He is a senior engineer by professional title.

Li Honggen, 54, is Executive Director and Vice President of the Company. Mr. Li joined the Complex in 1973 and has held various positions including Deputy Director of No. 1 Chemical Plant of the Complex, Deputy Director and Director of the Ethylene Plant of the Company and Deputy Manager and Manager of the Refining and Chemical Division of the Company. From August 2000 to December 2003, he served as Vice President of Shanghai Chemical Industrial Park Development Company Limited. From August 2002 to January 2006, he served as Vice President of Shanghai Secco. In March 2006, he was appointed Vice President of the Company. In June 2006, he was appointed Director of the Company. In August 2008, he was concurrently appointed Director of Shanghai Chemical Industrial Park Development Company Limited. Mr. Li graduated from East China Institute of Chemical Technology majoring in engineering management and completed a post-graduate course majoring in engineering management at East China University of Science and Technology in 1998. He is an engineer by professional title.

Shi Wei, 51, is Executive Director and Vice President of the Company. Mr. Shi joined the Complex in 1982 and has held various positions including Assistant to the Manager, Deputy Manager of the Refining and Chemical Division of the Company, Manager of the Environmental Department, Secretary of the Communist Party Committee of the Refining and Chemical Division of the Company and then Manager of the division. In October 2003, Mr. Shi was appointed Vice President of the Company. In June 2005, he was appointed Director of the Company. In 1982, Mr. Shi graduated from East China University of Science and Technology majoring in oil refining engineering and obtained a bachelor’s degree in engineering. Mr. Shi completed post-graduate studies in Business Management at East China University of Science and Technology in 1998. Mr. Shi is a senior engineer by professional title.

Dai Jinbao, 52, is Executive Director of the Company, Secretary of the Communist Party Committee and Deputy Manager, of the Company’s Refining and Chemical Division and Chairman of the Labor Union. Mr. Dai joined the Complex in November 1973 and has held various positions including Deputy Director of No. 1 Chemical Plant of the Company, Director of No.1 Ethylene Complex of the Refining and Chemical Division of the Company, Chairman of the Labor Union of the Company’s Refining and Chemical Division, Deputy Secretary of the Communist Party Committee and Chairman of the Labor Union of the Company’s Refining and Chemical Division. In June 2006, he was appointed Director of the Company. In June 2008, he was appointed Secretary of the Communist Party Committee of the Company’s Olefin Division and Deputy Manager of the division. Mr. Dai graduated from the Shanghai Second Polytechnic University majoring in business management. He is an intermediate technician by professional title.

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External Directors

Lei Dianwu, 48, is Assistant to the General Manager of Sinopec Group, Vice President and Director of Development and Planning Division of Sinopec Corp. In June 2005, Mr. Lei was elected External Director of the Company. Mr. Lei has held various positions including Deputy Director of Planning Division of Yangzi Petrochemical Company, Director of the Preparation Office of the Joint Venture of Yangzi Petrochemical Company, Vice President and Manager of production division of Yangzi BASF Stylene Company Limited. He acted as Deputy Manager and Deputy Director of the Joint Venture Office at Yangzi Petrochemical Company, Director of Project Development Department in China Dong Lian Petrochemical Limited Liabilities Company (中國東聯石化有限責任公司), Deputy General Manager of Yangzi Petrochemical Limited Liabilities Company and Deputy Director of Development and Planning Division of Sinopec Corp. From March 2001, he assumed the current position of Director of Development and Planning Division of Sinopec Corp. From March 2009, he assumed the current position of Assistant to General Manager of Sinopec Corp. From May 2009, he assumed the position of Vice President of Sinopec Corp. Mr. Lei has rich experience in enterprise planning and investment development management. Mr. Lei graduated from the East China Petroleum Institute with a major in basic organic chemicals and obtained a bachelor’s degree in engineering. He is a senior engineer by professional title.

Xiang Hanyin, 56, is Deputy Director of Chemical Division of Sinopec Corp. In June 2005, Mr. Xiang was elected External Director of the Company. Mr. Xiang commenced work in February 1982 and was Deputy Director of the Chemical Plant of Yizheng Chemical Fiber Company and Director of Chemical Plant of Yizheng Chemical Fiber Co., Ltd. In February 2000, he assumed the current position of Deputy Director of the Chemical Division of Sinopec Corp. Mr. Xiang has rich experience in the management of production and operation of chemical enterprises. Mr. Xiang graduated from Nanjing Chemical College with a major in basic organic chemicals and a bachelor’s degree in engineering in 1982. In 2000, he completed post-graduate studies in enterprise management at Nanjing University. He is a senior engineer by professional title.

Independent Directors

Chen Xinyuan, 46, is currently Dean, Professor and Tutor to doctoral students of the College of Accounting, Shanghai University of Finance and Economics, and was elected as an Independent Director of the Company in June 2003. Between June 2000 and June 2003 he was an Independent Supervisor of the Company. After graduation from the Accounting Faculty, Hangzhou College of Commerce in July 1985, Mr. Chen undertook post-graduate studies at the Accounting Faculty of Shanghai University of Finance and Economics and continued as a lecturer. He commenced his doctoral studies in accounting while teaching and received his doctorate in June 1994. He has been a tutor to doctoral students since December 1998. Mr. Chen has also studied in West Germany for one year. He is an expert in financial reporting and accounting, given his experience in the academic aspects of accounting and notable achievements in accounting research. He is also experienced in business management.

Sun Chiping, 52, is President and Secretary of the Communist Party Committee of the Industrial and Commercial Bank of China (“ICBC”), Jiangsu Branch. In June 2005, Mr. Sun was elected Independent Director of the Company. Mr. Sun started to be involved in the finance industry in March 1979 and has held various positions including accountant, team leader and Deputy Director of the People’s Bank of China, Shanghai Branch, sub-branch in both Huang Pu and Jing’an Districts. He joined the ICBC, Shanghai Branch, operating division and was Deputy Secretary of the Communist Party Committee and Secretary of the Communist Party Discipline Supervisory Committee. He also acted as Deputy Director, President and Deputy Secretary of the Communist Party Committee of ICBC, Shanghai Branch, Rep. Office (Sub-branch) in Xu Hui District, General Manager of the International Business Division of ICBC, Shanghai Branch, Assistant to the President of the ICBC, Shanghai Branch and concurrently General Manager of International Business Division of ICBC, Shanghai Branch and Deputy President of ICBC, Shanghai Branch, Deputy President, President and Secretary of the Communist Party Committee of ICBC, Guangdong Branch, President and Secretary of the Communist Party Committee of ICBC, Shanghai Branch. From June 2009, he assumed the current position as President and Secretary of the Communist Party Committee of ICBC, Jiangsu Branch. Mr. Sun graduated from Shanghai University of Finance and Economics with a major in Finance. He studied for a master’s degree at Shanghai University of Finance and Economics and the Shanghai-Hong Kong Management School jointly organized by University of Hong Kong and Fudan University and obtained a Master in Economics and an MBA. Mr. Sun has been engaged in the management of banking business for many years and has extensive experience in finance practice. He is a senior economist by professional title.

Jiang Zhiquan, 60, is Secretary of the Communist Party Committee and Chairman of Shanghai Construction (Group) General Company. In June 2005, Mr. Jiang was elected Independent Director of the Company. Mr. Jiang started work in December 1968, and has held various positions including a cadre and Deputy Director of Shanghai Construction and Industry Bureau, Manager of the Fourth Construction Company of Shanghai, Deputy Secretary of the Communist Party Committee of the Shanghai Construction Engineering Administration Bureau (being in charge of the overall work of the unit), Deputy Secretary of the Communist Party Committee (being in charge of the overall work of the unit), Vice Chairman and General Manager of the Shanghai Construction Group. In March 2001, he assumed the current positions as Secretary of the Communist Party Committee and Chairman of Shanghai Construction (Group) General Company. Mr. Jiang is experienced in operational decision making and large-scale enterprise management. Mr. Jiang graduated from the Shanghai-Hong Kong Management School jointly run by the University of Hong Kong and Fudan University in July 2000 and obtained an MBA. He is a senior economist by professional title.

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Zhou Yunnong, 68, has been an Independent Director of the Company since June 2005. He joined the Complex in October 1972 and has held various positions including Deputy President of the Complex, Deputy Director of the Human Resource Department of China Petrochemical Corporation, Deputy Secretary of Communist Party Committee of the Complex, Vice President of the Company, Secretary of the Communist Party Committee of Sinopec Jinshan Industrial Company and the Governor of Jinshan District of Shanghai. From November 1999 to April 2002 he was a Senior Advisor to Shanghai Jinshan District. From June 2003 to June 2005, Mr. Zhou was an Independent Supervisor of the Company. Mr. Zhou has extensive experience in business management and public administration management. Mr. Zhou graduated from East China Normal University in August 1964, majoring in radio. He is a senior engineer by professional title.

Supervisory Committee

The Company has a Supervisory Committee whose primary duty is to supervise senior management of the Company that includes the Board of Directors, managers and senior officers. The function of the Supervisory Committee is to ensure that senior management of the Company act in the interests of the Company, its shareholders and employees and in compliance with PRC law. The Supervisory Committee reports to the shareholders in the general meeting. The Articles of Association provide the Supervisory Committee with the right to investigate the business and the financial affairs of the Company and to convene shareholder’s meetings from time to time. The Supervisory Committee currently comprises of seven members, two of whom are employee representatives and five of whom are external supervisors, including two independent supervisors.

Gao Jinping, 44, is Chairman of the Supervisory Committee, Deputy Secretary of the Communist Party Committee, Secretary of the Communist Party Discipline Supervisory Committee of the Company and Chairman of the Labor Union of the Company. Mr. Gao joined the Complex in 1990 and has held various positions including Deputy Secretary of the Communist Youth League of the Company, Deputy Secretary of the Communist Party Committee of the Experimental Plant and Chemical Division of the Company and Director of the Propaganda Division of the Company. In May 2003, Mr. Gao was appointed Deputy Secretary of the Communist Party Committee of the Company and Chairman of the Labor Union of the Company. From June 2004 to June 2006, Mr. Gao served as Director of the Company. In April 2006, Mr. Gao was appointed Secretary of the Communist Party Discipline Supervisory Committee of the Company. In June 2006, Mr. Gao was appointed Supervisor and Chairman of the Supervisory Committee of the Company. Mr. Gao graduated from the Food Processing Faculty of Shanghai Aquatic Products University with a major in cooling and cold storage technology and obtained a bachelor’s degree in engineering in July 1990. In 2001, he completed his post-graduate studies in business administration in the aspect of industrial economics at Shanghai Academy of Social Sciences. He has senior professional title.

Zhang Chenghua, 55, is a Supervisor, Deputy General Political Official and Director of the Communist Party Committee Office of the Company. Mr. Zhang joined the Complex in 1974 and worked in the Thermal Power Plant of the Complex as Deputy Secretary of the Communist Party Committee, Deputy Secretary of the Communist Party Committee cum Chairman of Labor Union of the Thermal Power Plant of the Complex, Deputy Secretary of the Communist Party Discipline Supervisory Committee and Director of Supervisory Committee Office of Sinopec Shanghai Petrochemical Company Limited. In April 2002, Mr. Zhang was appointed Director of Supervisory Committee Office of the Company. In June 2002, Mr. Zhang was appointed Supervisor of the Company. In April 2004, Mr. Zhang was appointed Director of the Communist Party Committee Office. In July 2009, Mr. Zhang assumed the position of Deputy General Political Official of the Company. Mr. Zhang graduated, majoring in party administrative management, from Shanghai Party Institute in January 1999. In 2001, he completed his post-graduate studies in business administration in the aspect of industrial economics at Shanghai Academy of Social Sciences. He has senior professional title.

Wang Yanjun, 50, is a Supervisor and Vice Chairwoman of the Labor Union of the Company. Ms. Wang joined the Complex in July 1982 and has held various positions including Chairwoman of the Labor Union of the Plastics Plant of the Company, Chairwoman of the Labor Union of Plastics Division of the Company, Chairwoman of the Labor Union of Chemical Division of the Company, Deputy Secretary of the Communist Party Committee, Secretary of Communist Party Discipline Supervisory Committee of the Communist Party Committee and Chairwoman of the Labor Union of Chemical Division of the Company. In January 2005, Ms. Wang was appointed Vice Chairwoman of the Labor Union of the Company. In June 2005, Ms. Wang was appointed Supervisor of the Company. Ms. Wang graduated from East China University of Science and Technology majoring in basic organic chemistry in July 1982. In 2001, she completed her post-graduate studies in business administration in the aspect of industrial economics at Shanghai Academy of Social Sciences. She has senior professional technical qualifications.

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External Supervisors

Zhai Yalin, 46, is Deputy Director of the Auditing Bureau of Sinopec Group and Deputy Director of Auditing Department of Sinopec Corp and has served as External Supervisors of the Company since June 2008. Mr. Zhai began his career in 1986 and had been successively Deputy Head of the Head Office and Director of the Auditing Department of Qianguo Refinery, Deputy Director of the General Office of Sinopec Huaxia Auditing Company and Deputy Manager of the Sinopec Huaxia Auditing Company, Deputy Director of the General Administrative Office of the Auditing Bureau of China Petrochemical Corporation, Director of the General Administrative Office of the Auditing Bureau of Sinopec Group, and Director of the General Administrative Office of the Auditing Bureau of Sinopec Group (Auditing Department of Sinopec Corp.). Since December 2001, Mr. Zhai has been holding concurrently the posts of Deputy Director of the Auditing Bureau of Sinopec Group and Deputy Director of Auditing Department of Sinopec Corp. Mr. Zhai graduated from Jilin Siping Normal College in 1986 and is a senior economist.

Wu Xiaoqi, 54, is Secretary of the Communist Party Committee of Sinopec Yunnan Oil Products Company, Deputy General Manager of said company. Mr. Wu has been an External Supervisor of the Company since June 2008. Mr. Wu began his career in 1971 and had been successively Deputy Director Class Disciplinary Supervisory Inspector of the Supervisory Bureau of China Petrochemical Corporation’s Disciplinary Division, Deputy Head (Deputy Director) and Head (Director) of the Office of the Supervisory Bureau of China Petrochemical Corporation’s Disciplinary Division, and Director of Section 1 of Supervisory Bureau of Sinopec Group’s Disciplinary Division. From June 2004 to April 2005, he served as a Deputy Bureau Director Class Disciplinary Inspector of Supervisory Bureau of Sinopec Group and a Deputy Bureau Director Class Supervisory Inspector of Supervisory Department of Sinopec Corp. From April 2005 to December 2008, Mr. Wu was Deputy Director of Supervisory Bureau of China Petrochemical Corporation and Deputy Director of Supervisory Department of Sinopec Corp. Since December 2008, he has served as Secretary of the Communist Party Committee, and Deputy General Manager of Sinopec Yunnan Oil Products Company. Mr. Wu graduated from Shijiazhuang Army Command Academy and has a senior professional title.

Independent Supervisors

Liu Xiangdong, 59, is an Executive Director and President of Zhengxin Bank Company Limited, and an Independent Director of Shanghai Bright Dairy & Food Co., Ltd. He was elected as an Independent Supervisor of the Company in June 2000. Mr. Liu has held various positions including Vice President of the Industrial and Commercial Bank of China, Shanghai Branch cum Principal of the Notes Business Department of the Industrial and Commercial Bank of China, General Manager of Investment Division of the Industrial and Commercial Bank of China, Executive Director and President of Zhengda International Finance Corporation, Independent Director of Shanghai No.1 Pharmacy Co., Ltd and Shanghai Shenbei Office Machine Co. From January 2010, Mr. Liu assumed the positions of Executive Director and President of Zhenxin Bank Company Limited. Mr. Liu has been working in the banking sector for many years and has abundant experience in business management practices. He obtained a master’s degree in economics from Shanghai University of Finance and Economics and an EMBA degree after completing the EMBA program jointly sponsored by Arizona State University and Shanghai National Accounting Institute and is a senior economist.

Yin Yongli, 71, has served as Independent Supervisor of the Company from June 2005. Mr. Yin has held various positions including Deputy Chief and Chief of Finance section of Shandong Shengli Refinery, Deputy Chief Accountant of Qliu Petrochemical Company, Chief Accountant of Planning and Financing Department of China Petrochemical Corporation and Chief Accountant and Deputy Director of Financing Department of China Petrochemical Corporation and Director of Shihua Auditing Firm. In September 2001, he was Chairman of China Rights on Certified Public Accountants. Since June 2004, Mr. Yin has been appointed Chairman of Huazheng Certified Public Accountants. From June 2005 to June 2008, Mr. Yin has been Chairman of the Management Committee of Tianhua Certified Public Accountants. Mr. Yin has engaged in financing and auditing for many years and has rich experience in financing management and enterprise auditing. Mr. Yin graduated from Shandong Institute of Finance and Economics in 1964. Mr. Yin is a professional accountant and is a certified accountant.

Senior Management

Zhang Zhiliang, 57, is a Vice President of the Company. Mr Zhang joined the Complex in 1977 and held various positions including Deputy Director and Director of the No.1 Chemical Plant of the Complex, as well as assistant manager and manager of the Company’s Refining and Chemical Division. He was Vice President of the Company from April 1997 to March 2006. He was Director of the Company from June 1997 to June 2003. He was Director of Shanghai Secco from November 2002 to April 2010, and Vice President of Shanghai Secco from January 2006 to November 2006. He was President of Shanghai Secco from November 2006 to April 2010. In April 2010, he was appointed as a Vice President of the Company. Mr. Zhang graduated from Fudan University in 1977, majoring in high molecular chemistry. He graduated from Shanghai No.2 Industrial University in 1999, majoring in Applied Computer Management. He is a senior cadre of professorate rank.

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Zhang Jianping, 48, is a Vice President of the Company. He joined the Complex in 1987, and successively held the positions of Deputy Chief Engineer of the Aromatics Plant of the Refining and Chemical Division, Deputy Director of the Plastic Plant, Deputy Manager of Plastics Division of the Company, Director of the Petrochemical Research Institute, Director of the Production Division of the Company, Assistant to President of the Company and Director of the Production Division. In July 2004, he was appointed Vice President of our Company. Mr. Zhang graduated in 1984 from East China Institute of Chemical Technology specializing in Petroleum Refinery and received a Master’s Degree in Petroleum Processing from the same institute in 1987. He is a qualified senior engineer.

Tang Chengjian, 55, is a Vice President of our Company. He joined the Complex in 1974, and successively held the positions of Deputy Secretary of Communist Party Committee, Trade Union Director, Deputy Director of the Thermal Power Plant of the Complex, Director of Thermal Power Plant of the General Thermal Power Unit of the Company, Deputy Director and Director of the Company’s General Thermal Power Unit. He was appointed the Vice President of our Company in July 2004. Mr. Tang graduated in 1974 from Shanghai Power Technology School with a specialization in power plant steam turbines and graduated from Shanghai Power College in power plant and power systems in 1986. In 1991, he graduated from Shanghai No. 2 Industry University majoring in project management; he earned an MBA from the China Europe International Business School in 2001. He is a senior economist in terms by professional title.

Ye Guohua, 42, is the Chief Financial Officer of the Company. Mr. Ye joined Sinopec Shanghai Gaoqiao Petrochemical Corporation in 1991 and had held various positions including Deputy Section Chief and Section Chief of the Cost Accounting Section of the Financial Division of Sinopec Shanghai Gaoqiao Petrochemical Corporation, Director of the Financial Division of the Oil Refinery Factory of Sinopec Shanghai Gaoqiao Petrochemical Corporation, Deputy Chief Accountant and Director of the Financial Department of Sinopec Shanghai Gaoqiao Petrochemical Corporation. In October 2009, Mr. Ye was appointed Chief Financial Officer of the Company. Mr. Ye graduated from Shanghai University of Finance and Economics majoring in accounting in July 1991 and is a senior economist by professional title.

Zhang Jingming, 53, is the Secretary of the Board of Directors, General Legal Counsel, Director of the Secretarial Office of the Board of Directors and Director of the Strategy Office of the Company. Mr. Zhang joined the Complex in 1978 and has held various positions including Project Manager and Deputy Director of the International Department, Securities Affairs Representative in Hong Kong and Deputy Director of the Board Secretariat. In June 1999, Mr. Zhang was concurrently appointed as Secretary to the Board of Directors and Director of the Board Secretariat. In June 2001, Mr. Zhang was appointed Director of Strategy Research Department of the Company. In January 2005, Mr. Zhang was appointed General Counsel of the Company. In 1987, Mr. Zhang graduated from the Shanghai International Studies University majoring in English. During the period from 1992 to 1993, he was enrolled in graduate courses for the fourth Sino-British joint MBA program at Northwestern Polytechnic University and later on, Mr. Zhang went to the University of Hull in the United Kingdom for further study to earn an MBA degree and was granted the degree by the University of Hull in the United Kingdom in July 1995. In 2002, Mr. Zhang completed his graduate courses in international economic law at East China University of Political Science and Law. He is a senior economist by professional title.

B. Compensation.

The aggregate amount of cash compensation we paid to our directors, supervisors and executive officers during the year ended December 31, 2010 was approximately RMB6.508 million. In addition, directors and supervisors who are also officers or employees receive certain other benefits-in-kind, such as subsidized or free health care services, housing and transportation, which large Chinese enterprises customarily provide to their employees. No benefits are payable to members of the board or the Supervisory Committee or the executive officers upon termination of their relationship with us.

The following table sets forth the compensation on an individual basis for our directors, supervisors and executive officers who received compensation from us in 2010.

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Name	Position with the Company	Remuneration  in 2010
		(RMB’000) (before tax)
Rong Guangdao	Chairman of the Board of Directors		616
Wang Zhiqing	Vice Chairman of the Board of Directors and President		155
Wu Haijun	Vice Chairman of the Board of Directors		—
Li Honggen	Director and Vice President		530
Shi Wei	Director and Vice President		536
Dai Jinbao	Director		354
Lei Dianwu	External Director		—
Xiang Hanyin	External Director		—
Chen Xinyuan	Independent Director		150
Sun Chiping	Independent Director		150
Jiang Zhiquan	Independent Director		150
Zhou Yunnong	Independent Director		150
Gao Jinping	Chairman of the Supervisory Committee		519
Zhang Chenghua	Supervisor		337
Wang Yanjun	Supervisor		305
Zhai Yalin	External Supervisor		—
Wu Xiaoqi	External Supervisor		—
Liu Xiangdong	Independent Supervisor		—
Yin Yongli	Independent Supervisor		—
Zhang Zhiliang	Vice President		226
Zhang Jianping	Vice President		519
Tang Chengjian	Vice President		519
Ye Guohua	Chief Financial Officer		362
Zhang Jingming	Company Secretary and General Legal Counsel		379
Du Chongjun (1)	Former Vice Chairman of the Board of Directors and Vice President		462
Han Zhihao (2)	Former Director		89

Note (1): Du Chongjun received compensation as vice chairman of the board of directors and vice president of the Company in 2010 but is no longer with the Company as the date of this annual report.

Note (2): Han Zhihao received compensation as director of the Company in 2010 but is no longer with the Company as the date of this annual report.

C. Board Practices.

Board of Directors

Our board of directors consists of twelve members. Our directors are elected at meetings of our shareholders, and, unless they resign at an earlier date, are deceased or removed, will serve three-year terms. The directors shall be eligible for reelection upon expiry of their terms of office, however, the combined tenure of an independent director may not exceed a total of six years. The term of our current board of directors will expire in 2011. None of our directors have entered into any service contracts with us or any of our subsidiaries providing for benefits upon termination of appointment or employment (with the exception of compensation required by Chinese labor law).

Supervisory Committee

The Supervisory Committee is responsible for ensuring that our directors and senior officers act in the interests of our company or those of our shareholders or employees and that they do not abuse their positions and powers. The Supervisory Committee has no power to overturn the decisions or actions of our directors or officers and may only recommend that they correct any acts that are harmful to our interests or the interests of our shareholders or employees. The Supervisory Committee is currently composed of seven members appointed for a three year term. The term of the current members will expire in June 2011. Supervisory Committee members have the right to attend meetings of our board of directors, inspect our financial affairs and perform other supervisory functions.

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Audit Committee

Pursuant to Paragraph 14 of the Code of Best Practices set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Ltd, we formed an audit committee on June 15, 1999 which consists of three directors. The current members are Chen Xinyuan, Zhou Yunnong and Sun Chiping according to the Resolutions of the First Meeting of the Sixth Session of the Board of Directors. The principal duty of the audit committee is to review and supervise our financial reporting process and internal controls. The members of the audit committee will hold office for the same term as their directorships which will expire in 2011.

Remuneration Committee

We formed a remuneration committee on December 25, 2001 which consists of three directors. The current members are Dai Jinbao, Jiang Zhiquan and Zhou Yunnong. The key responsibility of the Remuneration Committee is to formulate and review the remuneration policy and plan for the directors and executive officers, formulate the standards for evaluation of the directors and executive officers and conduct such evaluations.

Summary Corporate Governance Differences

There are significant differences between our corporate governance practices and those of U.S. issuers listed on the New York Stock Exchange. Pursuant to Section 303A.11 of the NYSE listing Manual, we have disclosed certain of these differences on our website at www.spc.com.cn/enspc/spc/newsroomlook.php?Did=1650&cid=69dD1ev=5.

D. Employees.

As of December 31, 2010, we had 16,369 employees.

The following table shows the approximate number of employees we had at the end of our last three years by the principal business function they performed:

	December 31,
	2008		2009		2010
Management		1,355		1,354		1,332
Engineers, technicians and factory personnel		9,795		9,396		9,023
Accounting, marketing and other		6,447		6,381		6,014
Total		17,597		17,131		16,369

Approximately 37.16 % of our work force are graduates with an associate degree or higher. In addition, we offer our employees opportunities for education and training based upon our development and the individual performance of each employee.

A system of labor contracts has been adopted in our company. The contract system imposes discipline, provides incentives to adopt better work habits and gives us greater management control over our work force. We believe that by linking remuneration to productivity, the contract system has also improved employee morale. As of December 31, 2010, almost all of the work force was employed pursuant to labor contracts which specify the employee’s position, responsibilities, remuneration and grounds for termination. The contracts generally have short terms of one to five years and may be renewed with the agreement of both parties. The remaining personnel are employed for an indefinite term.

We have a trade union that protects employees’ rights, aims to assist in the fulfillment of our economic objectives, encourages employee participation in management decisions and assists in mediating disputes between us and union members. We have not been subject to any strikes or other labor disturbances which have interfered with our operations, and we believe that our relations with our employees are good. We are recommended by the Shanghai municipal government to participate in the national competition for “Enterprises Maintaining a Harmonious Relationship with Employees”.

Total remuneration of our employees includes salary and bonuses. Employees also receive certain benefits in terms of housing, education and health services that we subsidize, and other miscellaneous subsidies. In 2010, we incurred RMB1,441.3 million in employment costs.

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In compliance with Shanghai regulations, we and our employees participate in a defined contribution government pension scheme under which all employees upon retirement are entitled to receive pensions. In order to protect and properly enhance the living level of retired employees and improve the middle and long term incentive system, the company established an enterprise annuity plan. According to the plan, to the extent that the employees volunteer for the related payments, such employees are entitled to participate in the enterprise annuity plan. We will make payments to match the payments made by the employees after giving considerations to our profitability, the employee’s work responsibilities, contributions, and treatments post retirement based on the principle of universal benefits. The company has 13,710 retired employees under the above retirement insurance plans.

In addition to the pension benefits, pursuant to the relevant laws and regulations of the PRC, we and our employees participate in defined social security contributions for employees, such as a housing fund, basic medical insurance, supplementary medical insurance, unemployment insurance, injury insurance and maternity insurance.

E. Share Ownership.

The following table shows the ownership interests of our Directors, Supervisors and senior officers in our shares as of May 1, 2011. All shares indicated are A shares and are directly owned by the relevant persons. In each case, they represent less than 1% of the outstanding A shares. No change in shareholdings occurred. Except as disclosed below, none of the Directors, Supervisors or senior officers or their affiliates had any other beneficial interest in our issued share capital as of May 1, 2011.

Name	Position	Shares held at May 1, 2011
Rong Guangdao	Chairman		3,600
Wang Zhiqing	Vice Chairman and President		0
Wu Haijun	Vice Chairman		0
Li Honggen	Director and Vice President		0
Shi Wei	Director and Vice President		0
Dai Jinbao	Director		0
Lei Dianwu	External Director		0
Xiang Hanyin	External Director		0
Sun Chiping	Independent Director		0
Jiang Zhiquan	Independent Director		0
Zhou Yunnong	Independent Director		0
Chen Xinyuan	Independent Director		0
Gao Jinping	Chairman of Supervisory Committee		0
Zhang Chenghua	Supervisor		0
Wang Yanjun	Supervisor		0
Zhai Yalin	External Supervisor		0
Wu Xiaoqi	External Supervisor		0
Liu Xiangdong	Independent Supervisor		0
Yin Yongli	Independent Supervisor		0
Zhang Zhiliang	Vice President		0
Zhang Jianping	Vice President		0
Tang Chengjian	Vice President		0
Ye Guohua	Chief Financial Officer		0
Zhang Jingming	Company Secretary and General Legal Counsel		0
Du Chongjun	Former Vice Chairman and Vice President		1,000
Han Zhihao	Former director		0

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We have no employee share purchase plan, share option plan or other arrangement to involve employees in our share capital.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

A. Major Shareholders.

Sinopec Corp owns 55.56% of our share capital and is able to exercise all the rights of a controlling shareholder, including the election of directors and voting on amendments to our Articles of Association.

The table below sets forth information regarding ownership of our capital stock as of March 31, 2011 by (i) all persons who we know own more than five percent of our capital stock and (ii) our officers and directors as a group. We are not aware that any such shareholder had voting rights different from those of our other shareholders.

Title of Class	Identity of Person or Group	Number of Shares Held		Percent of Total  Share Capita
Domestic Shares	China Petroleum & Chemical Corporation (1)		4,000,000,000		55.56	%
H Shares	HKSCC nominees Ltd.		2,294,492,101		31.87	%
A Shares	Directors and Officers		4,600		less than 1	%

(1). This company is controlled by China Petrochemical Corporation which is itself controlled by the Chinese government.

As of May 1, 2011, a total of 2,330,000,000 H Shares were outstanding. As of April 1, 2011, a total of 2,273,387 ADSs, representing the equivalent of 22,733,870 H Shares, were outstanding. As of April 21, 2011, they were held by 104 holders of record. A total of 720,000,000 circulating A Shares were outstanding on April 1, 2011.

To the best of our knowledge, except as disclosed above, we are not directly or indirectly controlled by another corporation, any foreign government, or any other natural or legal person, severally or jointly.

We are not aware of any arrangement that may at a subsequent date result in a change of control of our company.

B. Related Party Transactions.

Intercompany service agreements and business-related dealings

During 2010, pursuant to the Mutual Product Supply and Sales Service Framework Agreement entered into by the Company and Sinopec Corp, we purchased raw materials from, and sell petroleum products and petrochemicals as well as lease properties to, Sinopec Corp and its associates, and Sinopec Corp and its associates act as sales agents for our petrochemical products. Under the Comprehensive Services Framework Agreement entered into by the Company and Sinopec Group, we accept construction and installation, engineering design, insurance agency and financial services relating to the petrochemical industry provided by Sinopec Corp and its associates. The relevant connected transactions were conducted in accordance with the terms of the Mutual Product Supply and Sales Services Framework Agreement and the Comprehensive Services Framework Agreement. The transaction amounts of the relevant connected transactions did not exceed the caps in relation to the continuing connected transactions approved at the 2007 Extraordinary General Meeting. As the Mutual Product Supply and Sales Service Framework Agreement and the Comprehensive Services Framework Agreement were set to expire on December 31, 2010, we renewed these agreements with Sinopec Corp and Sinopec Group respectively upon approval and authorization at the 2010 Extraordinary General Meeting held on December 28, 2010. At the 2010 Extraordinary General Meeting, our shareholders also approved certain caps on the annual transaction values of certain ongoing continuing connected transactions for the years ending December 31, 2011, December 31, 2012 and December 31, 2013.

The purchases by us of crude oil and related materials from, and sales of petroleum products by us to, Sinopec Corp and its associates were conducted in accordance with the State’s relevant policy and applicable State tariffs or State guidance prices. As long as the State does not lift its control over purchases of crude oil, sales of petroleum products and pricing thereof, such connected transactions will continue to occur. We sell petrochemicals to Sinopec Corp and its associates and Sinopec Corp and its associates act as agents for the sale of petrochemicals in order to reduce our inventories, expand their trading, distribution and sales networks and improve our bargaining power with our customers. We lease part of the properties to Sinopec Corp and its associates in consideration of their good financial background and credit standing. We accept construction and installation, engineering design, insurance agency and financial services relating to the petrochemical industry from Sinopec Group and its associates in order to secure steady and reliable services at reasonable prices.

The prices of the continuing connected transactions conducted between the Company and Sinopec Group, Sinopec Corp and its associates are determined by the parties involved after consultation pursuant to (1) the fixed price of the state; or (2) the guiding price of the state; or (3) market prices, and the conclusion of agreements for the connected transactions are in compliance with the needs of the Company’s production and operation. Therefore the above continuing connected transactions do not cause a material impact on the Company’s independence.

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Unit: RMB in millions

Type of major transactions	Major related parties	Amount		Percentage of total amount of the type of transaction
				(%)
Income from sale of products and services(1)	Sinopec Huadong Sales Company Limited		29,019.1		37.43
	Other related parties		11,902.9		15.35
Purchases	China International United Petroleum & Chemical Co., Ltd.		23,066.5		39.09
	Other related parties		14,534.2		24.63
Construction and installation fees	China Petrochemical Corporation and its subsidiaries		88.6		65.14

(1) This includes an amount of RMB39,324.4 million for the connected transactions in respect of the sale of products or the provision of labor services to the controlling shareholder and its subsidiaries by the listed company during 2010.

Other related party transactions

We transferred to Sinopec Corp. a 81.97% equity interest owned by our wholly owned subsidiary Shanghai Petrochemical Investment Development Company Limited in Shanghai Jin Hua Industrial Company Limited for a consideration of RMB61,600,400. The relevant transfer agreement was entered into on February 8, 2006. The transaction generated a gain of RMB24,307,946 in 2006. The pricing principle was determined on the basis of a valuation report prepared by a qualified asset valuation company independent of the Company and Sinopec Corp. and upon arm’s length negotiations between the parties. On the asset disposal date, the book value of the assets was RMB37,292,454, while the appraised value of the assets was RMB53,600,422 as at March 31, 2005.

We entered into equity transfer agreements with Sinopec Finance Co., Ltd to transfer our respective equity interests in China Everbright Bank and Bank of Shanghai to Sinopec Finance Co., Ltd. The considerations for the China Everbright Bank transfer and Bank of Shanghai transfer were RMB66,993,800 and RMB14,729,600, respectively. The relevant transfer agreements were entered into on December 7, 2006. As at the asset appraisal date, the book value of the equity interests held by the respective parties in China Everbright Bank and Bank of Shanghai totaled RMB55,449,641. The increase in the fair value of those equity interests of RMB26,228,500 as a result of the above transaction was recognized in the reserve, net of deferred tax, in 2006. The transaction prices were determined by way of a bidding process on the China Beijing Equity Exchange. The transfer of equity interest in China Everbright Bank was completed in April 2007. The transfer of equity interest in Bank of Shanghai was completed in July 2007.

We signed an agreement on December 30, 2005 to transfer our 2% equity interest in Sinopec Finance Co., Ltd. to Sinopec Corp for a purchase price of RMB82,000,000. In accordance with the payment terms of the agreement, we were paid the consideration on February 28, 2006.

We paid an amount of RMB164,763,000 to Sinopec Corp and its subsidiary which consisted of equipment pre-payments and progress payments for the 380,000 tons per year glycol project and the long-cycle facility of the 3,300,000 tons per year diesel hydrogenization project. Both facilities were delivered in the first half of the year in 2006.

He Fei, a non-executive Director prior to June 18, 2002, is a partner of Haiwen & Partners, our legal advisor on Chinese laws, which has received and will continue to receive legal fees in connection with their representation of us.

Equity joint venture

Late in 2001, we established Secco, a Sino-foreign equity joint venture, together with BP and Sinopec Corp. We own a 20% interest in Secco, while BP and Sinopec Corp own 50% and 30% interests in Secco, respectively. Secco was established to build and operate a 900,000 ton Rated Capacity ethylene petrochemical manufacturing facility to manufacture and market ethylene, polyethylene, styrene, polystyrene, propylene, acrylonitrile, polypropylene, butadiene, aromatics and by-products; provide related after-sales services and technical advice with respect to such petrochemical products and by products; and engage in polymers application development. Secco completed construction in 2005. Secco’s total registered capital is US$901,440,964, of which we provided the Renminbi equivalent of US$180,287,952.

HKSE connected transactions rules

We are required by HKSE listing rules to obtain advance shareholder approval for certain transactions with related parties such as Sinopec Group, Sinopec Corp, or its associates. We comply with such HKSE listing rules by obtaining advance shareholder approval at least every three years for the renewal of our framework agreements (e.g. the Mutual Product Supply and Sales Services Framework Agreement and the Comprehensive Services Framework Agreement) with Sinopec Group and Sinopec Corp for setting maximum aggregated annual values spent on the supply of products and services under these agreements. The independent non-executive directors will need to confirm each year, upon reviewing our continuing connected transaction, that these transactions are conducted in the ordinary and usual course of our business, on normal commercial terms and in accordance with the terms of these agreements.

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C. Interests of Experts and Counsel.

Not applicable.

ITEM 8. FINANCIAL INFORMATION.

A. Consolidated Statements and Other Financial Information.

Please see Item 17. Financial Statements for our audited consolidated financial statements filed as part of this annual report.

Export Sales

In 2010, export sales accounted for RMB480.354 million (US$72.78 million) or 0.67% of our total net sales.

Litigation

Neither we nor any of our subsidiaries is a party to, nor is any of our or their property the subject of any legal or arbitration proceedings which may have significant effects on our financial position or profitability. We are not aware of any litigation or arbitration proceedings in which any of our directors, any member of our senior management or any of our affiliates is an adverse party or has a material adverse interest.

Dividend Policy

Our board of directors may propose dividend distributions subject to the approval of the shareholders. The Articles of Association also provide that, unless the shareholders otherwise resolve, our board of directors is authorized in advance to distribute interim dividends each year of up to 50% of our distributable profits. Shareholders receive dividends in proportion to their shareholdings.

The Articles of Association require that cash dividends and other distributions in respect of H shares be declared in Renminbi and paid by us in Hong Kong dollars while cash dividends and other distributions in respect of our domestic shares be paid in Renminbi. If we record no profit for the year, we may not distribute dividends in such year.

We expect to continue to pay dividends, although there can be no assurance as to the particular amounts that might be paid from year to year. Payment of future dividends will depend upon our revenue, financial condition, future earnings and other factors. See Item 5. Operating and Financial Review and Prospects and Item 3. Key Information – Selected Financial Data – Dividends.

B. Significant Changes.

No significant change has occurred since the date of the financial statements included in this Annual Report.

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ITEM 9. THE OFFER AND LISTING.

A. Offer and Listing Details

Set forth below is certain market information relating to our H Shares, ADSs and A Shares for the periods indicated.

		The Stock Exchange of Hong Kong				The New York Stock Exchange				The Shanghai Stock Exchange
		High		Low		High		Low		High		Low
2006			5.00		2.97		64.60		38.60		7.18		4.03
2007			7.38		3.26		102.77		31.37		22.49		6.05
2008			4.88		1.10		61.88		14.50		13.64		3.58
2009			4.13		1.61		52.09		20.75		12.48		5.06
2010			4.11		2.58		52.27		33.13		11.11		7.16
2009
	First Quarter		2.22		1.61		28.72		20.75		6.66		5.06
	Second Quarter		3.10		1.94		39.47		27.26		8.87		6.27
	Third Quarter		4.13		2.57		52.09		32.83		12.48		8.09
	Fourth Quarter		3.21		2.90		44.38		38.12		12.37		10.16
2010
	First Quarter		3.35		2.58		43.14		33.17		11.11		9.46
	Second Quarter		3.18		2.61		40.71		33.13		10.14		7.16
	Third Quarter		3.35		2.83		42.93		36.28		9.68		7.34
	Fourth Quarter		4.11		3.20		52.27		41.21		9.48		8.03
2011
	First Quarter		4.98		3.62		63.05		47.01		9.58		7.74
Most Recent Six Months
	November 2010		3.97		3.47		50.80		45.25		9.42		8.03
	December 2010		4.11		3.79		52.27		49.11		9.38		8.19
	January 2011		4.98		4.01		62.85		51.69		8.94		7.74
	February 2011		4.95		3.88		63.05		50.10		9.08		7.99
	March 2011		4.25		3.62		54.07		47.01		9.58		8.45
	April 2011		4.14		3.42		51.80		44.88		10.89		8.71

B. Plan of Distribution

Not applicable.

C. Markets

The principal trading market for our H Shares is the HKSE. The ADSs, each representing 100 H Shares, have been issued by The Bank of New York Mellon as a depositary under a Deposit Agreement with us and are listed on the NYSE under the symbol “SHI.” We have also listed our A Shares on the Shanghai Securities Exchange. Prior to our initial public offering on July 26, 1993 and subsequent listings on the HKSE and NYSE, there was no market for our H Shares or the ADSs. Public trading in our A Shares commenced on November 8, 1993.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the issue

Not applicable.

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ITEM 10. ADDITIONAL INFORMATION.

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association.

The following is a summary based upon provisions of our Articles of Association as currently in effect, the Company Law of the People’s Republic of China (1993) (as amended) and other selected laws and regulations applicable to us. You should refer to the text of the Articles of Association and to the texts of applicable laws and regulations for further information.

We are a joint stock limited company established in accordance with the Company Law and certain other laws and regulations of the PRC. We are registered with the Shanghai Administration of Industry and Commerce with business license number 310000000021453. Our Articles of Association provide, at article 11, that our purpose is:

• to build and operate a diversified industrial company which will be one of the world’s leading petrochemical companies;

• to promote the development of the petrochemical industry in China through the production of a broad variety of outstanding products; and

• to practice advanced, scientific management and apply flexible business principles, and to develop overseas markets for our products so that we and our shareholders receive reasonable economic benefits.

Our scope of business is limited to matters approved by Chinese authorities. Article 12 provides that our primary business scope includes:

Refining crude oil, petroleum products, petrochemical products, synthetic fibers and monomers, plastic products, raw materials for knitting and textile products, preparation of catalysts and recover waste catalysts, power, heat, water and gas supply,, water treatment, railway cargo loading and unloading, inland water transport, wharf operation, warehousing, design, research and development, technology development, transfer, consultancy and other services, property management, lease of self-owned premises, internal staff training, design and fabrication of various advertisements, and release of advertisements on self-owned media (administrative license should be obtained when required). We may adjust these subject to approval by governmental authorities.

The following discussion primarily concerns our shares and the rights of our shareholders. Holders of our ADSs will not be treated as our shareholders and will be required to surrender their ADSs for cancellation and withdrawal from the depositary facility in which the H shares are held in order to exercise shareholder rights in respect of H shares.

Domestic shares and overseas-listed foreign invested H shares are both ordinary shares in our share capital. Domestic shares are shares we issue to domestic Chinese investors for subscription in Renminbi, while H shares are shares we issue for subscription in other currencies to investors from Hong Kong, Macau, Taiwan and outside of China.

Sources of Shareholders’ Rights

China’s legal system is based on written statutes and is a system in which decided legal cases have little precedent value. China’s legal system is similar to civil law systems in this regard. In 1979, China began the process of developing its legal system by undertaking to promulgate a comprehensive system of laws. In December 1993, the Standing Committee of the 8th National People’s Congress adopted the Chinese Company Law. Although the Chinese Company Law is expected to serve as the core of a body of regulatory measures, which will impose a uniform standard of corporate behavior on companies and their directors and shareholders, only a limited portion of this body of regulatory measures has so far been promulgated.

Currently, the primary sources of shareholder rights are the Articles of Association, the Chinese Company Law and the HKSE listing rules, which, among other things, impose standards of conduct, fairness and disclosure on us, our directors and our controlling shareholder. To facilitate the offering and listing of shares of Chinese companies overseas, and to regulate the behavior of companies whose shares are listed overseas, the former State Council Securities Committee and the former State Commission for Restructuring the Economic System issued the Mandatory Provisions for articles of association of Companies Listing Overseas on August 27, 1994. These provisions have been incorporated into our Articles of Association and any amendment to those provisions will only become effective after approval by the companies approval department authorized by the State.

In addition, upon the listing of and for so long as the H shares are listed on the HKSE, we will be subject to those relevant ordinances, rules and regulations applicable to companies listed on the HKSE, the Securities and Futures Ordinance and the Codes on Takeovers and Mergers and Share Repurchases.

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Unless otherwise specified, all rights, obligations and protections discussed below derive from our Articles of Association and/or the Chinese Company Law.

Enforceability of Shareholders’ Rights

There has not been any public disclosure in relation to the enforcement by holders of H shares of their rights under the charter documents of joint stock limited companies or the Chinese Company Law or in the application or interpretation of the Chinese or Hong Kong regulatory provisions applicable to Chinese joint stock limited companies.

In most states of the United States, shareholders may sue a corporation “derivatively”. A derivative suit involves the commencement by a shareholder of a corporate cause of action against persons who have allegedly wronged the corporation, where the corporation itself has failed to enforce the claims directly. This would include suits against corporate officers, directors, or controlling shareholders. This type of action is brought based upon a primary right of the corporation, but is asserted by a shareholder on behalf of the corporation. In accordance with the Company Law of the People’s Republic of China, if a company incurs losses due to the violation of any provision of laws, administrative regulations or the company’s articles of association by any of its directors, supervisors and officers during his/her discharge of duties entrusted by the company, or due to any other person’s infringement of the company’s legal rights or interests, the shareholders of the company may take legal action before a court under the Company Law of the People’s Republic of China.

Our Articles of Association provide that all differences or claims

• between a holder of H shares and us;

• between a holder of H shares and any of our directors, supervisors, manager or other senior officers; or

• between a holder of H shares and a holder of domestic shares,

involving any right or obligation provided in the Articles of Association, the Chinese Company Law or any other relevant law or administrative regulation which concerns our affairs must, with certain exceptions, be referred to arbitration at either the China International Economic and Trade Arbitration Commission in China or the Hong Kong International Arbitration Center. Our Articles of Association also provide that the arbitration will be final and conclusive. On June 21, 1999, an arrangement was made between Hong Kong and China for the summary mutual enforcement of each other’s arbitration awards in a manner consistent with the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and practices that occurred before the handover of Hong Kong to China. This arrangement was approved by the Supreme Court of China and the Hong Kong Legislative Council, and became effective on February 1, 2000.

All of our directors and officers reside outside the United States (principally in China) and substantially all of our assets and of those persons are located outside the United States. Therefore, you may not be able to effect service of process within the United States against any of those persons. In addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgements of courts within the United States or most other countries that are members of the Organization for Economic Cooperation and Development. This means that administrative actions brought by regulatory authorities such as the Securities and Exchange Commission, and other actions which result in foreign court judgements could only be enforced in China if the judgements or rulings do not violate the basic principles of the law of China or the sovereignty, security and social public interest of the society of China, as determined by a People’s Court of China which has jurisdiction for recognition and enforcement of judgements. We have been advised by our Chinese counsel, Haiwen & Partners, that there is doubt as to the enforceability in China of any actions to enforce judgements of United States courts arising out of or based on the ownership of our H shares or ADSs, including judgements arising out of or based on the civil liability provisions of United States federal or state securities laws.

Restrictions on Transferability and the Share Register

All fully paid up H shares will be freely transferable in accordance with the Articles of Association unless otherwise prescribed by law and/or administrative regulations. Under current laws and regulations, H shares may be traded only among investors who are not Chinese persons, and may not be sold to Chinese investors. Consequences under Chinese law of a purported transfer of H shares to Chinese investors are unclear.

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As provided in our Articles of Association, we may refuse to register a transfer of H shares without providing any reason unless:

• all relevant transfer fees and stamp duties are paid;

• the instrument of transfer is accompanied by the share certificates to which it relates and any other evidence reasonably required by our board to prove the transferor’s right to make the transfer;

• there are no more than four joint holders as transferees; and

• the H shares are free from any lien of ours.

Additionally, no transfers of shares may be registered within the 30 days prior to a shareholders’ general meeting or within five days before we decide on the distribution of dividends.

We are required to keep a register of our shareholders which shall be comprised of various parts, including one part which is to be maintained in Hong Kong in relation to H shares listed on the HKSE. Shareholders have the right to inspect the share register. For a reasonable fee, shareholders may copy any part of the share register, obtain background information regarding our directors, supervisors, manager and other senior officers, minutes of shareholder general meetings and reports regarding our share capital and any share repurchases in the prior year.

Dividends

Upon approval by ordinary resolution at a shareholders’ meeting, our Board of Directors may propose dividend distribution at any time.

Dividends may only be distributed, however, after allowance has been made for:

• recovery of losses, if any;

• allocations to the statutory common reserve fund; and

• allocations to a discretionary common reserve fund.

The Articles of Association require us to appoint on behalf of the holders of H shares a receiving agent which is registered as a trust corporation under the Trustee Ordinance of Hong Kong to receive dividends we declare in respect of the H shares on behalf of the H shareholders. The Articles of Association require that cash dividends and other distributions in respect of H shares be declared in Renminbi and paid by us in Hong Kong dollars while cash dividends and other distributions of the domestic shares shall be paid in Renminbi.

If we record no profit for the year, we may not normally distribute dividends for the year.

Dividend payments may be subject to Chinese withholding tax. See Item 10. Additional Information – Taxation.

Voting Rights and Shareholders’ Meetings

Our board of directors must convene a shareholders’ annual general meeting once every year within six months from the end of the preceding financial year. Our board must convene an extraordinary general meeting within two months of the occurrence of any one of the following events:

• where the number of directors is less than five as required by the Chinese Company Law or two-thirds of the number specified in our Articles of Association;

• where our unrecovered losses reach one-third of the total amount of our share capital;

• where shareholder(s) holding 10% or more of our issued and outstanding voting shares request(s) in writing; or

• whenever our board deems necessary or our Supervisory Committee so requests.

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Meetings of a special class of shareholders must be called in specified situations when the rights of the holders of that class of shares may be varied or abrogated, as discussed below. The Board of Directors, the Supervisory Committee, and shareholders individually or collectively holding 3% or more of our total voting shares are entitled to make written proposals to a shareholders’ meeting. Shareholders individually or collectively holding more than 3% of our total shares may submit written interim proposals to the convener of a shareholders’ meeting ten days before the meeting.

All shareholders’ meetings must be convened by our board by notice given to shareholders by personal service, mail or announcement in the newspaper not less than 45 days before the meeting. Based on the written replies we receive 20 days before a shareholders’ meeting, we will calculate the number of voting shares represented by shareholders who have indicated that they intend to attend the meeting. We can convene the shareholders’ general meeting if the number of voting shares represented by those shareholders is more than one-half of our total voting shares. Otherwise, we shall, within five days, inform the shareholders again of the motions to be considered and the date and venue of the meeting by way of public announcement. After the announcement is made, the shareholders’ meeting may be convened. Our accidental omission to give notice of a meeting to, or the non-receipt of notice of a meeting by, a shareholder will not invalidate the proceedings at that shareholders’ meeting. However, an extraordinary shareholders meeting cannot conduct any business not contained in the notice of meeting.

Shareholders at meetings have the power, among other things, to decide on our operational policies and investment plans, to approve or reject our proposed annual budget, approve our profit distribution plans, an increase or decrease in share capital, the issuance of debentures, our merger or liquidation and any amendment to our Articles of Association. Shareholders also have the right to review any proposals by a shareholder owning 5% or more of our shares. In general, holders of H shares and domestic shares vote together as a single class at all meetings and on all matters. However, the rights of a class of shareholders may not be varied or abrogated, unless approved by both a special resolution of all shareholders at a general shareholders’ meeting and by a special resolution of shareholders of that class of shares at a separate meeting. Our Articles of Association specify, without limitation, that the following amendments would be deemed to be a variation or abrogation of the rights of a class of shareholders:

• increasing or decreasing the number of shares of a class or of a class having voting or distribution rights or privileges equal or superior to that class;

• removing or reducing rights to receive dividends in a particular currency;

• creating shares with voting or distribution rights superior to shares of that class;

• restricting or adding restrictions to the transfer of ownership of shares of that class;

• allotting and issuing rights to subscribe for, or to convert into, shares of that class or another class;

• increasing the rights or privileges of any other class; or

• modifying the provision of our Articles of Association that specifies which amendments would be deemed a variation or abrogation of the rights of a class of shareholder.

For votes on any of these matters, or any other matter that would vary or abrogate the rights of the domestic shares or H shares, the holders of domestic shares and H shares are deemed to be separate classes and vote separately. However, “Interested Shareholders” are not entitled to vote at class meetings. The meaning of “Interested Shareholder” depends on the proposal to be voted on at the class meeting:

• If the proposal is for us to repurchase our shares either from all shareholders proportionately or by purchasing share on a stock exchange, an “Interested Shareholder” is our controlling shareholder;

• If the proposal is for us to repurchase our shares from a shareholder by a private contract, an “Interested Shareholder” is the shareholder whose shares would be repurchased;

• If the proposal is for our restructuring, an “Interested Shareholder” is any shareholder that has an interest in the restructuring different from the other shareholders of the class or who bears a burden under the proposed restructuring that is less than proportionate to his shareholdings of the class.

Our Articles of Association specifically provide that an issue of up to 20% of domestic and H shares would not be a variation or abrogation of the rights of domestic shareholders or H shareholders, therefore, separate approval of the domestic shareholders or H Shareholders would not be required.

Each share is entitled to one vote on all matters submitted to a vote of our shareholders at all shareholders’ meetings, except for meetings of a special class of shareholders where only holders of shares of the affected class are entitled to vote on the basis of one vote per share of the affected class.

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Shareholders are entitled to attend and vote at meetings either in person or by proxy. Proxy authorization forms must be in writing and deposited at our company’s principal offices, or at such other place specified in the notice of shareholders meeting not less than 24 hours before the time that such meeting will be held or the time appointed for passing upon the relevant resolutions. If a proxy authorization form is signed by a third party on behalf of the relevant shareholder, then such proxy authorization form must be accompanied by the signature authorization letter or other such document authorizing such third party to sign on behalf of the shareholder.

Except for those actions discussed below, which require supermajority votes, or special resolutions, resolutions of the shareholders are passed by a simple majority of the voting shares held by shareholders who are present in person or by proxy. Special resolutions must be passed by more than two-thirds of the voting rights represented by shareholders who are present in person or by proxy.

The following decisions must be adopted by special resolution:

• an increase or reduction of our share capital or the issue of shares of any class, warrants and other similar securities;

• the issue of our debentures;

• our division, merger, dissolution and liquidation;

• amendments to our Articles of Association;

• significant acquisition or disposal of material assets or provision of guarantees conducted within the period of one year with a value exceeding 30% of our latest audited total assets;

• share incentive schemes; and

• any other matters considered by the shareholders in a general meeting and which they have resolved by way of an ordinary resolution to be material and should be adopted by special resolution.

All other actions taken by the shareholders, including the appointment and removal of our directors and independent auditors and the declaration of normal dividend payments, will be decided by an ordinary resolution of the shareholders.

Our listing agreement with the HKSE provides that we may not permit amendments to certain sections of our Articles of Association that are subject to the Mandatory Provisions. These sections include provisions relating to (i) varying the rights of existing classes of shares, (ii) voting rights, (iii) our ability to purchase our own shares, (iv) rights of minority shareholders and (v) procedures on liquidation. In addition, certain amendments to the Articles of Association require the approval and assent of Chinese authorities.

Board of Directors

Our Articles of Association authorize up to 12 directors. Directors are elected by shareholders at a general meeting for a three year term from among candidates nominated by the board of directors or by shareholders holding 3% or more of our shares (independent directors may be nominated by shareholders each holding 1% or more of our shares). Because our directors do not serve staggered terms, the entire board of directors will stand for election, and could be replaced, every three years. Our directors are not required to hold any shares in us, and there is no age limit requirement for the retirement or non- retirement of our directors.

In addition to obligations imposed by laws, administrative regulations or the listing rules of the stock exchanges on which our shares are listed, the Articles of Association place on each of our directors, supervisors, manager and any other senior officers a duty to each shareholder, in the exercise of our functions and powers entrusted to them:

• not to cause us to exceed the scope of business stipulated in our business license;

• to act honestly in what he considers our best interests;

• not to expropriate our assets in any way, including (without limitation) usurpation of opportunities which may benefit us; and

• not to expropriate the individual rights of shareholders, including (without limitation) rights to distributions and voting rights, except according to a restructuring which has been submitted to the shareholders for their approval in accordance with the Articles of Association.

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Our Articles of Association further place on each of our directors, supervisors, manager and other senior officers:

• a duty, in the exercise of their powers and discharge of their duties, to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances;

• a fiduciary obligation, in the discharge of his duties, not to place himself or herself in a position where his or her interests may conflict with his or her duty to us; and

• a duty not to cause a person or an organization related or connected to him or her in specified relationships to do what they are prohibited from doing.

We pay all expenses that our directors incur for their services as directors. Directors also receive compensation for their services under service contracts that are negotiated by the board of directors and approved by the shareholders.

Subject to the stipulations of relevant laws and regulations, the shareholders in a general meeting may by ordinary resolution remove any director before the expiration of his term of office. Except for the restrictions placed on controlling shareholders, discussed below, our shareholders in general meeting have the power to relieve a director or supervisor from liability for specific breaches of duty.

Cumulative voting is required for a meeting of shareholders held for the election of two or more of our directors or supervisors as long as more than 30% of our outstanding shares are held by a single shareholder. Cumulative voting allows shareholders to cast a number of votes for a candidate equal to the number of shares held multiplied by the number of directors being elected at the shareholders’ meeting. If a shareholder attempts to cast more votes than he is entitled to under this system, all of the shareholder’s votes will be invalid and will be deemed an abstention.

More than one third of our directors of board must be independent from our shareholders and not hold any office with us (each, “Independent Director”). At least one Independent Director must be an accounting professional and all Independent Directors must possess a basic knowledge of the operations of a listed company and be familiar with relevant laws and rules and have at least five years working experience in law, economics or other area required for the fulfillment of responsibilities as an Independent Director. Independent Directors may not serve for terms exceeding six years. In addition, there are specific persons who are disqualified from acting as Independent Director. These include:

• immediate family members of persons who work for us or our associated entities;

• persons or their immediate family who hold one percent or more of our shares or are among our ten largest shareholders;

• any persons that satisfied the foregoing conditions within the past one year;

• persons providing financial, legal, consultation or other services to us or our associated entities;

• persons who already serve as Independent Director for five other listed companies; and

• anyone identified by the China Securities Regulatory Commission as unsuitable for serving as an Independent Director.

If the resignation of an Independent Director would cause our Board of Directors to have less than one third Independent Directors, the resignation will only become effective after a new Independent Director has been appointed.

Our Board will be required to meet at least four times each year. Directors who miss two consecutive Board meetings without appointing an alternate director to attend on their behalf will be proposed for removal at the next shareholders’ meeting, provided that Independent Directors may miss three consecutive meetings in person before being proposed for removal.

Directors may not vote on any matter in which he has a material interest, nor will he be counted for purposes of forming a quorum on such a matter.

Board resolutions are passed by a simple majority of the Directors except for the following matters which require the consent of more than two thirds of the Directors:

• proposals for our financial policies;

• the increase or reduction of our registered capital;

• the issue of securities of any kind and their listing;

• any repurchase of our shares;

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• significant acquisitions or disposals;

• our merger, division or dissolution; and

• any amendment to our Articles of Association.

Our Board of Directors or Supervisory Committee may nominate candidates for our Board of Directors and Supervisory Committee. In addition, shareholders holding one percent or more of our shares have the right to nominate candidates for Independent Director or Independent Supervisor and shareholders holding three percent or more of our shares have the right to nominate other candidates for Director or Supervisor. For Director candidates, the nominator and candidate will be responsible for providing truthful and complete information about the candidate for disclosure. Candidates for Independent Director must publicly declare that there does not exist any relationship between himself and us that may influence his independent, objective judgement. The China Securities Regulatory Commission may veto any candidate for Independent Director.

Any material connected transaction are subject to prior approval by our Independent Directors. Connected transactions are those defined by the HKSE and by Chinese rules and regulations, but would generally include transactions with any of the following:

• any company that, directly or indirectly, controls us or is under common control with us;

• any shareholders owning 5% or more of our shares;

• our directors, supervisors and other senior management;

• any of our key technical personnel or key technology suppliers; and

• any close relative or associate of any of the above.

Our independent directors can also propose to the Board of Directors the appointment or removal of our auditors, the convening of a Board meeting, independently appoint external auditors, solicit votes from shareholders and report circumstances directly to shareholders, Chinese securities regulatory authorities or other government departments. Two or more may request that the Board convene an extraordinary meeting of shareholders.

Our Independent Directors will have to express their opinion on specified matters to the Board or to the shareholders at a shareholders’ meeting, either by a single unanimous statement or individually. These matters are:

• the nomination, removal and remuneration of directors or senior management;

• any major loans or financial transactions with our shareholders or related enterprises and whether we have taken adequate steps to ensure repayment;

• matters that the Independent Director believes may harm the rights and interests of minority shareholders; and

• any other matter that they are required to opine on by applicable law or rules.

These opinions must be expressed as either, agree, qualified agreement, opposition or unable to form an opinion. All but agreement must also be accompanied by a supporting explanation. If public disclosure of the matter is required, we must also disclose the opinions of our Independent Directors.

Any Independent Director may engage independent institutions to provide independent opinions as the basis of their decision. We must arrange the engagement and bear any costs.

Supervisory Committee

The Supervisory Committee is responsible for supervising our directors and senior officers and preventing them from abusing their positions and powers or infringing upon the rights and interests of our company or those of our shareholders and employees. The Supervisory Committee has no power over the decisions or actions of our directors or officers except for requesting the directors or officers to correct any acts that are harmful to our interests. The Supervisory Committee is currently composed of seven members appointed for a three year term. It has the right to:

• attend the meetings of our board of directors;

• inspect our financial affairs;

• supervise and evaluate the conduct of our directors, general manager and other senior officers in order to determine whether they violate any laws, regulations or the Articles of Association in performing their duties;

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• require our directors, general manager or other senior officers to correct any act harmful to our interests and those of our shareholders and employees;

• verify financial reports, accounting reports, business reports, profit distribution plans and other financial information proposed to be tabled at the shareholders’ general meeting;

• require the board of directors to convene an extraordinary general meeting of shareholders;

• represent us in negotiations with directors or in initiating legal proceedings against a director on our company’s behalf;

• conduct investigation into any identified irregularities in our operations, and where necessary, to engage accountants, legal advisers or other professionals to assist in the investigation; and

• any other matters authorized by the Articles of Association.

Our Supervisory Committee must include three employee representatives appointed by our employees. The remaining members are appointed by the shareholders in a general meeting, provided that our directors, general manager and senior officers are not eligible to serve as supervisors. The Supervisory Committee must meet at least once a year. Decisions of the Supervisory Committee must be made by a one-half vote. We will pay all reasonable expenses incurred by the Supervisory Committee in appointing professional advisors, such as lawyers, accountants or auditors.

Liquidation Rights

In the event of our liquidation, payment of debts out of our remaining assets will be made in the order of priority prescribed by applicable laws and regulations. After payment of debts, we will distribute the remaining property to shareholders according to the class and proportion of their shareholdings. For this purpose, the H shares will rank equally with the domestic shares.

Obligation of Shareholders

Shareholders are not obligated to make any further contributions to our share capital other than as agreed by the subscriber of the relevant shares on subscription. This provision means that holders of ADSs will also not be obligated to make further contributions to our share capital.

Duration

We are organized as a joint stock limited company of indefinite duration.

Increase in Share Capital

The Articles of Association require that approval by a resolution of the shareholders be obtained prior to issuing new shares. New issues of shares must also be approved by the relevant Chinese authorities.

Reduction of Share Capital and Purchase by Us of Our Shares

We may reduce our registered share capital only upon obtaining the approval of the shareholders and, when applicable, relevant Chinese authorities. Repurchases may be made either by way of a general offer to all shareholders in proportion to their shareholdings, by purchasing our shares on a stock exchange or by an off-market contract with individual shareholders.

Restrictions on Large or Controlling Shareholders

Our Articles of Association provide that, in addition to any obligation imposed by laws and administrative regulations or required by the listing rules of the stock exchanges on which our shares are listed, a controlling shareholder cannot exercise voting rights in a manner prejudicial to the interests of the shareholders generally or of some part of the shareholders:

• to relieve a director or supervisor from his or her duty to act honestly in our best interest;

• to approve the expropriation by a director or supervisor (for his or her own benefit or for the benefit of another person) of our assets in any way, including, without limitation, opportunities which may benefit us; or

• to approve the expropriation by a director or supervisor (for his or her own benefit or for the benefit of another person) of the individual rights of other shareholders, including, without limitation, rights to distributions and voting rights (but not according to a restructuring of our company which has been submitted for approval by the shareholders in a general meeting in accordance with our Articles of Association).

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A controlling shareholder, however, will not be precluded by our Articles of Association or any laws and administrative regulations or the listing rules of the stock exchanges on which our shares are listed from voting on these matters.

A controlling shareholder is defined by our Articles of Association as any person who, acting alone or together with others:

• has the power to elect more than one-half of the board of directors;

• has the power to exercise, or to control the exercise of, 30% or more of our voting rights;

• holds 30% or more of our issued and outstanding shares; or

• has de facto control of us in any other way.

Minutes, Accounts and Annual Report

Our shareholders may inspect copies of the minutes of the shareholders’ general meetings during our business hours free of charge. Shareholders are also entitled to receive copies of these minutes within seven days of receipt of the reasonable charges we may require.

Our fiscal year is the calendar year ending December 31. Each fiscal year, we must mail our financial report to shareholders not less than 21 days before the date of the shareholders’ annual general meeting. These and any interim financial statements must be prepared in accordance with Chinese accounting standards and, for so long as H shares are listed on the HKSE, must also be prepared in accordance with or reconciled to either Hong Kong accounting standards or international accounting standards. The financial statements must be approved by an ordinary resolution of the shareholders at the annual general meeting.

Independent auditors are appointed each year by the shareholders at the annual meeting.

C. Material Contracts.

We have not entered into any material contracts other than in the ordinary course of business and other than those described in Item 4. “Information on the Company” or elsewhere in this annual report on Form 20-F.

D. Exchange Controls.

Our Articles of Association require that cash dividends on our H Shares be declared in Renminbi and paid in HK dollars. The Articles of Association further stipulate that such dividends must be converted to HK dollars at a rate equal to the average of the closing exchange rates for HK dollars as announced by the Chinese Foreign Exchange Trading Center for the calendar week preceding the date on which the dividends are declared.

The Renminbi currently is not a freely convertible currency. The State Administration of Foreign Exchange (“SAFE”), under supervision of the People’s Bank of China (“PBOC”) controls the conversion of Renminbi into foreign currency. Although PRC governmental policies were introduced in 1996 to reduce restrictions on the convertibility of Renminbi into foreign currency for current account items, conversion of Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of SAFE and other relevant authorities. These limitations could affect our ability to obtain foreign exchange through debt or equity financing, or to obtain foreign exchange for capital expenditures.

On July 21, 2005, the Chinese government changed its policy of pegging the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Since the adoption of this new policy, the value of the Renminbi has fluctuated daily within a narrow band, but overall has appreciated against the US dollar. Nevertheless, the PRC government continues to receive significant international pressure to further liberalize its currency policy which could result in a further and more significant appreciation in the value of the Renminbi against the US dollar.

While the impact of the foregoing developments is not entirely clear, it appears that the trend in the Chinese government’s foreign exchange policy is toward easier convertibility of the Renminbi.

The holders of the ADSs will receive the HK dollar dividend payments in US dollars at conversion rates related to market rates and subject to fees as set forth in our Deposit Agreement with The Bank of New York Mellon, as Depositary. The HK dollar is currently linked to and trades within a narrow band against the US dollar at a rate that does not deviate significantly from HK$7.80 = US$1.00. The Hong Kong government has stated its intention to maintain such link, although there can be no guarantee that such link will be maintained.

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E. Taxation

PRC Taxation

The following is a summary of those taxes, including withholding provisions, to which United States security holders are subject under existing Chinese laws and regulations. The summary is subject to changes in Chinese law, including changes that could have retroactive effect. The summary does not take into account or discuss the tax laws of any country other than China, nor does it take into account the individual circumstances of a security holder. This summary does not purport to be a complete technical analysis or an examination of all potential tax effects under such laws and regulations.

Tax on Dividends

For an Individual Investor

According to the Individual Income Tax Law of the People’s Republic of China, as amended on December 29, 2007 (the “Individual Income Tax Law”) dividends paid by Chinese companies to individual investors are subject to Chinese withholding tax at a flat rate of 20%. As for a foreign individual investor that neither has a domicile nor resides in China, or that has no domicile and has resided in China for no more than one year, the dividends received by such an investor in China are generally subject to a withholding tax at a flat rate of 20% under the individual income tax law, subject to exemption or reduction by an applicable income tax treaty.

For a Corporation

According to the Enterprise Income Tax Law of the People’s Republic of China (“Enterprise Income Tax Law “) and its implementation rules, effective January 1, 2008, dividends by Chinese resident enterprises to non-resident enterprises are ordinarily subject to a Chinese withholding tax levied at a flat rate of 10%. For purposes of the Enterprise Income Tax Law, a “Chinese resident enterprise” is an enterprise which is either (i) set up in China in accordance with PRC laws or (ii) set up in accordance with the laws of a foreign country (region) but whose actual administrative headquarters is in China. For purposes of the Enterprise Income Tax Law, a “non-resident enterprise” is an enterprise which is set up in accordance with the laws of a foreign country (region) and whose actual administrative headquarters is located outside China but which has either (i) set up a legal presence in China or (ii) has income originating from China despite not having formally set up a legal presence in China. The State Administration of Taxation issued a Circular on Issues Relating to the Withholding of Enterprise Income Tax for Dividends Distributed by Resident Enterprises in China to Non-resident Enterprises Holding H-shares of the Enterprises (Guo Shui Han [2008] No. 897)(“Circular No. 897”) on November 6, 2008, which further clarifies that Chinese resident enterprises should, in distributing dividends for 2008 or any year hereafter to non-resident enterprises holding H-shares of the Chinese resident enterprise, withhold enterprise income tax for such dividends at a tax rate of 10%. After receiving dividends, non-resident enterprises holding H-shares of any Chinese resident enterprise can, on their own or through an agent, file an application to the relevant taxation authorities for such dividends to be covered by any applicable tax treaty (or other arrangement). The relevant taxation authorities should, upon reviewing and verifying the application and supporting materials to be correct, refund the difference between the tax levied and the tax payable calculated at a tax rate specified by the applicable tax treaty (or other arrangement).

Capital Gains Tax

In accordance with the new Enterprise Income Tax Law and its implementation rules, capital gains realized by foreign enterprises which are non-resident enterprises in China upon the sale of overseas-listed shares are generally subject to a PRC withholding tax levied at a rate of 10% unless exempted or reduced pursuant to an applicable double-taxation treaty or other exemptions. The capital gains realized by resident enterprises, including enterprises established under the laws of non-PRC jurisdictions but whose “de facto management body” is located in the PRC upon the sales of overseas-listed shares are subject to the PRC enterprise income tax.

Tax Treaties

China has an income tax treaty with the United States that currently limits the rate of Chinese withholding tax to 10% for dividends paid to individuals and corporations that qualify for treaty benefits. However, this treaty does not offer reduced tax rates for capital gains.

Stamp Tax

While no express exemption exists for the imposition of Chinese stamp tax on transfers of Overseas Shares pursuant to the Provisional Regulations of the People’s Republic of China Concerning Stamp Tax effective on July 1, 1989, we are not aware of any circumstance under which Chinese stamp tax has actually been imposed on the transfer of Overseas Shares.

Estate or Gift Tax

China does not currently impose any estate or gift tax.

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U.S. Taxation

The following is a summary of the material U.S. federal income tax consequences of the ownership and disposition of H Shares or ADSs. The following discussion is not exhaustive of all possible tax considerations. This summary is based upon the Internal Revenue Code of 1986, as amended (the “Code”), regulations promulgated under the Code by the U.S. Treasury Department (including proposed and temporary regulations), rulings, current administrative interpretations and official pronouncements of the Internal Revenue Service (the “IRS”), and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. Such change could materially and adversely affect the tax consequences described below. No assurance can be given that the IRS will not assert, or that a court will not sustain, a position contrary to any of the tax consequences described below.

This discussion does not address state, local, or foreign tax consequences of the ownership and disposition of H Shares or ADSs. (See “PRC Taxation” above).

This summary is for general information only and does not address all aspects of U.S. federal income taxation that may be important to a particular holder in light of its investment or tax circumstances or to holders subject to special tax rules, such as: banks; financial institutions; insurance companies; dealers in stocks, securities, or currencies; traders in securities that elect to use a mark-to- market method of accounting for their securities holdings; tax-exempt organizations; real estate investment trusts; regulated investment companies; qualified retirement plans, individual retirement accounts, and other tax-deferred accounts; expatriates of the United States; persons subject to the alternative minimum tax; persons holding H Shares or ADSs as part of a straddle, hedge, conversion transaction, or other integrated transaction; persons who acquired H Shares or ADSs pursuant to the exercise of any employee stock option or otherwise as compensation for services; persons actually or constructively holding 10% or more of our voting stock; and U.S. Holders (as defined below) whose functional currency is other than the U.S. dollar.

This discussion is not a comprehensive description of all of the U.S. federal tax consequences that may be relevant with respect to the ownership and disposition of H Shares or ADSs. We urge you to consult your own tax advisor regarding your particular circumstances and the U.S. federal income and estate tax consequences to you of owning and disposing of H Shares or ADSs, as well as any tax consequences arising under the laws of any state, local, or foreign or other tax jurisdiction and the possible effects of changes in U.S. federal or other tax laws.

This summary is directed solely to persons who hold their H Shares or ADSs as capital assets within the meaning of Section 1221 of the Code, which generally means as property held for investment. For purposes of this discussion, the term “U.S. Holder” means a beneficial owner of H Shares or ADSs that is any of the following:

• a citizen or resident of the United States or someone treated as a U.S. citizen or resident for U.S. federal income tax purposes;

• a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

• an estate, the income of which is subject to U.S. federal income taxation regardless of its source;

• a trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons have the authority to control all substantial decisions of the trust; or

• a trust in existence on August 20, 1996 that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

The term “Non-U.S. Holder” means a beneficial owner of H Shares or ADSs that is not a U.S. Holder. As described in “Taxation of Non-U.S. Holders” below, the tax consequences to a Non-U.S. Holder may differ substantially from the tax consequences to a U.S. Holder.

If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of H Shares or ADSs, the U.S. federal income tax consequences to a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. A holder of H Shares or ADSs that is a partnership and the partners in such partnership should consult their own tax advisors regarding the U.S. federal income tax consequences of the ownership and disposition of H Shares or ADSs.

ADSs

As it relates to the ADSs, this discussion is based in part upon the representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.

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Generally, a holder of ADSs will be treated as the owner of the underlying H Shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if the holder exchanges ADSs for the underlying H Shares represented by those ADSs. The holder’s adjusted tax basis in the H Shares will be the same as the adjusted tax basis of the ADSs surrendered in exchange therefor, and the holding period for the H Shares will include the holding period for the surrendered ADSs.

TAXATION OF U.S. HOLDERS

The discussion in “Distributions on H Shares or ADSs” and “Dispositions of H Shares or ADSs” below assumes that we will not be treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. For a discussion of the rules that apply if we are treated as a PFIC, see the discussion in “Passive Foreign Investment Company” below.

Distributions on H Shares or ADSs

General. Subject to the discussion in “Passive Foreign Investment Company” below, if you actually or constructively receive a distribution on H Shares or ADSs, you must include the distribution in gross income as a taxable dividend on the date of your (or in the case of ADSs, the depositary’s) receipt of the distribution, but only to the extent of our current or accumulated earnings and profits, as calculated under U.S. federal income tax principles. Such amount must be included without reduction for any foreign taxes withheld. Dividends paid by us will not be eligible for the dividends received deduction allowed to corporations with respect to dividends received from certain domestic corporations. Dividends paid by us may or may not be eligible for preferential rates applicable to qualified dividend income, as described below.

To the extent a distribution exceeds our current and accumulated earnings and profits, it will be treated first as a non-taxable return of capital to the extent of your adjusted tax basis in the H Shares or ADSs, and thereafter as capital gain. Preferential tax rates for long-term capital gain may be applicable to non-corporate U.S. Holders.

We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, you should expect that a distribution will generally be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

Qualified Dividend Income. With respect to non-corporate U.S. Holders (i.e., individuals, trusts, and estates), for taxable years beginning before January 1, 2013, dividends that are treated as qualified dividend income (“QDI”) are taxable at a maximum tax rate of 15%. Among other requirements, dividends generally will be treated as QDI if either (i) our H Shares or ADSs are readily tradable on an established securities market in the United States, or (ii) we are eligible for the benefits of a comprehensive income tax treaty with the United States which includes an information exchange program and which is determined to be satisfactory by the U.S. Treasury. It is expected that our ADSs will be “readily tradable” as a result of being listed on the New York Stock Exchange.

In addition, for dividends to be treated as QDI, we must not be a PFIC (as discussed below) for either the taxable year in which the dividend was paid or the preceding taxable year. We do not believe that we were a PFIC for the preceding taxable year or will be a PFIC for the current taxable year. However, please see the discussion under “Passive Foreign Investment Company” below. Additionally, in order to qualify for QDI treatment, you generally must have held the H Shares or ADSs for more than 60 days during the 121-day period beginning 60 days prior to the ex-dividend date. However, your holding period will be reduced for any period during which the risk of loss is diminished.

Moreover, a dividend will not be treated as QDI to the extent you are under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Since the QDI rules are complex, you should consult your own tax advisor regarding the availability of the preferential tax rates for dividends paid on H Shares or ADSs.

Foreign Currency Distributions. A dividend paid in foreign currency (e.g., Hong Kong dollars or Chinese Renminbi) must be included in your income as a U.S. dollar amount based on the exchange rate in effect on the date such dividend is received, regardless of whether the payment is in fact converted to U.S. dollars. If the dividend is converted to U.S. dollars on the date of receipt, you generally will not recognize a foreign currency gain or loss. However, if you convert the foreign currency to U.S. dollars on a later date, you must include in income any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the difference between (i) the U.S. dollar value of the amount you included in income when the dividend was received and (ii) the amount that you receive on the conversion of the foreign currency to U.S. dollars. Such gain or loss will generally be ordinary income or loss and U.S. source for U.S. foreign tax credit purposes.

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In-Kind Distributions. Distributions to you of new H Shares or ADSs or rights to subscribe for new H Shares or ADSs that are received as part of a pro rata distribution to all of our shareholders will not be subject to U.S. federal income tax. The adjusted tax basis of the new H Shares or ADSs or rights so received will be determined by allocating your adjusted tax basis in the old H Shares or ADSs between the old H Shares or ADSs and the new H Shares or ADSs or rights received, based on their relative fair market values on the date of distribution. However, in the case of a distribution of rights to subscribe for H Shares or ADSs, the adjusted tax basis of the new rights will be zero if the fair market value of the new rights is less than 15% of the fair market value of the old H Shares or ADSs on the date of distribution and you do not make an election to determine the adjusted tax basis of the rights by allocation as described above. Your holding period for the new H Shares or ADSs or rights will generally include the holding period for the old H Shares or ADSs on which the distribution was made.

Foreign Tax Credits. Subject to certain conditions and limitations, any foreign taxes paid on or withheld from distributions from us and not refundable to you may be credited against your U.S. federal income tax liability or, alternatively, may be deducted from your taxable income. This election is made on a year-by-year basis and applies to all foreign taxes paid by you or withheld from you that year. As discussed above, no Chinese withholding tax currently is imposed on dividends to foreign individual holders of H Shares and ADSs, however non-resident enterprises holding H-shares or ADSs of a Chinese resident enterprise are generally subject to a withholding tax on dividends at a tax rate of 10%.

Distributions will constitute foreign source income for foreign tax credit limitation purposes. The foreign tax credit limitation is calculated separately with respect to specific classes of income. For this purpose, distributions characterized as dividends distributed by us will generally constitute “passive category income” or, in the case of certain U.S. Holders, “general category income.” Special limitations may apply if a dividend is treated as QDI (as defined above).

Since the rules governing foreign tax credits are complex, you should consult your own tax advisor regarding the availability of foreign tax credits in your particular circumstances.

The U.S. Treasury has expressed concerns that parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of ADSs. Such actions would also be inconsistent with the claiming of the preferential tax rates applicable to QDI, as defined above. Accordingly, the creditability of any foreign taxes and the availability of such preferential tax rates could be affected by future actions that may be taken by the U.S. Treasury or parties to whom ADSs are pre-released.

Dispositions of H Shares or ADSs

Subject to the discussion in “Passive Foreign Investment Company” below, you generally will recognize taxable gain or loss realized on the sale or other taxable disposition of H Shares or ADSs equal to the difference between the U.S. dollar value of (i) the amount realized on the disposition (i.e., the amount of cash plus the fair market value of any property received), and (ii) your adjusted tax basis in the H Shares or ADSs. Such gain or loss will be a capital gain or loss.

If you have held the H Shares or ADSs for more than one year at the time of disposition, such capital gain or loss will be long- term capital gain or loss. Preferential tax rates for long-term capital gain (currently, with a maximum rate of 15% for taxable years beginning before January 1, 2011) will apply to non-corporate U.S. Holders. If you have held the H Shares or ADSs for one year or less, such capital gain or loss will be short-term capital gain or loss taxable as ordinary income at your marginal income tax rate. The deductibility of capital losses is subject to limitations.

Generally, any gain or loss recognized will not give rise to foreign source income for U.S. foreign tax credit purposes.

You should consult your own tax advisor regarding the U.S. federal income tax consequences if you receive currency other than U.S. dollars upon the disposition of H Shares or ADSs.

Passive Foreign Investment Company

We generally will be a PFIC under Section 1297 of the Code if, for a taxable year, either (a) 75% or more of our gross income for such taxable year is passive income (the “income test”) or (b) 50% or more of the average percentage, generally determined by fair market value, of our assets during such taxable year either produce passive income or are held for the production of passive income (the “asset test”). “Passive income” includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.

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Certain “look through” rules apply for purposes of the income and asset tests described above. If we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, we generally will be treated as if we (a) held directly a proportionate share of the other corporation’s assets, and (b) received directly a proportionate share of the other corporation’s income. In addition, passive income does not include any interest, dividends, rents, or royalties that are received or accrued by us from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to income of such related person that is not passive income.

Under the income and asset tests, whether or not we are a PFIC will be determined annually based upon the composition of our income and the composition and valuation of our assets, all of which are subject to change. In determining that we are not a PFIC, we are relying on our projected revenues and projected capital expenditures. If our actual revenues and capital expenditures do not match our projections, we may become a PFIC. For example, if we do not spend enough of the cash (a passive asset) we raise from any financing transactions we may undertake, the relative percentage of our passive assets will increase. In addition, our determination is based on a current valuation of our assets. We believe our valuation approach is reasonable. However, it is possible that the IRS will challenge the valuation of our assets, which may result in our being a PFIC.

We do not believe that we are currently a PFIC. However, because the PFIC determination is highly fact intensive and made at the end of each taxable year, there can be no assurance that we will not be a PFIC for the current or any future taxable year or that the IRS will not challenge our determination concerning our PFIC status.

Default PFIC Rules under Section 1291 of the Code. If we are treated as a PFIC with respect to a U.S. Holder, the U.S. federal income tax consequences to the U.S. Holder of the ownership and disposition of H Shares or ADSs will depend on whether such U.S. Holder makes an election to treat us as a qualified electing fund (“QEF”) under Section 1295 of the Code (a “QEF Election”) or a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder owning H Shares or ADSs while we were or are a PFIC that has not made either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”

If you are a Non-Electing U.S. Holder, you will be subject to the default tax rules of Section 1291 of the Code with respect to:

• any “excess distribution” paid on H Shares or ADSs, which means the excess (if any) of the total distributions received by you during the current taxable year over 125% of the average distributions received by you during the three preceding taxable years (or during the portion of your holding period for the H Shares or ADSs prior to the current taxable year, if shorter); and

• any gain recognized on the sale or other taxable disposition (including a pledge) of H Shares or ADSs.

Under these default tax rules:

• any excess distribution or gain will be allocated ratably over your holding period for the H Shares or ADSs;

• the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC will be treated as ordinary income in the current taxable year;

• the amount allocated to each of the other years will be treated as ordinary income and taxed at the highest applicable tax rate in effect for that year; and

• the resulting tax liability from any such prior years will be subject to the interest charge applicable to underpayments of tax.

In addition, notwithstanding any election you may make, dividends that you receive from us will not be eligible for the preferential tax rates applicable to QDI (as discussed above in “Distributions on H Shares or ADSs”) if we are a PFIC either in the taxable year of the distribution or the preceding taxable year, but will instead be taxable at rates applicable to ordinary income.

Special rules for Non-Electing U.S. Holders will apply to determine U.S. foreign tax credits with respect to foreign taxes imposed on distributions on H Shares or ADSs.

If we are a PFIC for any taxable year during which you hold H Shares or ADSs, we will continue to be treated as a PFIC with respect to you for all succeeding years during which you hold H Shares or ADSs, regardless of whether we actually continue to be a PFIC. If we are treated as a PFIC in any year with respect to you, you will be required to file an annual return on IRS Form 8621 regarding distributions received on H Shares or ADSs and any gain realized on the disposition of H Shares or ADSs.

QEF Election. We currently do not intend to furnish you annually with certain tax information that would permit you to make a QEF Election to avoid the adverse U.S. tax consequences associated with owning PFIC stock.

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Mark-to-Market Election. U.S. Holders may make a Mark-to-Market Election, but only if the H Shares or ADSs are marketable stock. The H Shares or ADSs will be “marketable stock” as long as they are regularly traded on a qualified exchange. Stock is considered “regularly traded” for any calendar year during which it is traded (other than in de minimis quantities) on at least 15 days during each calendar quarter. Qualified exchanges include (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, and (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, surveillance, and other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced, and (ii) the rules of such foreign exchange effectively promote active trading of listed stocks.

Since the H Shares are listed on a foreign exchange (i.e., the Stock Exchange of Hong Kong Limited) and the IRS has yet to identify specific foreign exchanges that are qualified for this purpose, there can be no assurances that the H Shares will be marketable stock and will be regularly traded. As for the ADSs, they will be “marketable stock” as long as they remain listed on the New York Stock Exchange and are regularly traded. There can be no assurances, however, that the ADSs will be treated, or continue to be treated, as regularly traded.

If you own (or owned) H Shares or ADSs while we are (or were) a PFIC and you make a Mark-to-Market Election, you generally will not be subject to the default rules of Section 1291 of the Code discussed above. Rather, you generally will be required to recognize ordinary income for any increase in the fair market value of the ADSs for each taxable year that we are a PFIC. You will also be allowed to deduct as an ordinary loss any decrease in the fair market value to the extent of net marked-to-market gain previously included in prior years. Your adjusted tax basis in the ADSs will be adjusted to reflect the amount included or deducted.

The Mark-to-Market Election will be effective for the taxable year for which the election is made and all subsequent taxable years, unless the ADSs cease to be marketable stock or the IRS consents to the revocation of the election. You should consult your own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.

Since the PFIC rules are complex, you should consult your own tax advisor regarding them and how they may affect the U.S. federal income tax consequences of the ownership and disposition of H Shares or ADSs.

Legislative Developments

Signed into law March 30, 2010, the Health Care and Education Reconciliation Act provides, among other things, with respect to taxable years beginning after December 31, 2012, certain U.S. persons, including individuals, estates and trusts, will be subject to an additional 3.8% Medicare tax on unearned income. For individuals, the additional Medicare tax applies to the lesser of (i) “net investment income” or (ii) the excess of “modified adjusted gross income” over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income” generally equals the taxpayer’s gross investment income reduced by the deductions that are allocable to such income.

You should consult your tax advisors regarding the implications of the additional Medicare tax resulting from your ownership and disposition of H Shares or ADSs.

Information Reporting and Backup Withholding

Generally, information reporting requirements will apply to distributions on H Shares or ADSs or proceeds from the disposition of H Shares or ADSs paid within the United States (and, in certain cases, outside the United States) to a U.S. Holder unless such U.S. Holder is an exempt recipient, such as a corporation. Furthermore, backup withholding (currently at 28%) may apply to such amounts unless such U.S. Holder (i) is an exempt recipient that, if required, establishes its right to an exemption, or (ii) provides its taxpayer identification number, certifies that it is not currently subject to backup withholding, and complies with other applicable requirements.

A U.S. Holder may generally avoid backup withholding by furnishing a properly completed IRS Form W-9.

Backup withholding is not an additional tax. Rather, amounts withheld under the backup withholding rules may be credited against your U.S. federal income tax liability. Furthermore, you may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS and furnishing any required information in a timely manner.

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TAXATION OF NON-U.S. HOLDERS

Distributions on H Shares or ADSs

Subject to the discussion in “Information Reporting and Backup Withholding” below, as a Non-U.S. Holder, you generally will not be subject to U.S. federal income tax, including withholding tax, on distributions received on H Shares or ADSs, unless the distributions are effectively connected with a trade or business that you conduct in the United States (and, if an applicable income tax treaty so requires, attributable to a permanent establishment that you maintain in the United States).

If distributions are effectively connected with a U.S. trade or business (and, if applicable, attributable to a U.S. permanent establishment), you generally will be subject to tax on such distributions in the same manner as a U.S. Holder, as described in “Taxation of U.S. Holders – Distributions on H Shares or ADSs” above. In addition, any such distributions received by a corporate Non-U.S. Holder may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

Dispositions of H Shares or ADSs

Subject to the discussion in “Information Reporting and Backup Withholding” below, as a Non-U.S. Holder, you generally will not be subject to U.S. federal income tax, including withholding tax, on any gain recognized on a sale or other taxable disposition of H Shares or ADSs, unless (i) the gain is effectively connected with a trade or business that you conduct in the United States (and, if an applicable income tax treaty so requires, attributable to a permanent establishment that you maintain in the United States), or (ii) you are an individual and are present in the United States for at least 183 days in the taxable year of the disposition, and certain other conditions are met.

If you meet the test in clause (i) above, you generally will be subject to tax on any gain that is effectively connected with your conduct of a trade or business in the United States in the same manner as a U.S. Holder, as described in “Taxation of U.S. Holders – Dispositions of H Shares or ADSs” above. Effectively connected gain realized by a corporate Non-U.S. Holder may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

If you meet the test in clause (ii) above, you generally will be subject to tax at a 30% rate on the amount by which your U.S. source capital gain exceeds your U.S. source capital loss.

Information Reporting and Backup Withholding

Payments to Non-U.S. Holders of distributions on, or proceeds from the disposition of, H Shares or ADSs are generally exempt from information reporting and backup withholding. However, a Non-U.S. Holder may be required to establish that exemption by providing certification of non-U.S. status on an appropriate IRS Form W-8.

Backup withholding is not an additional tax. Rather, amounts withheld under the backup withholding rules may be credited against your U.S. federal income tax liability. Furthermore, you may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS and furnishing any required information in a timely manner.

F. Dividends and Paying Agents.

Not applicable.

G. Statement by Experts.

Not applicable.

H. Documents on Display.

We are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the Securities and Exchange Commission. Specifically, we are required to file annually a Form 20-F no later than six months after the close of each fiscal year, which is December 31 of each year. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains a Web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short- swing profit recovery provisions contained in Section 16 of the Exchange Act.

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I. Subsidiary Information.

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Sensitivity

We are subject to risk resulting from fluctuations in interest rates. Our debts are fixed and variable rate bank and other loans, with original maturities ranging from 1 to 13 years. Accordingly, fluctuations in interest rates can lead to significant fluctuations in the fair value of such debt instruments. We have no program of interest rate hedging activities and did not engage in any such activities in 2010 or 2009.

The following table provides information, by maturity date, regarding our interest rate sensitive financial instruments, which consist of fixed and variable rate short-term and long-term debt obligations, as of December 31, 2010 and 2009.

	As of December 31, 2010
	2011			2012		2013			2014		2015		Total Recorded Amount			Fair Value
	(RMB equivalent in thousands, except interest rates)
Fixed rate bank and other loans
In U.S. Dollars		—			—		—			—		—		—			—
Average interest rate		—			—		—			—		—		—			—
In RMB		1,866,000			—		175,000			—		—		2,041,000			2,039,777
Average interest rate(1)		4.00	%		—		5.36	%		—		—		4.12	%		—
Variable rate bank and other loans
In U.S. Dollars		2,529,438			—		—			—		—		2,529,438			2,529,438
Average interest rate (1)		1.92	%		—		—			—		—		1.92	%		—

(1) The average interest rates for variable rate bank and other loans are calculated based on the year end indices.

	As of December 31, 2009
	2010			2011			2012		2013			2014		Total Recorded Amount			Fair Value
	(RMB equivalent in thousands, except interest rates)
Fixed rate bank and other loans
In U.S. Dollars		—			—			—		—			—		—			—
Average interest rate		—			—			—		—			—		—			—
In RMB		1,660,400			100,000			—		200,000			—		1,960,400			1,960,853
Average interest rate(1)		3.10	%		5.10	%		—		5.18	%		—		3.15	%		—
Variable rate bank and other loans
In U.S. Dollars		6,039,998			—			—		—			—		6,039,998			6,039,998
Average interest rate(1)		0.96	%		—			—		—			—		0.96	%		—

(1) The average interest rates for variable rate bank and other loans are calculated based on the year end indices.

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Exchange Rate Sensitivity

We are also exposed to foreign currency exchange rate risk as a result of our foreign currency denominated short-term debt, long-term debt and, to a limited extent, cash and cash equivalents denominated in foreign currencies. The following table provides information, by maturity date, regarding our foreign currency exchange rate sensitive financial instruments, which consist of cash and cash equivalents, short-term and long-term debt obligations as of December 31, 2010 and 2009.

	As of December 31, 2010
	2011			2012		2013		2014		2015		Thereafter		Total Recorded Amount			Fair Value
	(RMB equivalent in thousands, except interest rates)
On-balance sheet financial instruments
Cash and cash equivalents:
In Hong Kong Dollars		11,719			—		—		—		—		—		11,719			11,719
In U.S. Dollars		449			—		—		—		—		—		449			449
In Euro		—			—		—		—		—		—		—			—
In Japanese Yen		—			—		—		—		—		—		—			—
In Swiss Frank		830			—		—		—		—		—		830			830
Debt:
Fixed rate bank and other loans in U.S. Dollars		—			—		—		—		—				—			—
Average interest rate		—			—		—		—		—				—			—
Variable rate bank and other loans in U.S. Dollars		2,529,438			—		—		—		—				2,529,438			2,529,438
Average interest rate (1)		1.92	%		—		—		—		—				1.92	%		—

(1) The average interest rates for variable rate bank and other loans are calculated based on the year end indices

	As of December 31, 2009
	2010			2011		2012		2013		2014		Thereafter		Total Recorded Amount			Fair Value
	(RMB equivalent in thousands, except interest rates)
On-balance sheet financial instruments
Cash and cash equivalents:
In Hong Kong Dollars		12,040			—		—		—		—		—		12,040			12,040
In U.S. Dollars		250			—		—		—		—		—		250			250
In Euro		—			—		—		—		—		—		—			—
In Japanese Yen		—			—		—		—		—		—		—			—
In Swiss Frank		840			—		—		—		—		—		840			840
Other debtors
Forward contracts receivable		—			—		—		—		—		—		—			—
Debt:					—		—		—		—		—					—
Fixed rate bank and other loans in U.S. Dollars		6,039,998			—		—		—		—				6,039,998			6,039,998
Average interest rate (1)		0.96	%		—		—		—		—				0.96	%		—
Variable rate bank and other loans in U.S. Dollars		7,375			2,458		—		—		—				9,833			9,298

(1) The average interest rates for variable rate bank and other loans are calculated based on the year end indices.

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

In connection with our ADS program, a holder of our ADSs may have to pay, either directly or indirectly, certain fees and charges, as described in Item 12.D.3. In addition, we receive fees and other direct and indirect payments from The Bank of New York Mellon that are related to our ADS as described in Item 12.D.4.

12D.3 Fees and Charges that a holder of our ADSs May Have to Pay

The Bank of New York Mellon collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Bank of New York Mellon also collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Bank of New York Mellon may collect its annual fee for depositary services by deductions from cash distributions.

Persons depositing or withdrawing shares must pay:	For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)	Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs	Distribution of securities distributed to holders of deposited securities which are distributed by The Bank of New York Mellon to ADS registered holders
A fee of $.05 (or less) per ADS (or portion thereof)	Any cash distribution made pursuant to the Deposit Agreement
Registration or transfer fees	Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
Expenses of The Bank of New York Mellon	Cable, telex and facsimile transmissions (when expressly provided in the Deposit Agreement); Converting foreign currency to U.S. dollars
Taxes and other governmental charges The Bank of New York Mellon or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes	As necessary
Any charges incurred by The Bank of New York Mellon or its agents for servicing the deposited securities	As necessary

12D.4 Fees and Other Payments Made by The Bank of New York Mellon

From January 1, 2010 through March 31, 2011, a total of US$ 33,252 was paid by The Bank of New York Mellon on our behalf for our ADSs program. Specifically, the following fees were paid on our behalf: US$8,041 for standard out-of-pocket maintenance costs for the ADSs program (primarily consisting of expenses related to our Annual General Meeting), and US$25,211 for investor relations services from third party vendors.

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PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.

None.

ITEM 15. CONTROLS AND PROCEDURES

A. Evaluation of disclosure controls and procedures.

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. This includes controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our principal executive officer or officers and principal financial officer or officers, to allow timely decisions regarding required disclosure.

We maintain a written policy adopted by our board of directors that governs the collection, coordination and disclosure of information to our shareholders, the public and to governmental and other regulatory bodies. All such disclosures are coordinated by the Secretary and subject to execution by either the Chairman of the Board or, for disclosures by our Supervisory Board, the Chairman of the Supervisory Board. Under the policy, all material issues must be disclosed and our disclosures must be true, accurate, complete and timely without any false or misleading statements. Each of our departments and subsidiaries has their own supplemental policies which may be both written and unwritten.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the fiscal year covered by this annual report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the fiscal year covered by this annual report, our disclosure controls and procedures were adequate and effective to ensure that information required to be disclosed in the reports we file under the Exchange Act is accumulated and communicated to the management to allow timely decisions to be made regarding required disclosures, and is recorded, processed, summarized and reported as and when required.

B. Management’s report on internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) of the Securities Exchange Act of 1934). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting based upon the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission as of December 31, 2010. Based on that evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2010 based on these criteria.

KPMG, an independent registered public accounting firm, has audited the consolidated financial statements included in this annual report on Form 20-F and, as part of the audit, has issued a report, included herein, on the effectiveness of our internal control over financial reporting.

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C. Report of Independent Registered Public Accounting Firm.

The Board of Directors and Shareholders of

Sinopec Shanghai Petrochemical Company Limited:

We have audited Sinopec Shanghai Petrochemical Company Limited’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Sinopec Shanghai Petrochemical Company Limited’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Sinopec Shanghai Petrochemical Company Limited maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Sinopec Shanghai Petrochemical Company Limited and subsidiaries as of December 31, 2009 and 2010, and the related consolidated statements of income, comprehensive income, equity and cash flows for each of the years in the three-year period ended December 31, 2010, and our report dated March 25, 2011 expressed an unqualified opinion on those consolidated financial statements.

KPMG

Hong Kong, China

March 25, 2011

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D. Changes in internal control over financial reporting.

For the year ended December 31, 2010, there have been no significant changes to our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

We currently have an audit committee financial expert, Chen Xinyuan, serving on our audit committee and he is an independent director as defined in 17 CFR 240.10A-3.

ITEM 16B. CODE OF ETHICS

We have not adopted a code of ethics as defined by the applicable U.S. securities regulations that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions since it is not a customary practice for a PRC company to adopt such code of ethics.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table summarizes the fees charged by KPMG, our principal accountant, for certain services rendered to us during 2009 and 2010.

	For the year  ended December 31,
	(in thousands of RMB)
	2009		2010
Audit fees (1)		8,787		8,300
Audit-related fees (2)		—		—
Tax fees (3)		—		—
All other fees (4)		—		—
Total		8,787		8,300

(1) “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for the audit of our annual financial statements.

(2) “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services rendered by our principal auditors for the audit of our financial information.

(3) “Tax fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for tax compliance, tax advice and tax planning.

(4) “All other fees” means the aggregate fees billed in each of the fiscal years listed for products and services provided by the our principal accountant, other than the services reported under audit fees, audit-related fees and tax fees.

Audit Committee Pre-approval Policies and Procedures

Our audit committee has adopted procedures which set forth the manner in which the committee will review and approve all audit and non-audit services to be provided by KPMG. The pre-approval procedures are as follows:

• Any audit or non-audit service to be provided to us by the independent accountant must be (i) pre-approved by the audit committee; or (ii) pre-approved by one or several committee members designated by the committee and rectified by the audit committee.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

We have not been granted an exemption from the applicable listing standards for the audit committee of our board of directors.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

None.

79

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

Set forth below is a summary of the significant differences between the corporate governance rules of the New York Stock Exchange and those of the People’s Republic of China for listed companies:

	NYSE Corporate Governance Rules	The Company’s Corporate Governance Practices (which conform with the corporate governance rules for companies organized and listed in the People’s Republic of China)
Director Independence	A listed company must have a majority of independent directors on its board of directors. The board of directors needs to affirmatively determine that the 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). In addition, a director must meet certain standards to be deemed independent.	It is required in China that any listed company must have independent directors and set forth specific requirements for the qualification and election of independent directors in compliance with PRC laws. For example, an independent director shall not hold any other position in the listed company other than being a director and shall not be influenced by the main shareholders or the controlling persons of the listed company, or by any other entities or persons with whom the listed company has a significant relationship. The Company has complied with the relevant Chinese corporate governance rules and has implemented internal rules governing the independence and responsibilities of independent directors. The Company determines the independence of independent directors every year.
	The non-management directors of each listed company must meet at regularly scheduled executive sessions without management.	No similar requirements.
Nominating/Corporate Governance Committee	Listed companies must have a nominating/corporate governance committee composed entirely of independent directors.	The board of directors can establish a nominating committee if the shareholders pass resolutions to establish such a committee. A majority of the directors on the committee shall be independent directors, who shall act as the convener. As of now, the Company has not set up a nominating committee.
	The nominating/corporate governance committee must have a written charter that addresses the committee’s purposes and responsibilities which, at minimum, must be to: search for eligible people for the board of directors, select and nominate directors for the next session of the shareholders’ annual meeting, study and propose corporate governance guidelines, supervise the evaluation of the board of directors and management, and evaluate the performance of the committee every year.	Relevant responsibilities of the nominating/corporate governance committee are similar to those stipulated by the NYSE rules, but the main responsibilities do not include the research and recommendation of corporate governance guidelines, the supervision of the evaluation of the board of directors and management, or the annual evaluation of the committee.

80

Compensation Committee	Listed companies must have a compensation committee composed entirely of independent directors.	The board of directors can establish a compensation and assessment committee if the shareholders pass resolutions to establish such a committee. A majority of the directors on the committee shall be independent directors, who shall act as the convener.
	The purposes and responsibilities of the compensation committee stated in its charter must include the following: (1) review and approve the corporate goals associated with CEO’s compensation, evaluate the performance of the CEO in fulfilling these goals, and based on such evaluation determine and approve the CEO’s compensation level; (2) make recommendations to the board with respect to non-CEO executive officer compensation, and incentive-compensation and equity-based plans that are subject to board approval; (3) produce a committee report on executive compensation as required by the SEC to be included in the annual proxy statement or annual report filed with the SEC. The charter must also include the requirement for an annual performance evaluation of the compensation committee.	The responsibilities of the compensation and assessment committee include: (1) review the standards for the evaluation of directors and management, evaluate directors and management and report the results of such evaluation to the board of directors; (2) review compensation policies and benefit plans for directors and executive officers. Unlike the NYSE rules, the PRC rules do not require the committee to produce a report on the executive compensation or make an annual performance evaluation of the committee. In addition, the compensation committee evaluates and reviews the compensation of directors as well as executive officers. The board of directors of the Company has established a compensation and performance evaluation committee composed mainly of independent directors who act as the convener, and the committee has established a written charter complying with the domestic corporate governance rules.
Audit Committee	Listed companies must have an audit committee that satisfies the requirements of Rule 10A-3 of Securities Exchange Act of 1934 (the “Exchange Act”). It must have a minimum of three members, and all audit committee members must satisfy the requirements for independence set forth in Section 303A.02 of NYSE Corporate Governance Rules as well as the requirements of Rule 10A-3b(1) of the Exchange Act. The written charter of the audit committee must specify that the purpose of the audit committee is to assist the board oversight of the integrity of financial statements, the company’s compliance with legal and regulatory requirements, qualifications and independence of independent auditors, the performance of the listed company’s internal audit function and the appointment and retention of independent auditors. The written charter must also require the audit committee to prepare an audit committee report as required by the SEC to be included in the listed company’s annual proxy statement as well as an annual performance evaluation of the audit committee.	The board of directors of a listed company can, through the resolution of the shareholders’ meeting, establish an audit committee composed entirely of directors, of which the independent directors are the majority and act as the convener, and, at minimum, one independent director is an accounting professional. The purpose, authority and responsibilities of the audit committee are similar to those stipulated by the NYSE rules, but according to customary practices in China, the Company is not required to make an annual performance evaluation of the audit committee, and the audit committee is not required to prepare an audit report to be included in the Company’s annual proxy statement. The board of directors of the Company has established an audit committee that satisfies Rule 10A-3 under the Securities Exchange Act of 1934, as amended, and relevant domestic requirements. The audit committee has a written charter.

81

	Each listed company must have an internal audit department.	China has a similar regulatory provision, and the Company has an internal audit department.
Equity Compensation	Shareholders must be given the opportunity to vote on equity compensation plans and material revisions thereto, except for employment incentive plans, certain awards and plans in the context of mergers and acquisitions.	The relevant regulations of China require the board of directors propose plans on the amount and types of director compensation for the shareholders’ meeting to approve. The compensation plan of executive officers shall be approved by the board and announced at the shareholders’ meeting and disclosed to the public upon the approval of the board of directors.
Corporate Governance Guidelines	Listed companies must adopt and disclose corporate governance guidelines involving director qualification standards, director compensation, director continuing education and annual performance evaluation of the board of directors.	The China Securities Regulatory Commission (the “CSRC”) has issued the Corporate Governance Rules, prescribing detailed guidelines on directors of the listed companies, including director selection, the structure of the board of directors and director performance evaluation. The Company has complied with the above mentioned rules.
Code of Ethics for Directors, Officers and Employees	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.	There is no such requirement for a code for ethics in China. As the directors and officers of the Company have all signed a Director Service Agreement, however, they are bound by their fiduciary duties to the Company. In addition, the directors and officers must perform their legal duties in accordance with the Company Law of the PRC, relevant requirements of CSRC and Mandatory Provisions to the Charter of Companies Listed Overseas.
	Each listed company CEO must certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate governance listing standards and he or she must promptly notify the NYSE on writing of any material non-compliance with any applicable provisions of Section 303A.	No similar requirements.

82

PART III

ITEM 17. FINANCIAL STATEMENTS.

See pages F-1 to F-72.

ITEM 18. FINANCIAL STATEMENTS.

We have elected to provide the financial statements and related information specified in Item 17 in lieu of the information called for by this Item 18.

ITEM 19. EXHIBITS

No.	Exhibit
1.1	Translation of the amended and restated Articles of Association of Sinopec Shanghai Petrochemical Company Limited as approved in the 2009 annual general meeting of Sinopec Shanghai Petrochemical Company Limited on June 23, 2010.
4.1	Translation of the Product Supply and Sales Services Framework Agreement between Sinopec Shanghai Petrochemical Company Limited and China Petroleum & Chemical Corporation as approved in the 2010 extraordinary general meeting of Sinopec Shanghai Petrochemical Company Limited on December 28, 2010.
4.2	Translation of the Comprehensive Services Framework Agreement between Sinopec Shanghai Petrochemical Company Limited and China Petrochemical Corporation as approved in the 2010 extraordinary general meeting of Sinopec Shanghai Petrochemical Company Limited on December 28, 2010.
8	A list of subsidiaries of Sinopec Shanghai Petrochemical Company Limited.
12.1	Certification of President Required by Rule 13a-14(a).
12.2	Certification of Chief Financial Officer Required by Rule 13a-14(a).
13.1	Certification of President Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
13.2	Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

83

SIGNATURES

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.

	SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED
Date: June 27, 2011	/S/    RONG GUANGDAO
	Rong Guangdao, Chairman

Sinopec Shanghai Petrochemical Company Limited

Index

Years Ended December 31, 2008, 2009 and 2010

Consolidated Financial Statements of Sinopec Shanghai Petrochemical Company Limited

	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets December 31, 2009 and 2010		F-3
Consolidated Statements of Income Years Ended December 31, 2008, 2009 and 2010		F-5
Consolidated Statements of Comprehensive Income Years Ended December 31, 2008, 2009 and 2010		F-6
Consolidated Statements of Equity Years Ended December 31, 2008, 2009 and 2010		F-7
Consolidated Statements of Cash Flows Years Ended December 31, 2008, 2009 and 2010		F-9
Notes to Consolidated Financial Statements		F-11

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

Sinopec Shanghai Petrochemical Company Limited:

We have audited the accompanying consolidated balance sheets of Sinopec Shanghai Petrochemical Company Limited and subsidiaries (the “Group”) as of December 31, 2009 and 2010, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2010. These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated 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, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sinopec Shanghai Petrochemical Company Limited and subsidiaries as of December 31, 2009 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Sinopec Shanghai Petrochemical Company Limited’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 25, 2011 expressed an unqualified opinion on the effectiveness of Sinopec Shanghai Petrochemical Company Limited’s internal control over financial reporting.

KPMG

Hong Kong, China

March 25, 2011

F-2

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Consolidated Balance Sheets

As of December 31, 2009 and 2010

(Amounts in thousands)

				December 31,
				2009		2010
	Note			Renminbi		Renminbi
Assets
Current assets:
Cash and cash equivalents					125,917		100,110
Inventories		14			6,883,834		5,352,301
Other investments		15			700,000		—
Amounts due from related parties		16, 23			576,399		776,234
Trade debtors		16			120,145		74,193
Bills receivable		16			573,283		1,993,273
Other debtors and prepayments		17			81,847		235,730
Total current assets					9,061,425		8,531,841
Non-current assets:
Property, plant and equipment		18	(a)		14,977,205		13,570,559
Investment property		19			479,247		465,805
Construction in progress		20			348,865		1,139,239
Lease prepayments and other assets					754,126		717,432
Interest in associates and jointly controlled entities		21			2,749,646		3,316,290
Deferred tax assets		10	(b)		1,537,972		827,576
Total non-current assets					20,847,061		20,036,901
Total assets					29,908,486		28,568,742

See accompanying notes to consolidated financial statements.

F-3

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Consolidated Balance Sheets

As of December 31, 2009 and 2010

(Amounts in thousands)

			December 31,
			2009		2010
	Note		Renminbi		Renminbi
Liabilities and Shareholders’ Equity
Current liabilities:
Loans and borrowings		22		7,774,673		4,395,438
Amounts due to related parties		23, 28		3,487,645		1,800,991
Trade creditors				1,521,319		2,376,452
Bills payable				112,271		41,034
Other creditors				1,399,719		1,943,327
Income tax payable				9,298		15,983
Total current liabilities				14,304,925		10,573,225
Non-current liabilities:
Loans and borrowings		22		304,258		175,000
Total non-current liabilities				304,258		175,000
Total liabilities				14,609,183		10,748,225
Shareholders’ equity:
Share capital		24		7,200,000		7,200,000
Reserves		25		7,805,018		10,360,664
Total equity attributable to equity shareholders of the Company				15,005,018		17,560,664
Non-controlling interests				294,285		259,853
Total equity				15,299,303		17,820,517
Total liabilities and shareholders’ equity				29,908,486		28,568,742

Approved and authorized for issue by the Board of Directors on March 25, 2011.

See accompanying notes to consolidated financial statements.

F-4

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Consolidated Statements of Income

For the years ended December 31, 2008, 2009 and 2010

(Amounts in thousands, except per share data)

				Years ended December 31,
				2008			2009			2010
	Note			Renminbi			Renminbi			Renminbi
Sales					60,226,859			51,657,929			77,520,699
Less: Sales taxes and surcharges					(897,088	)		(4,312,665	)		(5,424,817	)
Net sales					59,329,771			47,345,264			72,095,882
Other income		4			2,312,227			—			—
Cost of sales		5			(68,556,447	)		(45,010,196	)		(68,313,915	)
Gross (loss)/profit					(6,914,449	)		2,335,068			3,781,967
Selling and administrative expenses					(467,987	)		(450,432	)		(628,761	)
					(7,382,436	)		1,884,636			3,153,206
Other operating income		6			145,191			277,169			109,842
Other operating expenses		7			(580,019	)		(138,329	)		(295,956	)
(Loss)/profit from operations					(7,817,264	)		2,023,476			2,967,092
Financial income					227,533			19,405			178,462
Financial expenses					(557,971	)		(340,554	)		(273,681	)
Net financing costs		8			(330,438	)		(321,149	)		(95,219	)
Investment income		9			131,772			222,810			215
Share of profits of associates and jointly controlled entities					1,492			241,372			661,288
(Loss)/earnings before income tax					(8,014,438	)		2,166,509			3,533,376
Income tax		10(a	)		1,812,711			(511,050	)		(736,372	)
Net (loss)/income					(6,201,727	)		1,655,459			2,797,004
Attributable to:
Equity shareholders of the Company					(6,238,444	)		1,590,988			2,771,646
Non-controlling interests					36,717			64,471			25,358
Net (loss)/income					(6,201,727	)		1,655,459			2,797,004
(Loss)/earnings per share		11
Basic				RMB	(0.87	)	RMB	0.22		RMB	0.38
Diluted				RMB	(0.87	)	RMB	0.22		RMB	0.38

See accompanying notes to consolidated financial statements.

F-5

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2008, 2009 and 2010

(Amounts in thousands, except per share data)

			Years ended December 31,
			2008			2009			2010
	Note		Renminbi			Renminbi			Renminbi
Net (loss)/income				(6,201,727	)		1,655,459			2,797,004
Other comprehensive income for the year (after tax and reclassification adjustments)
Available-for-sale financial assets: net movement in the fair value reserve		13		(264,661	)		(82,903	)		—
Total comprehensive income for the year				(6,466,388	)		1,572,556			2,797,004
Attributable to
Equity shareholders of the Company				(6,503,105	)		1,508,085			2,771,646
Non-controlling interests				36,717			64,471			25,358
Total comprehensive income for the year				(6,466,388	)		1,572,556			2,797,004

See accompanying notes to consolidated financial statements.

F-6

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Consolidated Statements of Equity

For the years ended December 31, 2008, 2009 and 2010

(Amounts in thousands)

	Attributable to equity shareholders of the Company
	Note			Share capital RMB’000		Share premium RMB’000		Reserves RMB’000			Retained earnings RMB’000			Total RMB’000			Non-controlling interests RMB’000			Total Equity RMB’000
Balance at January 1, 2008					7,200,000		2,420,841		4,969,548			6,057,649			20,648,038			303,991			20,952,029
Changes in equity for 2008:
Net (loss) / income for the year					—		—		—			(6,238,444	)		(6,238,444	)		36,717			(6,201,727	)
Other comprehensive income					—		—		(264,661	)		—			(264,661	)		—			(264,661	)
Total comprehensive income for the year					—		—		(264,661	)		(6,238,444	)		(6,503,105	)		36,717			(6,466,388	)
Dividends approved in respect of previous year		12	(b)		—		—		—			(648,000	)		(648,000	)		—			(648,000	)
Dividends paid by subsidiaries to non-controlling shareholders					—		—		—			—			—			(76,355	)		(76,355	)
Balance at December 31, 2008					7,200,000		2,420,841		4,704,887			(828,795	)		13,496,933			264,353			13,761,286
Balance at January 1, 2009					7,200,000		2,420,841		4,704,887			(828,795	)		13,496,933			264,353			13,761,286
Changes in equity for 2009:
Net income for the year					—		—		—			1,590,988			1,590,988			64,471			1,655,459
Other comprehensive income					—		—		(82,903	)		—			(82,903	)		—			(82,903	)
Total comprehensive income for the year					—		—		(82,903	)		1,590,988			1,508,085			64,471			1,572,556
Appropriation		25			—		—		35,358			(35,358	)		—			—			—
Dividends paid by subsidiaries to non-controlling shareholders					—		—		—			—			—			(34,539	)		(34,539	)
Balance at December 31, 2009					7,200,000		2,420,841		4,657,342			726,835			15,005,018			294,285			15,299,303

See accompanying notes to consolidated financial statements.

F-7

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Consolidated Statements of Equity

For the years ended December 31, 2008, 2009 and 2010

(Amounts in thousands)

	Attributable to equity shareholders of the Company
	Note			Share capital RMB’000		Share premium RMB’000		Reserves RMB’000		Retained earnings RMB’000			Total RMB’000			Non-controlling interests RMB’000			Total Equity RMB’000
Balance at January 1, 2010					7,200,000		2,420,841		4,657,342		726,835			15,005,018			294,285			15,299,303
Changes in equity for 2010:
Net income for the year					—		—		—		2,771,646			2,771,646			25,358			2,797,004
Other comprehensive income					—		—		—		—			—			—			—
Total comprehensive income for the year					—		—		—		2,771,646			2,771,646			25,358			2,797,004
Dividends approved in respect of the previous year		12	(b)		—		—		—		(216,000	)		(216,000	)		—			(216,000	)
Appropriation		25			—		—		279,548		(279,548	)		—			—			—
Dividends paid by subsidiaries to non-controlling shareholders					—		—		—		—			—			(59,790	)		(59,790	)
Balance at December 31, 2010					7,200,000		2,420,841		4,936,890		3,002,933			17,560,664			259,853			17,820,517

See accompanying notes to consolidated financial statements.

F-8

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2008, 2009 and 2010

(Amounts in thousands)

			Years ended December 31,
			2008			2009			2010
			Renminbi			Renminbi			Renminbi
Net cash (used in)/ generated from operating activities	(a	)		(3,986,490	)		3,346,890			3,973,719
Cash flows from investing activities:
Interest income received				59,472			19,405			37,375
Dividend income received				546,333			116,713			89,817
Proceeds from disposal of property, plant and equipment and other long-term assets				51,829			139,666			66,347
Proceeds from disposal of investments				153,997			506,144			700,000
Capital expenditure				(1,511,072	)		(2,120,292	)		(1,356,845	)
Purchase of investments and interests in associates				(8,039	)		(837,008	)		—
Net cash used in investing activities				(707,480	)		(2,175,372	)		(463,306	)
Cash flows from financing activities:
Proceeds from loans and borrowings				32,528,758			29,211,434			39,355,780
Proceeds from issuance of corporate bonds				—			1,000,000			1,000,000
Repayment of loans and borrowings				(27,377,610	)		(31,849,620	)		(42,631,344	)
Redemption of corporate bonds				—			—			(1,000,000	)
Dividends paid to equity shareholders of the Company				(645,551	)		(559	)		(200,510	)
Dividends paid by subsidiaries to non-controlling shareholders				(76,355	)		(34,539	)		(59,790	)
Net cash generated from/ (used in) financing activities				4,429,242			(1,673,284	)		(3,535,864	)
Net decrease in cash and cash equivalents				(264,728	)		(501,766	)		(25,451	)
Cash and cash equivalents at the beginning of year				893,165			627,685			125,917
Effect of exchange rate fluctuations on cash held				(752	)		(2	)		(356	)
Cash and cash equivalents at the end of year				627,685			125,917			100,110

See accompanying notes to consolidated financial statements.

F-9

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to the Consolidated Statements of Cash Flows

For the years ended December 31, 2008, 2009 and 2010

(Amounts in thousands)

(a) Reconciliation of (loss)/earnings before income tax to net cash (used in)/generated from operating activities

	Years ended December 31,
	2008			2009			2010
	Renminbi			Renminbi			Renminbi
(Loss)/earnings before income tax		(8,014,438	)		2,166,509			3,533,376
Interest income		(59,472	)		(19,405	)		(37,375	)
Income from unlisted investments		(9,721	)		(72,215	)		—
Share of profits of associates and jointly controlled entities		(1,492	)		(241,372	)		(661,288	)
Gain on disposal of available-for-sale financial assets		(131,772	)		(222,810	)		(215	)
Interest expense		557,971			313,989			273,681
Depreciation of property, plant and equipment		1,618,478			1,635,518			1,641,961
Depreciation of investment property		13,440			13,261			13,256
Impairment losses on property, plant and equipment		440,946			98,486			238,200
Amortization of lease prepayments		16,759			16,111			16,075
Impairment loss on goodwill		22,415			—			—
Write-down of inventories		744,578			58,040			11,921
Unrealized exchange gain		(70,993	)		(47	)		(29,845	)
(Gain)/loss on disposal of property, plant and equipment and other long-term assets, net		(13,166	)		(107,988	)		34,635
Decrease/ (increase) in gross inventories		(38,944	)		(2,449,659	)		1,519,612
Decrease/ (increase) in debtors, bills receivable and prepayments		1,122,004			202,876			(1,571,121	)
(Decrease)/increase in trade creditors, other creditors and bills payable		(786,918	)		993,976			1,161,697
Increase / (decrease) in balances with related parties		1,159,222			1,362,376			(1,881,447	)
Cash (used in)/generated from operations		(3,431,103	)		3,747,646			4,263,123
Interest paid		(578,605	)		(356,652	)		(270,113	)
Income tax paid		(60,699	)		(52,539	)		(19,291	)
Income tax refunded		83,917			8,435			—
Net cash (used in)/generated from operations		(3,986,490	)		3,346,890			3,973,719

See accompanying notes to consolidated financial statements.

F-10

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

1. ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF PREPARATION

Sinopec Shanghai Petrochemical Company Limited (“the Company”), formerly Shanghai Petrochemical Company Limited, was established in the People’s Republic of China (“the PRC” or “the State”) on June 29, 1993 as a joint stock limited company to hold the assets and liabilities of the production divisions and certain other units of the Shanghai Petrochemical Complex (“SPC”). SPC was established in 1972 and owned and managed the production divisions as well as the related housing, stores, schools, hotels, transportation, hospitals and other municipal services in the community of Jinshanwei.

The Company’s former controlling shareholder, China Petrochemical Corporation (“CPC”) completed its reorganization on February 25, 2000 in which its interests in the Company were transferred to its subsidiary, China Petroleum & Chemical Corporation (“Sinopec Corp”). In connection with the reorganization, CPC transferred the ownership of its 4,000,000,000 of the Company’s state owned legal shares, which represented 55.56 per cent of the issued share capital of the Company, to Sinopec Corp. On October 12, 2000, the Company changed its name to Sinopec Shanghai Petrochemical Company Limited.

The principal activity of the Company and its subsidiaries (the “Group”) is the processing of crude oil into petrochemical products for sale. The Group is one of the largest petrochemical enterprises in the PRC, with a highly integrated petrochemical complex which processes crude oil into a broad range of synthetic fibers, resins and plastics, intermediate petrochemicals and petroleum products. Substantially all of its products are sold in the PRC domestic market.

These financial statements have been approved by the Board of Directors on March 25, 2011.

F-11

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

1. ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF PREPARATION (continued)

At December 31, 2010, the following list contains the particulars of subsidiaries, all of which are limited companies established and operating in the PRC, which principally affected the results and assets of the Group.

Company	Registered Capital		Percentage of equity held by the Company		Percentage of equity held by subsidiaries		Principal activities
			%		%
Shanghai Petrochemical Investment Development Company Limited		RMB800,000		100		—		Investment management
China Jinshan Associated Trading Corporation		RMB25,000		67.33		—		Import and export of petrochemical products and equipment
Shanghai Jinchang Engineering Plastics Company Limited		US$4,750		—		50.38		Production of polypropylene compound products
Shanghai Golden Phillips Petrochemical Company Limited		US$50,000		—		60		Production of polypropylene products
Zhejiang Jin Yong Acrylic Fiber Company Limited		RMB250,000		75		—		Production of acrylic fiber products
Shanghai Golden Conti Petrochemical Company Limited		RMB545,776		—		100		Production of petrochemical products

None of the subsidiaries have issued any debt securities.

F-12

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

1. ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF PREPARATION (continued)

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements are prepared on the historical cost basis except for available-for-sale financial assets and derivative financial instruments which are stated at fair value.

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of IFRS that have significant effect on the financial statements and major sources of estimation uncertainty are disclosed in note 30.

2. PRINCIPAL ACCOUNTING POLICIES

(a) Basis of consolidation

(i) Subsidiaries and non-controlling interests

The consolidated financial statements of the Group include the financial statements of the Company and all of its principal subsidiaries. Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

F-13

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(a) Basis of consolidation (continued)

(i) Subsidiaries and non-controlling interests (continued)

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealized profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealized losses resulting from intra-group transactions are eliminated in the same way as unrealized gains but only to the extent that there is no evidence of impairment.

Non-controlling interests (previously known as “minority interests”) represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at their proportionate share of the subsidiary’s net identifiable assets.

Non-controlling interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated statements of income and the consolidated statements of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Company. Loans from holders of non-controlling interests and other contractual obligations towards these holders are presented as financial liabilities in accordance with notes 2(k) or 2(l) depending on the nature of the liability.

Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognized.

When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognized in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognized at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see note 2(c)) or, when appropriate, the cost on initial recognition of an investment in an associate or jointly controlled entity (see note 2(a) (ii)).

F-14

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(a) Basis of consolidation (continued)

(ii) Associates and jointly controlled entities

An associate is an entity in which the Group has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

A jointly controlled entity is an entity which operates under a contractual arrangement between the Group and other parties, where the contractual arrangement establishes that the Group and one or more of the other parties share joint control over the economic activity of the entity.

An investment in an associate or a jointly controlled entity is accounted for in the consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (see note 2(u)). Any acquisition-date excess over cost, the Group’s share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognized in the consolidated statements of income, whereas the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognized in the consolidated statements of comprehensive income. For the periods presented, no adjustments have been made (or are necessary) to conform the associate’s or jointly controlled entity’s accounting policies to those of the Company as there are no material differences between the accounting policies adopted by the associate and the jointly controlled entity and the Group.

When the Group’s share of losses exceeds its interest in the associate or the jointly controlled entity, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate or the jointly controlled entity.

Unrealized profits and losses resulting from transactions between the Group and its associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the investee, except where unrealized losses provide evidence of an impairment of the asset transferred, in which case they are recognized immediately in profit or loss.

F-15

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(a) Basis of consolidation (continued)

(ii) Associates and jointly controlled entities (continued)

When the Group ceases to have significant influence over an associate or joint control over a jointly controlled entity, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognized in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognized at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see note 2(c)) or, when appropriate, the cost on initial recognition of an investment in an associate (see note 2(a) (ii)).

(b) Goodwill

Goodwill represents the excess of

(i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree; over

(ii) the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.

When (ii) is greater than (i), then this excess is recognized immediately in profit or loss as a gain on a bargain purchase.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note 2(u)).

On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

F-16

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

X Xxx (continued)

(c) Other investments

The Group’s policies for other investments, other than investments in associates and jointly controlled entities, are as follows:

Investments in available-for-sale financial assets are carried at fair value with any change in fair value recognized in other comprehensive income and accumulated separately in equity in the fair value reserve. When these investments are derecognized or impaired, the cumulative gain or loss is reclassified from equity to profit or loss. Investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are recognized in the balance sheet at cost less impairment losses (see note 2(u)).

(d) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 2(u)).

The cost of self-constructed assets includes the cost of materials, direct labor, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs.

Gains or losses arising from the retirement or disposal of items of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the items and are recognized in profit or loss on the date of retirement or disposal.

Depreciation is calculated to write off the costs of property, plant and equipment over their estimated useful lives on a straight-line basis, after taking into account their estimated residual values, as follows:

Buildings	15 to 40 years
Plant and machinery	10 to 20 years
Vehicles and other equipment	5 to 26 years

F-17

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(d) Property, plant and equipment (continued)

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. The depreciation method, useful life and the residual value of an asset are reviewed annually.

(e) Investment property

Investment properties are properties which are owned or held under a leasehold interest either to earn rental income and / or for capital appreciation.

Investment properties are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see note 2(u)). Depreciation is provided over their estimated useful lives on a straight-line basis, after taking into account their estimated residual values. Estimated useful life of the investment property is 40 years.

(f) Lease prepayments and other assets

Lease prepayments and other assets mainly represent prepayments for land use rights and catalysts used in production. The assets are carried at cost less accumulated amortization and impairment losses (see note 2(u)). Lease prepayments and other assets are written off on a straight-line basis over the respective periods of the rights and the estimated useful lives of the catalysts.

(g) Construction in progress

Construction in progress represents buildings, various plant and equipment under construction and pending installation, and is stated at cost less government grants that compensate the Company for the cost of construction, and impairment losses (see note 2(u)). Cost comprises direct costs of construction as well as interest charges, and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest charges, during the period of construction.

Construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use.

No depreciation is provided in respect of construction in progress.

F-18

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(h) Inventories

Inventories, other than spare parts and consumables, are carried at the lower of cost and net realizable value. Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Costs of conversion of inventories include cost directly related to the units of production as well as allocation of production overheads. The allocation of fixed production overhead to the costs of conversion is based on normal operating capacity of the production facilities, whereas variable production overheads are allocated to each unit of production on the basis of the actual use of the production facilities. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of the inventories is recognized as an expense in the period in which the related revenue is recognized. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

Spare parts and consumables are stated at cost less any provision for obsolescence.

(i) Trade receivables, bills and other receivables

Trade receivables, bills and other receivables are initially recognized at fair value and thereafter stated at amortized cost less allowance for impairment of doubtful debts (see note 2(u)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

Trade receivables, bills and other receivables are derecognized if the Group’s contractual rights to the cash flows from these financial assets expire or if the Group transfers these financial assets to another party without retaining control or substantially all risks and rewards of the assets.

(j) Derivative financial instruments

Derivative financial instruments are recognized initially at fair value. At each balance sheet date the fair value is remeasured. The gain or loss on remeasurement of derivative financial instruments to fair value is recognized in profit or loss.

F-19

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(k) Interest-bearing borrowings

Interest-bearing borrowings are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost with any difference between the amount initially recognized and redemption value being recognized in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

(l) Trade and other payables

Trade and other payables are initially recognized at fair value and thereafter stated at amortized cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(m) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand and time deposits with banks and other financial institutions with an initial term of less than three months at acquisition. Cash equivalents are stated at cost, which approximates fair value.

(n) Translation of foreign currencies

Foreign currency transactions during the year are translated into Renminbi at the applicable exchange rates ruling at the transaction dates.

Monetary assets and liabilities denominated in foreign currencies are translated into Renminbi at rates quoted by the People’s Bank of China at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated into Renminbi at the closing foreign exchange rate ruling at the date of the transaction.

Foreign currency translation differences relating to funds borrowed to finance the construction of property, plant and equipment to the extent that they are regarded as an adjustment to interest costs are capitalized during the construction period. All other exchange gains and losses are dealt with in profit or loss.

F-20

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(o) Revenue recognition

Revenues associated with the sale of petroleum and chemical products are recognized in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer. Revenue excludes value added tax and is after deduction of any trade discounts and returns. No revenue is recognized if there are significant uncertainties regarding recovery of the consideration due to the possible return of goods, or when the amount of revenue and the costs incurred or to be incurred in respect of the transaction cannot be measured reliably.

The Group provides pipeline transportation services to customers. Revenues associated with transportation services are recognized by reference to the stage of completion (that is, when the services are rendered) of the transaction at the end of the reporting period and when the outcome of the transaction can be estimated reliably. The outcome of the transaction can be estimated reliably when the amount of revenue, the costs incurred and the stage of completion can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Group.

Dividend income is recognized in profit or loss on the date the shareholder’s right to receive payment is established.

Gains or losses arising from the disposal of unlisted investments are determined as the difference between the net disposal proceeds and the carrying amount of the investment and are recognized in profit or loss on the date of disposal.

Rental income from investment property is recognized in profit or loss on a straight-line basis over the term of the lease.

(p) Government grants

Government grants are recognized in the balance sheet initially when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognized as revenue in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognized in profit or loss over the useful life of the asset by way of reduced depreciation expense.

(q) Net financing costs

Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, interest income on bank deposits, gains and losses in fair value change of derivative financial instruments, foreign exchange gains and losses and bank charges.

Interest income from bank deposits is recognized in profit or loss as it accrues using the effective interest method.

F-21

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(q) Net financing costs (continued)

All interest and other costs incurred in connection with borrowings are expensed as incurred as part of net financing costs, except to the extent that they are capitalized as being directly attributable to the acquisition or construction of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale.

(r) Repairs and maintenance expenses

Repairs and maintenance expenses are charged to profit or loss as and when they are incurred.

(s) Research and development costs

Research and development costs comprise all costs that are directly attributable to research and development activities or that can be allocated on a reasonable basis to such activities. Because of the nature of the Group’s research and development activities, no development costs satisfy the criteria for the recognition of such costs as an asset. Both research and development costs are therefore recognized as expenses in the period in which they are incurred.

(t) Employee benefits

The contributions payable under the Group’s retirement plans are charged to the profit or loss on an accrual basis according to the contribution determined by the plans. Further information is set out in note 27.

Termination benefits, recorded as employee reduction expenses in the profit or loss, are recognized when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

F-22

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(u) Impairment loss

(i) Trade accounts receivable, bills and other receivables and investments in equity securities other than investments in associates and jointly controlled entities, that do not have a quoted market price in an active market are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, an impairment loss is determined and recognized.

The impairment loss is measured as the difference between the asset’s carrying amount and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material, and is recognized as an expense in the profit or loss. Impairment losses for trade accounts receivable, bills and other receivables are reversed through the profit or loss if in a subsequent period the amount of the impairment loss decreases. Impairment losses for investments in equity securities carried at cost are not reversed.

For investments in associates and jointly controlled entities recognized using the equity method (note 2(a)(ii)), the impairment loss is measured by comparing the recoverable amount of the investment as a whole with its carrying amount in accordance with note 2(u)(ii). The impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount in accordance with note 2(u)(ii).

F-23

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(u) Impairment loss (continued)

(ii) Impairment of other long-lived assets is accounted for as follows:

The carrying amounts of other long-lived assets, including property, plant and equipment, construction in progress, lease prepayment, other assets and investments in associates and jointly controlled entities, are reviewed at each balance sheet date to identify indications that the asset may be impaired. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. For goodwill, the recoverable amount is estimated at each balance sheet date.

The recoverable amount is the greater of the fair value less costs to sell and the value in use. In determining the value in use, expected future cash flows generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

The amount of the reduction is recognized as an expense in the profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.

Management assesses at each balance sheet date whether there is any indication that an impairment loss recognized for an asset, except in the case of goodwill, in prior years may no longer exist. An impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount. A subsequent increase in the recoverable amount of an asset, when the circumstances and events that led to the write-down or write-off cease to exist, is recognized in profit or loss. The reversal is reduced by the amount that would have been recognized as depreciation had the write-down or write-off not occurred. An impairment loss in respect of goodwill is not reversed.

F-24

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(v) Dividends payable

Dividends are recognized as a liability in the period in which they are declared.

(w) Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognized in other comprehensive income or directly in equity, respectively.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except differences relating to goodwill not deductible for tax purposes and the initial recognition of assets or liabilities which affect neither accounting nor taxable income. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. The effect on deferred tax of any changes in tax rates is charged or credited to the profit or loss, except for the effect of a change in tax rate on the carrying amount of deferred tax assets and liabilities which were previously charged or credited directly to equity upon initial recognition, in such case the effect of a change in tax rate is also charged or credited to equity.

A deferred tax asset is recognized only to the extent that it is probable that future taxable income will be available against the assets which can be realized or utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

F-25

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(x) Provisions and contingent liabilities

Provisions are recognized for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(y) Related parties

Parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control or jointly control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and / or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

(z) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s chief operating decision maker for the purposes of allocating resources to, and assessing the performance of the Group’s various lines of business.

F-26

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

3 CHANGES IN ACCOUNTING POLICIES

The IASB has issued certain new and revised IFRS that are first effective for the current accounting period of the Group. There have been no significant changes to the accounting policy applied in these financial statements for the years presented as a result of these developments.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.

4. OTHER INCOME

The Group recognized grant income of RMB 2,312,227 during the year ended December 31, 2008. These grants were mainly for compensation of losses incurred due to the distortion of the correlation of domestic refined petroleum product prices and the crude oil prices, and the measures taken by the Group to stabilize the supply in the PRC refined petroleum product market during the year ended December 31, 2008. There were no unfilled conditions and other contingencies attached to the receipts of these grants. During the year ended December 31, 2009 and December 31, 2010, the Group did not receive such government grants.

5. COST OF SALES

Cost of sales represents:

	Years ended December 31,
	2008		2009		2010
Costs of raw materials
-crude oil		48,996,902		26,450,043		39,694,617
-other ancillary materials		9,978,791		7,724,881		14,699,011
Depreciation		1,616,596		1,632,086		1,640,877
Repairs and maintenance		988,393		1,044,863		1,016,530
Research and development		47,303		40,293		58,242
Employees’ pension costs
-municipal retirement scheme costs		199,135		185,445		209,133
-supplementary retirement scheme costs		54,862		46,974		52,974
Staff costs		1,160,658		1,204,098		1,404,129
Amortization of lease prepayments		16,759		16,111		16,075
Fuel and power		1,979,089		1,608,493		2,197,707
Others		3,517,959		5,056,909		7,324,620
		68,556,447		45,010,196		68,313,915

F-27

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

6. OTHER OPERATING INCOME

Other operating income represents:

	Years ended December 31,
	2008		2009		2010
Income from rendering of services		34,842		33,565		30,826
Gain on disposal of property, plant and equipment		17,618		24,674		2,425
Gain on disposal of lease prepayments		—		91,802		—
Rental income from investment property		48,869		31,233		39,662
Gain on disposal of unlisted investments		9,721		72,215		—
Government grants		31,037		15,310		27,211
Others		3,104		8,370		9,718
		145,191		277,169		109,842

7. OTHER OPERATING EXPENSES

Other operating expenses represent:

	Years ended December 31,
	2008		2009		2010
Loss on disposal of property, plant and equipment		4,452		8,488		37,060
Employee reduction expenses (note a)		89,844		12,518		3,646
Impairment losses on property, plant and equipment (note 18(c))		440,946		98,486		238,200
Impairment loss on goodwill (note b)		22,415		—		—
Donations		2,000		—		—
Others		20,362		18,837		17,050
		580,019		138,329		295,956

Note (a):

In accordance with the Group’s voluntary employee reduction plan, the Group recognized employee reduction expenses of RMB 3,646 in respect of the voluntary resignation of approximately 83 employees (238 employees in 2009 and 947 employees in 2008) during the year ended December 31, 2010 (2009: RMB 12,518 2008: RMB 89,844).

F-28

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

7. OTHER OPERATING EXPENSES(continued)

Note (b):

During the year ended December 31, 2008, the carrying amount of the cash-generating unit, Jinyang facility, was determined to be higher than its recoverable amount. The reduction in recoverable amount was a result of the expected reduction in production volume caused by the adverse changes in the business environment. Impairment loss recognized on goodwill was RMB 22,415 for the year ended December 31, 2008.

8. NET FINANCING COSTS

Net financing costs represent:

	Years ended December 31,
	2008			2009			2010
Interest income		(59,472	)		(19,405	)		(37,375	)
Net foreign exchange gain		(70,417	)		—			(141,087	)
Net gain in fair value change of derivative financial instruments		(97,644	)		—			—
Financial income		(227,533	)		(19,405	)		(178,462	)
Net foreign exchange loss		—			16,142			—
Net loss in fair value change of derivative financial instruments		—			10,423			—
Interest on loans and borrowings		585,142			358,474			274,511
Less: borrowing costs capitalized as construction in progress*		(27,171	)		(44,485	)		(830	)
Financial expenses		557,971			340,554			273,681
Net financing costs		330,438			321,149			95,219

* The borrowing costs during 2010 have been capitalized at a rate of 2.00%-3.25% per annum (2009: 2.12%-5.04%; 2008: 5.10%-7.47%) for construction in progress.

9. INVESTMENT INCOME

Investment income represents the gain on disposal of available-for-sale financial assets of RMB 215 during the year ended December 31, 2010 (2009: RMB 222,810; 2008: RMB 131,772).

F-29

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

10. INCOME TAX

(a) Taxation in the consolidated statements of income represents:

	Years ended December 31,
	2008			2009		2010
Current tax
-Provision for PRC income tax for the year		34,919			58,410		22,523
- Under-provision in respect of prior years		16,655			843		3,453
Deferred taxation		(1,864,285	)		451,797		710,396
Total income tax (benefit)/ expense		(1,812,711	)		511,050		736,372

A reconciliation of the expected income tax (benefit)/ expense calculated at the applicable tax rate with the actual income tax (benefit)/ expense is as follows:

	Years ended December 31,
	2008			2009			2010
(Loss)/earnings before income tax		(8,014,438	)		2,166,509			3,533,376
Expected PRC income tax (benefit)/ expense at the statutory tax rate of 25%
(2009: 25%; 2008: 25%)		(2,003,610	)		541,627			883,344
Tax effect of non-deductible expenses		29,348			5,932			6,240
Tax effect of non-taxable income		(1,276	)		(472	)		(225	)
Under-provision in prior years		16,655			843			3,453
Tax effect of share of profits recognized under the equity method		(373	)		(60,343	)		(165,322	)
Tax effect of unused tax losses not recognized		49,488			26,823			12,324
Tax effect of unrecognized deferred tax assets		97,057			18,755			—
Utilization of unrecognized deferred tax assets		—			(17,176	)		—
Others		—			(4,939	)		(3,442	)
Actual income tax (benefit)/ expense		(1,812,711	)		511,050			736,372

The Group did not carry out business overseas and therefore does not incur overseas income taxes.

F-30

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

10. INCOME TAX (continued)

(b) Deferred taxation:

(i) Deferred tax assets and deferred tax liabilities are attributable to items detailed in the tables below:

	Assets				Liabilities						Net balance
	December 31,				December 31,						December 31,
	2009		2010		2009			2010			2009			2010
Current
Provisions		36,778		21,539		—			—			36,778			21,539
Non-current
Provisions for impairment losses		85,112		139,379		—			—			85,112			139,379
Land use rights		28,842		27,967		—			—			28,842			27,967
Capitalization of borrowing costs		—		—		(26,322	)		(23,448	)		(26,322	)		(23,448	)
Tax losses carry forward		1,401,978		651,529		—			—			1,401,978			651,529
Others		11,584		10,610		—			—			11,584			10,610
Deferred tax assets / (liabilities)		1,564,294		851,024		(26,322	)		(23,448	)		1,537,972			827,576

F-31

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

10. INCOME TAX (continued)

(b) Deferred taxation (continued):

(ii) Movements in deferred tax assets and liabilities are as follows:

	Balance at January 1, 2008			Recognized in consolidated statements of income			Recognized in reserve		Balance at December 31, 2008
Current
Provisions		40,075			163,899			—		203,974
Forward exchange contracts		—			(24,411	)		—		(24,411	)
Non-current
Provision for impairment losses		77,310			20,846			—		98,156
Land use rights		30,592			(875	)		—		29,717
Capitalization of borrowing costs		(32,070	)		2,874			—		(29,196	)
Available-for-sale financial assets		(115,855	)		—			88,221		(27,634	)
Tax losses carry forward		—			1,701,453			—		1,701,453
Others		9,577			499			—		10,076
Net deferred tax assets		9,629			1,864,285			88,221		1,962,135
	Balance at January 1, 2009			Recognized in  consolidated statements of income			Recognized in reserve		Balance at December 31, 2009
Current
Provisions		203,974			(167,196	)		—		36,778
Forward exchange contracts		(24,411	)		24,411			—		—
Non-current
Provision for impairment losses		98,156			(13,044	)		—		85,112
Land use rights		29,717			(875	)		—		28,842
Capitalization of borrowing costs		(29,196	)		2,874			—		(26,322	)
Available-for-sale financial assets		(27,634	)		—			27,634		—
Tax losses carry forward		1,701,453			(299,475	)		—		1,401,978
Others		10,076			1,508			—		11,584
Net deferred tax assets		1,962,135			(451,797	)		27,634		1,537,972
	Balance at January 1, 2010			Recognized in consolidated statements of income			Recognized in reserve		Balance at December 31, 2010
Current
Provisions		36,778			(15,239	)		—		21,539
Non-current
Provision for impairment losses		85,112			54,267			—		139,379
Land use rights		28,842			(875	)		—		27,967
Capitalization of borrowing costs		(26,322	)		2,874			—		(23,448	)
Tax losses carry forward		1,401,978			(750,449	)		—		651,529
Others		11,584			(974	)		—		10,610
Net deferred tax assets		1,537,972			(710,396	)		—		827,576

F-32

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

10. INCOME TAX (continued)

(b) Deferred taxation (continued):

(ii) Movements in deferred tax assets and liabilities are as follows (continued):

The Group recognizes deferred tax assets only to the extent that it is probable that future taxable income will be available against which the assets can be utilized. Based on the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets will be utilized, management believes that it is probable the Group will realize the benefits of these temporary differences.

(iii) Deferred tax assets not recognized:

As at December 31, 2010, a subsidiary of the Company did not recognize the deferred tax assets in respect of the impairment losses on property, plant and equipment amounting to RMB 432,579 (2009: RMB 432,579, 2008: RMB 357,560) and the unused tax losses carried forward for PRC income tax purpose amounting to RMB 452,443 (2009: RMB 417,688, 2008: RMB 310,396), because it was not probable that the related tax benefit will be realized. The unused tax losses carried forward of RMB 29,357, RMB 68,548, RMB 197,952, RMB 107,292 and RMB 49,294 will expire in 2011, 2012, 2013, 2014 and 2015 respectively.

11. EARNINGS/(LOSS) PER SHARE

The calculation of basic earnings/(loss) per share is based on the income attributable to equity shareholders of the Company of RMB 2,771,646 (2009: RMB 1,590,988; 2008: loss of RMB 6,238,444) and 7,200,000,000 (2009: 7,200,000,000; 2008: 7,200,000,000) shares in issue during the year.

F-33

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

12. DIVIDENDS

(a) Dividends attributable to the year:

	Years ended December 31,
	2008		2009		2010
Final dividend proposed after the balance sheet date of RMB 0.10 per share
(2009: RMB 0.03 per share; 2008: RMB nil per share)		—		216,000		720,000

Pursuant to a resolution passed at the directors’ meeting on March 25, 2011, a final dividend of RMB 0.10 per share totalling RMB 720,000 (2009: RMB 216,000, 2008: RMB nil) was proposed for shareholders’ approval at the Annual General Meeting. The final dividend proposed after the balance sheet date has not been recognized as a liability at the balance sheet date.

(b) Dividends attributable to the previous financial year, approved during the year:

	Years ended December 31,
	2008		2009		2010
Final dividend in respect of the previous financial year, approved during the year, of RMB 0.03 per share
(2009: RMB nil per share; 2008: RMB 0.09 per share)		648,000		—		216,000

F-34

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

13 OTHER COMPREHENSIVE INCOME

(a) Tax effects relating to each component of other comprehensive income

	2008
	Before-tax amount			Tax expense		Net-of tax amount
Available-for-sale financial assets:
Net movement in fair value reserve		(352,882	)		88,221		(264,661	)
	2009
	Before-tax amount			Tax benefit		Net-of tax amount
Available-for-sale financial assets:
Net movement in fair value reserve		(110,537	)		27,634		(82,903	)
	2010
	Before-tax amount			Tax benefit		Net-of tax amount
Available-for-sale financial assets:
Net movement in fair value reserve		—			—		—

(b) Reclassification adjustments relating to components of other comprehensive income

	Years ended December 31,
	2008			2009			2010
Available-for-sale financial assets:
Changes in fair value recognized during the year		(221,110	)		112,273			215
Reclassification adjustments for amounts transferred to profit or loss
- gains on disposal		(131,772	)		(222,810	)		(215	)
Income tax on other comprehensive income		88,221			27,634			—
Net movement in fair value reserve during the year recognized in other comprehensive income		(264,661	)		(82,903	)		—

F-35

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

14. INVENTORIES

(a) Inventories in the balance sheet comprise:

	December 31,
	2009		2010
Raw materials		4,188,941		2,602,299
Work in progress		1,352,767		1,417,789
Finished goods		717,337		841,250
Spare parts and consumables		624,789		490,963
		6,883,834		5,352,301

At December 31, 2010, the Group had inventories that were carried at net realizable value of RMB 881,191 (2009: RMB 1,603,140).

(b) The analysis of the amount of inventories recognized as an expense is as follows:

The cost of inventories recognized as an expense in the consolidated statements of comprehensive income amounted to RMB 68,313,915 for the year ended December 31, 2010 (2009: RMB 45,010,196; 2008: RMB 68,556,447), which includes the write-down of inventories of RMB 11,921 (2009: RMB 58,040; 2008: RMB 744,578).

(c) Allowance for diminution in value of inventories is analyzed as follows:

At January 1, 2008	73,792
Provision for the year	744,578
Write-off	—
At December 31, 2008	818,370
Provision for the year	58,040
Write-off	(716,602	)
At December 31, 2009	159,808
Provision for the year	11,921
Write-off	(69,767	)
At December 31, 2010	101,962

F-36

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

15. OTHER INVESTMENTS

Other investments comprise:

	December 31,
	2009		2010
Current investments
Available-for-sale financial assets		700,000		—

Available-for-sale financial assets, with a carrying amount of RMB 700,000 at December 31, 2009, represent an investment fund purchased from a PRC state-owned bank. The fund mainly invests in debt and equity securities in the PRC. The Company redeemed this fund in January 2010.

The Group’s exposure to credit and interest rate risks related to other investments is disclosed in note 31.

16. TRADE DEBTORS, BILLS RECEIVABLE AND AMOUNTS DUE FROM RELATED PARTIES

	December 31,
	2009			2010
Trade debtors		132,779			82,030
Less: Impairment losses for bad and doubtful debts		(12,634	)		(7,837	)
		120,145			74,193
Bills receivable		573,283			1,993,273
Amounts due from related parties		576,399			776,234
		1,269,827			2,843,700

F-37

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

16. TRADE DEBTORS, BILLS RECEIVABLE AND AMOUNTS DUE FROM RELATED PARTIES (continued)

The aging analysis of trade debtors, bills receivable and amounts due from related parties (net of impairment losses for bad and doubtful debts) is as follows:

	December 31,
	2009		2010
Invoice date:
Within one year		1,269,793		2,842,788
Between one and two years		34		912
		1,269,827		2,843,700

Impairment losses for bad and doubtful debts are analyzed as follows:

At January 1, 2008	24,591
Provision for the year	—
Write-off	(5,980	)
At December 31, 2008	18,611
Provision for the year	—
Write-off	(5,977	)
At December 31, 2009	12,634
Reversal during the year	(2,916	)
Write-off	(1,881	)
At December 31, 2010	7,837

Bills receivable represents short-term banker acceptance receivable that entitle the Group to receive the full face amount of the receivables from the banks at maturity, which generally ranges from one to six months from the date of issuance. Historically, the Group had experienced no credit losses on bills receivable.

Sales are generally on a cash basis. Subject to negotiation, credit is generally only available for major customers with well-established trading records.

17. OTHER DEBTORS AND PREPAYMENTS

Other debtors and prepayments comprise:

	December 31,
	2009		2010
Purchase deposits		2,996		115,275
Sundry debtors		78,851		120,455
		81,847		235,730

F-38

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

18. PROPERTY, PLANT AND EQUIPMENT

(a) Property, plant and equipment comprise:

	Buildings			Plant and Machinery			Vehicles and other equipment			Total
Cost:
At January 1, 2009		5,665,757			23,125,018			6,708,164			35,498,939
Additions		69,270			61,973			74,446			205,689
Transferred from construction in progress (note 20)		55,347			3,003,956			204,116			3,263,419
Disposals		(34,518	)		(479,524	)		(76,359	)		(590,401	)
At December 31, 2009		5,755,856			25,711,423			6,910,367			38,377,646
At January 1, 2010		5,755,856			25,711,423			6,910,367			38,377,646
Additions		220			61,883			34,401			96,504
Transferred from construction in progress (note 20)		12,226			332,073			63,508			407,807
Disposals		(35,408	)		(298,580	)		(111,844	)		(445,832	)
At December 31, 2010		5,732,894			25,806,799			6,896,432			38,436,125
Accumulated depreciation and impairment losses:
At January 1, 2009		3,439,818			14,317,665			4,468,557			22,226,040
Charge for the year		175,598			1,154,494			305,426			1,635,518
Impairment loss		51,480			25,269			21,737			98,486
Written back on disposals		(26,751	)		(461,994	)		(70,858	)		(559,603	)
At December 31, 2009		3,640,145			15,035,434			4,724,862			23,400,441
At January 1, 2010		3,640,145			15,035,434			4,724,862			23,400,441
Charge for the year		139,591			1,234,816			267,554			1,641,961
Impairment loss		8,578			206,929			22,693			238,200
Written back on disposals		(26,396	)		(283,655	)		(104,985	)		(415,036	)
At December 31, 2010		3,761,918			16,193,524			4,910,124			24,865,566
Net book value:
At December 31, 2010		1,970,976			9,613,275			1,986,308			13,570,559
At December 31, 2009		2,115,711			10,675,989			2,185,505			14,977,205

F-39

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

18. PROPERTY, PLANT AND EQUIPMENT (continued)

(b) All of the Group’s buildings are located in the PRC (including Hong Kong).

Buildings in Hong Kong with a net book value of RMB 29,388 (2009: RMB 30,573) were held under medium-term leases.

(c) Impairment losses

2009

A synthetic fiber plant of a subsidiary was shut down and abandoned and a power generator unit of the Company was damaged and placed out of service. These assets were tested for impairment in accordance with the Company’s accounting policy described in note 2(u)(ii) to the consolidated financial statements. The Group determined that the carrying values of the synthetic fiber plant and the power generator unit were higher than their recoverable amounts and accordingly, impairment losses of RMB 98.5 million were recognized during the year ended December 31, 2009. The estimated recoverable amounts were based on the assets’ fair values less costs to sell, which were determined by reference to the recent observable market prices for similar assets within the same industry.

2010

Impairment losses recognized on property, plant and equipment of the synthetic fibers segment were RMB 92 million for the year ended December 31, 2010, which represented impairment losses in respect of certain filament production facilities. The primary factor resulting in the impairment losses on the filament production facilities is the high operating and production costs caused by the increase in the raw material price that are not expected to be covered through an increase in selling price of those products in the foreseeable future. These assets were tested for impairment in accordance with the Company’s accounting policy described in note 2(u)(ii) to the consolidated financial statements. The recoverable amounts of these production facilities were estimated based on their value in use. The estimate of value in use was determined using a pre-tax discount rate of 10%.

Impairment losses recognized on certain idle facilities of the resins and plastics segment were RMB 26.3 million for the year ended December 31, 2010. These facilities were abandoned and tested for impairment in accordance with the Company’s accounting policy described in note 2(u)(ii) to the consolidated financial statements. The estimated recoverable amounts were based on the assets’ fair value less costs to sell, which were determined by reference to the recent observable market prices for similar assets within the same industry.

F-40

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

18. PROPERTY, PLANT AND EQUIPMENT (continued)

(c) Impairment losses (continued)

Impairment losses recognized on property, plant and equipment of the intermediate petrochemicals segment were RMB 119.9 million for the year ended December 31, 2010, which mainly represented impairment losses of RMB 89.9 million in respect of a newly constructed facility that has not started production as it cannot meet the local environmental requirement. The asset was tested for impairment in accordance with the Company’s accounting policy described in note 2(u)(ii) to the consolidated financial statements. The estimated recoverable amounts was based on the asset’s fair value less costs to sell, which was determined by reference to the recent observable market prices for similar assets within the same industry.

(d) The carrying value of above assets prior to the impairment losses and the carrying value of the assets subsequent to the impairment losses by asset category for the years ended December 31, 2009 and 2010 are presented as follows:

Asset Category	2009
	Original cost		Net book value before impairment		Impairment loss recognized			Net book value after impairment
Buildings		423,530		63,179		(51,480	)		11,699
Plant and machinery		704,402		46,483		(25,269	)		21,214
Vehicles and other equipment		154,306		26,254		(21,737	)		4,517
Total		1,282,238		135,916		(98,486	)		37,430
Asset Category	2010
	Original cost		Net book value before impairment		Impairment loss recognized			Net book value after impairment
Buildings		59,504		38,149		(8,578	)		29,571
Plant and machinery		805,340		246,605		(206,929	)		39,676
Vehicles and other equipment		136,058		46,176		(22,693	)		23,483
Total		1,000,902		330,930		(238,200	)		92,730

F-41

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

19. INVESTMENT PROPERTY

	2009			2010
Cost:
At January 1		546,838			546,630
Disposals		(208	)		(218	)
At December 31		546,630			546,412
Accumulated depreciation:
At January 1		54,148			67,383
Charge for the year		13,261			13,256
Written back on disposals		(26	)		(32	)
At December 31		67,383			80,607
Net book value:
At December 31		479,247			465,805

Investment property represents certain floors of an office building leased under operating leases.

The fair value of the investment property of the Group as at December 31, 2010 was estimated by the directors to be approximately RMB 994,053 by reference to market values of like properties in the relevant region (2009: RMB 808,751). The investment property has not been valued by an external independent valuer.

Rental income of RMB 39,662 was received by the Group during the year ended December 31, 2010 (2009: RMB 31,233).

F-42

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

20. CONSTRUCTION IN PROGRESS

	2009			2010
At January 1		1,854,154			348,865
Additions		1,758,130			1,198,181
Transferred to property, plant and equipment (note 18)		(3,263,419	)		(407,807	)
At December 31		348,865			1,139,239

21. INTEREST IN ASSOCIATES AND JOINTLY CONTROLLED ENTITIES

	December 31,
	2009		2010
Interest in associates		2,640,631		3,198,114
Interest in jointly controlled entities		109,015		118,176
		2,749,646		3,316,290

The above amount represents the share of net assets of the Group’s interest in its associates and jointly controlled entities.

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SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

21. INTEREST IN ASSOCIATES AND JOINTLY CONTROLLED ENTITIES (continued)

The particulars of these significant associates and jointly controlled entities, which are limited companies established and operating in the PRC, which principally affected the results or assets of the Group at December 31, 2010 are as follows:

Company	Registered Capital		Percentage of equity held by the Company		Percentage of equity held by subsidiaries		Principal activities
			%		%
Shanghai Chemical Industry Park Development Company Limited		RMB2,372,439		38.26		—		Planning, development and operation of the Chemical Industry Park in Shanghai, PRC
Shanghai Secco Petrochemical Company Limited	US$	901,441		20		—		Manufacturing and distribution of chemical products
Shanghai Jinpu Plastics Packaging Material Company Limited	US$	20,204		—		50		Production of polypropylene film
Shanghai Jinsen Hydrocarbon Resins Company Limited	US$	23,395		—		40		Production of resins products
Shanghai Azbil Automation Company Limited (formerly known as “Shanghai Yamatake Automation Company Limited”)	US$	3,000		—		40		Service and maintenance of building auto- mation systems and products
BOC-SPC Gases Company Limited	US$	32,000		50		—		Production and sales of industrial gases

Summary financial information of the associates is as follows:

	Assets		Liabilities			Equity		Revenues		Net income
2010
100 per cent		26,273,106		(11,710,361	)		14,562,745		30,772,706		2,947,033
Group’s effective interest		6,797,152		(3,599,038	)		3,198,114		6,463,076		632,127
2009
100 per cent		25,558,995		(13,671,420	)		11,887,575		17,881,950		922,218
Group’s effective interest		6,162,828		(3,522,197	)		2,640,631		3,850,409		218,862

For the periods presented, no adjustments have been made (or are necessary) to conform the associates’ accounting policies to those of the Group as there are no material differences between the accounting policies adopted by the associates and the Group.

F-44

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

22. LOANS AND BORROWINGS

Short-term debts consist of:

	December 31,
	2009		2010
Current portion of long-term bank loans		74,275		100,000
Corporate bonds (note a)		1,000,000		1,000,000
Short-term bank loans		6,460,398		2,885,438
Loans from a related party		240,000		410,000
		7,774,673		4,395,438

The Group’s short-term debts are used primarily to finance working capital needs. At December 31, 2010, no loans and borrowings were secured by the way of pledge of property, plant and equipment (2009: nil). The Group’s weighted average short-term interest rates were 3.32% and 2.34% at December 31, 2009 and 2010, respectively.

Note (a):

The Company issued RMB 1 billion 365-day unsecured corporate bonds to corporate investors in the PRC inter-bank debenture market on June 23, 2010. The bonds were issued at 100% of face value, with an effective yield of 3.27% per annum, and mature on June 23, 2011.

F-45

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

22. LOANS AND BORROWINGS (continued)

The Group’s long-term debts, which are for the addition of plant and equipment and working capital purposes, consist of:

	Interest rate  at December 31, 2010			Interest type		December 31,
						2009			2010
Arranged by the Company:
Renminbi denominated:
Due in 2011		5.10	%		Floating		100,000			100,000
Due in 2013		5.36	%		Floating		200,000			175,000
Arranged by subsidiaries:
U.S. Dollar denominated:
Payable annually through 2011		Interest free			—		9,833			—
Renminbi denominated:
Payable annually through 2010		Interest free			—		61,500			—
Payable annually through 2011		Interest free			—		7,200			—
Total long-term debt outstanding							378,533			275,000
Less: Amounts due within one year							(74,275	)		(100,000	)
Amounts due after one year							304,258			175,000

Included in short-term and long-term debts are the following amounts denominated in currencies other than the functional currency of the entity to which they relate:

	December 31,
	2009		2010
United States Dollars		USD 886,007		USD 381,935

F-46

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

23 AMOUNTS DUE FROM / TO RELATED PARTIES

Amounts due from / to related parties are unsecured and interest free (see note 28(c)).

24. SHARE CAPITAL

Share capital represents:

	December 31,
	2009		2010
Registered, issued and paid up capital:
4,870,000,000 A shares of RMB 1.00 each		4,870,000		4,870,000
2,330,000,000 H shares of RMB 1.00 each		2,330,000		2,330,000
		7,200,000		7,200,000

All the A and H shares rank pari passu in all respects.

Capital management

Management optimises the structure of its capital, comprising equity and loans. In order to maintain or adjust the capital structure, management may cause the Group to issue new shares, adjust the capital expenditure plan, sell assets to reduce debt, or adjust the proportion of short-term and long-term loans. Management monitors capital on the basis of debt-to-equity ratio, which is calculated by dividing loans and borrowings by the total equity attributable to equity shareholders of the Company, and liability-to-asset ratio, which is calculated by dividing total liabilities by total assets. Management’s strategy is to make appropriate adjustments according to the operating and investment needs and changes in market conditions, and to maintain the debt-to-equity ratio and the liability-to-asset ratio at a range considered reasonable by management. As at December 31, 2010, the debt-to-equity ratio and the liability-to-asset ratio of the Group were 26.03% (2009: 53.84%) and 37.62% (2009: 48.85%), respectively.

The schedule of the contractual maturities of loans and commitments are disclosed in notes 22 and 26, respectively.

There were no changes in the management approach to capital management of the Group during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

F-47

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

25. RESERVES

Movements on reserves comprise:

	2009			2010
Share premium (note a)
Balance at January 1 and December 31		2,420,841			2,420,841
Statutory surplus reserve (note b)
Balance at January 1		3,485,894			3,521,252
Appropriation (note b)		35,358			279,548
Balance at December 31 (note b)		3,521,252			3,800,800
Capital reserve (note c)
Balance at January 1 and December 31		4,180			4,180
Discretionary surplus reserve (note d)
Balance at January 1 and December 31		1,280,514			1,280,514
Excess over share capital (note e)
Balance at January 1 and December 31		(148,604	)		(148,604	)
Fair value reserve (note f)
Balance at January 1		82,903			—
Other comprehensive income for the year(note 13(b))		(82,903	)		—
Balance at December 31		—			—
Retained earnings/ (accumulated losses) (note g)
Balance at January 1		(828,795	)		726,835
Net income for the year attributable to the equity shareholders of the Company		1,590,988			2,771,646
Dividend approved in respect of previous year		—			(216,000	)
Appropriation		(35,358	)		(279,548	)
Balance at December 31		726,835			3,002,933
		7,805,018			10,360,664

Note (a):

The application of the share premium account is governed by Sections 178 and 179 of the PRC Company Law.

F-48

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

25. RESERVES (continued)

Note (b):

According to the Company’s Articles of Association, the Company is required to transfer 10% of the Company’s profit after taxation, as determined under China Accounting Standards for Business Enterprises, to a statutory surplus reserve. The transfer to this reserve is made before distribution of a dividend to shareholders.

The statutory surplus reserve can be used to make good of previous years’ losses, if any, and may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital.

Note (c):

This reserve represents gifts or grants received from China Petrochemical Corporation, the ultimate parent company and which are required to be included in this reserve fund by PRC regulations.

Note (d):

The transfer to this reserve from the retained profits is subject to the approval by shareholders at general meetings. Its usage is similar to that of statutory surplus reserve.

Note (e):

Effective from January 1, 2002, land use rights which are included in lease prepayments are carried at historical cost. Accordingly, the surplus on the revaluation of land use rights is reversed to shareholders’ equity. Under China Accounting Standards for Business Enterprises, land use rights are carried at revalued amounts.

Note (f):

The fair value reserve comprises the unrealized gain or loss of available-for-sale financial assets, net of deferred tax, held at the balance sheet date.

Note (g):

According to the Company’s Articles of Association, the reserve available for distribution is the lower of the amount determined under China Accounting Standards for Business Enterprises and the amount determined under IFRS. Final dividend of RMB 720,000 (2009: RMB 216,000) in respect of the financial year 2010 was declared after the balance sheet date.

F-49

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

26. COMMITMENTS AND CONTINGENCIES

(a) Capital commitments

The Group had capital commitments outstanding at December 31 not provided for in the financial statements as follows:

	December 31,
	2009		2010
Property, plant and equipment
Contracted but not provided for		35,745		887,928
Authorized by the Board but not contracted for		7,754,320		6,110,386
		7,790,065		6,998,314

(b) Contingent liabilities

(i) Income tax differences

In June 2007, the State Administrative of Taxation issued a tax circular (Circular No.664) to the local tax authorities requesting the relevant local tax authorities to rectify the applicable enterprise income tax (“EIT”) for nine listed companies, which included the Company. After the notice was issued, the Company was required by the relevant tax authority to settle the EIT for 2007 at a rate of 33 percent. To date, the Company has not been requested by the tax authorities to pay additional EIT in respect of any years prior to 2007. There is no further development of this matter during the year ended December 31, 2010. No provision has been made in the financial statements at December 31, 2010 for this uncertainty because management believes it is not probable that the Group will be required to pay additional EIT for tax years prior to 2007.

(ii) Except for the above, there are no contingent liabilities for which the possibility of any outflow of resources is other than remote and the Group is not a party to any business operation contingencies.

F-50

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

27. RETIREMENT SCHEMES

As stipulated by the regulations of the PRC, the Group participates in a defined contribution retirement plan organized by the Shanghai Municipal Government for its staff. The Group is required to make contributions to the retirement plan at a rate of 22% of the salaries, bonuses and certain allowances of its staff in 2010 (2009: 22%).

In addition, pursuant to a document “Lao Bu Fa (1995) No.464” dated December 29, 1995 issued by the Ministry of Labor of the PRC, the Group has set up a supplementary defined contribution retirement plan for the benefit of employees. Employees who have served the Group for five years or more may participate in this plan. The Group and participating employees make defined contributions to their pension saving accounts according to the plan. The assets of this plan are held separately from those of the Group in an independent fund administered by a committee consisting of representatives from the employees and the Group.

A member of the above plans is entitled to a pension amount equal to a fixed proportion of the salary prevailing at his or her retirement date. Both the Group and participating employees make defined contributions to the above two retirement plans. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above. For the year ended December 31, 2010, the Group’s contribution to the above two plans amounted to RMB 209,752 and RMB 57,867 respectively (2009: RMB 192,791 and RMB 49,513 respectively; 2008: RMB 199,135 and RMB 54,862 respectively).

28. RELATED PARTY TRANSACTIONS

The following is a list of the Group’s major related parties:

Names of related parties	Relationship with the Company
China Petrochemical Corporation (“Sinopec Group Company”)	Ultimate parent company
China Petroleum & Chemical Corporation (“Sinopec Corp”)	Immediate parent company
Sinopec Huadong Sales Company Limited	Subsidiary of the immediate parent company
China International United Petroleum and Chemical Company Limited	Subsidiary of the immediate parent company
China Petrochemical International Company Limited	Subsidiary of the immediate parent company
Sinopec Yizheng Chemical Fiber Company Limited	Subsidiary of the immediate parent company
Sinopec Finance Company Limited (“Sinopec Finance”)	Subsidiary of the ultimate parent company
Sinopec Storage and Transportations Company Limited	Subsidiary of the ultimate parent company
Shanghai Secco Petrochemical Co., Ltd.	Associate
BOC-SPC Gases Co., Ltd.	Jointly controlled entity

F-51

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

28. RELATED PARTY TRANSACTIONS (continued)

(a) Most of the transactions undertaken by the Group during the year ended December 31, 2010 have been affected on such terms as determined by Sinopec Corp and relevant PRC authorities.

Sinopec Corp negotiates and agrees the terms of crude oil supply with suppliers on a group basis, which is then allocated among its subsidiaries, including the Group, on a discretionary basis. Sinopec Corp also owns a widespread petroleum products sales network and possesses a fairly high market share in domestic petroleum products market, which is subject to extensive regulation by the PRC government.

The Group has entered into a mutual product supply and sales services framework agreement with Sinopec Corp. Pursuant to the agreement, Sinopec Corp provides the Company with crude oil, other petrochemical raw materials and agent services. On the other hand, the Company provides Sinopec Corp with petroleum products, petrochemical products and property leasing services.

The pricing policy for these services and products provided under the agreement is as follows:

• if there are applicable State (central and local government) tariffs, the pricing shall follow the State tariffs;

• if there are no State tariffs, but there are applicable State’s guidance prices, the pricing shall follow the State’s guidance prices; or

• if there are no State tariffs or State’s guidance prices, the pricing shall be determined in accordance with the prevailing market prices (including any bidding prices).

Transactions between the Group and Sinopec Corp, its subsidiaries and jointly controlled entities were as follows:

	Years ended December 31,
	2008		2009		2010
Sales of petroleum products		24,698,143		20,299,415		30,352,483
Sales other than petroleum products		3,168,697		5,383,416		8,982,711
Purchases of crude oil		37,790,324		20,332,851		24,555,912
Purchases other than crude oil		3,180,084		2,510,323		7,296,474
Sales commissions		146,137		116,441		168,896
Rental income		19,009		20,213		26,942

F-52

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

28. RELATED PARTY TRANSACTIONS (continued)

(b) Other transactions between the Group and Sinopec Group Company and its subsidiaries, associates and jointly controlled entities of the Group were as follows:

	Years ended December 31,
	2008		2009		2010
Sales of goods and service income
- Sinopec Group Company and its subsidiaries		508,308		131,117		307,658
- Associates and jointly controlled entities of the Group		1,533,138		1,351,675		1,279,154
		2,041,446		1,482,792		1,586,812
Purchases
- Sinopec Group Company and its subsidiaries		31,005		—		45,773
- Associates and jointly controlled entities of the Group		2,641,990		1,952,846		5,702,541
		2,672,995		1,952,846		5,748,314
Insurance premiums
- Sinopec Group Company and its subsidiaries		93,587		88,408		96,712
Interest income
- Sinopec Finance		649		532		570
Loans borrowed
- Sinopec Finance		543,000		2,353,000		5,160,000
Loans repayment
- Sinopec Finance		1,488,300		2,643,000		4,990,000
Interest expense
- Sinopec Finance		26,682		26,423		29,029
Construction and installation fees
- Sinopec Group Company and its subsidiaries		114,878		165,204		88,586
Financial guarantees issued		25,747		—		—

The directors of the Company are of the opinion that the transactions with Sinopec Corp, its subsidiaries and jointly controlled entities, Sinopec Group Company and its subsidiaries, associates and jointly controlled entities of the Group as disclosed in notes 28(a) and 28(b) were conducted in the ordinary course of business, on normal commercial terms and in accordance with the agreements governing such transactions.

F-53

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

28. RELATED PARTY TRANSACTIONS (continued)

(c) The relevant amounts due from/to Sinopec Corp, its subsidiaries and jointly controlled entities, Sinopec Group Company and its subsidiaries, associates and jointly controlled entities of the Group, arising from purchases, sales and other transactions as disclosed in notes 28(a) and 28(b), are summarized as follows:

	December 31,
	2009		2010
Amounts due from related parties
- Sinopec Corp, its subsidiaries and jointly controlled entities		523,236		686,097
- Sinopec Group Company and its subsidiaries		2,174		12,823
- Associates and jointly controlled entities of the Group		50,989		77,314
Total		576,399		776,234
Amounts due to related parties
- Sinopec Corp, its subsidiaries and jointly controlled entities		3,246,147		1,588,791
- Sinopec Group Company and its subsidiaries		41,209		41,688
- Associates and jointly controlled entities of the Group		200,289		170,512
Total		3,487,645		1,800,991
Cash deposits, maturing within 3 months
- Sinopec Finance		957		6,870
Short-term loans
- Sinopec Finance		240,000		410,000

F-54

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

28. RELATED PARTY TRANSACTIONS (continued)

(d) Key management personnel compensation and post-employment benefit plans

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors and supervisors of the Group. The key personnel compensations are as follows:

	Years ended December 31,
	2008		2009		2010
Short-term employee benefits		5,008		6,019		6,318
Post-employment benefits		95		102		190
		5,103		6,121		6,508

Post-employment benefits are included in “contributions to defined contribution retirement plans” as disclosed in note 28(e).

(e) Contributions to defined contribution retirement plans

The Group participates in defined contribution retirement plans organized by municipal governments for its staff. The contributions to defined contribution retirement plans are as follows:

	Years ended December 31,
	2008		2009		2010
Municipal retirement scheme costs (note 27)		199,135		192,791		209,752
Supplementary retirement scheme costs (note 27)		54,862		49,513		57,867

At December 31, 2008, 2009 and 2010, there was no material outstanding contribution to the above defined contribution retirement plans.

F-55

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

28. RELATED PARTY TRANSACTIONS (continued)

(f) Transactions with other state-owned entities in the PRC

The Group is a state-controlled enterprise and operates in an economic regime currently dominated by entities directly or indirectly controlled by the PRC government (collectively referred as “state-controlled entities”) through its government authorities, agencies, affiliations and other organizations.

Apart from transactions with related parties, the Group has transactions with other state-controlled entities include but are not limited to the following:

• sales and purchase of goods and ancillary materials;

• rendering and receiving services;

• lease of assets, purchase of property, plant and equipment;

• placing deposits and obtaining finance; and

• use of public utilities.

These transactions are conducted in the ordinary course of the Group’s business on terms comparable to those with other entities that are not state controlled. The Group has established its procurement policies, pricing strategy and approval process for purchases and sales of products and services which do not depend on whether the counterparties are state-controlled entities or not.

Having considered the transactions potentially affected by related party relationships, the entity’s pricing strategy, procurement policies and approval processes, and the information that would be necessary for an understanding of the potential effect of the related party relationship on the financial statements, the directors are of the opinion that the following transactions require disclosure of the related amounts.

(i) Transactions with other state-controlled energy and chemical companies

The Group’s major domestic suppliers of crude oil are China National Offshore Oil Corporation and its subsidiaries and Sinochem Group and its subsidiaries, which are state-controlled entities.

During the years ended December 31, 2008, 2009 and 2010, the aggregate amount of crude oil purchased by the Group from the above state-controlled energy and chemical companies are as follows:

	Years ended December 31,
	2008		2009		2010
Purchases of crude oil		11,460,909		7,643,780		13,474,022

Prepayments due to the above state-controlled energy and chemical companies are RMB 48,891 as at December 31, 2010 (2009: nil).

F-56

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

28. RELATED PARTY TRANSACTIONS (continued)

(g) Transactions with other state-owned entities in the PRC (continued)

(ii) Transactions with state-controlled banks

The Group deposits its cash with several state-controlled banks in the PRC. The Group also obtains short-term and long-term loans from these banks in the ordinary course of business. The interest rates of the bank deposits and loans are regulated by the People’s Bank of China. The Group’s interest income from and interest expense to these state-controlled banks in the PRC are as follows:

	Years ended December 31,
	2008		2009		2010
Interest income		59,249		18,873		36,805
Interest expense		531,289		272,248		191,460

The amounts of cash deposited at and loans from state-controlled banks in the PRC are summarized as follows:

	December 31,
	2009		2010
Cash and cash equivalents at state-controlled banks in the PRC		124,960		93,240
Short-term loans and current portion of long-term loans		6,460,398		2,985,438
Long-term loans excluding current portion of long-term loans		300,000		175,000
Total loans from state-controlled banks in the PRC		6,760,398		3,160,438

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

29. SEGMENT REPORTING

The Group manages its business by divisions, which are organized by business lines. In view of the fact that the Company and its subsidiaries operate mainly in the PRC, no geographical segment information is presented.

In a manner consistent with the way in which information is reported internally to the Group’s chief operating decision maker for the purposes of resource allocation and performance assessment, the Group has identified the following four reportable segments. No operating segments have been aggregated to form the following reportable segments.

The Group principally operates in four operating segments: synthetic fibers, resins and plastics, intermediate petrochemicals and petroleum products. All of the Group’s products are produced through intermediate steps from the principal raw material of crude oil. The specific products of each segment are as follows:

(a) The synthetic fibers segment produces primarily polyester and acrylic fibers mainly used in the textile and apparel industries.

(b) The resins and plastics segment produces primarily polyester chips, low density polyethylene resins and films, polypropylene resins and PVA granules. The polyester chips are used in the processing of polyester fibers and construction coating materials and containers. Low density polyethylene resins and plastics are used in cable jacketing, sheeting, the manufacture of moulded products, such as housewares and toys and for agricultural and packaging uses. Polypropylene resins are used in the manufacturing of extruded films or sheets and injection moulded products such as housewares, toys and household electric appliance and automobile parts.

(c) The intermediate petrochemicals segment primarily produces ethylene and benzene. Most of the intermediate petrochemicals produced by the Group are used by the Group as raw materials in the production of other petrochemicals, resins, plastics and synthetic fibers. A portion of the intermediate petrochemicals as well as certain by-products of the production process are sold to outside customers.

(d) The Group’s petroleum products segment has crude oil distillation facilities used to produce vacuum and atmospheric gas oils used as feedstocks of the Group’s downstream processing facilities. Residual oil and low octane gasoline fuels are produced primarily as a co-product of the crude oil distillation process. A proportion of the residual oil is further processed into qualified refined gasoline and diesel oil. In addition, the Group produces a variety of other transportation, industrial and household heating fuels, such as diesel oils, jet fuels, heavy oils and liquefied petroleum gases.

F-58

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Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

29. SEGMENT REPORTING (continued)

(e) All other operating segments represent the operating segments which do not meet the quantitative threshold for determining reportable segments. These include sales of consumer products and services and a variety of other commercial activities, which are not allocated to the above four operating segments.

(a) Segment results, assets and liabilities

In accordance with IFRS 8, segment information disclosed in the annual financial statements has been prepared in a manner consistent with the information used by the Group’s chief operating decision maker for the purposes of assessing segment performance and allocating resources of the segments. In this regard, the Group’s chief operating decision maker monitors the results, assets and liabilities attributable to each reportable segment on the following bases:

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise interest in associates or jointly controlled entities, deferred tax assets, cash and cash equivalents, investment property and related revenues (such as share of profit of associates and jointly controlled entities, interest income and investment income), interest-bearing loans, borrowings and interest expense, and corporate assets and expenses.

Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year.

F-59

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

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Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

29. SEGMENT REPORTING (continued)

(b) Reportable information on the Group’s operating segments is as follows:

Sales and other income

	Years ended December 31,
	2008			2009			2010
Manufactured Products
Synthetic Fibers
External sales		3,670,362			2,860,851			3,955,396
Intersegment sales		73			57			82
Total		3,670,435			2,860,908			3,955,478
Resins and Plastics
External sales		14,880,659			12,407,738			15,065,276
Intersegment sales		53,065			44,245			118,699
Total		14,933,724			12,451,983			15,183,975
Intermediate Petrochemicals
External sales (note a)		10,296,256			8,511,347			17,399,592
Intersegment sales (note b)		17,801,810			12,165,836			18,583,283
Total		28,098,066			20,677,183			35,982,875
Petroleum Products
External sales (note a)		28,372,037			22,936,392			33,734,607
Intersegment sales		2,153,355			1,762,391			2,678,172
Other income		2,312,227			—			—
Total		32,837,619			24,698,783			36,412,779
All others
External sales (note a)		3,007,545			4,941,601			7,365,828
Intersegment sales		2,720,112			2,589,206			2,567,305
Total		5,727,657			7,530,807			9,933,133
Elimination of intersegment sales		(22,728,415	)		(16,561,735	)		(23,947,541	)
Consolidated sales and other income		62,539,086			51,657,929			77,520,699

F-60

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

29. SEGMENT REPORTING (continued)

Sales and other income (continued)

	Years ended December 31,
	2008			2009			2010
Segment (loss)/profit
Synthetic Fibers		(1,651,458	)		11,423			435,594
Resins and Plastics		(2,176,731	)		844,325			991,091
Intermediate Petrochemicals		(42,654	)		190,761			365,124
Petroleum Products		(3,945,873	)		804,871			1,140,268
All others		(548	)		172,096			35,015
		(7,817,264	)		2,023,476			2,967,092
Net financing costs		(330,438	)		(321,149	)		(95,219	)
Investment income		131,772			222,810			215
Share of profits of associates and jointly controlled entities		1,492			241,372			661,288
(Loss)/earnings before income tax		(8,014,438	)		2,166,509			3,533,376

Note (a): External sales include sales to Sinopec Corp, its subsidiaries and jointly controlled entities as follows:

	Years ended December 31,
	2008		2009		2010
Sales to Sinopec Corp, its subsidiaries and jointly controlled entities
Intermediate Petrochemicals		3,168,697		2,149,576		3,838,121
Petroleum Products		24,698,143		20,299,415		30,352,483
All others		—		3,233,840		5,144,590
Total		27,866,840		25,682,831		39,335,194

Note (b): Intermediate Petrochemicals’ intersegment sales for each of the other reportable segments are as follows:

	Years ended December 31,
	2008		2009		2010
Synthetic fibers		3,302,959		2,721,968		3,366,715
Resins and plastics		14,196,799		9,200,552		14,938,149
Petroleum products		302,052		243,316		278,419
Total		17,801,810		12,165,836		18,583,283

F-61

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

29. SEGMENT REPORTING (continued)

	December 31,
	2009		2010
Assets
Segment assets
Synthetic Fibers		1,497,295		1,279,077
Resins and Plastics		1,628,238		1,365,165
Intermediate Petrochemicals		6,973,974		6,876,401
Petroleum Products		12,034,731		11,671,875
All others		2,081,466		2,562,533
Total segment assets		24,215,704		23,755,051
Interest in associates and jointly controlled entities		2,749,646		3,316,290
Unallocated:
(including cash and cash equivalents, other investments, deferred tax assets, investment property and lease prepayments and other assets)		2,943,136		1,497,401
Consolidated assets		29,908,486		28,568,742
	December 31,
	2009		2010
Liabilities
Segment liabilities
Synthetic Fibers		238,911		261,801
Resins and Plastics		1,035,855		997,145
Intermediate Petrochemicals		710,695		1,151,650
Petroleum Products		4,123,220		3,263,676
All others		412,273		487,532
Total segment liabilities		6,520,954		6,161,804
Loans and borrowings
-current		7,774,673		4,395,438
Loans and borrowings
-non-current		304,258		175,000
Income tax payable		9,298		15,983
Consolidated liabilities		14,609,183		10,748,225

F-62

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

29. SEGMENT REPORTING (continued)

	Years ended December 31,
	2008		2009		2010
Depreciation and amortization
Synthetic Fibers		223,146		223,924		224,390
Resins and Plastics		350,563		350,669		350,728
Intermediate Petrochemicals		560,086		571,369		574,173
Petroleum Products		339,068		341,126		343,379
All others		162,374		164,541		165,366
Segment depreciation and amortization		1,635,237		1,651,629		1,658,036
Unallocated		13,440		13,261		13,256
Consolidated depreciation and amortization		1,648,677		1,664,890		1,671,292
	Years ended December 31,
	2008		2009		2010
Impairment losses on long-lived assets
Synthetic Fibers		440,351		75,140		92,000
Resins and plastics		23,010		—		26,300
Intermediate petrochemicals		—		—		119,900
All others		—		23,346		—
Consolidated impairment losses on long-lived assets		463,361		98,486		238,200
	Years ended December 31,
	2008		2009		2010
Total capital expenditures for segment long-lived assets
Synthetic Fibers		73,653		98,668		154,149
Resins and Plastics		6,484		16,913		15,179
Intermediate Petrochemicals		1,175,451		1,324,081		197,774
Petroleum Products		58,374		397,482		825,494
All others		197,110		283,148		164,250
Capital expenditures for segment long-lived assets		1,511,072		2,120,292		1,356,846

F-63

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

30. ACCOUNTING JUDGEMENTS AND ESTIMATES

The Group’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the financial statements. Management bases the assumptions and estimates on historical experience and on various other assumptions that management believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the financial statements. The principal accounting policies are set forth in note 2. Management believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the financial statements.

Impairments for long lived assets

If circumstances indicate that the net book value of a long-lived asset may not be recoverable, the asset may be considered “impaired”, and an impairment loss may be recognized in accordance with IAS 36 “Impairment of Assets”. Long-lived assets are reviewed for impairment at the end of each reporting period or whenever events or changes in circumstance have indicated that their carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. For goodwill, the recoverable amount is estimated annually. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for the Group’s assets or cash-generating units are not readily available. In determining the value in use, expected cash flows generated by the asset or the cash-generating unit are discounted to their present value, which requires significant judgement relating to level of sale volume, selling price and amount of operating costs. The Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sale volume, selling price and amount of operating costs.

Depreciation

Property, plant and equipment, are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. The Group reviews the estimated useful lives of the assets annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Group’s historical experience with similar assets, taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

F-64

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

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Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

30. ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)

Impairment for bad and doubtful debts

Management estimates impairment losses for bad and doubtful debts resulting from the inability of the customers to make the required payments. Management bases the estimates on the ageing of the accounts receivable balance, customer credit-worthiness, and historical write-off experience. If the financial condition of the customers were to deteriorate, actual impairment losses would be higher than estimated.

Allowance for diminution in value of inventories

If the costs of inventories fall below their net realisable values, an allowance for diminution in value of inventories is recognized. Net realisable value represents the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Management bases the estimates on all available information, including the current market prices of the finished goods and raw materials, and historical operating costs. If the actual selling prices were to be lower or the costs of completion were to be higher than estimated, the actual allowance for diminution in value of inventories could be higher than estimated.

Recognition of deferred tax assets

Deferred tax assets are recognized in respect of temporary deductible differences and the carryforward of unused tax losses. Management recognizes deferred tax assets only to the extent that it is probable that future taxable profit will be available against the assets which can be realized or utilized. At the end of each reporting period, management assesses whether previously unrecognized deferred tax assets should be recognized. The Group recognizes a previously unrecognized deferred tax asset to the extent that it is probable that future taxable profit will allow the deferred tax asset to be utilized. In addition, management assesses the carrying amount of deferred tax assets that are recognized at the end of each reporting period. The Group reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available for the deferred tax asset to be utilized.

In making the assessment of whether it is probable the Group will realize or utilize the deferred tax assets, management primarily relies on the generation of future taxable income to support the recognition of deferred tax assets. In order to fully utilize the deferred tax assets recognized at December 31, 2010, the Group would need to generate future taxable income of at least RMB 3,310 million, of which RMB 2,606 million is required to be generated by 2013 prior to the expiration of the unused tax losses. Based on estimated forecast and historical experience, management believes that it is probable that the Group will generate sufficient taxable income before the unused tax losses expire.

F-65

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

31. FINANCIAL INSTRUMENTS

Overview

Financial assets of the Group include cash and cash equivalents, other investments, trade debtors, bills receivable, derivative financial instruments, other debtors and amounts due from related parties. Financial liabilities of the Group include loans and borrowings, trade creditors, bills payable, other creditors and amounts due to related parties.

The Group has exposure to the following risks from its use of financial instruments:

• credit risk;

• liquidity risk; and

• market risk

The Board of Directors has overall responsibility for the establishment, oversight of the Group’s risk management framework, and developing and monitoring the Group’s risk management policies.

The Group’s risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Internal audit department undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Group’s audit committee.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s deposits placed with financial institutions and receivables from customers. The majority of the Group’s trade debtors and amounts due from related parties relate to sales of petroleum and chemical products to third parties and related parties operating in the petroleum and chemical industries. Management performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade debtors and related parties. The Group maintains an impairment loss for doubtful accounts and actual losses have been within management’s expectations. The details of the Group’s credit policy and quantitative disclosures in respect of the Group’s exposure on credit risk for trade debtors are set out in note 16.

The carrying amounts of other investments, trade debtors, bills receivable, other debtors, and amounts due from related parties, represent the Group’s maximum exposure to credit risk in relation to financial assets.

F-66

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

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Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

31. FINANCIAL INSTRUMENTS (continued)

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Management’s approach in managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Management prepares monthly cash flow budget to ensure that they will always have sufficient liquidity to meet its financial obligation as they fall due. Management arranges and negotiates financing with financial institutions and maintains a certain level of standby credit facilities to reduce the liquidity risk.

At December 31, 2010, the Group’s current liabilities exceeded its current assets by RMB 2,041,384 (2009: RMB 5,243,500). In 2010, the liquidity of the Group is primarily dependent on its ability to maintain adequate cash inflow from operations, the renewal of its short-term bank loans and on its ability to obtain adequate external financing, including the issuance of short-term corporate bonds, to support its working capital and meet its debt obligation when they become due. At December 31, 2010, the Group has standby credit facilities with several PRC financial institutions which provide the Group to borrow up to RMB 9,300,000 (2009: RMB 9,100,000) on an unsecured basis. At December 31, 2010, the Group’s outstanding borrowings under these facilities were RMB 2,363,336 (2009: RMB 4,458,044) and were included in short-term bank loans.

Management has carried out a detailed review of the cash flow forecast of the Group for the twelve months ending December 31, 2010. Based on such forecast, management believes that adequate sources of liquidity exist to fund the Group’s working capital and capital expenditure requirements, and meet its short term debt obligations as they become due. In preparing the cash flow forecast, management has considered historical cash requirements of the Group as well as other key factors, including the availability of the above-mentioned banking facilities which may impact the operations of the Group during the next twelve-month period. Management is of the opinion that the assumptions used in the cash flow forecast are reasonable.

The following table sets out the remaining contractual maturities at the balance sheet date of the Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on prevailing rates current at the balance sheet date) and the earliest date the Group would be required to repay:

F-67

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

31. FINANCIAL INSTRUMENTS (continued)

Liquidity risk (continued)

	2009
	Carrying amount		Total contractual undiscounted cash flow			Within 1 year or on demand			More than 1 year but less than 2 years			More than 2 years but less than 5 years
Loans and borrowings (current)		7,774,673		(7,884,195	)		(7,884,195	)		—			—
Loans and borrowings (non-current)		304,258		(355,936	)		(15,471	)		(119,729	)		(220,736	)
Trade creditors		1,521,319		(1,521,319	)		(1,521,319	)		—			—
Bills payable		112,271		(112,271	)		(112,271	)		—			—
Other creditors		1,399,719		(1,399,719	)		(1,399,719	)		—			—
Amounts due to related parties		3,487,645		(3,487,645	)		(3,487,645	)		—			—
		14,599,885		(14,761,085	)		(14,420,620	)		(119,729	)		(220,736	)
	2010
	Carrying amount		Total contractual undiscounted cash flow			Within 1 year or on demand			More than 1 year but less than 2 years			More than 2 years but less than 5 years
Loans and borrowings (current)		4,395,438		(4,518,600	)		(4,518,600	)		—			—
Loans and borrowings (non-current)		175,000		(203,161	)		(9,387	)		(9,387	)		(184,387	)
Trade creditors		2,376,452		(2,376,452	)		(2,376,452	)		—			—
Bills payable		41,034		(41,034	)		(41,034	)		—			—
Other creditors		1,943,327		(1,943,327	)		(1,943,327	)		—			—
Amounts due to related parties		1,800,991		(1,800,991	)		(1,800,991	)		—			—
		10,732,242		(10,883,565	)		(10,689,791	)		(9,387	)		(184,387	)

F-68

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

31. FINANCIAL INSTRUMENTS (continued)

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

(a) Currency risk

Currency risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The Group’s currency risk exposure primarily relates to short-term and long-term debts denominated in US dollars.

The following table details the Group’s exposure at the balance sheet date to currency risk mainly arising from loans and borrowings denominated in a currency other than the functional currency of the entity to which they relate.

	December 31,
	2009			2010
Gross exposure arising from loans and borrowings		USD (886,007	)		USD (381,935	)

A 5 percent strengthening of Renminbi against the USD at December 31, 2010 would have increased net income for the year and retained earnings of the Group by approximately RMB 94,854 (2009: RMB 226,869; 2008: RMB 35,905). This analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to the foreign currency balances to which the Group has significant exposure as stated above, and that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2009 and 2008.

Other than the amounts as disclosed above, the amounts of other financial assets and liabilities of the Group are substantially denominated in the functional currency of respective entity of the Group.

F-69

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

31. FINANCIAL INSTRUMENTS (continued)

Market risk (continued)

(b) Interest rate risk

The Group’s interest rate risk exposure arises primarily from its short-term and long-term loans. Loans carrying interest at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates of loans and borrowings of the Group are disclosed in note 22.

As at December 31, 2010, it is estimated that a general increase / decrease of 100 basis points in variable interest rates, with all other variables held constant, would decrease / increase the Group’s net income for the year and retained earnings by approximately RMB 19,808 (2009: RMB 43,444; 2008: RMB 42,341). This sensitivity analysis has been determined assuming that the change in interest rates had occurred at the balance sheet date and the change was applied to the Group’s debts outstanding at that date with exposure to cash flow interest rate risk. The analysis is performed on the same basis for 2009 and 2008.

Fair value

The disclosures of the fair value estimates, methods and assumptions, set forth below for the Group’s financial instruments, are made to comply with the requirements of IFRS 7 and IAS 39 and should be read in conjunction with the Group’s consolidated financial statements and related notes. The estimated fair value amounts have been determined by management using market information and valuation methodologies considered appropriate. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Group could realize in a current market exchange. The use of different market assumptions and/ or estimation methodologies may have a material effect on the estimated fair value amounts.

F-70

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

31. FINANCIAL INSTRUMENTS (continued)

Fair value (continued)

The fair value of long term loans is estimated by discounting future cash flows thereon using current market interest rates offered to the Group for loans with substantially the same characteristics and maturities ranging from 5.23% to 5.60% (2009: 5.31% to 5.94%). The following table presents the carrying amounts and fair values of the Group’s long term loans at December 31, 2009 and 2010.

	2009				2010
	Carrying amount		Fair value		Carrying amount		Fair value
Liabilities
Long-term loans		378,533		375,233		275,000		273,777

Unquoted equity investments are individually and in the aggregate not material to the Group’s financial condition or results of operations. There are no listed market prices for such interests in the PRC and, accordingly, a reasonable estimate of fair value could not be made without incurring excessive costs.

The fair values of all other financial instruments approximate their carrying amounts due to the short-term maturity of these instruments.

F-71

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

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Notes to Consolidated Financial Statements—(Continued)

(All Renminbi amounts in thousands, except per share data and except otherwise stated)

32. POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE ANNUAL ACCOUNTING PERIOD ENDED DECEMBER 31, 2010

Up to the date of issue of these financial statements, the IASB has issued a number of amendments, Interpretations and one new standard which are not yet effective for the year ended December 31, 2010 and which have not been adopted in these financial statements. These include the following which may be relevant to the Group:

Effective for accounting periods beginning on or after

Revised IAS 24, Related party disclosure	January 1, 2011
IFRS 9, Financial Instruments	January 1, 2013
Improvements to IFRS 2010	July 1, 2010 or January 1, 2011

The Group is in the process of making an assessment of what the impact of these amendments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the Group’s results of operations and financial position.

33. PARENT COMPANIES

The Directors consider the immediate parent company and the ultimate parent company at December 31, 2010 to be China Petroleum & Chemical Corporation and China Petrochemical Corporation, respectively, which are incorporated in the PRC. China Petroleum & Chemical Corporation produces financial statements available for public use.

F-72

Exhibit Index

No.	Exhibit
1.1	Translation of the amended and restated Articles of Association of Sinopec Shanghai Petrochemical Company Limited as approved in the 2009 annual general meeting of Sinopec Shanghai Petrochemical Company Limited on June 23, 2010.
4.1	Translation of the Product Supply and Sales Services Framework Agreement between Sinopec Shanghai Petrochemical Company Limited and China Petroleum & Chemical Corporation as approved in the 2010 extraordinary general meeting of Sinopec Shanghai Petrochemical Company Limited on December 28, 2010.
4.2	Translation of the Comprehensive Services Framework Agreement between Sinopec Shanghai Petrochemical Company Limited and China Petrochemical Corporation as approved in the 2010 extraordinary general meeting of Sinopec Shanghai Petrochemical Company Limited on December 28, 2010.
8	A list of subsidiaries of Sinopec Shanghai Petrochemical Company Limited
12.1	Certification of President Required by Rule 13a-14(a).
12.2	Certification of Chief Financial Officer Required by Rule 13a-14(a).
13.1	Certification of President Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
13.2	Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

EX-1.1

Exhibit 1.1

AMENDED AND RESTATED ARTICLES OF ASSOCIATION

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

ARTICLES OF ASSOCIATION

(As adopted and amended by special resolution of shareholders at the annual general meeting of the Company held on June 15, 1995 and approved by the State Commission for Restructuring the Economic Systems and Securities Commission of the State Council on July 17, 1995)

(As adopted and amended by special resolution of shareholders at the annual general meeting of the Company held on June 15, 1999 and approved by the State Economic & Trade Commission on June 28, 1999)

(As adopted and amended by special resolution of shareholders at the annual general meeting of the Company held on June 15, 2000 and approved by the State Economic & Trade Commission on June 20, 2000)

(As adopted and amended by special resolution of shareholders at the annual general meeting of the Company held on June 18, 2003 and approved by the State-owned Assets Supervision and Administration Commission of the State Council on 13 August 2003)

(As adopted and amended by special resolution of shareholders at the annual general meeting of the Company held on June 18, 2004 and approved by the State-owned Assets Supervision and Administration Commission of the State Council on July 30, 2004)

(As adopted and amended by special resolution of shareholders at the annual general meeting of the Company held on June 28, 2005 and approved by the State-owned Assets Supervision and Administration Commission of the State Council on August 5, 2005)

(As adopted and amended by special resolution of shareholders at the annual general meeting of the Company held on June 15, 2006 and approved by the State-owned Assets Supervision and Administration Commission of the State Council on August 8, 2006)

(As adopted and amended by special resolution of shareholders at the annual general meeting of the Company held on June 19, 2007)

(As adopted and amended by special resolution of shareholders at the annual general meeting of the Company held on June 12, 2008)

(As adopted and amended by special resolution of shareholders at the annual general meeting of the Company held on June 23, 2010)

CONTENTS

CHAPTER 1	GENERAL PROVISIONS	1
CHAPTER 2	PURPOSE AND BUSINESS SCOPE	2
CHAPTER 3	SHARES AND REGISTERED CAPITAL	2
CHAPTER 4	REDUCTION OF CAPITAL AND REPURCHASE OF SHARES	4
CHAPTER 5	FINANCIAL ASSISTANCE FOR ACQUISITION OF SHARES	6
CHAPTER 6	SHARE CERTIFICATES AND SHAREHOLDERS’ REGISTER	7
CHAPTER 7	RIGHTS AND OBLIGATIONS OF SHAREHOLDERS	10
CHAPTER 8	SHAREHOLDERS’ GENERAL MEETINGS	13
CHAPTER 9	SPECIAL PROCEDURES ON CLASS MEETINGS	23
CHAPTER 10	BOARD OF DIRECTORS	25
CHAPTER 11	COMPANY SECRETARY	34
CHAPTER 12	GENERAL MANAGER OF THE COMPANY	36
CHAPTER 13	SUPERVISORY COMMITTEE	37
CHAPTER 14	QUALIFICATIONS AND OBLIGATIONS OF DIRECTORS, SUPERVISORS, MANAGERS AND OTHER SENIOR OFFICERS OF THE COMPANY	39
CHAPTER 15	ACCOUNTING SYSTEM, ALLOCATION OF PROFITS AND AUDIT	46
CHAPTER 16	APPOINTMENT OF A FIRM OF ACCOUNTANTS	49
CHAPTER 17	INSURANCE	50
CHAPTER 18	LABOR MANAGEMENT	50
CHAPTER 19	TRADE UNION ORGANIZATION	51
CHAPTER 20	MERGER AND DIVISION OF THE COMPANY	51
CHAPTER 21	TERMINATION AND LIQUIDATION OF THE COMPANY	52
CHAPTER 22	PROCEDURE FOR AMENDING THE ARTICLES	54
CHAPTER 23	NOTICES	55
CHAPTER 24	RESOLUTION OF DISPUTES	56
CHAPTER 25	SUPPLEMENTARY PROVISIONS	56

ARTICLES OF ASSOCIATION

OF

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

CHAPTER 1 GENERAL PROVISIONS
Article 1	These Articles of Association are formulated in accordance with “The Company Law of the People’s Republic of China” (the “Company Law”), “The Securities Law of the People’s Republic of China” (the “Securities Law”), “The State Council Special Regulations Relating to Issue of Shares and Overseas Listing of Joint Stock Limited Companies” (the “Special Regulations”), “The Mandatory Provisions for Companies Listing Overseas” (the “Mandatory Provisions”), the “Listed Companies Articles of Association Guidelines”, the “Listed Companies Corporate Governance Principles” and other relevant regulations, in order to protect the lawful rights and interests of Sinopec Shanghai Petrochemical Company Limited (the “Company”), its shareholders and creditors, and to regulate its organization and behavior.
	The Company is a joint stock limited company established pursuant to the Company Law, the Special Regulations and other laws and regulations.
	The establishment of the Company was approved by the State Commission for Restructuring the Economic System of the PRC pursuant to the document Ti Gai Sheng (1993) No. 95 by the promoter method. The Company was registered at the Shanghai Administration for Industry and Commerce and was issued an enterprise legal person business license on June 29, 1993. The number of the enterprise legal person business license is 310000000021453.
	The promoter of the Company is Shanghai Petrochemical Complex.
Article 2	The registered name of the Company is:
	Chinese:	中国石化上海石油化工股份有限公司
	Abbreviation:	上海石化
	English:	Sinopec Shanghai Petrochemical Company Limited
	Abbreviation:	SPC
Article 3	The legal address of the Company is: No. 48 Jinyi Road, Jinshan District, Shanghai, People’s Republic of China.
	Chinese:	中国石化上海石油化工股份有限公司
	Telephone number:	(021) 5794 1941
	Facsimile number:	(021) 5794 2267
Article 4	The legal representative of the Company is the chairman of the Company.
Article 5	The Company is a permanently existing joint stock company. The capital of the Company is divided into equal shares. The rights and liabilities of shareholders of the Company are limited to the shares subscribed by them, and the Company is liable for its debts to the extent of its entire assets. The Company is an independent legal person, under the jurisdiction and protection of the laws and regulations of the People’s Republic of China (hereinafter referred to as the “PRC”, and for the purpose of these Articles, excluding Hong Kong, Macau and Taiwan).
Article 6	The Articles of Association were effective from the date of establishment of the Company. As from the effective date of the Articles of Association, these Articles constitute the rules governing the organization and conduct of the Company and become a legally binding document regulating the rights and obligations between the Company and a shareholder and among the shareholders inter se.

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Article 7	The Articles of Association are binding on the Company, its shareholders and its directors, supervisors and senior officers. The aforementioned persons may raise any claims relating to the affairs of the Company in accordance with these Articles. The Company may take action against its directors, supervisors and senior officers in accordance with the Articles. The Company may take action against its shareholders in accordance with these Articles. Shareholders may take action against each other in accordance with the Articles and a shareholder may take action against the Company and its directors, supervisors and senior officers in accordance with these Articles. For the purposes of this Article, “action” includes court proceedings or application for arbitration proceedings. Unless the context otherwise requires, the term “senior officers” referred to in these Articles and the appendices attached hereto means the general managers, deputy general managers, financial officers and the secretary to the board of directors of the Company.
Article 8	The Company may invest in other limited liability companies or joint stock companies and is liable to the amount of the investment in these companies. The company may invest in any other enterprises; provided that, unless the law otherwise requires, the Company shall not act as an investor in any invested enterprise that assumes joint and several liability for the debts owed by such enterprise.
Article 9	Subject to the provisions of PRC laws and administrative regulations, the Company has the power to raise or borrow money, including (without limitation) the power to issue corporate bonds and to mortgage or charge its assets.
Article 10	The Company shall take steps to establish a healthy investor relations management system and also take an initiative to strengthen the communication and exchange with shareholders especially public shareholders in different ways. The secretary to the board of directors of the Company is responsible for the work of investor relations management.
CHAPTER 2 PURPOSE AND BUSINESS SCOPE
Article11	The purpose of the Company shall be to build and operate a diversified industrial company which will be one of the world’s leading petrochemical companies; to promote the development of the petrochemical industry in the PRC through the production of a broad variety of outstanding products; to practice advanced scientific management and apply flexible business principle; and to develop overseas markets for the Company’s product, so that the company and all shareholders may receive reasonable economic benefits.
Article 12	The business scope of the Company is limited to the matters approved by the company registration authority.
	The Company’s scope of business include: crude oil processing, oil products, petrochemical products, synthetic fibers and monomers, plastics and plastic products, raw materials and products for knitting, catalyst preparation and spent solvent reclamation, supply of electricity, heat energy, water and gas, water processing, loading and unloading on railways, river transport, terminals, storage, design, research and development, “Four Technologies” services, property management, leasing, education, media, advertisement production, advertisement publication.
Article 13	The Company may establish subsidiaries and branches, representative offices, business offices and other non-independent legal person branches in accordant with its business development needs.
	Subject to approval by the relevant governmental authorities, the Company may adjust the business and operation scope or investment directions and methods in accordance with PRC domestic and international market trends, the business requirements inside and outside of the PRC and the development capabilities of the Company.
CHAPTER 3 SHARES AND REGISTERED CAPITAL
Article 14	The Company shall have ordinary shares at all times. The ordinary shares issued by the Company shall include domestic shares and foreign shares. The Company may issue other types of shares subject to the approval of the responsible company approval authority as authorized by the State Council and its own requirements.

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Article 15	All the shares issued by the Company shall have par value. The par value shall be one Renminbi each. Renminbi refers to the official currency of the PRC.
Article 16	The stock of the Company takes the form of shares. Upon the approval of the securities regulatory authority of the State Council, the Company may issue shares to investors inside the PRC and investors outside the PRC. The issue of the Company’s stock shall adhere to the principles of openness, fairness and justice. Shares of the same class shall rank pari passu with each other. For the same class of shares offered at the same time, each share shall have the same offer terms and price. For the same class of shares subscribed by any organization or individual under the same offering, the price payable for each of such share shall be the same. The aforementioned investors outside the PRC refer to investors in foreign countries, Hong Kong, Macau and Taiwan regions who subscribe for shares of the Company. Investors inside the PRC refer to investors in the PRC, excluding the aforementioned regions, who subscribe for shares of the Company.
Article 17	Shares issued by the Company investors inside the PRC and subscribed for in Renminbi are referred to as domestic shares. Shares issued by the Company and subscribed for in foreign currency are referred to as foreign shares. Foreign shares listed overseas are referred to as overseas listed foreign shares. The holders of domestic shares and the holders of overseas listed foreign shares are both ordinary shareholders, and have the same rights and obligations.
	The aforementioned foreign currency refers to the official currency of other countries or regions, other than Renminbi, as recognized by the responsible foreign exchange authority of the PRC which can be used for subscribing for shares.
Article 18	The overseas listed foreign shares issued by the Company and listed in Hong Kong are referred to as H shares. H shares are shares which have been approved for listing by The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”), the par value of which is denominated in Renminbi and which are subscribed for and traded in Hong Kong dollars.
Article 19	The domestic shares issued by the Company are held in custody by the China Securities Registration and Clearing Company Limited, Shanghai Branch. The H shares issued by the company are held in custody by Hong Kong Securities Clearing Company Limited.
Article 20	Having been approved by the responsible company approval authority as authorized by the State Council, the Company may issue a total of 7,200,000,000 ordinary shares, or which 4,000,000,000 shares have been issued to the promoter upon its establishment representing 55.56% of the authorized ordinary share capital.
Article 21	After the establishment of the Company, the Company has issued 2,330,000,000 ordinary shares which are overseas listed foreign shares, representing 32.36% of the authorized ordinary share capital. The Company has also issued 870,000,000 ordinary shares to the general public (including the employees of the Company) which are domestic shares representing 12.08% of the authorized ordinary share capital.
	The shareholding structure of the Company after issue of the shares pursuant to the above paragraph is: 7,200,000,000 ordinary shares, of which 4,000,000,000 shares issued at the time of establishment of the Company, 870,000,000 domestic shares listed in the PRC and issued after the establishment of the Company, and 2,330,000,000 overseas listed foreign shares.
Article 22	The plan as to the issue of domestic shares and overseas listed foreign shares as approved by the securities regulatory authority of the State Council shall be implemented and arranged by the directors of the Company.
	The plan as to the issue of domestic shares and overseas listed foreign shares as mentioned above may be implemented within fifteen (15) months from the date of approval by the State Council securities regulatory authority.
Article 23	In issuing the planned shares, the Company shall issue the domestic shares and the overseas listed foreign shares in single tranches respectively. Where there are special circumstances such that the shares cannot be issued in one tranche, the Company may issue the shares in several tranches, subject to the approval of the China Securities Regulatory Commission.
Article 24	The registered capital of the Company shall be RMB7,200,000,000.

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Article 25	As required by its operations and business development, the Company may increase its capital in accordance with the Articles of Association.
	The Company may increase its capital by the following methods:
	(1)     public share offering;
	(2)     non-public share offering;
	(3)     distribution of new shares to existing shareholders;
	(4)     transfer of the capital reserve fund to increase capital;
	(5)     any other means as permitted by law or administrative regulations and approved by the State Council securities regulatory authority.
	In increasing its capital and issuing new shares, following the approval in accordance with the stipulations of the Articles, the Company shall comply with the procedures laid down in the laws, administrative regulations and listing rules and regulations of the PRC and the locale in which the foreign shares are listed overseas.
Article 26	Except as prescribed by applicable laws and administrative regulations, the shares of the Company shall be freely transferable and shall also be free from all lien.
CHAPTER 4 REDUCTION OF CAPITAL AND REPURCHASE OF SHARES
Article 27	The Company may reduce its registered capital in accordance with the Articles. The Company shall comply with the procedures laid down in the Company Law, other relevant regulations and the Articles in reducing its registered capital.
Article 28	The Company shall prepare balance sheet and inventory of assets when it reduces its capital. The Company shall notify its creditors within then (10) days after the resolution to reduce the capital is passed and shall publish a notice in newspapers designated by the relevant regulatory authorities located at the place where the shares of the Company are listed within thirty (30) days after the resolution is passed. The creditors shall have the right to demand for repayment of the debts or for a guarantee for repayment of the debts within thirty (30) days after receiving such notice (or, for creditors who do not receive the notice, within forty-five (45) days from the date on which the notice is published). The share capital shall not be lower than the statutory minimum after the capital reduction. If the Company reduces its registered capital, it shall amend its registration record filed with the registration authorities of the Company in accordance with the law.
Article 29	Subject to the approval by the relevant authority, the Company may repurchase its shares in any of the following circumstances in accordance with the procedure provided in these Articles: (1)     cancellation of shares for reduction of capital; (2)     merger with other companies which hold shares of the Company; (3)     granting shares as incentive compensation to the staff of the Company; (4)     acquiring the shares of shareholders who vote against any resolution adopted at the general meeting of shareholders on the merger or division of the Company; (5)     other circumstances as permitted by law or administrative regulations. The Company shall comply with Articles 30 to 33 in repurchasing its shares. Except in the circumstances set forth above, the Company shall not engage in any activity in connection with trading its own shares.

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Article 30	Upon approval by the relevant authority, the Company may repurchase its shares by one of the following ways:
	(1)     making a general offer to all the shareholders in proportion to their shareholding;
	(2)     purchasing its shares in public on a stock exchange;
	(3)     making an off-market contract;
	(4)     other methods as stipulated by laws or administrative regulations and approved by the Sate Council securities regulatory authorities.
Article 31	The Company may, with the prior sanction of shareholders obtained at the shareholders’ general meeting in accordance with these Articles, repurchase its shares by an off-market contract in accordance with the relevant PRC and overseas regulations; the Company may release, vary or waive its rights under a contract so entered into by the Company with the prior approval of shareholders obtained in the same manner.
	A contract to repurchase shares referred to in the above paragraph includes but is not limited to an agreement to become obliged to repurchase or an acquisition of the right to purchase shares of the Company.
	Rights of the Company under a contract to repurchase its own shares are not capable of being assigned.
Article 32	Unless otherwise required by laws, administrative regulations, rules and regulations of authorized departments or these Articles of Association, if the Company repurchases its own shares pursuant to items (1) to (3) of Article 29 of these Articles of Association, resolutions relating thereto shall be adopted at a general meeting of shareholders. If the Company repurchases its own shares in accordance with the preceding paragraph under the circumstances set forth in item (1) of Article 29, the shares so repurchased shall be cancelled within ten days from the repurchase date. In the event of the circumstances set forth in items (2) and (4) of Article 29, the shares so repurchased shall be transferred or cancelled within six months. If the Company repurchases its own shares in accordance with item (3) of Article 29, the shares so repurchased shall not exceed 5% of the total number of shares issued by the Company. Funds used for any repurchase shall be paid out of the after tax profits of the Company. The repurchased shares shall be transferred to the employees within one year. If shares are required to be cancelled when they are repurchased in accordance with the law, the Company shall apply to the Company’s original registration authorities to register the alteration of the registered capital of the Company. The share capital of the Company shall be reduced by the aggregate par value of the cancelled shares accordingly.
Article 33	Unless the Company is in the course of liquidation, the Company shall comply with the following provisions in repurchasing its shares:
	(1)     where the Company repurchases its shares at face value, payment shall be made out of distributable profits of the Company or out of proceeds of a fresh issue of shares made for that purpose;
	(2)     where the Company repurchases its shares at a premium, payment up to the face value may be made out of distributable profits of the Company or out of proceeds of a fresh issue of shares made for that purpose. Payment of the portion in excess of the face value shall be effected as follows:
	(i)      if the shares being repurchased were issued at face value, payment shall be made out of distributable profits of the Company;
	(ii)     if the shares being repurchased were issued at a premium, payment shall be made out of distributable profits of the Company or out of proceeds of a fresh issue of shares made for that purpose, provided that the amount paid out of proceeds of the fresh issue shall not exceed the aggregate of premiums received by the Company on the issue of the shares repurchased nor the current amount of the Company’s capital reserve fund (including the premiums on the fresh issue);

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	(3)     payment by the Company in consideration for the following shall be made out of distributable profits
	(i)      the acquisition of rights to repurchase shares of the Company;
	(ii)     the variation of any contract to repurchase shares of the Company;
	(iii)   the release of the Company’s obligations under any contract to repurchase shares of the Company;
	(4)     to the extent that shares are repurchased out of distributable profits of the Company, the amount of the Company’s registered share capital reduced shall be transferred to the Company’s capital reserve fund.
CHAPTER 5 FINANCIAL ASSISTANCE FOR ACQUISITION OF SHARES
Article 34	The Company or any of its subsidiaries shall not at any time give any form of Financial Assistance to a person who is acquiring or is proposing to acquire shares in the Company. The person referred to in this paragraph includes any person who directly or indirectly incurs a liability for the purpose of acquiring the Company’s shares.
	Neither the Company nor any of its subsidiaries shall give any form of Financial Assistance to the person for the purpose of lessening or discharging the liability.
	This Article shall not apply to the circumstance under Article 36.
Article 35	For the purposes of this Chapter, “Financial Assistance” includes (but not limited to) the following forms:
	(1)     financial assistance given by way of gift;
	(2)     financial assistance given by way of guarantee (including the provision of an undertaking or assets to secure performance of the obligations by the obligor) or indemnity, other than an indemnity in respect of the Company’s own neglect or default, or by way of release or waiver;
	(3)     financial assistance given by way of a loan or any other agreement under which the obligations of the Company are to be fulfilled before the obligations of another party to the agreement, or by way of the novation of, or the assignment of rights arising under, a loan or such other agreement; or
	(4)     any other financial assistance given by the Company when the Company is insolvent or has not net assets or when its net assets would thereby reduce to a material extent.
	For the purposes of this Chapter, “incurring a liability” includes changing one’s financial position by making an agreement or arrangement (whether enforceable or unenforceable, and whether made on his own account or with any other person) or by any other means.
Article 36	This following transactions are not considered prohibited under Article 34:
	(1)     the provision of Financial Assistance where the Financial Assistance is given in good faith in the interests of the company and the Company’s principal purpose in giving that assistance is not to give it for the purpose of any such acquisition, or the giving of the assistance is but an incidental part of some larger purpose of the Company;
	(2)     a distribution of the Company’s assets by way of dividend lawfully declared;
	(3)     the allotment of bonus shares;
	(4)     a reduction of share capital, a repurchase of shares of the Company, a reorganization of the share capital or other restructuring of the Company effected in compliance with these Articles;
	(5)     the lending of money by the Company in the ordinary course of its business, where the lending of money is part of the scope of business of the Company (only if the Company has net assets which are not thereby reduced or, to the extent that those assets are thereby reduced, if the assistance is provided out of distributable profits);

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	(6)     the provision of money by the Company for contributions to employees’ share schemes (only if the Company has net assets which are not thereby reduced or, to the extent that those assets are thereby reduced, if the assistance is provided out of distributable profits).
CHAPTER 6 SHARE CERTIFICATES AND SHAREHOLDERS’ REGISTER
Article 37	The share certificates of the Company shall be in registered form.
	The share certificates of the Company shall contain the following particulars:
	(1)     the Company name;
	(2)     the date on which the Company was registered as established;
	(3)     the type of shares, the value of the shares and the number of shares represented by the certificate;
	(4)     the serial number of the share certificate;
	(5)     other information as required by the Company Law, the Special Regulations and the stock exchange where the relevant shares are listed.
Article 38	The Company shall have a securities seal in Hong Kong for the purpose of authenticating the issue of H share certificates. The Company’s shares may be transferred, gifted, inherited or pledged in accordance with the stipulations of relevant laws, administrative regulations, rules and regulations of authorized departments and these Articles. The transfer and assignment of shares must be registered with the share registration organ authorized by the Company.
Article 39	The Company does not recognize the use of its shares as the subject of a mortgage.
Article 40	During their terms of office, directors, supervisors and other senior officers of the Company shall periodically report to the Company their shareholdings in the Company and changes therein and shall not transfer more than 25% of such shareholdings per year during their terms of office. The aforesaid persons shall not transfer the shares in the Company held by them within six months from the date on which their resignation from the Company comes into effect.
Article 41	Unless otherwise required by laws, administrative regulations, regulatory authorities or stock exchanges at which the shares of the Company are listed, any gains from any sale of shares of the Company by any director, supervisor, senior officer or shareholder of the Company holding 5% or more of the shares of the Company within six months after their purchase of the same, and any gains from any purchase of shares of the Company by any of the aforesaid parties within six months after sale of the same shall be disgorged and paid to the Company, and the board of directors of the Company shall recover such gains from the abovementioned parties. Notwithstanding so, this six-month limitation shall not apply to any securities company holding 5% or more of the shares of the Company which purchasing of the shareholding is as a result of its underwriting obligation.
	This Article shall apply to legal person shareholders holding 5% or more of the stock of the Company with voting power and Senior Management as stipulated in these Articles, including but not limited to directors, supervisors and general manager.
	If the board of directors of the Company fails to comply with the requirements in accordance with the preceding paragraph, a shareholder shall have the right to request the board of directors to effect the same within thirty days. If the board of directors fails to do so within the said time limit, a shareholder shall have the right to initiate proceedings in the People’s Court directly in his own name for the interests of the Company.
	If the board of directors of the Company fails to comply with the requirements in accordance with the first paragraph, the responsible director or directors shall assume joint and several liability in accordance with the law.

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Article 42	The Company’s share certificates shall be signed by the chairman of the board of directors. If the stock exchange where the shares are listed requires other senior officer’s signature, such signature shall be included. The share certificates shall be effective with affixture of the Company’s seal or a facsimile seal. Authorization from the board of directors is required for affixing the Company seal to share certificates. Signature of the chairman or other senior officer may be made by facsimile signatures.
Article 43	The Company shall maintain a register of holders of shares and enter therein the following particulars:
	(1)     names, addresses, occupations or descriptions;
	(2)     the number of each class of shares held;
	(3)     the amount paid or agreed to be paid on the shares of shares held;
	(4)     the serial number of the shares held;
	(5)     the date at which each holder was entered in the register as a shareholder;
	(6)     the date at which each holder ceases to be a shareholder.
	The register of shareholders shall be sufficient evidence, unless evidence to the contrary is shown, of shareholding in the Company.
Article 44	The Company may maintain the register of holders of overseas listed foreign shares outside the PRC in accordance with the memorandum of understanding and agreement made between the responsible securities authority of the State Council and the securities regulatory authority overseas and appoint an overseas agency for the management of such register. The original of the register of holders of overseas listed foreign shares shall be maintained in Hong Kong.
	The Company shall maintain a copy of the register of holders of overseas listed foreign shares at the legal address of the Company. The overseas agency so appointed shall ensure from time to time the consistency between the original and the copy of the register of holders of overseas listed foreign shares.
	In the event of inconsistency between the original and the copy of the register of holders of overseas listed foreign shares, the original version shall prevail.
Article 45	The Company shall maintain a complete register of shareholders.
	The register of shareholders shall include the following parts:
	(1)     the register of shareholders maintained at the legal address of the Company other than that specified in paragraphs (2) and (3) of this Article;
	(2)     the Company’s register of holders of overseas listed foreign shares maintained at the place where the stock exchange having the shares listed is located;
	(3)     the register of shareholders deposited at other places decided by the board of directors as necessary for the listing of the Company’s shares.
Article 46	The various parts of the register of shareholders shall not overlap. The transfer of shares registered in a certain part of the shareholders’ register shall not be registered in other parts of the shareholders’ register during the existence of the registration of such shares.
	All fully paid foreign shares listed in Hong Kong may be transferred freely in accordance with these Articles provided that the board of directors may without assigning any reason therefor decline to recognize any instrument of transfer, unless:
	(1)     a fee in the sum of two (2) Hong Kong dollars or such higher sum then agreed by the Hong Kong Stock Exchange is paid to the Company in respect of the registration of any transfer in the title of the shares to which it relates or for the alteration in the title of such shares or other documents;

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	(2)     the instrument of transfer is only in respect of foreign shares listed in Hong Kong;
	(3)     the stamp duty payable in respect of such instrument of transfer has been paid;
	(4)     share certificates or other evidence as the board of directors may reasonably require to prove the right of the transferor to make the transfer shall be provided;
	(5)     if the shares are proposed to be transferred with joint holders, the number of joint holders shall no be more than four (4); and
	(6)     the relevant shares are free from any lien by any company.
	The transfer of overseas-listed foreign shares listed in Hong Kong shall be carried out in writing through transfer instrument in normal or ordinary form or in the form acceptable to the board of directors; and such transfer instrument can be signed by hand or, if the transferor or transferee is a recognized cleaning house as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) or its attorney, signed by hand or signed in printed mechanical form. All the transfer instruments shall be maintained at the legal address of the Company or another place the board of directors may designate from time to time.
	Any change or alteration to the various parts of the register of shareholders shall be conducted in accordance with the laws of the place where such part of the shareholders’ register is maintained.
Article 47	No registration of any change in the register of shareholders arising from a transfer of shares shall be effected thirty (30) days before the holding of a shareholders’ general meeting or within five (5) days before the decision is made on the distribution of dividends by the Company.
Article 48	The board of directors or the convenor of a shareholders’ general meeting shall fix a date as the date for the determination of shareholders for the purposes of holding shareholders’ general meetings, distribution of dividends, liquidation and for other activities requiring determination of shareholders. Shareholders whose names are registered in the register of shareholders at the close of business on the date of determination shall be the shareholders of the Company.
Article 49	Any person objecting to the register of shareholders and requesting to have its name registered or removed from the register of shareholders may apply to a court with jurisdiction to have the register of shareholders amended.
Article 50	Any person who is registered holder of shares in the Company or who claims to be entitled to have his name entered in the register of shareholders in respect of shares in the Company may, if it appears that the certificate (the “original certificate”) relating to the shares is lost, apply to the Company for a new certificate in respect of such shares (the “relevant shares”).
	Holders of domestic shares whose share certificates have been lost may apply for issue of new share certificates in accordance with the procedure set out in article 144 of the Company Law.
	Holders of overseas listed foreign shares whose share certificates have been lost may apply for issue of new share certificates in accordance with the procedures laid down by the law, the rules of the stock exchange and other relevant regulations of the place where the original register of holders of overseas listed shares is located.
	The issue of new share certificates to H shareholders whose share certificates have been lost shall meet the following requirements:
	(1)     the applicant shall submit an application to the Company in prescribed form accompanied by a notarial act or a statutory declaration made by the applicant stating the grounds upon which the application is made, the circumstances of the loss, and such other particulars as the case may require in order to verify the grounds upon which the application is made and that no other person is entitled to have his name entered in the register of shareholders in respect of the relevant shares;
	(2)     prior to the Company deciding to issue new share certificates, the Company not having received any statutory declaration from any person other than the applicant requesting for his name to be entered into the shareholders’ register;

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	(3)     the Company shall, if it intends to issue a new share certificate, publish a notice of its intention once every thirty (30) days in a period of ninety (90) consecutive days in such newspaper as may be prescribed by the board for this purpose from time to time;
	(4)     the Company shall, prior to publication of the notice for issue of new share certificates, deliver to the stock exchange on which the relevant shares are listed a copy of the notice to be published and received confirmation from such stock exchange that the notice has been exhibited on its premises. The period of exhibition of the notice at the relevant stock exchange shall be ninety (90) days.
	In the case of an application made without the consent of the registered holder of the relevant shares, a copy of the notice to be published shall be delivered to such registered holder;
	(5)     if, by the expiration of the 90-day period referred to in sub-paragraphs (3) and (4), the Company shall not have received notice of any other claim in respect of the relevant shares, the Company may issue a new certificate for the relevant shares to the applicant or as he may direct;
	(6)     where the Company issues a new certificate under this Article, it shall forthwith cancel the original certificate and enter the cancellation and issue in the register of shareholders accordingly;
	(7)     all expenses relating to an application for the cancellation of an original certificate and the issuance of a new certificate by the Company shall be borne by the applicant and the Company may refuse to take any action until reasonable security is provided.
Article 51	Where the Company issues a new certificate in compliance with these Articles, the name of a bona fide purchaser to whom the new certificate is issued or who is subsequently entered in the share register shall not be removed from the register.
Article 52	The Company shall not be liable for any damages sustained by any person by reason of the cancellation of the original certificate or the issuance of the new certificate, unless the claimant proves that the Company had acted deceitfully.
CHAPTER 7 RIGHTS AND OBLIGATIONS OF SHAREHOLDERS
Article 53	Shareholders of the Company are persons who legally hold the shares of the Company and have their names registered on the shareholders’ register.
	A shareholder has rights and bears obligations in accordance with his shareholding and class of shares held by him. Shareholders of the same class have the same rights and obligations.
	In the case of joint shareholders, if one of the joint shareholders has passed away, the surviving shareholder shall be deemed by the Company to have the ownership of the related shares, but the board of directors is entitled to ask for the provision of the suitable death certificate for the purpose of amendment of the register of shareholders. For joint shareholders of any shares, only the first-named shareholder in the register of shareholders has the right to receive the share certificates of the related shares, receive notices from the Company, attend shareholders’ general meetings and exercise his voting rights; and any noticed delivered to the said shareholder shall be deemed as if notice has been delivered to all of the joint shareholders of the related shares.
Article 54	Holders of ordinary shares shall have the following rights: (1)     to receive dividends or other forms of distribution proportional to their shareholding; (2)     to request, call on, preside and attend general meetings of shareholders in person or by proxy in accordance with the law and to exercise their corresponding voting rights; (3)     to supervise the business operations and activities of the Company and to make suggestions or raise questions; (4)     to transfer, gift or pledge shares in accordance with law, administrative regulations and these Articles;

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	(5)     upon providing with evidence of the class and number of shares of the Company held, and following confirmation of the shareholder’s identity by the Company, to receive information in accordance with laws, administrative regulations and these Articles, including: 1.       to obtain a copy of the Articles of Association after payment of charges at cost; 2.       to inspect and copy for reasonable charges: (i)      all parts of the shareholders’ register; (ii)     particulars of the directors, supervisors and senior officers of the Company including: (a)     present and past names and aliases; (b)     principal residential address; (c)     nationality; (d)     primary and all other business occupations; (e)     identity document and its number; (iii)   the share capital of the Company; (iv)    stubs of company bonds; (v)     reports showing the number and par value of shares repurchased by the Company since the end of the last financial year, the aggregate amount paid by the Company for the shares and the maximum and minimum price paid in respect of each class of shares repurchased; (vi)    minutes of shareholders’ meetings, resolutions of the board of directors, resolutions of the supervisory committee and financial and accounting reports. (6)     to receive the distribution of residual assets of the Company in proportion to their shareholding upon winding up or liquidation of the Company; (7)     to request the Company to acquire their shares if the shareholders disapprove any resolution passed at the shareholders’ general meeting on the merger or demerger of the Company; (8)     where resolutions of the shareholders’ general meeting or the board of directors violate the provisions of laws or administrative regulations, and infringe the lawful rights and interests of shareholders, to have the right to bring an action to request the ceasing of the abovementioned violation or infringement and the right to request the Company to take action seeking compensation; (9) to have other rights granted by laws, administrative regulations and the Articles of Association.
Article 55	Holders of the ordinary shares shall assume the following obligations:
	(1)     to comply with the Company Articles;
	(2)     to pay subscription monies in respect of the shares they have subscribed for and in accordance with the agreed manner of payment;
	(3)     not to return shares other than in such circumstances stipulated by law and administrative regulation;

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	(4)     not to abuse their shareholders’ rights to harm the interest of the Company or other shareholders, and not to abuse the independent legal person status of the Company and the limited liability of shareholders to harm the interest of any creditor of the Company. If a shareholder of the Company abuses its shareholder’s rights and thereby causes loss on the Company or other shareholders, such shareholder shall be liable for damages in accordance with the law. If a shareholder of the Company abuses the Company’s independent legal person status and the limited liability of shareholders for the purposes of avoiding debts, resulting in materially impairing the interests of the creditors of the Company, such shareholder shall be jointly and severally liable for the debts owed by the Company.
	(5)     to assume other obligations as imposed by law, administrative regulations and the Company Articles.
	Except as agreed at the time of subscription of shares, shareholders shall not be liable to make any further contribution to the share capital.
Article 56	The Controlling Shareholders and the de facto controllers of the Company shall not take the advantage of its connected relationship to impair the Company’s interest. Any of the above shareholders or persons who violates such provisions and causes losses to the Company shall be liable for damages. The Controlling Shareholders and beneficial controllers of the Company have fiduciary duties toward the Company, its public shareholders and other shareholders. A Controlling Shareholder shall exercise its rights as shareholder strictly in compliance with the law. A Controlling Shareholder shall not jeopardize the lawful interests of the Company, public shareholders and other shareholders by way of connected transactions, profit allocation, asset reorganization, external investments, fund misappropriation and provision of guarantee for loans, nor shall it jeopardize the interests of the Company, public shareholders and other shareholders by utilizing its controlling position. In addition to obligations imposed by laws, administrative regulations or required by rules of the stock exchanges on which the shares of the Company are listed, a Controlling Shareholder shall not exercise his voting rights in respect of the following matters in a manner prejudicial to the interests of the shareholders generally or of some of the shareholders of the Company: (1) to relieve a director or a supervisor of his duty to act honestly in the best interests of the Company; (2) to approve the expropriation by a director or supervisor for his own benefit or for the benefit of another person) in any guise of the Company’s assets, including without limitation any opportunities which are favorable to the Company; (3) to approve the expropriation by a director or supervisor (for his own benefit or for the benefit of another person) of the individual rights of other shareholders, including without limitation rights to distribution and voting rights save and except pursuant to restructuring submitted to shareholders for approval in accordance with these Articles.
Article 57	For the purpose of these Articles, a “Controlling Shareholder” refers to a person who satisfies one of the following conditions: (1)     he alone or acting in concert with others has the power to elect half or more than half of the members of the board; (2)     he alone or acting in concert with others has the power to exercise or to control the exercise of thirty per cent. (30%) or more of the voting rights in the Company; (3)     he alone or acting in concert with others holds thirty per cent. (30%) or more of the issued and outstanding shares of the Company; (4)     he alone or acting in concert with others in any other manner de facto controls the Company. For the purposes of these Articles, the term “de facto controllers” means the persons, not being shareholders of the Company, who are able to exercise de facto control over the acts of the Company through an investment relationship, agreement or other arrangement. For the purposes of these Articles, the term “connected relationship” means the relationship between the controlling shareholder, de facto controllers, directors, supervisors and senior officers of the Company and any enterprise directly or indirectly under his or her control, and any other relationship that may result in the transfer of the Company’s interests. However, enterprises in which the State has a controlling interest shall not be treated as having a connected relationship merely due to the controlling interest held by the State. For the purposes of this Article, “acting in concert” means two or more persons who have reached agreement (whether orally or in writing) to achieve or consolidate control of the Company through the acquisition by any of them of voting rights in the Company.

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CHAPTER 8    SHAREHOLDERS’ GENERAL MEETINGS

Article 58

The shareholders’ general meeting is the Company’s authoritative organization which exercises its powers in accordance with the law. The Company shall formulate the Rules of Procedure for the Shareholders’ General Meetings and shall implement the same upon approval at a shareholders’ general meeting. The Rules of Procedure for the Shareholders’ General Meetings shall include the following: (1)     Functions and powers of the shareholders’ general meeting; (2)     Delegation of powers to the board of directors by the shareholders’ general meeting; (3)     The procedures to convene a shareholders’ general meeting, including the proposal and collection of motions, notice and change of the notice of the meeting, registration of the meeting, convening the meeting, voting and resolutions, adjournment of the meeting, post-meeting matters and public announcement etc.; (4)     any other issues which the shareholders’ general meeting considers necessary. The Rules of Procedure for the Shareholders’ General Meetings shall form an integral part of, and shall have the same legal effect as, these Articles. The Rules of Procedure for the Shareholders’ General Meetings shall be drafted by the board of directors and approved at a shareholders’ general meeting.

Article 59

The shareholders’ meetings exercise the following powers: (1)     to decide on the Company’s operational policies and investment plans; (2)     to elect and replace directors and decide on matters relating to the remuneration of directors; (3)     to elect and replace the supervisors who are not employee representatives and decided on matters relating to the remuneration of supervisors; (4)     to examine and approve reports of the board of directors; (5)     to examine and approve reports of the supervisory committee; (6)     to examine and approve the Company’s proposed annual financial budgets and final accounts; (7)     to examine and approve the Company’s profit distribution plans and plans for making up losses; (8) to decide on increases in or reductions of the Company’s registered capital; (9)     to decided on issues such as merger, division, dissolution, liquidation or changing of the form of the Company and other matters; (10)   to decide on the issue of bonds by the Company; (11)   to decide on the appointment, dismissal or termination of appointment of auditors; (12)   to amend the Articles of Association; (13)   to review any requisition by the board of directors, supervisory committee or shareholders holding shares with 3% or more of the total voting rights of the Company; (14)   to examine and approve matters relating to guarantees stipulated in Article 60 of the Articles of Association; (15)   to consider the Company’s significant acquisition or disposal of material assets conducted within the period of one year with a value exceeding 30% of the latest audited total assets of the Company; (16)   to examine and approve changes in the use of proceeds; (17)   to examine and approve share incentive schemes;

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	(18)  to authorize and entrust the board of directors to handle any matters authorized and entrusted thereto; (19)   to resolve other matters of the Company as required to be resolved in shareholders’ general meetings in accordance with laws, administrative regulations, rules and regulations of authorized departments, these Articles and the Rules of Procedures for Shareholders’ General Meetings. Where matters are required to be resolved in shareholders’ meetings in accordance with laws, administrative regulations, rules and regulations of authorized departments, these Articles and the Rules of Procedures for Shareholders’ General Meetings, the board of directors should convene a shareholders’ meeting to review such matters in order to protect shareholders’ rights of decision-making. Except to the extent that the functions and powers of a shareholders’ meeting are prohibited to be exercised on its behalf by the board of directors or other authorities and individuals by way of authorization as provided for in the laws, administrative regulations, rules and regulations of authorized departments, if the circumstances reasonably require, where it is not possible or not necessary for specific matters related to the resolutions to be by the shareholders’ meeting, the shareholders’ meeting may authorize the board of directors to make decisions within the scope of the authority entrusted by the shareholders’ meeting. Where the resolution in relation to which the shareholders’ meeting authorizes the board of directors is an ordinary resolution, then a majority of the shareholders attending the meeting (in person or by proxy) must approve the authorization. If it is a special resolution, then two-thirds or more of the shareholders attending the meeting (in person or by proxy) must approve the authorization. The content of the authorization must be clear and specific.
Article 60	The following matters relating to guarantees provided by the Company to a third party shall be subject to the approval by shareholders at general meetings: (1)     any subsequent guarantee to be provided by the Company in favor of a third party when the aggregate amount of guarantees of the Company and its holding subsidiaries given in favor of third parties has already exceeded 50% of the Company’s most recently audited net asset value; (2)     any subsequent guarantee to be provided by the Company in favor of a third party, when the aggregate amount of guarantees of the Company given in favor of third parties has reached or has already exceeded 30% of the Company’s most recently audited total asset value; (3)     any guarantee to be provided by the Company in favor of an entity which is subject to a gearing ratio of over 70%; (4)     any single guarantee to be provided by the Company exceeding 10% of the Company’s most recently audited net asset value; (5)     any guarantee to be provided in favor of any shareholder, de facto controllers and their connected parties.
Article 61	Unless prior approval by special resolution of the shareholders’ meeting is obtained, the Company shall not enter into any contract with any person other than a director, supervisor or the senior officer of the Company to entrust the management of all or a material part of the businesses of the Company to such person.
Article 62	General meetings of shareholders shall be divided into annual general meetings and extraordinary general meetings, and shall be convened by the board of directors. An annual general meeting must be convened once every year, and held within six months after the end of each financial year. The board of directors shall convene an extraordinary general meeting within two months of any of the following circumstances: (1)     the number of the directors is less than the number required by the Company Law or less than two-thirds required by these Articles; (2)     the unrecovered losses of the Company’s capital reach one-third of the Company’s paid-up share capital;

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	(3)     upon written requisition by the shareholders individually or jointly holding ten per cent. (10%) or more of the issued and outstanding voting shares of the Company; (4)     when deemed necessary by the board of directors or proposed by the supervisors; (5)     in other circumstance as required by the laws, administrative regulations, departmental rules or these Articles. In paragraph (3) above, shareholdings will be calculated as of the day upon which the written requisition is made.
Article 63	Any requisition by the supervisory committee or by shareholders alone or together holding ten per cent (10%) or more of the total voting rights of the Company to convene an extraordinary general meeting or a class meeting shall be dealt with by the following procedures:
	(1)     by signing one or more counterpart requisitions stating the object of the meeting, require the board of directors to, and the board of directors shall as soon as possible proceed to, convene an extraordinary general meeting of shareholders or a class meeting or dispatch a notice of meeting within fifteen (15) days after receiving written request from the supervisory committee. The shareholding of the requisitionists shall be the shareholding on the date of deposit of the requisition;
	(2)     if the board of directors fails to issue a notice of meeting within thirty (30) days from the date of the receipt of the requisition, the requisitionists may themselves convene such a meeting in a manner as similar as possible as that in which meetings are to be convened by the board of directors; provided that any meeting so convened shall be convened within four (4) months of the date of receipt of the requisition by the board.
	Any reasonable expenses incurred by the requisitionists by reason of the board failing to convene a meeting shall be borne by the Company and such expenses shall be set off against sums owed by the Company to the directors in default.
Article 64	When the Company convenes a shareholders’ general meeting, the board of directors, supervisory committee and shareholders who individually or jointly hold shares with three per cent. (3%) or more of the total voting rights of the Company shall have the right to move motions in writing for shareholders’ meetings. Shareholders who individually or jointly hold three per cent. (3%) or more of the shares of the Company may propose and submit in writing an extraordinary motion to the convener ten (10) days prior to the convening of the shareholders’ general meeting. The convener shall issue a supplementary notice of the shareholders’ general meeting within two (2) days upon receipt of such motion and shall make an announcement on the content of the extraordinary motion. Except for those provided for in the preceding paragraph, the convener shall neither amend the motion specified in the notice of the shareholders’ general meeting nor add any new motion after the issuance of the notice of the shareholders’ general meeting. Motions for shareholders’ meetings shall comply with the following conditions: (1)     the contents do not conflict with laws, regulations and the Articles, and is within the business scope of the company and the powers of the shareholders’ meeting; (2)     there is a clear subject and specific resolution; (3)     it is submitted or delivered in writing to the board of directors. Motions which are not specified in the notice of the shareholders’ general meeting or do not comply with the requirements set forth in the preceding paragraphs shall not be voted or resolved at a shareholders’ general meetings.
Article 65	The board of directors should be guided by the best interests of the Company in reviewing motions raised in accordance with the previous Article.
Article 66	Notice of shareholders’ meeting shall be given to the shareholders forty-five (45) days (excluding the date of the meeting) before the date of the meeting in writing. The agenda, date and place of the meeting shall be notified to the shareholders whose names are on the register. The shareholders who wish to attend the meeting shall send their reply regarding the proposed attendance in writing to the Company twenty (20) days before the date of the meeting.

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	The Company convened a general meeting of shareholders to consider and approve Article 93 of the Articles that is related to the resolutions of public shareholders. The Company shall reannounce the notice of the general meeting of shareholders within three days after the date of share registration notwithstanding that a notice of the general meeting of shareholders has been issued.
Article 67	The location of the AGM held by the Company shall be Shanghai, Shenzhen or Hong Kong, and the specific venue shall be specified in the AGM notice. Conditional upon the legality and validity of the shareholders’ general meeting as ensured by the Company, various ways and methods including the use of contemporary information techniques such as the setting up of a voting platform by means of internet will be adopted, in order to extend the proportion of public shareholders who can participate in the shareholder’s general meeting. Each vote can only be exercised once either physically at a meeting, via internet or through other permitted means. If the same vote is exercised more than once, only the first vote will be accounted for. Shareholders of the Company or their proxies who cast their votes via internet or through other permitted means shall have the right to monitor the voting results by the corresponding voting platform.
Article 68	The Company shall calculate the number of shares carrying voting rights of the shareholders who have replied to attend the shareholders’ meeting twenty (20) days before the meeting. The Company shall convene the general meeting if the number of the shares carrying voting rights of the shareholders who propose to attend is more than half of the total number of shares carrying voting rights of the Company. If the requirement is not met, the Company shall publish an announcement containing the proposed agenda, date and place of the meeting within five (5) days to re-notify the shareholders of the meeting. The Company can convene the shareholders’ meeting after having published the announcement.
	An extraordinary general meeting shall not resolve on matters which are not contained in the notice of meeting.
Article 69	A notice of shareholders’ meeting shall:
	(1)     be in writing;
	(2)     specify the place, date and time of the meeting;
	(3)     state the general nature of business to be transacted at the meeting;
	(4)     provide such information and explanation as are necessary for the shareholders to exercise an informed judgment on the proposals put before them. Without limiting the generality of the foregoing, where a proposal is made to amalgamate the Company with another, to repurchase the shares of the Company, to reorganize the share capital structure of the Company or other restructuring, the terms of the proposed transaction shall be provided in detail together with copies of the proposed agreement, if any, and the cause and effect of such proposal shall be properly explained;
	(5)     if matters relating to election of directors and supervisors are proposed to be discussed at a general meeting of shareholders, detailed information concerning the candidates shall be fully disclosed in the notice of the general meeting, which shall at least include the following: (i)      personal information relating to the candidates’ including educational background, work experience and all other positions undertaken on a part-time basis; (ii)     whether the candidates are connected with the Company, its controlling shareholders or de facto controllers;

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	(iii)   disclosing the candidates’ shareholdings in the Company; (iv)    whether the candidates have been subject to any punishment by the China Securities Regulatory Commission or other relevant department or to any sanction by any stock exchange.
	(6)     contain a disclosure of the nature and extent, if any, of material interests of any director, supervisor and the senior officer of the Company in the business to be transacted and the effect of the business to be transacted on them in their capacity as shareholders so far as it is different from the effect on the interest of shareholders of the same class;
	(7)     contain the text of any special resolution proposed to be resolved at the meeting;
	(8)     contain conspicuously a statement that a shareholder entitled to attend and vote is entitled to appoint one or more proxies to attend and vote for and on behalf of him and that a proxy need not also be a shareholder;
	(9)     state the record date for shareholders entitled to attend the meeting;
	(10)   state the time and place for delivery of proxy forms for use at the meeting;
	(11)   state the name and telephone number of the contact person for the meeting.
Article 70	Notice of the meeting shall be served by delivery or sent by prepaid airmail to the shareholders (whether or not entitled to vote thereat) at the addresses as registered on the shareholder register (whether that address is in the PRC or overseas). In the case of domestic shareholders, the notice may also be given by announcement.
	An announcement as aforementioned refers to the announcement made in one or more newspapers specified by the relevant securities authority of the State Council within forty-five (45) days to fifty (50) days before the date of when the general meeting is to be held. Such publication shall be deemed receipt of the notice of the meeting by each holder of the domestic shares. In any event, the aforementioned announcement must at the same time be published in one or more newspapers specified by the relevant securities authority in Hong Kong.
Article 71	The accidental omission to give notice of a meeting to, or the non-receipt of notice of a meeting by, any person entitled to receive notice shall not invalidate the proceedings at that meeting.
Article 72	If a meeting convenor has issued a notice for convening a shareholders’ meeting, the meeting may not be postponed or cancelled without cause and the motions specified in the notice of the shareholders’ general meeting shall not be cancelled. In the event of any delay or cancellation of the shareholders’ general meeting, the meeting convenor shall issue an announcement and explain the reasons for such delay or cancellation at least two (2) working days prior to the date on which the shareholders’ general meeting has been scheduled to convene.
Article 73	The board of directors of the Company together with other convenors shall adopt necessary measures to maintain the normal order of the general meeting of shareholders. Measures shall be taken to stop any act which interferes with or causes nuisance at a general meeting and any act which infringes the lawful interests of the shareholders. Timely report of these acts shall be made to the relevant authority for investigation.
Article 74	All shareholders who are listed on the Company’s register as of the record date or their proxies shall be entitled to attend the shareholders’ general meeting and exercise their voting rights in accordance with the relevant laws and regulations and these Articles. Any shareholder entitled to attend and vote at a meeting of the Company may attend the meeting in person or appoint one or more than one person (whether a shareholder or not) as his proxy/proxies to attend and vote for and on behalf of him, and the proxy so appointed: (1)     shall have the same right as the shareholder to speak at the meeting; (2)     may demand or join in demanding a poll; (3)     may vote by hand or on a poll, but a proxy of a shareholder who has appointed more than one proxy may only vote on a poll.

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	Where a shareholder is a recognized clearing house as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), the shareholder may authorize one or more suitable person to act as its representative at any shareholders’ meeting or at any class meeting; however, if more than one person is authorized, the power of attorney shall clearly indicate the number and type of shares related to such authorization. The persons who have received such authorization may exercise the rights on behalf of the recognized clearing house (or its proxy), as if such persons were individual shareholders of the Company.
Article 75	A shareholder may appoint a proxy to attend a shareholders’ meeting by an instrument in writing. The proxy instrument shall set out the number of shares represented by the proxy. If more than one person is appointed as a proxy, the proxy instrument shall clearly set out the number of shares represented by each such person. The instrument of proxy shall be signed by the shareholder appointing the proxy or by a person duly authorized in writing to appoint such proxy. If the appointer is a legal person, the common seal of the legal person shall be affixed, or the signature of its directors or the person duly authorized to appoint such proxy.
Article 76	is hereby proposed to be amended as follows: The proxy instrument issued by a shareholder authorizing a proxy to attend a shareholders’ meeting shall set out the following information: (1)     the name of the proxy; (2)     the number of shares represented by the proxy; (3)     whether or not the proxy shall exercise voting rights; (4)     indicate in relation to each motion on the agenda of the shareholders’ meeting directions to vote for or against; (5)     date, and period of validity; (6)     the signature (or seal) of the appointer or by the person duly authorized in writing to appoint such proxy; where the appointer is a legal person shareholder, the seal of the legal person entity or the signature of the director or the person duly authorized shall be affixed. If the shareholder does not make any specific direction, the proxy instrument must clearly indicate that the proxy may vote as it sees fit.
Article 77	The instrument appointing a proxy shall be deposited at the address of the Company or such other place as specified in the notice convening the meeting 24 hours before the time for holding the meeting to which the instrument of proxy relates or 24 hours before the time specified for the vote. If the instrument of proxy is signed by an attorney authorized by the appointor, the power of attorney or other authorization documents shall be notarized. The power of attorney or other authorization documents so notarized shall be deposited together with the instrument of proxy at the legal address of the Company or such other place specified in the notice convening the meeting.
	If the shareholder appointing a proxy is a legal person, its legal representative or any person authorized by the board of directors or by other decision making body pursuant to a resolution shall attend the Company’s shareholders’ general meeting on its behalf.
Article 78	Any form of proxy provided to the shareholders by the Company’s board of directors for the appointment of shareholders’ proxies shall allow the shareholders to elect freely to instruct the proxy in the casting of votes (in favor or against) and give instructions in respect of each matter of every business to be transacted at the meeting for which a poll is required. The instrument of proxy shall specify that if no instruction is given by a shareholder, the proxy may vote according to his own will.
Article 79	A vote given by a proxy in accordance with an instrument of proxy shall be valid notwithstanding the death or incapability of the appointor, revocation of the proxy or of the authority under which the proxy was executed or the transfer of the shares in respect of which the proxy is given, provided that no notice in writing of such matters as aforesaid shall have been received by the Company before the commencement of the meeting in connection therewith.

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Article 80	Individual shareholders attending a meeting in person should produce their identity document. A proxy attending a meeting on behalf of another person should produce their identity document and the proxy instrument.
Article 81	Directors other than independent directors and shareholders complying with the relevant legal requirements may solicit voting rights at shareholders’ meetings from shareholders. Such soliciting must be without compensation, and information must be fully disclosed to the person being solicited.
Article 82	The Company is responsible for registration of attendees at a meeting. Information registered should include the name of the attendee (or organization), identity document number, number of shares held or voting power of shares represented and name of person (or organization) being represented. The convenor and the legal advisers retained by the Company shall jointly verify the eligibility of the shareholders to vote based on the Company’s shareholder register provided by the securities registration and clearing authority and shall register the name of the shareholders together with the numbers of voting shares in their possession. Registration shall come to a close before the chairman of the meeting announces the number of shareholders and proxies physically present at the meeting as well as the total number of voting shares represented by the shareholders who are entitled to vote. Prior to voting, the chairman of the meeting shall announce the number of shareholders and proxies physically present at the meeting as well as the total number of voting shares represented by the shareholders who are entitled to vote. The number of shareholders and proxies physically present at the meeting as well as the total number of voting shares represented by the shareholders who are entitled to vote shall be determined in accordance with those registered during the meeting.
Article 83	When convening a general meeting of shareholders, all directors, supervisors and the secretary of the board of directors of the Company shall attend the meeting. Other senior officers shall attend the meeting as non-voting attendees.
Article 84	When a shareholders’ meeting is considering and approving matters relating to connected transactions, the relative connected shareholders may not exercise any voting rights, and the voting rights represented by the number of shares held by such connected shareholders shall not be calculated in the total number of shares valid and voting. The announcement of the resolutions of the shareholders’ meeting must fully disclose the results of the non-connected shareholders’ voting.
Article 85	Subject to Article 90, shareholders (including proxies) shall, on a poll, have voting rights corresponding to the number of shares held by them which carry voting rights and, other than in cases of cumulative voting set out in Article 121, each such share shall have one vote. The shares held by the Company itself shall not be attached with voting rights. Such shares shall not be counted in the total number of voting shares held by shareholders attending the shareholders’ general meetings.
Article 86	Unless a poll is demanded by the following persons before or after a show of hands, resolutions at a shareholders’ general meeting shall be passed by a show of hands:
	(1)     the chairman of the meeting;
	(2)     at least two shareholders or proxies having the right to vote;
	(3)     one or more shareholders (including proxies) holding shares alone or jointly representing ten per cent. (10%) or more of the voting rights present at such meeting.
	Unless a poll is demanded, a declaration by the chairman that a proposal has been adopted by a show of hands and recorded in the minutes of the meeting shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against such resolution.
	The demand for a poll may be withdrawn by the person who demands it.
Article 87	A poll demanded on the election of the chairman, or on a question of adjournment, shall be taken forthwith. A poll demanded on any other questions shall be taken at such time as the chairman of the meeting directs, and any business other than that on which the poll has been demanded may be proceeded with, pending the taking of the poll. The result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.

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Article 88	On a poll, shareholders (including proxies) having the right to cast two or more than two votes need not cast all their votes in favor of or against a resolution.
Article 89	In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting shall be entitled to a second vote.
Article 90	Resolutions of the shareholders’ general meeting shall be divided into ordinary resolutions and special resolutions.
	An ordinary resolution by a shareholders’ general meeting shall require the approval of shareholders (including proxies) representing a majority or more of the voting rights present at the meeting.
	A special resolution by a shareholders’ general meeting shall require the approval of shareholders (including proxies) representing two-thirds or more of the voting rights present at the meeting.
	Shareholders (including proxies) present at the meeting should clearly indicate a vote for or against each resolution requiring a vote at the meeting. Abstentions or failures to vote will not be processed as shares with voting rights when the Company is calculating the results of voting.
	Where any shareholder is under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) required to abstain from voting or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted.
Article 91	The following matters shall be adopted by ordinary resolution at shareholders’ general meetings:
	(1)     the working reports by the board of directors and the supervisory committee;
	(2)     the profit distribution proposal and proposal to recover losses formulated by the board of directors;
	(3)     the appointment or removal of the members of the board of directors and members of the supervisory committee who are not employee representatives and their remuneration and method of payment;
	(4)     the Company’s annual budget and final report, balance sheet, profit and loss accounts and other financial statements;
	(5)     the Company’s annual report;
	(6)     other matters except those required to be adopted by special resolution in accordance with the provisions of law or administrative regulations or the Company Articles.
Article 92	The following matters shall be resolved by special resolution at shareholders’ general meetings: (1)     increase or reduction of the Company’s share capital and the issue of any type of shares, warrants and other similar securities; (2)     issue of corporate bonds; (3)     division, merger, dissolution, liquidation or the change of the form of the Company; (4)     amendments to the Articles of Association; (5)     the Company’s significant acquisition or disposal of material assets or provision of guarantees conducted within the period of one year with a value exceeding 30% of the latest audited total assets of the Company; (6)     share incentive schemes; (7)     other matters which are required under the laws, administrative regulations or these Articles, and which are resolved by shareholders by ordinary resolution that are considered by the shareholders to be material to the Company and are required to be passed by special resolution.

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Article 93	The following issues shall require approval on resolutions submitted to the shareholders’ general meeting of the Company, and the approval by more than one half of the voting rights held by the public shareholders who are present at the meeting and having the domestic shares listed on the domestic market, in order for such issues to take effect or to submit such issues for application: (1)     the issuance of new shares to public shareholders of the Company (including overseas-listed foreign shares or other title certificates with a share nature, except for the overseas-listed foreign shares that are, upon approval at the shareholders’ general meeting by way of a special resolution, issued by the Company at a 12-month interval with a volume not exceeding 20% of the foreign shares in issue), issuance of convertible bonds of the Company or placing of shares to existing shareholders (other than those promised to be fully subscribed by the Controlling Shareholder in cash prior to the meetings); (2)     major asset reorganization of the Company, pursuant to which the total amount of assets purchased has exceeded the audited net nominal value of the assets purchased by 20% or above; (3)     the repayment of debts owed to the Company with the equities held by the shareholders in the Company; (4)     the foreign listing of the subsidiaries of the Company which has a material effect on the Company; (5)     any relevant matter which has a material effect on the interests of the public shareholders during the development of the Company. A shareholders’ general meeting will be convened to approve and consider the resolutions stated above. A voting platform by way of internet should be provided to shareholders if the technical conditions allow.
Article 94	At the annual general meeting of shareholders, the board of directors and the supervisory committee shall report on their work for the previous year. Each of the independent directors shall also report on their work. Directors, supervisors and senior officers shall provide responses and explanations to queries or recommendations raised by shareholders at a general meeting of shareholders, unless the matters relate to commercial secrets of the Company which cannot be disclosed at the general meeting of shareholders.
Article 95	The chairman of the board shall preside over general meetings of shareholders. If the chairman of the board is unable to or does not perform his or her duties, the vice-chairman of the board of directors (and in case the Company has two or more vice-chairmen of the board of directors, the vice-chairman of the board of directors jointly elected by half or more of the total number of directors) shall preside over and chair the meeting. If the vice-chairman of the board of directors is unable to or does not perform his or her duties, a director jointly elected by half or more of the total number of directors shall preside over and chair the meeting. A shareholders’ general meeting convened by the supervisory committee on their own shall be presided by the chairman of the supervisory committee. If the chairman of the supervisory committee is unable to or does not perform his or her duties, the vice-chairman of the supervisory committee shall preside over the meeting. If the vice-chairman of the supervisory committee is unable to or does not perform his or her duties, a supervisor jointly elected by half or more of the total number of supervisors shall preside over the said meeting. If a shareholders’ general meeting is convened by the shareholders on their own, the convener shall elect a representative to preside over the meeting. When convening a shareholders’ general meeting, if the person presiding over the meeting violates the rules of procedure resulting that the shareholders’ general meeting becomes unable to proceed, a person may, subject to the consent of a majority of the shareholders with voting rights attending the meeting at the scene, be elected at the shareholders’ general meeting to act as the person presiding the shareholders’ general meeting so that the meeting may be proceeded.

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Article 96	Before a resolution is decided on a motion at a general meeting of shareholders, two representatives of the shareholders shall be nominated to participate in counting the votes as well as supervising the counting process. If a shareholder is interested in the matters under consideration, the relevant shareholder and his proxies shall not participate in counting the votes or supervising the counting process. At the time of deciding on a motion by voting at a general meeting, legal advisers, representatives of shareholders and representatives of supervisors shall participate in counting the votes as well as supervising the counting process. They shall announce the voting results to the meeting. The voting results in connection with the resolution shall be recorded in the minutes. At any general meeting of shareholders, the chairman shall be responsible for deciding whether any resolution has been carried or not and the result of this decision shall be announced to the meeting and recorded in the minutes thereof and shall be conclusive.
Article 97	If the chairman has any doubt about the results of voting on a resolution, he may take a poll. If the chairman does not demand a poll, and if any of the shareholders or proxies attending the meeting have any doubts about the results announced by the chairman, they have the right to demand a poll immediately after such announcement, and the chairman shall immediately conduct a poll.
Article 98	If a poll is taken at any meeting, the result thereof shall be duly recorded in the minutes of that meeting.
Article 99	A general meeting of shareholders shall not be declared closed for shareholders who attend in person at a time earlier than for those shareholders who attend via internet or other permitted means. The chairman of the meeting shall announce to the meeting the voting details and results of each motion and shall declare whether or not a motion is adopted on the basis of the relevant voting results. Prior to announcing the voting results, all those who are involved in the meeting whether in person or via internet or other permitted means, including any companies, persons responsible for counting the votes, persons responsible for supervising the counting process, internet service providers and other relevant parties shall have the obligation to keep matters related to voting confidential.
Article100	Minutes of a general meeting of shareholders shall be kept and such minutes shall be prepared by the secretary of the board of directors. Minutes of general meetings of shareholders should set out the following:
	(1)     the date and venue for convening the meeting, meeting agenda and the name of the convenor;
	(2)     the name of the chairman of the meeting as well as those of the directors, supervisors, and senior officers who attend the meeting as attendees and non-voting attendees;
	(3)     the number of shareholders and proxies attending the meeting, the total number of voting shares represented by the shareholders who are entitled to vote; the proportion of the number of voting shares represented by the shareholders who are entitled to vote out of the total number of shares of the Company; the number of voting shares represented by public shareholders holding domestically listed shares (including their proxies) and the number of voting shares represented by shareholders holding non-circulating shares (including their proxies) and their respective proportions out of the total number of shares of the Company; the individual voting results for each motion of the public shareholders holding domestically listed shares and shareholders holding non-circulating shares;
	(4)     a description of the considerations taken for each motion, the main points put forward by each speaker relating thereto and the voting results thereof;
	(5)     details of queries and recommendations of the shareholders and the corresponding response or explanation in relation thereto;
	(6)     the names of the legal advisers and persons responsible for counting the votes and for supervising the counting process; and
	(7)     other contents which should be recorded in the minutes as provided for in the Articles of Association.

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	The convenor shall ensure that the content of the minutes shall be true, accurate and complete. Minutes shall be signed by attendees of the meeting, including the directors, supervisors, secretary of the board of directors, the convenor or its representative and the chairman of the meeting. Minutes shall together with the register relating to shareholders present at the meeting in person and by proxy by way of issuing a proxy form or via internet or other permitted means, be kept by the Company at the Company address for an indefinite period of time.
Article 101	Copies of the minutes of meetings shall be made available for inspection by shareholders during the business hours of the Company free of charge. If any shareholder requests for a copy of any minutes, the Company shall send a copy to him within seven (7) days after receipt of reasonable charges.
Article 102	A public announcement of resolutions of a general meeting of shareholders should set out the number of shareholders (or proxies) attending the meeting, the number of shares (or proxies) represented and the proportion of the Company’s total shares with voting power thereby represented, the method of voting and the results of voting for each resolution. For resolutions proposed by shareholders, the announcement should set out the name of the shareholder proposing the resolution, the proportion of shares held and the content of the resolution.
	For resolutions not passed at the meeting, or where shareholders amend a resolution, the directors should provide an explanation in the public announcement of resolutions of the general meeting of shareholders.
Article 103	The convenor shall ensure that a general meeting of shareholders is held on a continuous basis until a final resolution is adopted. If a general meeting is suspended or no resolution can be adopted due to force majeure or other exceptional reasons, necessary measures shall be taken so as to promptly re-convene the general meeting or to directly terminate the then general meeting, and public announcement relating thereto shall also be made on a timely basis. At the same time, the convenor shall report the same to the local office of China Securities Regulatory Commission and to relevant stock exchanges.
Article 104	At a general meeting of shareholders, the Company shall retain legal advisers and obtain legal advice in relation to the following issues which shall be incorporated into the shareholders’ resolutions for announcement purposes: (1)     whether the procedures for convening and holding a general meeting comply with the requirements of the laws, administrative regulations and these Articles of Association; (2)     whether attendees or the convenor of a general meeting meet the requisite legal requirements; (3)     whether the voting procedures for and the voting results of the general meeting are lawful and valid; and (4)     issuance of legal opinions on other relevant issues at the request of the Company.
Article 105	If a motion in respect of the distribution of cash or bonus shares, or in connection with the capital increase by conversion from common reserve funds is adopted at a general meeting of shareholders, the Company shall implement such distribution within two (2) months of the relevant general meeting. If the above motion is a profit distribution proposal, the board of directors of the Company is required to complete the distribution of dividends (or shares) within two (2) months after convening the shareholders’ general meeting.
CHAPTER 9 SPECIAL PROCEDURES ON CLASS MEETINGS
Article 106	Holders of different classes of shares are class shareholders.
	Class shareholders shall have the same rights and obligations in accordance with law, administrative regulations and the Company Articles.
Article 107	Rights conferred on any class shareholder (“class rights”) may not be varied or abrogated unless approved by a special resolution of shareholders in general meeting and by shareholders of that class at a separate shareholders’ meeting held in accordance with Articles 109 to 113.

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Article 108	The following shall be deemed to be a variation or abrogation of the class rights:
	(1)     to increase or decrease the number of shares of such class, or increase or decrease the number of shares of a class having voting or distribution rights or other privileges equal or superior to the shares of such class;
	(2)     to effect a conversion of all or a part of the shares of such class into another class or to effect a conversion or create a right of conversion of all or part of the shares of another class into the shares of such class;
	(3)     to remove or reduce rights to dividends, rights to accrued dividends or rights to cumulative dividends of such class;
	(4)     to reduce or remove the preferential rights to dividends of such class or the preferential rights to asset distributions of such class upon liquidation of the Company;
	(5)     to add, remove to reduce the rights to conversion, option, voting, transfer, preferential placement or acquisition of the Company’s securities of such class;
	(6)     to remove or reduce the rights to receive payment in particular currencies of such class;
	(7)     to create a new class of shares having voting or distribution rights or other privileges equal or superior to the shares of such class;
	(8)     to restrict the transfer or ownership of the shares of such class or add to such restrictions;
	(9)     to allot and issue rights to subscribe for, or to convert into, shares in the Company of such class or another class;
	(10)   to increase the rights or privileges of another class;
	(11)   to restructure the Company where the proposed restructuring will result in different classes of shareholders bearing a disproportionate burden of such proposed restructuring;
	(12)   to vary or abrogate this Article.
Article 109	Shares of the affected class, whether or not otherwise carrying the right to vote at general meetings, shall nevertheless carry the right to vote at class meetings in respect of matters concerning Articles 108(2) to 108(8), Articles 108(11) to 108(12) of these Articles, but Interested Shareholder(s) shall not be entitled to vote at class meetings.
	The meaning of an Interested Shareholder as mentioned in the foregoing paragraph shall be:
	(1)     in the case of repurchase of shares by making a general offer to the shareholders in proportion to their shareholding or repurchasing their shares in public on a stock exchange under Article 30, an “Interested Shareholder” means the Controlling Shareholder as defined in Article 57;
	(2)     in the case of a repurchase of shares by an off-market contract under Article 30, an “Interested Shareholder” means a holder of the shares to which the proposed contract relates;
	(3)     in the case of a restructuring of the Company, an “Interested Shareholder” means a shareholder within a class who bears less than a proportionate burden imposed on that class under the proposed restructuring or who has an interest in the proposed restructuring different from the interest of shareholders of that class.
Article 110	Resolutions of any class shareholders’ meeting shall be made by two-thirds or more of the votes of the shareholders whose shares carry rights to vote of that class present at that meeting in accordance with Article 109 of these Articles.
Article 111	Notice of class shareholders’ meeting shall be given to the class shareholders forty-five (45) days (exclusive of the date of meeting) before the date of the meeting in writing. The agenda, date and place of the meeting shall be notified to all of the class shareholders whose names are on the register (regardless of whether the registered address of such shareholders are within or outside the PRC). The class shareholders who wish to attend the meeting shall send their reply regarding the proposed attendance in writing to the Company twenty (20) days before the date of the meeting.

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	The Company shall convene the class shareholders’ meeting if the voting rights of the class shareholders who propose to attend hold shares carrying more than half of the total voting rights of that class. If the requirement is not met, the Company shall publish an announcement (by publication in newspapers) containing the proposed agenda, date and place of the meeting within five (5) days to re-notify the shareholders of the meeting. The Company can convene the class shareholders’ meeting after having published the announcement.
Article 112	Notice of class shareholders’ meeting needs only be served on class shareholders who are entitled to vote thereat.
	Meeting of any class of shareholders shall be conducted as nearly as possible as general meetings of shareholders. The provisions of these Articles relating to any meeting of shareholders shall apply to any meeting of a class of shareholders.
Article 113	Save and except for other classes of shares, holders of domestic shares and overseas listed foreign shares are deemed to be different classes of shareholders.
	The special procedures of approval by separate class shareholders shall not apply to the following circumstances:
	(1)     where the Company issues, upon approval by a special resolution of the shareholders in a general meeting, either separately or concurrently once every twelve months, not more than twenty per cent. (20%) of each of the existing issued domestic shares and overseas listed foreign shares of the Company; or
	(2)     where the Company’s plan to issue domestic shares and overseas listed foreign shares on establishment is implemented within fifteen (15) months from the date of approval by the State Council Securities Commission.
CHAPTER 10 BOARD OF DIRECTORS
Article 114	The Company shall have a board of directors which shall consist of twelve (12) members, of which more than one-third shall be independent (non-executive) directors (that is, directors who are independent from the shareholders of the Company and do not hold any office in the Company, hereinafter referred to as “independent directors”), and at least one independent director shall be an accounting professional (that is, a person holding a senior position or a certified accountant).
	There shall be one (1) chairman and one (1) to two (2) vice-chairman.
	The board of directors may establish such committees as the strategic planning (development), audit, remuneration and nomination committees based on need. Of these committees, the audit, remuneration and nomination committees shall have independent directors as a majority of its members.
	Each specialist committee shall have the following basic responsibilities: (1)     Major responsibilities of the audit committee are: (i)      to propose the engagement or removal of external auditor; (ii)     to oversee the internal audit system of the Company and its implementation; (iii)   to be responsible for the communications between the internal auditor and the external auditor; (iv)    to examine and verify the financial information of the Company and the disclosure thereof; and (v)     to examine the internal control system of the Company. (2)     Major responsibilities of the remuneration committee are: (i)      to consider the standards of evaluation of directors and senior officers, to conduct evaluation and to provide recommendations in connection therewith; and (ii)     to consider and develop the remuneration policies and proposals for the directors and senior officers.

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	The board of directors shall have one or more directors as executive directors. The executive directors shall be responsible for matters as entrusted by the board.
Article 115	The independent directors shall perform their duties faithfully to protect the interests of the Company, and should particularly ensure that the lawful interests of public shareholders shall not be jeopardized. Independent directors shall perform their duties independently and none of them shall be influenced by the Company’s substantial shareholders, beneficial controllers or entities or parties that are interested in the Company, its substantial shareholders or beneficial controllers.
Article 116	Directors shall be natural persons, and are not required to hold shares in the Company. Directors shall be elected by shareholders at shareholders’ general meetings. The term of office of the directors shall be three (3) years, which commences from the date on which such directors serve their term of office until the end of the current session of the board of directors. The directors may be re-elected after the expiration of their term, however independent directors may not serve for terms exceeding six (6) years. Newly appointed directors or supervisors shall serve their respective term of office immediately after a shareholders’ general meeting is closed or at such time as may be specified in a resolution adopted at the shareholders’ general meeting. If the term of the directors expires but re-election has not been conducted in time, the existing directors shall continue to perform their directors’ duties in accordance with the laws, administrative regulations, the rules and regulations of the competent authorities together with these Articles and the appendices attached hereto until the re-elected directors serve their respective term of office. The chairman and vice-chairman shall be appointed and removed from office by more than half of all the directors. The term of office of the chairman and vice-chairman shall be three years and they may be re-elected after the expiration of their term.
Article 117	The candidates for election as directors shall be placed as a resolution before a general meeting of shareholders. Candidates for independent directors may be nominated by the board of directors, supervisory committee or shareholders individually or together holding one per cent. (1%) or more of the issued shares of the Company, and shall be elected by the shareholders at shareholders’ general meetings. Candidates for directors other than independent directors may be nominated by the board of directors, supervisory committee or shareholders individually or together holding three per cent. (3%) or more of the total voting rights of the Company, and shall be elected by the shareholders at shareholders’ general meetings.
Article 118	The following procedure must be followed prior to electing independent directors:
	(1)     Before nominating a candidate for election as an independent director, the nominator should first obtain the consent of the nominee, and fully understand the nominee’s qualifications, education, profession, detailed working experience and other positions held, and said nominator is responsible for providing such written materials to the Company. The candidate shall provide a written undertaking to the Company, agreeing to accept the nomination, confirming the truthfulness and completeness of the publicly disclosed materials relating to the candidate and guaranteeing that following election they will practically carry out the responsibilities of a director.
	(2)     The nominator of the independent director must make a statement regarding the qualifications and independence of the nominee, and the nominee must make a public declaration that there does not exist any relationship between himself and the Company which may influence his independent objective judgement.
	(3)     If the nomination of a candidate for independent director occurs before the Company holds a meeting of the board of directors, then the written materials regarding the nominee set out in paragraphs (1) and (2) of this Article shall be made public together with the resolutions of the board of directors or the notice of the shareholders’ general meeting.

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	(4)     If shareholders alone or together holding three per cent. (3%) or more of the voting rights of the Company or the supervisory committee proposes a motion at the annual general meeting of shareholders for the election of a candidate for an independent director, then written notice of the intention of such person(s) nominating the candidate and the willingness of the nominee to accept the nomination, together with the written materials and undertakings relating to the nominee set out in paragraphs (1) and (2) of this Article, shall be delivered to the Company during a period of not less than ten (10) days commencing no earlier than the day after the despatch of the notice of such annual general meeting of shareholders and ending no later than ten (10) days before the date of such shareholders’ general meeting.
	(5)     When a notice convening the shareholders’ general meeting for the election of independent directors is announced, the Company should submit relevant materials regarding all nominees simultaneously to the stock exchanges authorized by the securities regulatory and administrative organs under the State Council on which the Company’s shares are listed. If the board of directors have any objections to the nominees, it should also submit its written opinions at the same time. Where the relevant stock exchanges have any objections to a nominee, that person shall not be a candidate for election as independent director. When convening a general meeting of shareholders to elect independent directors, the board of directors of the Company should explain whether the relevant stock exchanges have any objections to any of the candidates for election as independent director.
Article 119	Prior to electing non-independent directors, the following procedure should be followed:
	(1)     Before nominating a candidate for election as a non-independent director, the nominator should first obtain the consent of the nominee, and fully understand the nominee’s qualifications, education, profession, detailed working experience and other positions held, and said nominator is responsible for providing such written materials to the Company. The candidate shall provide a written undertaking to the Company, agreeing to accept the nomination, confirming the truthfulness and completeness of the publicly disclosed materials relating to the candidate and guaranteeing that following election they will practically carry out the responsibilities of a director.
	(2)     If the nomination of a candidate for non-independent director occurs before the Company holds a meeting of the board of directors, then the written materials regarding the nominee set out in paragraph (1) of this Article shall be made public together with the resolutions of the board of directors or the notice of the shareholders’ general meeting.
	(3)     If shareholders alone or together holding three per cent. (3%) or more of the voting rights of the Company or the supervisory committee propose a candidate for election as a non-independent director to the annual general meeting of shareholders , then written notice of the intention of such person(s) nominating the candidate and the willingness of the nominee to accept the nomination, together with the written materials and undertakings relating to the nominee set out in paragraph (1) of this Article, shall be delivered to the Company during a period of not less than ten (10) days commencing no earlier than the day after the despatch of the notice of such annual general meeting of shareholders and ending no later than ten (10) days before the date of such shareholders’ general meeting.
Article 120	Independent directors must fulfill the following basic conditions:
	(1)     be qualified to act as a company director pursuant to PRC and overseas laws and regulations;
	(2)    possess the independence required pursuant to these Articles;
	(3)     possess a basic knowledge of the operations of a listed company, and be familiar with the relevant laws, administrative regulations, rules and codes;
	(4)     have at least five (5) years working experience in law, economics or other area required for the fulfillment of responsibilities as an independent director.

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Article 121	If the controlling shareholder of the Company exercise more than 30% control, when resolutions are proposed for the election of directors at a shareholders’ general meeting, the cumulative voting method shall be adopted, thus when a shareholders’ general meeting is electing two or more directors, each share held by a shareholder participating in the vote has equal voting rights in relation to the total number of candidates for election as directors, and a shareholder may either vote all of their shares on one person, or divide their votes across several persons. The main contents of the cumulative voting system are as follows:
	(1)     when two or more directors are required to be elected, the cumulative voting method must be adopted;
	(2)     when the cumulative voting method is adopted, each share held by a shareholder has equal voting rights in relation to the number of candidates for election as directors;
	(3)     the notice of meeting must inform shareholders that the cumulative voting system will be adopted for the resolutions for the election of directors. The persons convening the meeting must prepare ballots suitable for the implementation of the cumulative voting method, and a written explanation of the cumulative voting method, instructions for filling in ballots and the method of counting votes must be provided;
	(4)     when the shareholders’ general meeting is voting on the resolutions for the election of directors, shareholders may divide their voting rights, and vote a proportional number of the shares held for each of the candidates for election as director. Alternatively, shareholders may concentrate their voting rights, and vote all of the voting rights represented by the shares held in favor on one particular candidate for election as director, or vote part of the voting rights represented by the shares held in favor of a certain number of the candidates for election as director;
	(5)     after a shareholder has concentrated the voting rights represented by all of the shares held by him on one or a certain number of candidates for director, he may not exercise his voting rights again in respect of other candidates for director;
	(6)     if the total number of votes exercised by a shareholder concentrating his voting rights on one or a certain number of candidates for director exceeds the total number of voting rights represented by the shares held by that shareholder, that shareholder’s vote is invalid, and will be deemed to be an abstention. If the total number of votes exercised by a shareholder concentrating his voting rights on one or a certain number of candidates for director is less than the total number of voting rights represented by the shares held by that shareholder, that shareholder’s vote is valid, and those voting rights not exercised will be deemed to be abstentions;
	(7)     where the total number of votes in favor won by a candidate for director exceeds one-half of the total of number of shares with voting rights represented by shareholders attending the general meeting (based on the non-cumulative number of shares) and the total number of votes in favor exceeds the total number of opposing votes, that candidate will be elected as a director. If the number of directors so elected exceeds the number of positions available for director, then those receiving the most number of votes in favor shall be elected as directors (provided that where those receiving relatively less votes in favor have an equal number of votes in favor, which would cause the number of persons elected to exceed the positions available, then such candidates will be deemed to have not been elected). If an insufficient number of directors are elected at the shareholders’ general meeting to fill the positions available, then a further vote will be conducted for the remaining positions, until such point as all positions for director have been elected;
	(8)     where the general meeting holds a new round of election for directors in accordance with the requirements set out in paragraph (7) above, the cumulative votes of the shareholders shall be re-calculated based on the number of directors elected in each round of election.
	(9)     Independent directors and other members of the board of directors are elected separately.
Article 122	Subject to compliance with all relevant laws and administrative regulations, the shareholders’ general meeting may by ordinary resolution remove any director whose term of office has not expired (however this will not prejudice any request for compensation which may be raised pursuant to any contract).

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Article 123	Directors may resign prior to the expiration of their term of office. A director may resign by submitting written notice of his resignation to the board of directors, and an independent director must in addition provide explanations of any matters related to his resignation or which he believes should be brought to the attention of shareholders and creditors of the Company. Subject to Article 124 of these Articles of Association, a director’s resignation shall be effected when the written notice of resignation is received by the board of directors. The board of directors shall disclose such resignation within 2 days of receipt of the written notice.
Article 124	If the resignation of a director would lead the board of directors of the Company to have less than the legally required number of directors, then such director’s notice of resignation will only become effective after a new director has been appointed to fill the vacancy so caused by his resignation. The remaining members of the board of directors must forthwith convene an extraordinary meeting of shareholders in order to appoint a director to fill the vacancy caused by the resignation. Prior to the shareholders’ general meeting resolution to elect the director, the resigning director and remaining directors powers should be reasonably restricted.
	If the resignation of an independent director would lead the board of directors of the Company to have less than the minimum proportion of independent directors required by these Articles, then such independent director should continue to perform his/her duties in compliance with the requirements of the law, administrative regulations and the Articles until the commencement of the term of an elected replacement. The board of directors should convene a shareholders’ general meeting to elect a new independent director within two months. If a shareholders’ general meeting is not convened within the prescribed period, such independent director does not have to perform the duties thereafter.
Article 125	The board of directors shall be responsible to the shareholders’ general meeting and shall exercise the following powers: (1)     to be responsible for convening shareholders’ general meetings and reporting on its work to the shareholders’ general meeting; (2)     to implement the resolutions of the shareholders’ general meetings; (3)     to decide on the Company’s business plans and investment proposals; (4)     to formulate the Company’s proposed annual financial budgets and final accounts; (5)     to formulate the Company’s profit distribution plans and plans for recovery of losses; (6)     to formulate the Company’s financial strategy, proposals for the increase in or reduction of the Company’s registered capital and the issue of any kind of securities (but not limited to corporate bonds) and plans for their listing or the repurchase of the shares of the Company; (7)     to draft plans for major acquisitions or disposals, and for the merger, division, dissolution or changing of the form of the Company; (8)     to formulate the proposal for amendments to the Articles of Association; (9)     to decide on matters relating to foreign investment, purchase or sale of assets, mortgage of assets, entrusted asset management and connected transactions by the Company within the scope of authority conferred by the shareholders’ general meeting; (10)   to decide on issues relating to the provision of guarantee in favor of a third party within the scope of authority conferred by the shareholders’ general meeting; (11)   to appoint or dismiss the Company’s general manager, and pursuant to the general manager’s nomination, to appoint or dismiss deputy general manager and financial officers of the Company; to appoint or dismiss the company secretary; and to decide on their remuneration; (12)   to appoint or change the members of the boards of directors and supervisory committees of the Company’s wholly-owned subsidiaries, to appoint, change or recommend shareholder representatives, directors (or candidates) and supervisors (or candidates) to the Company’s controlled subsidiaries or subsidiaries in which the Company holds shares; (13)   to decide on the establishment of the Company’s internal management structure; (14)   to decide on the establishment of branch entities of the Company;

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	(15)   to formulate the Company’s basic management system; (16)   to administer the disclosure of information by the Company; (17)   to submit nominations for the appointment or change of accounting firms as the auditors of the Company to the shareholders’ general meeting; (18)   to review the work reports of the general manager and monitor the work of the general manager; (19)   to decide other major matters and administrative matters not required by laws, administrative regulations or these Articles to be decided by the shareholders’ general meeting, and to sign other major agreements; (20)   to exercise other powers as stipulated by laws, administrative regulations, the rules and regulations of authorized departments or these Articles or as authorized by shareholders’ general meeting. Save and except for the matters in sub-paragraphs (6), (7), (8) above which require the consent of two-thirds or more of all the directors, all the other matters may be approved upon resolution by a majority of all the directors (in which the matter as forth in sub-paragraph (10) is still subject to approval upon resolution by two-thirds or more of all the directors).
Article 126	Where the board of directors are in unanimous agreement, the powers of the board of directors set out in the previous Article may be delegated to one or more directors, however matters relating to the major interests of the Company should be decided by the entire board of directors. The scope of delegation by the board of directors must be clear and specific.
Article 127	Major connected transactions of the Company as well as the appointment or removal of auditors shall require the approval by more than one half of the independent directors before presenting to the board of directors for discussion. The proposal to convene an extraordinary general meeting of shareholders by independent directors to the board of directors, the proposal to convene a meeting of the board of directors and the solicitation of proxies from shareholders publicly prior to the shareholders’ general meeting shall require approval by more than one half of independent directors. Subject to the approval by all independent directors, the independent directors may independently appoint external auditors and consultants to conduct auditing and consultation on specific issues and the relevant costs shall be borne by the Company.
Article 128	Other than the powers set out in the previous Article, independent directors should also express their independent opinion on the following major matters to the board of directors or shareholders’ general meeting:
	(1)     nomination or removal of directors;
	(2)     appointment or removal of Senior Management;
	(3)     the remuneration of directors and Senior Management;
	(4)     existing or new loans or other financial transaction between the Company and its shareholders, actual controlling persons or related enterprises which equal to or exceed the recognized standards of major connected transactions that must be approved by the board of directors or shareholders’ general meeting (as determined by the standards promulgated from time to time by the authorized regulatory bodies), and whether the Company has taken effective measure to be repaid amounts owing;
	(5)     matters which the independent directors believe may harm the rights and interests of minority shareholders;
	(6)     any other matters on which the independent directors are required to express an independent opinion pursuant to the laws, regulations, listing rules and other rules of the places where the shares of the Company are listed.

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	In relation to the above matters, independent directors should express one of the following opinions: (1) agree; (2) qualified opinion and reasons therefore; (3) oppose and reasons therefore; (4) unable to form an opinion and impediments to doing so.
	If the matter is a matter requiring disclosure, the Company must announce the opinions of the independent directors. Where the independent directors are divided and are not able to provide a unanimous opinion, the board of directors should separately disclose the opinions of each independent director.
Article 129	The independent directors shall attend the meeting of the board of directors regularly in order to understand the production and operation of the Company, initiate investigation, and obtain the situation and information necessary for making decisions. An annual report from all independent directors describing the situations regarding the performance of their duties shall be submitted by the independent directors to the annual general meeting of the Company.
Article 130	The Company shall establish a system governing the work of independent directors. The secretary to the board of directors shall take the initiative to assist the independent directors for the performance of their duties. The Company shall provide independent directors with working conditions necessary for the performance of their duties, ensure independent directors have the rights to be informed same as that of other directors, and provide independent directors with relevant materials and information in a timely manner. The Company shall also provide regular reports on its operations and organize on-site visits for independent directors when necessary.
Article 131	The board of directors must explain to the shareholders’ general meeting when a registered accountancy firm issues a non-standard audit opinion in respect of the Company’s financial statements.
Article 132	The board of directors shall formulate “Rules for Meetings of the Board of Directors”, in order to ensure the effective working and scientific policy-making of the board of directors.
Article 133	When the board of directors makes a decision regarding the entering of new markets, mergers and acquisitions or investments in new fields, where the amount of investment or assets being acquired exceed ten per cent. (10%) of the Company’s total assets, a consultancy body should be appointed to provide an expert opinion, as a major basis of the board of directors’ decision. The “Rules of Procedure for Shareholders’ General Meetings” and “Rules of Procedures for Board of Directors’ Meetings” shall set out regulations for the limitations on the power of the board of directors to approve the investments in third parties, acquisition and disposal of assets, mortgage of assets, provision of guarantee to third parties, entrusted assets management, connected transactions and other related matters. The board of directors shall establish strict review and approval procedures for the above matters. For major investment projects exceeding the board of directors’ approval limits, the board of directors must organize relevant experts and specialists to assess the projects, and report to the shareholders’ general meeting for approval.
Article 134	The board of directors, in disposing of the Company’s fixed assets, shall not without the prior approval of the shareholders in general meeting, dispose of or agree to dispose of any fixed assets of the Company where the aggregate of the expected value or amount of consideration for the proposed disposition and any fixed assets of the Company which have been disposed of in the period of four (4) months immediately preceding the proposed disposition exceeds thirty-three per cent. (33%) of the value of the Company’s fixed assets as shown in the last balance sheet submitted to the shareholders in shareholders’ general meeting.
	For the purpose of this Article, a disposition includes an act involving some transfer of an interest in assets other than by way of security.
	The validity of a disposition by the Company shall not be affected by a breach of the first paragraph of this Article.
Article 135	The chairman of the board of directors shall exercise the following powers: (1)     to preside over shareholders’ general meetings and convene and preside over meetings of the board of directors; (2)     to organize the implementation of the responsibilities of the board of directors, and to supervise the implementation of board resolutions;

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	(3)     to sign the Company’s securities; (4)     to sign major documents of the board of directors and other documents which require signature by the legal representative of the Company; (5)     to exercise the powers of the legal representative; (6)     in the case of major natural disaster or other circumstances of force majeure, to exercise special management of matters of the Company in accordance with laws, regulations, and the interests of the Company, and subsequently to report to the board of directors and shareholders’ general meeting; (7)     to exercise other powers as authorized by the board of directors. The vice-chairman of the board of directors shall assist the chairman of the board of directors with his or her duties. When the chairman is unable to, or does not, perform his or her duties, the vice-chairman of the board of directors shall perform the said duties (and if the Company has two or more vice-chairmen of the board of directors, the vice-chairman of the board of directors jointly elected by half or more of the total number of the directors shall perform the said duties). When the vice-chairman of the board of directors is unable to, or does not, perform his/her duties, a director jointly elected by half or more of the total number of the Directors shall perform the said duties.
Article 136	Meetings of the board of directors shall be convened at least four times per year by the chairman. Notice of meeting shall be given to all the directors at least fourteen(14) days prior to the meeting.
Article 137	In any one of the following circumstances, the chairman should convene and chair an extraordinary meeting of the board of directors within ten working days:
	(1)     shareholders representing not less than one-tenth of the voting rights requisition a meeting;
	(2)     not less than one-third of the directors together requisition a meeting;
	(3)     not less than one-half of the independent directors together requisition a meeting;
	(4)     the supervisory committee requisitions a meeting;
	Where the chairman cannot convene an extraordinary meeting of the board of directors for special reasons, the chairman shall appoint the vice-chairman or other director to convene the meeting. Where the chairman fails to convene the meeting without cause and fails to appoint any person to convene the meeting on his behalf, a director may be nominated by the vice-chairman or half or more of the total number of all directors to convene the meeting.
Article 138	Notice of meeting of the board of directors shall be given in the following manner:
	(1)     regular meetings of the board may be held without notice if the time and place of such meetings have been fixed in advance by the board;
	(2)     notice of the time and place of meetings of the board, for which a time and place have not otherwise been fixed in advance by the board, shall be given by the chairman to the directors by telex, telegram, telefax, courier, registered airmail or personal delivery not less than ten (10) days in advance;
	(3)     notices shall be given in the Chinese language. An English version may be attached if necessary. The agenda shall also be given. Any of the directors may waive his right to receive notice of board meeting;
	(4)     any director may waive his rights to receive notice of board meeting.
Article 139	Notice of meeting of the board of directors shall include the following:
	(1)     the time and place of the meeting;
	(2)     the duration of the meeting;

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	(3)     the agenda of the meeting, particulars of the resolutions to be considered at the meeting and any documents or information relevant to the board meeting;
	(4)     the date of the notice.
	Notice is deemed to be given to any director who attends the meeting without objecting, before or at its commencement, for not receiving any notice.
Article 140	The quorum for a meeting of the board of directors is a majority of all members of the board (including directors who appoint other directors as proxies). Each member of the board shall have one vote. Any board resolution shall be passed by more than half of all the directors. When there is a tie, the chairman of the board shall have a casting vote. All resolutions passed by the executive directors committee shall be passed by two-thirds of all the executive directors attending the meeting. Regular meetings of the executive directors committee shall be convened by the chairman or the executive director appointed by the chairman. The resolutions of such meeting shall be circulated to all directors for the purpose of managing workflow.
Article 141	The directors should attend board meetings in person. Should any directors be unable to attend the meeting, he may authorize another director by a way of a written instrument of proxy to attend on his behalf. Should any independent director be unable to attend the meeting, he may authorize another independent director by way of a proxy form to attend on his behalf. The proxy form shall set out the name of the proxy, the matter the appointment relates to, scope of authority and should be signed or sealed by the appointer.
	Any director acting as a proxy shall exercise the right of the appointment director within the scope of authority as set out in the proxy form. In the event that no proxy is appointed by the absent director to attend a board meeting, the absent director shall be deemed to have waived his right to vote at such a meeting.
Article 142	If an independent director fails to attend three consecutive board meetings in person, the board of directors shall propose at the shareholders’ general meeting to remove that independent director. Before the expiry of his term of office, an independent director shall not be removed from his/her office without a legitimate cause. Where an independent director is removed from his/her office before the expiry of his/her term, the Company shall make special disclosure of the termination of his/her office. The independent director being removed may make a public declaration if he/she believes that he/she has been removed improperly.
	Other directors shall be deemed as failing to carry out their duties if they fail to attend two consecutive board meetings in person and to appoint an alternate director to attend board meetings on their behalf. The board of directors shall propose at the shareholders’ meeting for the removal of such directors.
Article 143	Expenses incurred by the directors in attending board meetings shall be paid by the Company. Such expenses shall include transportation costs from the place where the director is located to the place of the meeting and the cost of accommodation and meals during the period the meeting is held. Incidental expenses, such as the rent of the place of the meeting and local transportation, shall also be borne by the Company.
Article 144	A written resolution may be adopted by the board of directors if such resolution has been sent to all the directors and affirmatively signed by the number of directors which would form the quorum required to pass such a resolution. Such written resolution shall become a directors resolution in lieu of a board meeting, provided that such written resolution is sent to the secretary of the board of directors.
Article 145	The minutes of the board resolutions discussed in the board meetings shall be recorded in the Chinese language.
	The board minutes shall include the following:
	(1)     date, time, the name of the convener and the chairman;
	(2)     name of the directors, the person preparing the proxy and the proxy attending;

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	(3)     agenda of the meeting;
	(4)     the key points of the directors’ views as expressed at the meeting (in the case of a written resolution, the key views of the directors set out in writing);
	(5)     the opinion of the independent directors and whether such opinion is consistent with that of the directors;
	(6)     the mechanism and results of voting for each resolution (the results shall include the number of votes cast for and against the resolution and the number of votes that abstained;
	(7)     the signature of the directors.
	The opinions of the independent directors expressed shall be stated in the board resolution. The minutes of the board meeting shall be given to all directors as soon as practicable. Directors who wish to amend or supplement the minutes shall submit a written report setting out his comments to the chairman of the board within one week of this receipt of the draft minutes circulated. Once the board minutes have been finalized, all attending directors, the Secretary and the person recording such minutes shall sign the board minutes. The board minutes shall be kept in the Company’s office in PRC and a complete copy of the minutes shall be provided to each director.
Article 146	The board of directors shall be responsible for the resolutions passed. If any of the board resolution violates the laws, administrative regulations or the Articles of Association, resolutions of the shareholders’ general meeting and causes serious damage to the Company, such directors who voted in favor of such resolution shall be liable to the Company. Any director who abstained from voting or who neither attended in person nor appointed a proxy to attend the meeting shall not be exempted from liability. Any director who had objected to the resolution during discussions in the board meetings but did not vote against such resolution shall not be exempted from liability. Any directors who voted against such resolution and whose voting was recorded in the minutes of the board meeting shall be exempted from such liability.
CHAPTER 11 COMPANY SECRETARY
Article 147	The Company shall have a secretary of the board of directors (“the Secretary”) who shall be a senior officer of the Company. The board of directors may set up a company secretarial working committee should the need arise.
Article 148	A director or senior officer of the Company may be appointed to act as the Secretary. The accountants of the accounting firm and lawyers of the law firm employed by the Company shall not be appointed to act as the Secretary. Where the Secretary is also a director of the Company and an act is required to be done by that director and the Secretary separately, a person who is both the Secretary and the director may not perform the act in both capacities.
Article 149	The Secretary shall be a natural person having the requisite professional knowledge and experience and shall be nominated by the Chairman of the board and appointed or removed by the board of directors.
Article 150	The main responsibilities of the Secretary are:
	(1)     to assist directors in performing the day-to-day functions of the board of directors; continuously provide, remind and ensure that directors understand the requirements of local and overseas regulatory bodies on the Company’s operations, policies and requirements; assist directors and general manager to exercise their powers in accordance with the local and overseas laws and regulations, the Company’s Articles and other relevant rules;
	(2)     to be responsible for organizing and preparing documents for board meetings and shareholders’ meeting; preparing minutes, ensuring that resolutions are passed in accordance with procedures required by law and be informed about the implementation of the board resolutions;

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	(3)     to be responsible for organizing and coordinating the Company’s disclosure, ensuring a timely, accurate, legal, true and fair disclosure of information relating to the Company; maintaining investor relations and enhancing the Company’s transparency;
	(4)     to participate and coordinate fund raising in the capital markets;
	(5)     to maintain relationships with market intermediaries, regulatory bodies, media and maintaining public relations.
Article 151	The scope of the Secretary’s duties includes the following:
	(1)     coordinate and organize board meetings and shareholders’ meetings, prepare the relevant materials for the meeting, arrange matters relating to the meeting, responsible for keeping minutes of the meetings, ensuring the accuracy of the minutes, keeping documents and minutes of the meeting, actively informing himself of the implementation of resolutions; reporting and providing recommendations to the board of directors on material matters that are being implemented;
	(2)     ensure that material decisions of the board of directors are performed strictly in accordance with the relevant requirements. Upon the request of the board of directors, participate in the consultation and analysis of the matters before the board of directors and offer his opinion and make recommendations accordingly; be authorized to perform the day-to-day functions of the board of directors and other committees;
	(3)     act as the Company’s contact person with securities regulatory bodies, responsible for organizing, preparing and submitting documents required by such regulatory bodies, responsible for accepting, organizing and completing tasks delegated by such regulatory bodies; ensuring that the Company prepares and submits to the authorized bodies reports and documents required by such bodies in accordance with the law;
	(4)     responsible for coordinating and arranging for the disclosure of the Company, putting in place an appropriate disclosure mechanism, participating in all meetings relating to information disclosure, be made aware of the Company’s material operating decisions and all related information;
	(5)     responsible for keeping in confidence any price sensitive information of the Company, and put in place effective rules and systems for maintaining confidentiality of information. Where price sensitive information of the Company has been revealed to the public, take all necessary actions to rectify, explain and clarify and notify the overseas securities regulatory body of the place in which the Company is listed and the China Securities Regulatory Commission;
	(6)     responsible for coordinating market publicity, reception of visitors, manage investor relations, maintain relationships with investors, market intermediaries and the mass media; responsible for ensuring that enquiries of the public are addressed, ensuring that investors receive information disclosed by the Company on a timely basis; organize and prepare publicity campaigns of the Company locally and overseas, preparing reports summarizing market publicity and material visits and arrange to report any related matters to the China Securities Regulatory Commission;
	(7)     ensuring that the Company’s register of members is properly set up, responsible for maintaining and keeping the register of members, register of directors, information relating to shareholdings of substantial shareholders and directors, and a list of holders of debentures issued by the Company;
	(8)     assisting directors and general manager to exercise their powers in accordance with local and overseas laws and regulations, the Company Articles and other requirements, and provide them with relevant information (including, but not limited to, providing newly appointed directors with all latest information published by the Company regarding corporate governance). When the Secretary is aware that the Company has made or may possibly pass resolutions that are in breach of the relevant requirements, he has an obligation to duly remind and report such breach to the China Securities Regulatory Commission and other regulatory bodies;

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	(9)     coordinate the provision of necessary information to the Company’s supervisory committee and other audit committees to enable them to perform their supervisory functions, and assist the investigation of the integrity of the Company’s financial controller, directors and general manager;
	(10)   ensuring that the Company has a complete set of documents and minutes, such that persons who have the right to access to these documents and minutes can have timely access to such documents and minutes;
	(11)   perform other duties delegated by the board of directors and the other duties required by any stock exchange on which the Company is listed.
Article 152	The Secretary shall guide or assist the Company to comply with any relevant laws of the PRC and of any place in which the shares of the Company are listed and with the rules and regulations of any securities regulatory bodies of the place in which the shares of the Company are listed.
CHAPTER 12 GENERAL MANAGER OF THE COMPANY
Article 153	The Company shall have a general manager who shall be nominated by the Chairman of the board and appointed or removed by the board of directors. Upon authorization by the board of directors, the general manager shall have the full right to manage the business of the Company and deal with the internal and external matters of the Company.
	Directors can also be employed as the general manager, deputy general manager or any other senior management personnel but directors holding such offices shall not exceed one half of all the directors of the Company.
Article 154	The general manager is responsible to the board of directors and shall exercise the following powers:
	(1)     to be in charge of the Company’s production, operation and management of the Company and organize the implementation of the resolutions of the board;
	(2)     to organize the implementation of the Company’s annual business plan and investment plan;
	(3)     to formulate the proposal for the internal management structure;
	(4)     to formulate the setting up of the Company’s branch entities;
	(5)     to formulate the basic management system;
	(6)     to formulate the basic rules and regulations of the Company;
	(7)     to propose the appointment and dismissal of the deputy general manager and financial officers;
	(8)     to appoint or dismiss management personnel other than those required to be appointed or dismissed by the board of directors;
	(9)     to decide on the salaries, awards or punishment, appointment, dismissal or removal of the staff and workers of the Company;
	(10)   to propose the convening of interim board meetings;
	(11)   to exercise other powers conferred by the Company Articles and the board of directors.
Article 155	A general manager who is not a director may attend board meetings and has the right to receive notices of meeting. A general manager who is not a director does not have the right to vote at board of directors’ meetings.
Article 156	The general manager shall report to board of directors or supervisory committee material contracts entered into by the Company, the implementation of these contracts, the use of funds and profitability of the business. The general manager shall warrant the accuracy of such report.

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Article 157	The general manager shall consider the opinions of unions and workers representatives committees before making decisions relating to wages, benefits, work safety, work and workers’ insurance, termination of employment (or dismissal) and other employee-related matters.
Article 158	The general manager shall issue the “General Manager Guidelines” and seek approval from the board of directors before implementation.
Article 159	The “General Manager Guidelines” shall include the following:
	(1)     the requirements, procedures and attendees of a general manager meeting;
	(2)     the duties and division of responsibility between general manager, deputy manager and other senior management personnel;
	(3)     the usage of the Company’s funds and assets, the limits of his authority to enter into material contracts, and the mechanism of reporting to the board of directors and supervisory committees;
	(4)     other necessary matters as the board of directors shall see fit.
Article 160	In exercising their powers, the general manager, the deputy general manager and the financial controller shall not alter the resolutions passed by the shareholders at general meetings or by the board of directors or exceed their authority.
Article 161	In exercising their powers, the general manager, the deputy general manager and the financial controller shall comply with law, administrative regulations and the Company Articles and act honestly and diligently.
Article 162	The general manager, deputy general manager, financial controller and other senior management personnel shall give notice of their resignation to the board of directors in accordance with the provisions of their respective service contracts and shall follow the various procedures and requirements as provided for in such service contracts.
CHAPTER 13 SUPERVISORY COMMITTEE
Article 163	The Company shall have a supervisory committee.
Article 164	The supervisory committee shall consist of seven (7) supervisors, including four (4) supervisors who are not employee representatives (including supervisor who are qualified to act as external supervisors) and three (3) supervisors representing the employees. Supervisors who are not employee representatives shall be elected and removed from office by the shareholders in general meeting. The supervisors representing the employees shall be democratically elected and removed from office by the employees. The supervisory committee shall have one chairman who shall be a supervisor. The term of office for a supervisor is three (3) years and the supervisor is eligible for re-election at the expiration of the term. The election or removal of the chairman of the supervisory committee shall be decided by two-thirds or more of the members of the supervisory committee. The chairman of the supervisory committee shall co-ordinate the performance of the committee’s duties. Where the chairman of the supervisory committee cannot perform his duties, half or more of the members of the supervisory committee shall appoint a supervisor to exercise the chairman’s powers on behalf of the chairman.
Article 165	The supervisory committee shall set up a operations committee, according to its needs, to manage the supervisory committee’s day-to-day operations.
Article 166	The directors, the general manager, the deputy general manager, financial officers and the Secretary of the Company shall not act as supervisors concurrently.
Article 167	The list of candidates for election as supervisors who are not employee representatives shall be placed as a resolution before a general meeting of shareholders.

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	Candidates for election as supervisors who are not employee representatives (other than the candidates for election as independent supervisors) may be nominated by the board of directors, supervisory committee, and shareholders individually or together holding three per cent. (3%) or more of the total voting shares of the Company, and shall be elected at the shareholders’ general meetings. Amongst candidates for election as supervisors who are not employee representatives, the candidates for election as independent supervisors may be nominated by the board of directors, supervisory committee and shareholders individually or together holding one per cent. (1%) or more of the total voting shares of the Company, and shall be elected at the shareholders’ general meeting.
Article 168	The following procedure must be followed when electing supervisors who are not employee representatives: (1)     Before nominating a candidate for election as a supervisor who is not an employee representative, the nominator should first obtain the consent of the nominee, and fully understand the nominee’s qualifications, education, profession, detailed working experience and other positions held, and the said nominator is responsible for providing such written materials to the Company. The candidate shall provide a written undertaking to the Company, agree to accept the nomination, undertake that the publicly disclosed materials relating to the candidate are true and complete and guarantee that following election they will practically carry out the responsibilities of a supervisor. (2)     If the nomination of a candidate for election as a supervisor who is not an employee representative occurs before the Company holds a meeting of the board of directors, then the written materials regarding the nominee set out in paragraph (1) of this Article shall be published in the same announcement as that containing the resolutions of the board of directors or the resolutions of the supervisory committee or the corresponding notice of a shareholders’ general meeting. (3)     If a shareholder who has the nomination power proposes to a shareholders’ general meeting a candidate for election as a supervisor who is not an employee representative, then a written notice of the intention of such person nominating the candidate and the willingness of the nominee to accept the nomination, together with the written materials and undertakings relating to the nominee set out in paragraph (1) of this Article, shall be delivered to the Company ten (10) days prior to the date of the shareholders’ general meeting.
Article 169	The Supervisory Committee shall propose at a shareholders’ meeting or trade union representatives’ meeting for the removal of a supervisor who, without reasons, fails to attend in person two consecutive supervisory committee meetings and fails to nominate another supervisor to act on his behalf.
	A supervisor may resign before the termination of his office, and the provisions set out in Chapter 10 in relation to the resignation of directors shall be applicable to supervisors.
Article 170	Supervisory committee meetings shall be held at least four times each year, and the Chairman of the supervisory committee shall be responsible for convening such meeting.
	All supervisors shall be given 10 days notice of the supervisory committee meeting, such notice shall be given by electronic means, fax, express post, registered post or in person. Such notice shall also include the date of the meeting, the place and duration of the meeting, the agenda and resolutions to be passed and the date of the notice. If an extraordinary supervisory committee meeting is proposed to be convened, all supervisors shall be given three days verbal or written notice of the meeting.
Article 171	The supervisory committee shall report to shareholders’ general meetings and shall have the following powers: (1)     to inspect the Company’s financial situation; (2)     to supervise the directors and senior officers in relation to their performance of duties of the Company and to propose removal of a director or a senior officer who has contravened any law, administrative regulation, these Articles of Association or resolutions passed at a general meeting of shareholders;

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	(3)     to require the directors, the general manager, deputy general manager, financial controller and secretary of the Company to rectify their behavior when their conduct is harmful to the interest of the Company and to report to the shareholders’ general meeting or the relevant competent authority of the State if necessary; (4)     to verify the financial reports, business reports, profit distribution proposal and other financial information proposed to be submitted to shareholders’ general meetings and in the case of doubt, may request public accountants or auditors in the name of the Company to assist reviewing the same; to review periodic reports of the Company prepared by the board of directors and to furnish written review opinions, (5)     to make recommendations in relation to the appointment of accountant; (6)     to propose extraordinary resolutions at the annual shareholders’ meeting. (7)     to requisite for convening extraordinary shareholders’ meetings, and to convene and preside over the shareholders’ general meetings when the board of directors fail to do so in accordance with the Company Law; (8)     to requisite for convening interim board meetings; (9)    to initiate proceedings against a director and senior officer in accordance with section 152 of the Company Law; (10)  to conduct investigation into any identified irregularities in the Company’s operations, and where necessary, to engage accountants, legal advisers or other professionals to assist in the investigation; and (11)  to exercise other powers specified by the laws, administrative regulations, in the Articles of Association and as authorized by the shareholders’ meeting. The supervisors may attend board meetings as non-voting attendees, and to make enquiries or give recommendations about the resolutions of the board of directors.
Article 172	Unless otherwise required by the Articles of Association, the supervisory committee shall resolve by way of passing a resolution with the affirmative votes of two-thirds or more of the members of the supervisory committee.
Article 173	Minutes shall be kept for all supervisory committee meetings. All supervisors attending the meeting and the person recording the minutes shall sign on the minutes of the supervisory meeting. Supervisors have the right to make, in the minutes, certain clarifications of the opinions they expressed at the supervisory committee meeting. Minutes of the supervisory committee meeting shall be permanently kept by the Company.
Article 174	Any reasonable expenses incurred by the supervisory committee in employing professionals such as lawyers, public accountants or auditors in the exercise of its authority shall be assumed by the Company.
Article 175	A supervisor shall act honestly in discharging his supervisory responsibilities in accordance with law, administrative regulations and the Company Articles.
CHAPTER14 QUALIFICATIONS AND OBLIGATIONS OF       DIRECTORS, SUPERVISORS, MANAGERS AND       SENIOR OFFICERS OF THE COMPANY
Article 176	A person shall be disqualified from being a director, a supervisor or a senior officer of the Company if any of the following applies: (1)     the individual has no civil capacity or his civil capacity is restricted; (2)     a period of less than five (5) years has elapsed since the person was released after serving the full term of a sentence of corruption, bribery, expropriation of assets, misappropriation of assets or social and economic disorder or since the deprival of political rights on the person due to a criminal conviction;

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	(3)     a period of less than three (3) years has elapsed since a company or an enterprise in which the person was a director, factory supervisor or manager was wound up due to mismanagement and such person was held personally liable to the winding up of the company or the enterprise; (4)     a period of less than three (3) years has elapsed since the revocation of the license of a company or an enterprise for illegal business operations under circumstances where the person was the legal representative of such company or enterprise and was held personally liable to the illegal business operations of the company or the enterprise; (5)     the person has a debt of a material amount which has not been repaid or cleared when due; (6)     a civil servant; (7)     the person has committed criminal offense and is subject to investigation by judicial authorities and the case has yet to be settled; (8)     provisions of law or administrative regulations stipulates that the person is not permitted to assume the position of a leader of an enterprise; (9)     the person not being a natural person; (10)   a period of less than five (5) years has elapsed since the date when the person was convicted of offenses involving fraud or dishonesty and was considered by the relevant authorities to have violated relevant securities regulations; (11)   persons who have been identified as being prohibited from participating in the markets by the China Securities Regulatory Commission and where such prohibitions are still in force; (12)   other particulars as provided for by the laws, administrative laws and regulations or departmental rules and regulations. If the election or appointment of a director, supervisor or senior officer is taken place in contravention of this Article, the said election, appointment or engagement shall be invalid. If a director, supervisor or senior officer falls into any of the circumstances set forth in the first paragraph of this Article during his term of office, the Company shall relieve him of his duties.
Article 177	The following persons cannot act as independent directors of the Company:
	(1)     immediate family members and main social contacts employees (“immediate family members” includes spouse, parents, children; “main social contacts” includes brothers and sisters, father or mother-in-laws, son or daughter-in-law, brothers and sisters of the spouse) of persons employed by the Company or its associated entities;
	(2)     persons, or immediate family members of persons who directly or indirectly hold 1% or more of the issued share capital of the Company or are the top 10 natural persons with the highest shareholdings in the Company, or if a person obtained his shareholdings from a connected person by way of gift or other forms of financial assistance;
	(3)     shareholders who directly or indirectly hold 5% or more of the issued share capital of the Company, or persons or their immediate family members who are employed by the top five shareholders of the Company;
	(4)     persons to whom any of the above three conditions applied within the past one (1) year;
	(5)     persons who provide financial, legal, consultation or other services to the Company or its associated entities;
	(6)     persons who are already acting as independent directors for give other listed companies;
	(7)     any other persons as designated by the China Securities Regulatory Commission.
Article 178	The validity of an act of a director or senior officer of the Company on behalf of the Company is not, vis-à-vis a bone fide third party, affected by any irregularity in his election or appointment or any defect in his qualification.

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Article 179	Directors, supervisors and senior officers of the Company cannot act on behalf of the Company or the board of directors, without being legally authorized by the Articles of Association or by the board of directors. Where such persons act on their own behalf but a third party may reasonably assume such persons to be acting on behalf of the Company, such persons shall state their own positions and identities.
Article 180	In addition to obligations imposed by law or administrative regulations or required by the stock exchanges on which shares of the Company are listed, each director, supervisor or senior officer of the Company owes the following duties to each shareholder, in the exercise of the powers of the Company entrusted to him: (1)     not to cause the Company to exceed the scope of business stipulated in its business license; (2)     to act honestly in what he considers to be in the best interests of the Company; (3)     not to expropriate in any guise the Company’s assets, including without limitation, not to usurp the Company’s opportunities; (4)     not to expropriate the individual rights of shareholders, including without limitation, rights to distribution and voting rights, save and except pursuant to a restructuring submitted to shareholders for approval in accordance with these Articles.
Article 181	Each director, supervisor or senior officer of the Company owes a duty, in the exercise of his powers and discharge of his duties, to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. The duty of diligence to be discharged by directors, supervisors and senior officers includes but not limited to: (1)     to exercise the rights conferred upon them in a prudent, serious and diligent manner so as to ensure that the commercial activities carried out by the Company are in compliance with the laws and administrative regulations, as well as the requirements of various economic policies of the State and falls within the scope of business provided for in the business license; (2)     to treat all shareholders equally; (3)     to keep informed of the business operation and management of the Company in a timely manner; (4)     to sign a written confirmation or opinion in connection with the regular reports of the Company and to ensure that the information disclosed by the Company is true, accurate and complete; (5)     to inform the supervisory committee of the relevant circumstances and information that is in accordance with the facts, and shall not impede the supervisory committee or a supervisor from exercising their powers; and (6)     to perform other duties of diligence as required by the laws, administrative regulations, rules and regulations of authorized departments and these Articles of Association.
Article 182	A director, supervisor and senior officer of the Company, in the exercise of the powers of the Company entrusted to him, must observe the fiduciary principle and shall not place himself in a position where his duty and his interest may be in conflict with the same. The principle includes without limitation a duty: (1)     to act honestly in what he considers to be in the best interests of the Company; (2)     to exercise the powers within his authority and not to exceed the relevant authority; (3)     to exercise the discretion vested in him personally and not to allow himself to act under the direction of another and, unless and to the extent permitted by laws, administrative regulations or the informed consent of shareholders in general meeting, not to delegate the exercise of his discretion; (4)     to treat shareholders of the same class equally and to treat shareholders of different classes fairly;

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(5)     except in accordance with these Articles or with the informed consent of shareholders in shareholders’ general meeting, not to enter into a contract, transaction or arrangement with the Company;

(6)     without the informed consent of shareholders in general meetings, not to use the Company’s assets for his own benefit in any form;

(7)     not to accept bribery or other illegal income and not to expropriate in any guise the Company’s assets including without limitation, not to usurp the Company’s opportunities;

(8)     without the informed consent of shareholders in general meeting, not to accept commissions in connection with the Company’s transactions;

(9)     to comply with the Articles of Association and act honestly in exercising his powers and discharging his functions and act in the best interest of the Company and not to use his position and power to make profits for himself;

(10)   without the informed consent of shareholders in general meeting, not to compete with the Company;

(11)   not to expropriate funds of the Company or to lend the capital of the Company to others and not to expropriate the Company’s assets and deposit the same in his own name or another’s name and not to use the Company’s assets to provide security for any of the indebtedness of a shareholder of the Company or other person;

(12)   unless otherwise permitted by the informed consent of shareholders in general meeting, to keep in confidence confidential information acquired by him in the course of and during his office and not to use such information other than in furtherance of the interests of the Company, save and except that disclosure of such information to the court or other governmental authorities is permitted if:

(i)      disclosure is made under compulsion of law;

(ii)     there is a duty to the public to disclose;

(iii)   it is so required for the interest of the director, supervisor or senior officer of the Company.

Any profits derived by a director, supervisor and senior officer in contravention of this Article shall be for the account of the Company. The director shall be personally liable for any loss suffered by the Company as a result of his contravention of this Article.

(1)     to act honestly in what he considers to be in the best interests of the Company;

(2)     to exercise the powers within his authority and not to exceed the relevant authority;

(3)     to exercise the discretion vested in him personally and not to allow himself to act under the direction of another and, unless and to the extent permitted by law, administrative regulations or the informed consent of shareholders in general meeting, not to delegate the exercise of his discretion;

(4)     to treat shareholders of the same class equally and to treat shareholders of different classes fairly;

(5)     except in accordance with these Articles or with the informed consent of shareholders in shareholders’ general meeting, not to enter into a contract, transaction or arrangement with the Company;

(6)     without the informed consent of shareholders in general meetings, not to use the Company’s assets for his own benefit in any form;

(7)     not to accept bribery or other illegal income and not to expropriate in any guise the Company’s assets including without limitation, not to usurp the Company’s opportunities;

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	(8)     without the informed consent of shareholders in general meeting, not to accept commissions in connection with the Company’s transactions;
	(9)     to comply with the Company Articles and act honestly in exercising his powers and discharging his functions and act in the best interest of the Company and not to use his position and power to make profits for himself;
	(10)   without the informed consent of shareholders in general meeting, not to compete with the Company;
	(11)   not to expropriate funds of the Company or to lend the capital of the Company to others and not to expropriate the Company’s assets and deposit the same in his own name or another’s name and not to use the Company’s assets to provide security for any of the indebtedness of a shareholder of the Company or other person;
	(12)   unless otherwise permitted by the informed consent of shareholders in general meeting, to keep in confidence confidential information acquired by him in the course of and during his office and not to use such information other than in furtherance of the interests of the Company, save and except that disclosure of such information to the court or other governmental authorities is permitted if:
	(i)      disclosure is made under compulsion of law;
	(ii)     there is a duty to the public to disclose;
	(iii)   the interest of the director, supervisor, general manager or other senior officer of the Company require disclosure.
	Any profits derived by a director in contravention of this Article shall be for the account of the Company. The director shall be personally liable for any loss suffered by the Company as a result of his contravention of this Article.
Article 183	A director, supervisor or senior officer of the Company shall not cause any of the following persons or authorities (“Connected Person”) to do what he is prohibited from doing: (1)     the spouse or minor child of that director, supervisor or senior officer; (2)     a person acting in a capacity of a trustee of that director, supervisor or senior officer or any person referred to in sub-paragraph (1) above; (3)     a person acting in a capacity of a partner of that director, supervisor or senior officer or any person referred to in sub-paragraphs (1) and (2) above; (4)     a company in which that director, supervisor or senior officer, alone or jointly with one or more persons referred to in sub-paragraphs (1), (2) and (3) above and other directors, supervisors or senior officers of the Company, has a de facto controlling interest; (5)     a director, supervisor or senior officers of a company referred to in sub-paragraph (4).
Article 184	During their respective term of office, a director, supervisor and senior officer of the Company shall regularly report to the Company their shareholdings in the Company and any changes in such shareholdings, and shall not transfer on an annual basis more than twenty-five per cent. (25%) of the total number of shares held in the Company. The shares held by such director, supervisor and senior officer are non-transferrable within one (1) year from the date on which the shares of the Company are listed and traded. The aforesaid personnel shall not transfer their shares in the Company within six months from the termination date of their employment with the Company. This provision shall not apply to the change in shareholdings due to judicial enforcement, succession, legacy and division of properties according to law. If the number of shares held by a director, supervisor or senior officer is not more than 1,000 shares, such director, supervisor or senior officer may transfer all of his or her shares in lump sum and shall be free from the restriction on transfer ratio as described in the preceding paragraph.

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Article 185	Where a director, supervisor and senior officer gives notice of this resignation or where his office terminates, the duty of a director, supervisor, manager and senior officer does not necessarily cease when the resignation report has not become effective, or within a reasonable period after it has become effective or within a reasonable period after the termination of his office. The duty of confidence in relation to trade secrets of the Company survives the termination of his office until such trade secrets becomes public information. Other duties may continue for such a period as fairness may require and depending on the time which has elapsed between the termination and the act concerned and the circumstances under which the relationship with the Company is terminated.
Article 186	Directors, supervisors and senior officers of the Company who determine their office before the end of the term shall compensate the loss suffered by the Company as a result of such early termination.
Article 187	A director, supervisor or senior officer shall be personally liable for any loss suffered by the Company as a result of a violation by him of any law, administrative regulation, rules and regulations of authorized departments or these Articles of Association in the course of performing his duties. Except for the circumstances under Article 56, a director, supervisor or senior officer may be relieved of liability for specific breaches of his duty by the informed consent of shareholders in general meeting.
Article 188	Where a director, supervisor or senior officer is in any way, directly or indirectly, materially interested in a contract, transaction or arrangement or proposed contract, transaction or arrangement with the Company, other than his contract of service, he shall disclose the nature and extent of his interest to the board of directors at the earliest opportunity, whether or not such contract, transaction or arrangement or proposal therefore is otherwise subject to the approval of the board of directors. A director shall not be entitled to vote, whether for himself or on behalf of another director, on (nor shall be counted in the quorum in relation to) any resolution of the board in respect of any contract, transaction or arrangement in which he or any of his associates as defined in the Listing Rules (“Associate”) has any material interest. A board meeting in respect of any contract, transaction or arrangement in which a director or any of his Associates has any material interest can be convened where a majority of the disinterested directors of the Company attend the meeting and any such resolutions shall be passed by a majority of the disinterested directors of the Company. If the number of disinterested directors present at a board meeting is less than 3, the matters shall be presented to the shareholders for consideration at a general meeting. Unless the interested director, supervisor or senior officer has disclosed his interest in accordance with this Article and the contract, transaction or arrangement has been approved by the board at a meeting in which the interested director is not counted in the quorum and has refrained from voting, such contract transaction or arrangement in which a director, supervisor or senior officer is materially interested in is voidable at the instance of the Company except as against a bona fide party thereto acting without notice of the breach of duty by the director, supervisor or senior officer concerned. For the purposes of this Article, a director, supervisor or senior officer is deemed to be interested in a contract, transaction or arrangement in which a Connected Person or Associate of such director, supervisor or senior officers is so interested.
Article 189	Where a director, supervisor or senior officer of the Company gives to the board of directors a general notice in writing stating that by reason of facts specified in the notice, he is interested in contracts, transactions or arrangements of any description which may subsequently be made by the Company, that notice shall be deemed for the purposes of this Chapter to be sufficient declaration of his interest, so far as attributable to those facts, in relation to any contract, transaction or arrangement of that description which may subsequently be made by the Company; provided that such a general notice shall have been given before the date on which the question of entering into the relevant contract, transaction or arrangement is first taken into consideration by the Company.
Article 190	The Company shall not in any manner pay taxes for or on behalf of a director, supervisor or senior officer of the Company.
Article 191	The Company shall not directly or indirectly make a loan to a director, supervisor or senior officer or to a director, supervisor, manager or senior officer of its parent company, provide any guarantee in connection with a loan made by any person to such a director, supervisor or senior officer, or make a loan to or provide any guarantee in connection with any loan made by any person to a Connected Person of such a director, supervisor or senior officer. The following transactions are not subject to the prohibition set out in foregoing paragraph of this Article: (1)     the provision of a loan or a guarantee for a loan by the Company to a company which is a subsidiary of the Company; (2)     the provision of a loan or a guarantee for a loan or other sums by the Company under a service contract with any of its directors, supervisors or senior officers as approved by shareholders in a general meeting for meeting expenditure incurred or to be incurred by him for the purposes of the Company or for the purpose of enabling him properly to perform his duties;

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	(3)     the Company may make a loan to or provide a guarantee for a loan made by another person to any of its directors, supervisors or senior officers or a Connected Person of such director, supervisor or senior officers in the ordinary course of its business on normal commercial terms, where the ordinary course of business of the Company includes the lending of money or the giving of guarantees.
Article 192	A loan made by the Company in breach of the preceding Article shall be forthwith repaid by the recipient of the loan regardless of the terms of the loan.
Article 193	A guarantee provided by the Company in breach of Article 191(1) shall be unenforceable against the Company unless: (1)     the guarantee was provided in connection with a loan to a Connected Person of a director, supervisor or senior officers of the Company or its parent company and at the time the loan was advanced the lender was not aware of the relevant circumstances; or (2)     any collateral provided has been lawfully disposed of by the lender to a bona fide purchaser.
Article 194	For the purposes of the foregoing Articles in this Chapter, a guarantee includes an undertaking by the guarantor or the provision of assets to secure the performance of obligations by the obligor.
Article 195	In addition to any rights and remedies provided by law and administrative regulations, where a director, supervisor or senior officer is in breach of his duties to the Company, the Company has a right to: (1)     recover from such director, supervisor or senior officer compensation for losses sustained by the Company as a result of such breach; (2)     rescind any contract or transaction entered into by the Company with such director, supervisor or senior officer and any contract or transaction entered into by the Company with a third party where such third party knew or should have known there was such a breach; (3)     request the director, supervisor or senior officer to account for the profits arising from such breach; (4)     recover any monies received by the director, supervisor or senior officer which should have belonged to the Company including without limitation commissions; (5)     request for the return from such director, supervisor or senior officer of the interest earned or which may have been earned on any monies which should have been returned to the Company.
Article 196	The Company shall, with the prior approval of shareholders in general meeting, enter into a contract in writing with each director or supervisor stipulating provisions relating to the rights and obligations of the Company and the director/supervisor, the emoluments of the director/supervisor, the liabilities of the director/supervisor if he commits a breach of the laws, regulations and the Company Articles, and compensation for early termination of the contract. Matters relating to emoluments shall be approved by the shareholders’ general meeting, including:
	(1)     emoluments in respect of his service as a director, supervisor or senior officer of a subsidiary of the Company;
	(2)     emoluments in respect of his service as a director, supervisor or senior officer of a subsidiary of the Company;
	(3)     emoluments otherwise in connection with the provision of services in connection with the management of the Company or a subsidiary of the Company;
	(4)     payment by way of compensation for loss of office by a director or supervisor or as consideration for or in connection with his retirement from office or loss of office.

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	Except under a contract entered into in accordance with the foregoing, no proceedings may be brought by a director or supervisor against the Company for anything due to him in respect of the above matters.
Article 197	In a contract where a director’s or supervisor’s emoluments are stipulated, it shall provide that in connection with the takeover of the Company, a payment may be made to a director or a supervisor of the Company by way of compensation for loss of office, or as consideration for his retirement from the office, with the prior informed consent of the shareholders in shareholders’ general meeting to his receiving such payment. A takeover of the company refers to one of the following situation:
	(1)     an offer made to all the shareholders of the Company;
	(2)     an officer made by any person with a view to the offeror becoming a Controlling Shareholder within the meaning of Article 57.
	If the relevant director or supervisor does not comply with the provisions set out in this Article, any sum received by the director or supervisor on account of the payment shall belong to those persons who have sold their shares as a result of the offer made; any expenses incurred by him in distributing that sum pro rata amongst those persons shall be borne by him and not be paid out of that sum.
CHAPTER 15 ACCOUNTING SYSTEM, ALLOCATION OF PROFITS AND AUDIT
Article 198	The Company shall establish its financial and accounting system in accordance with law and administrative regulations and the accounting standards of the responsible financial authorities of the State Council.
Article 199	The accounting year of the Company shall follow the calendar year, that is, the period from January 1, to December 31 each year shall be counted as one financial year.
	The Company shall use Renminbi as the currency for its accounts, and the accounts shall be prepared in the Chinese language.
	The Company shall prepare its financial report at the end of each accounting year and such reports shall be verified in accordance with the law.
Article 200	The board of directors shall place before the shareholders at every annual general meeting such financial report as is required by law, administrative regulations or normative provisions promulgated by competent regional government authorities and departments in charge to be prepared by the Company. Such reports shall be examined and verified.
Article 201	Twenty (20) days prior to the convening of the annual general meeting, the Company shall make available the financial report for inspection by shareholders at the Company. Every shareholder of the Company shall have the right to receive the financial report as referred to in this Chapter.
	The Company shall send the above mentioned financial report and the directors’ report at least twenty-one (21) days before the convening of the annual general meeting by prepaid mail to every holder of the listed foreign shares. The address of the recipient shall be the address as registered on the shareholders’ register.
Article 202	The financial statements of the Company shall be prepared not only in accordance with the PRC accounting standards and regulations but also be prepared in accordance with international accounting standards or the accounting standards of the place where the overseas shares are listed. If there are material differences in the financial statements using different accounting standards, the differences should be set out in the financial statements. In distributing the after-tax profits of the relevant financial year, the after-tax profits shall be the smaller amount in either of the financial statements.
Article 203	Any interim results or financial information disclosed or announced by the Company shall be prepared and presented in accordance with the PRC accounting standards and regulations and shall also be prepared in accordance with the international accounting standards or the accounting standards of the place where the shares are listed.

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Article 204	The Company shall make four announcements of its financial report in each financial year. The quarterly financial reports shall be submitted to a resident office of China Securities Regulatory Commission and a stock exchange and announced within one (1) month after the end of the first three (3) month and the first nine (9) month of the financial year respectively; the half-yearly financial report shall be submitted to a resident office of China Securities Regulatory Commission and a stock exchange and announced within two (2) months after the end of the first six (6) months of the financial year; and the annual financial report shall be submitted to a resident office of China Securities Regulatory Commission and a stock exchange and announced within one hundred and twenty (120) days after the end of the financial year. The annual financial report shall be examined and verified in accordance with law.
Article 205	The Company shall have no accounting ledgers other than the statutory accounting ledgers. The Company’s assets shall not be held under any personal account.
Article 206	Where there is any profit that may be distributed to its shareholders, the Company shall take steps to implement a profit distribution scheme with the aim of providing a reasonable investment return to shareholders as well as ensuring the Company to meet its reasonable capital requirements.
Article 207	The after-tax profits of the Company shall be distributed in the following order of priority:
	(1)     to make up for losses of the previous year;
	(2)     allocation of 10% to the statutory common reserve;
	(3)     allocation to the discretionary common reserve; and
	(4)     payment of dividends.
	Where the statutory common reserve of the Company is over 50% of the registered capital of the Company, profits need not be allocated to it.
	Where the statutory common reserve of the Company is insufficient to make up the Company’s losses in the previous year, the profits of the current year shall be applied to make up the losses before allocations are made from the statutory common reserve.
	The Company may allocate funds from profits after tax for discretionary common reserve, provided that funds have been first allocated for common reserves and shareholders’ resolution has been passed to approve such allocations.
	The Company may distribute profits, after applying its profits towards making up losses, common reserve, in accordance with the proportions of shareholdings except where the Articles of Association stipulate that no profit distributions shall be made in accordance with the shareholding proportion.
Article 208	Before the Company has made up for losses and allocated to the statutory common reserve, no distribution in the form of dividend or bonus share shall be made. If the general meeting has, in violation of the provisions of the preceding paragraphs, distributed profits to the shareholders before the Company has made up for its losses and made allocations to the statutory common reserve, the shareholders must return the profits distributed in violation of the provision to the Company. No profits shall be distributed in respect of the shares held by the Company.
Article 209	Capital common reserve include the following amounts:
	(1)     the premiums over the par value of the shares issued;
	(2)     other income which are required by the responsible financial department of the State Council to be included in the capital common reserve.

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Article 210	The common reserve of the Company shall be used for the purposes of making up losses of the Company, increasing the scale of production and operation of the Company or conversion into capital of the Company. The Company shall not apply the capital common reserve for making up its losses. The Company may, subject to resolution by shareholders in shareholders’ general meeting, convert the common reserve into share capital by issuing new shares to the shareholders in proportion to their existing shareholdings or increasing the par value of each share provided that when the statutory common reserve is converted into share capital of the Company, the remaining statutory common reserve after such conversion shall be no less than twenty-five per cent. (25%) of the registered capital.
Article 211	Once the dividend payout policy has been approved by the shareholders at the shareholders’ meeting, the directors shall complete the distribution of dividends (or shares) within two months after the shareholders’ meeting. Any payment for the shares paid before calls on shares shall be entitled to dividends. However, shareholders shall not be entitled to receive dividends where the dividends are subsequently declared.
Article 212	The Company may distribute its dividend in the following forms:
	(1)    cash;
	(2)    shares.
Article 213	Dividends and other payments made to local shareholders shall be paid in Renminbi. Dividends paid to holders of listed foreign shares shall be declared and calculated in Renminbi but paid in foreign currency. Dividends paid in respect of foreign shares listed in Hong Kong shall be paid in Hong Kong dollars.
Article 214	Unless otherwise provided in law and administrative regulations, the exchange rate used for the payment of cash dividend and other payments in foreign currency shall be the average closing rate quoted by the Foreign Exchange Trading Centre of the PRC in the calendar week before the declaration of dividend.
Article 215	Unless otherwise resolved by shareholders in general meeting, the board of directors to declare half-yearly dividends. Unless otherwise provided by law, the amount of half-yearly dividend shall not exceed fifty per cent. (50%) of the distributable profits as set out in the interim profit statements.
Article 216	When distributing dividends to its shareholders, the Company shall act as a withholding agent in relation to individual income tax payable in accordance with tax law of the PRC with respect to such distribution based on the amount distributed.
Article 217	The Company shall appoint on behalf of the holders of overseas listed foreign shares a receiving agent to receive on behalf of such shareholders dividends declared and all other monies owing the Company in respect of the overseas listed foreign shares.
	Appointment of the receiving agent shall comply with the law of the place where the shares are listed or the requirements of the local stock exchange.
	The Company shall appoint as receiving agent a company which is registered as a trust company under the Trustee Ordinance of Hong Kong.
Article 218	The Company shall implement internal audit procedures by engaging auditors dedicated to carrying out internal audit on the financial and business activities of the Company.
Article 219	The internal audit procedures and the duties of the internal auditors shall be implemented after such procedures and duties have been approved by the board of directors. The head of the internal auditors shall be accountable, and shall report its work, to the board of directors.

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CHAPTER 16 APPOINTMENT OF A FIRM OF ACCOUNTANTS
Article 220	The Company shall appoint an independent firm of accountants which satisfies the relevant requirements of the PRC to audit the annual financial report of the Company and review other financial reports. The accounting firm engaged by the Company shall be determined at the shareholders’ meeting.
Article 221	The term of appointment of the Company’s accountants shall begin immediately after the shareholders’ meeting of the current year and end immediately after the shareholders’ meeting of the following year.
Article 222	The firm of accountants appointed by the Company shall have the following rights:
	(1)     to inspect the accounting ledgers, records or evidential documents of the Company and to request the directors or senior officers of the Company to provide relevant information and explanation;
	(2)     to request the Company to take all reasonable measures to obtain the information and explanation from its subsidiaries for the purpose of performing the duties of the firm of accountants;
	(3)     to attend the shareholders’ general meeting, to receive the notice of the meeting and other information in relation to the meeting which is received by the shareholders and to be heard at any such meeting on any part of the business of the meeting which concerns it as the firm of accountants of the Company.
Article 223	If there is a vacancy in the office of the firm of accountants, the board of directors shall before the holding of the shareholders’ general meeting fill that vacancy by appointing another firm of accountants. If the Company has another firm of accountants holding the office during the vacancy period, that firm of accountants may still act.
Article 224	The firm of accountants may be removed by ordinary resolution of the shareholders in general meeting before the expiration of its term of office notwithstanding the provisions of the contract made between the Company and the firm of accountants. The right to sue for compensation for dismissal by such firm of accountants shall not be affected.
Article 225	The remuneration of the firm of accountants or the form of remuneration of the firm of accountants shall be decided by shareholders in shareholders’ general meeting. The remuneration of the firm of accountants who is appointed by the board of directors shall be decided by the board of directors.
Article 226	The appointment, dismissal or discontinuation of employment of the firm of accountants shall be decided by the shareholders in general meeting. The decision shall be announced in the relevant newspapers and where necessary, state the reasons for the change, and shall be filed with the China Securities Regulatory Commission for records.
	Where a resolution at a general meeting of shareholders is passed to appoint a firm of accountants other than an incumbent firm of accountants, to fill a casual vacancy in the office of the firm of accountants, to re-appoint a retiring firm of accountants which was appointed by the board of directors to fill a casual vacancy, or to remove a firm to accountants before the expiration of its term of office, the following provisions shall apply:
	(1)     a copy of the proposal shall be sent before a notice of meeting is given to the shareholders to the firm proposed to be appointed or the firm proposing to leave its post or the firm who has left its post (leaving includes leaving by removal, resignation and retirement);
	(2)     if the firm leaving its post makes representations in writing and requests their notification to the shareholders, the Company shall (unless the representations are received too late):
	(i)      in any notice of the resolution given to shareholders, state the fact of the representations having been made;
	(ii)     send a copy of the representations as an appendix to the notice to every shareholder in the manner set out in these Articles.
	(3)     if the firm’s representations are not sent under sub-paragraph (2) above, the firm may (in addition to its right to be heard) require that the representations be read out at the meeting;
	(4)     a firm which is leaving its post shall be entitled to attend:
	(i)      the general meeting at which its term of office would otherwise have expired;

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	(ii)     any general meeting at which it is proposed to fill the vacancy caused by its removal;
	(iii)   any general meeting convened on his resignation;
	and to receive all notices of, and other information relating to, any such meeting, and to be heard at any such meeting which it attends on any part of the business of the meeting which concerns it as former firm of accountants of the Company.
Article 227	Any removal or discontinuation of employment of the firm of accountants by the Company shall be notified to the firm of accountants. The firm of accountants has the right to explain in shareholders’ general meeting. Any resigning firm of accountants shall explain in the shareholders’ general meeting as to whether there is any irregularity.
	A firm of accountants may resign its office by depositing at the Company’s address a notice in writing (any such notice shall terminate its office on the date on which it is deposited or on such later date as may be specified therein) to that effect and containing:
	(1)     a statement to the effect that are no circumstances connected with its resignation which it considers should be brought to the notice of the shareholders or creditors of the Company; or
	(2)     a statement of any such circumstances.
	Where a notice is deposited under the foregoing paragraph, the Company shall within fourteen (14) days send a copy of the notice to the competent authority in charge. If the notice contained a statement under sub-paragraph (ii) of the foregoing paragraph, a copy of the statement shall be placed at the Company for shareholders’ inspection and a copy of the notice shall also be sent by prepaid mail to every shareholder who is entitled to receive a copy of the Company’s financial report at the addresses as registered in the shareholders’ register.
	Where the notice of resignation of the firm of accountants contains a statement under sub-paragraph (2) above, it may require the board of directors to convene an extraordinary general meeting of shareholders for the purpose of receiving an explanation of the circumstances connected with its resignation.
CHAPTER 17 INSURANCE
Article 228	(1)     The Company may take out various types of insurance from the People’s Insurance Company of China or other organizations permitted by applicable laws or regulations of the PRC to provide insurance coverage to the Company.
	(2)     The types of coverage, the insurance premium and the term of insurance shall be discussed and decided at board meetings in accordance with the recommendation of the general manager based on the practices of similar businesses in other countries and the practice and legal requirements in the PRC.
CHAPTER 18 LABOR MANAGEMENT
Article 229	(1)     Subject to laws, regulations and policies of the PRC and the Shanghai Municipality and as required by its operations and management, and Company shall hire and dismiss staff and workers at its own discretion and have the full right to prepare and implement its own system for remuneration and personnel management.
	(2)     The Company will establish a labor contract system and provisions relating to the employment, dismissal, resignation, remuneration, welfare benefits, rewards, discipline, punishments, labor insurance and labor discipline of the staff and workers of the Company shall be specified in the labor contract to be entered into by the Company and each individual staff member and worker of the Company.
Article 230	The Company shall have the right to dismiss any staff and workers. Staff and workers shall enjoy the freedom to resign.

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Article 231	The resignation or transfer of staff and workers who have attended special training programs of the Company shall require the approval of the general manager.
Article 232	The Company shall implement the laws and regulations of the State Council, relevant labor authorities and the Shanghai Municipal Government relating to labor protection and labor insurance for the Company’s retired and unemployed workers.
CHAPTER 19 TRADE UNION ORGANIZATION
Article 233	(1)     The staff and workers of the Company shall have the right to carry out trade union activities.
	(2)     The Company shall in each month allocate an amount equal to two per cent. (2%) of the total amount of wages paid to the staff and workers of the Company to the trade union fund. Such fund shall be used by the trade union of the Company in accordance with the measures for the Management of Trade Union Funds formulated by the All China Federation of Trade Union.
CHAPTER 20 MERGER AND DIVISION OF THE COMPANY
Article 234	Any merger or division of the Company shall be conducted in accordance with the following procedures:
	(1)     the board of directors shall draft the merger or division proposal;
	(2)     the resolutions shall be passed at the shareholders’ general meeting in accordance with the Company Articles;
	(3)     all parties to the merger or division shall enter into a merger or division contract;
	(4)     carry out approval procedures in accordance with the law;
	(5)     deal with matters relating to merger and division, such as indebtedness and debtors; and
	(6)     cancel registrations or amend registrations.
	Where the Company merges or divides, the board of directors shall take all necessary actions to protect the rights and interests of the shareholders who oppose the merger or division. Shareholders who oppose the merger or division proposal have the right to request the Company or those shareholders who agree with the merger or division proposal to acquire their shares at a fair value.
	The resolution relating to merger or division shall be regarded as a specialized document and shall be made available for shareholders’ inspection. The documents shall be sent to the holders of foreign listed shares by mail.
Article 235	The merger of the Company may take the form of either merger by absorption or merger by establishment of a new company. Merger by absorption refers to a company absorbs another company and thereby the absorbed company shall be dissolved. Merger by establishment of a new company refers to the creation of a new company by two companies or more and thereby the merging parties shall be dissolved. In the event of a merger, the merging parties shall execute a merger agreement and prepare a balance sheet and an inventory of assets. The Company shall notify its creditors within ten (10) days of the date when the resolution relating to the merger is passed and shall publish notices in newspapers designated by the relevant regulatory authorities located at the place where the Company’s shares are listed within thirty (30) days of the date when the resolution relating to the merger is passed. A creditor may within thirty (30) days of receipt of the notice from the Company or, in the case of failure to receive such notice, within forty-five (45) days of the date of announcement, require the Company to repay its debts or to provide the corresponding guarantee for such debt.

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Article 236	When the Company is divided, its assets shall be split accordingly. In the event of a division, the parties to the division shall execute a division agreement and prepare a balance sheet and an inventory of assets. The company shall notify its creditors within ten (10) days of the date when the resolution relating to the division is passed and shall publish notices in newspapers designated by the relevant regulatory authorities located at the place where the shares of the Company are listed within thirty (30) days of the date when the resolution relating to the division is passed.
Article 237	The assets, rights and liabilities of each party to the merger or division of the Company shall be stipulated clearly in a contract. Pursuant to the merger of the Company, the rights and liabilities of the parties to the merger shall be assumed by the merged entity or newly formed company. The liabilities of the Company before the division shall be jointly and severally assumed by the company after the division except to the extent that prior to the division, the Company has otherwise reached an agreement with its creditors in writing in respect of the settlement of debts.
Article 238	When the Company merges or divides and there is a change in any registered matter, the Company shall amend the registration details with the company registration authority in accordance with laws. When the Company dissolves, the Company shall cancel its registration in accordance with laws. When a new company is established, its establishment shall be registered in accordance with laws.
CHAPTER 21 TERMINATION AND LIQUIDATION OF THE COMPANY
Article 239	The Company shall be dissolved and liquidated in any of the following circumstances: (1)     the shareholders in a general meeting have decided to dissolve the Company; (2)     the Company is required to be dissolved due to merger or division; (3)     the Company cannot repay its debts when due and is declared insolvent in accordance with law; (4)     the Company has its business license revoked, is ordered to be closed down or terminated for contravention of laws and administrative regulations; (5)     shareholders holding 10% or more of the total voting rights of the Company may apply to the People’s Court to dissolve the Company if the Company experiences extreme difficulties in respect of its operation and management, which cannot otherwise be resolved, such that if the Company continues to operate, its shareholders will suffer significant losses, and the Company would be dissolved after the People’s Court has rendered its judgment.
Article 240	If the Company is dissolved in accordance with Article 239(1), Article 239(4) and Article 239(5), a liquidation group shall be formed within fifteen (15) days and the members of the liquidation group shall be decided by ordinary resolutions of shareholders in general meetings. If a liquidation group is not set up within the specified time limit, the creditors of the Company may apply to the People’s Court to appoint designated persons to carry out the liquidation. If the Company is dissolved in accordance with Article 239(2), the liquidation will be carried out by the parties to the merger or division in accordance with the provisions of the merger or division contract. If the Company is dissolved in accordance with Article 239(3), the People’s Court shall organize a liquidation group in accordance with laws to carry out the liquidation. The group shall consist of shareholders, relevant authorities and relevant professional personnel.
Article 241	Where the board of directors proposes to liquidate the Company otherwise than because of a declaration of insolvency, the board shall, in the notice convening a general meeting of shareholders to consider the proposal, include a statement to the effect that, after having made a full inquiry into the affairs of the Company, the board is of the opinion that the Company will be able to pay its debts in full within 12 months after the commencement of the liquidation.
	The board of directors and the general manager shall cease to function once the resolution to liquidate is passed by the shareholders in general meeting.
	The liquidation group shall take instructions from the shareholders in general meeting and, not less than once each year, make a report to the shareholders of the group’s receipts and payments, the business of the Company and the progress of the liquidation and shall make a final report to shareholders on completion of the liquidation.

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Article 242	The liquidation group shall within ten (10) days of its establishment send notices to creditors and within sixty (60) days of its establishment publish notices in newspapers designated by the relevant regulatory authority located at the place where the shares of the Company are listed. Creditors shall within in thirty (30) days upon receipt of such notice or, in the case of failure to receive such notice, forty-five (45) days from the notice publication date declare their creditors’ right to the liquidation group. When declaring their creditors’ right, the creditors shall specify particulars of such creditors’ right and provide the evidential materials. The liquidation group shall register the creditors’ rights. During the period of declaration of creditors’ right, the liquidation group shall not make repayment to the creditors.
Article 243	During the liquidation period, the liquidation group shall exercise the following powers:
	(1)     to deal with the assets of the Company and prepare a balance sheet and an inventory of assets;
	(2)     to send notices to creditors or notify them by public notice;
	(3)     to deal with and liquidate relevant uncompleted business matters of the Company;
	(4)     to settle in full all outstanding taxes and taxes incurred during the liquidation process;
	(5)     to deal with creditors’ rights and indebtedness;
	(6)     to deal with the residue assets after the Company’s debts have been paid;
	(7)     to represent the Company in any civil proceedings.
Article 244	After dealing with the Company’s assets and preparing a balance sheet and an inventory of assets, the liquidation group shall formulate a liquidation plan and present it to the shareholders’ general meeting or to the People’s Court authority for confirmation. Upon first paying the liquidation fees, the Company shall make repayments out of its assets in the following order: (1)     wages, labor insurance contributions and statutory compensation of employees of the Company; (2)     outstanding tax liabilities; and (3)     bank loans, Company’s debts and other liabilities. The Company shall subsist during the course of liquidation but shall not conduct any business activity that is not related to liquidation. No assets of the Company shall be distributed to the shareholders without having been used for making repayment in accordance with the preceding paragraphs. The residue assets left after repaying its debts in accordance with the second paragraph of this Article shall be divided by the shareholders of the Company in accordance with the type of shares held by them and their shareholding proportion in the following order: (1)     where there are preferences shares, the preference shareholders shall receive the face value of the preference shares; if there are insufficient funds for paying the preference shares amount, the assets will be distributed in accordance with their shareholding proportion. (2)     payment shall be divided by the ordinary shareholders in accordance with their shareholdings.
Article 245	Where the Company is liquidated upon dissolution, and the liquidation group after dealing with the assets of the Company and, preparing a balance sheet and an inventory of assets, finds that the assets of the Company is not sufficient to repay its debts, it shall apply to the People’s Court for insolvency.
	After the Company is declared insolvent by the ruling of the People’s Court, the liquidation group shall transfer the liquidation matters to the People’s Court.

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Article 246	After the liquidation of the Company is completed, the liquidation group shall prepare a liquidation report and income and expenses statements together with financial ledgers for the liquidation period and shall submit to the shareholders’ general meeting or the People’s Court for confirmation after verification by accountants registered in the PRC. The liquidation group shall within 30 days from the date of the confirmation by the shareholders’ general meeting or the People’s Court submit the abovementioned documents to the relevant company registration authorities for cancellation of the registration of the Company and publish a notice that the Company is terminated.
CHAPTER 22 PROCEDURE FOR AMENDING THE ARTICLES
Article 247	Members of the liquidation group shall be devoted to their duties and shall perform their obligations in accordance with the law. Members of the liquidation group shall not exploit their position to accept bribes or other illegal income or misappropriate the Company’s properties. Members of the liquidation group shall be liable for damages if their willful default or gross negligence causes loss on the Company or its creditors.
Article 248	The Company shall make amendments to these Articles in accordance with applicable laws, administrative regulations and the provisions of these Articles.
Article 249	The Company shall amend its articles of association in the following circumstances:
	(1)     where there has been a change in the Company Law or any relevant laws and regulations, and the Company Articles becomes inconsistent with the amended laws and regulations;
	(2)     where the circumstances of the Company change and become inconsistent with the existing articles of association;
	(3)     where it is resolved at the shareholders’ meeting that the articles are to be amended.
Article 250	The following amendments to the Articles shall require the approval of the relevant government authorities:
	(1)     change the name of the Company;
	(2)     change, expand or reduce the scope of the business operation of the Company;
	(3)     alter the share trading arrangement;
	(4)     increase or reduce the number of the shares issued by the Company in any class;
	(5)     change the class of all or part of the shares of the Company, or change all or any portion of the shares of the Company;
	(6)     create additional class of shares;
	(7)     create or cancel convertible securities;
	(8)     change the par value of the shares of the Company;
	(9)     alter any provisions of the Articles in respect of other matters which would require adoption of a special resolution of the shareholders.
	When the Company reduces its capital and alters these Articles, the method to reduce capital shall be stipulated in the resolution which authorizes the alteration of the Articles.
	The provisions of this Article are subject in all respects to any other provisions of these Articles.
Article 251	The following procedure shall be followed for the amendment of these Articles: (1)     the board of directors shall resolve to amend these Articles in accordance with these Articles and formulate the amendments;

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	(2)     the shareholders shall be notified of the amendments and a shareholders’ meeting shall be convened to vote on the amendments; (3)     the amendment to these Articles shall be resolved by special resolution of the shareholders. The board of directors shall amend these Articles pursuant to the resolutions of a shareholders’ general meeting in respect of the amendment of these Articles of Association and the examination and approval opinion of the relevant competent authorities. Amendments to these Articles which involve the provisions of the Mandatory Provisions shall be effective after approval by the authorized company approval authority of the State Council.
Article 252	Where the amendments to these Articles involve matters requiring registration, the Company shall amend its registration with the responsible company registration authority in accordance with the applicable laws. Where the amendments to these Articles involve matters requiring disclosure by laws and regulations, the amendments shall be announced in accordance with the applicable laws.
CHAPTER 23 NOTICES
Article 253	The Company shall give notice in the following ways:
	(1)     personal service;
	(2)     by post;
	(3)     by way of announcement;
	(4)     methods as provided for in the Company Articles.
	Where a notice is given by way of announcement, all relevant persons will be deemed as being served when the announcement is made.
	Except as otherwise provided in these Articles, any notice, information or written statement to be given by the Company to shareholders of listed foreign shares must be served to the shareholders holding registered shares by personal service or by prepaid mail to the registered address of each shareholder of listed foreign shares.
Article 254	Where the Company serves notice by personal service, the person being served shall acknowledge receipt by signing (or affixing the seal) on the receipt. The person is deemed to be served on the date of acknowledging receipt.
	Where the Company serves notice by way of announcement, the person is deemed to be served on the date the announcement is published.
	Where a notice is sent by post, service of the notice shall be deemed to have been effected by properly addressing, prepaying and posting a letter containing the notice and to take effect five (5) business days after the letter containing the same is posted.
	Any summons, notice, order, document, information or written statement to be served on the Company by shareholders or directors may be served by leaving it, or by sending it by registered mail addressed to the Company, at its legal address, or by leaving it with, or by sending it by registered mail to, the registered agent of the Company.
	Service of any summons, notice, order, document, information or written statement to be served on the Company by shareholders or directors may be proved by showing that that summons, notice, order, document, information or written statement was mailed in such time as to admit to its being delivered in the normal course of delivery within the period prescribed for service and was correctly addressed and the postage was prepaid.
Article 255	Meetings and resolutions passed in meetings shall not be null and void by reason of an accidental omission to notify any person who is entitled to receive notice of the meeting or if such person has not received notice of the meeting.

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CHAPTER 24 RESOLUTION OF DISPUTES
Article 256	The Company shall comply with the following provisions in any dispute resolution:
	(1)     For any disputes or claims arising from the rights or obligations conferred on by the Articles of Association, the Company Law and other applicable laws and administrative regulations between any holder of overseas listed foreign shares and the Company, between any holder of overseas listed foreign shares and a director, supervisor or senior officer of the Company or between any holder of overseas listed foreign shares and holder of domestic shares, such disputes or claims shall be referred to arbitration. When the abovementioned disputes or claims are referred to arbitration, they shall constitute the entire claims or disputes. All the persons who have the cause of action due to the same reason or the persons who are required to participate in the arbitration shall abide by the arbitration proceedings if the person is the Company, a shareholder, a director, a supervisor or a senior officer of the Company. Any disputes in relation to the definition of shareholders or shareholders’ register may not be referred to arbitration.
	(2)     The claimant may choose to arbitrate at either the China International Economic and Trade Arbitration Commission in accordance with its rules or the Hong Kong International Arbitration Centre in accordance with its Securities Arbitration Rules. Once a claimant refers a dispute or claim to arbitration, the other party shall submit to the arbitral body elected by the claimant.
	If the claimant chooses to arbitrate at the Hong Kong International Arbitration Centre, any of the parties may request for the arbitration to take place in Shenzhen in accordance with the Securities Arbitration Rules of the Hong Kong Arbitration Centre.
	(3)     Unless otherwise provided by laws and administrative regulations, for any dispute or claim as mentioned in paragraph (1) above which is referred to arbitration, the governing law shall be the law of the PRC.
	(4)     The decision made by the arbitration body shall be final and conclusive and binding on all parties.
CHAPTER 25 SUPPLEMENTARY PROVISIONS
Article 257	These Articles were written in Chinese language. If there is any discrepancy between any other language version or any version of the Articles of Association and these Articles, the most recent Chinese version registered with the registration authority of the Company shall prevail.
Article 258	References to “above”, “within”, “below” are inclusive; references to “less than”, “exclude”, “lower than” and “more than” are exclusive.
Article 259	In respect of the matters not covered by these Articles, they shall be proposed by the board and submitted to the shareholders in general meetings for resolution.
Article 260	The right to interpret these Articles shall be vested in the board of directors. The right to amend these Articles shall be vested in the shareholders in the general meeting.
Article 261	Where these Articles are inconsistent with the laws, regulations and requirements set out in other regulatory documents from time to time, such laws, regulations and requirements shall prevail.
Article 262	Any reference to a “firm of accountants” in these Articles shall mean “auditor” of the Company.
	Any reference to “general manager” in these Articles shall mean “manager” as defined under the Company Law.

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EX-4.1

Exhibit 4.1

TRANSLATION OF PRODUCT SUPPLY AND SALES SERVICES FRAMEWORK AGREEMENT

Product Supply and Sales Services Framework Agreement

Between

Sinopec Shanghai Petrochemical Company Limited

And

China Petroleum & Chemical Corporation

Table of Contents

I	Background
II	Agreement
	Article 1: Scope of Products and Services
	Article 2: Transaction Principle
	Article 3: Pricing Principle
	Article 4: Operation Methods
	Article 5: Rights and Obligations of the Parties
	Article 6: Term, Termination of Specific Products or Services Contracts
	Article 7: Representations and Warranties of the Parties
	Article 8: Force Majeure
	Article 9: Publicity
	Article 10: Miscellaneous
	Article 11: Notice
	Article 12: Governing Law and Dispute Resolution
	Article 13: Definitions and Interpretations
	Article 14: Supplementary Provisions

Product Supply and Sales Services Framework Agreement

This agreement (this “Agreement”) is entered into on this      day of             , 2010 by and between the following parties:

Party A: Sinopec Shanghai Petrochemical Company Limited, a joint stock limited company duly incorporated and validly existing under the laws of China.

Party B: China Petroleum & Chemical Corporation, a joint stock limited company duly incorporated and validly existing under the laws of China.

I Background

Party A is a joint stock company listed both domestically and offshore while Party B is the direct controlling shareholder of Party A. Party A engages in the production and operation of petrochemical products, and Party B undertakes the production and operation of petroleum gas and petrochemical products. It is necessary for Party A and Party B to provide their respective products and services to the other party. Based on the above, the parties agree to enter into this Agreement and warrant that they will cause their respective subordinated enterprises and units (including the subsidiaries, branches and other units subordinating to the parties) to provide such products and services as specified in this Agreement in accordance with the terms and spirits hereof.

This Agreement, entered into in the ordinary course of business of the parties, has been reached through negotiations on an arm’s length basis, and the transactions contemplated under this Agreement shall be conducted in the ordinary course of business of both Party A and Party B.

II Agreement

Article 1: Scope of Products and Services

The products and services to be supplied to the other party under this Agreement by Party A and Party B, respectively, include:

1.1 The products and services to be supplied by Party A to Party B include:

1.1.1 Petroleum products

Party A shall sell to Party B petroleum products, including gasoline, diesel, jet fuel, liquefied petroleum gas and etc.

1.1.2 Petrochemical products

Party A shall sell to Party B Butadiene, Benzene, PX, EG and etc.

1.1.3 Property leasing service

Party A shall lease properties to Party B.

1.2 The products and services to be supplied by Party B to Party A include:

1.2.1 Raw materials

Party B shall provide Party A with raw materials, including crude oil, naphtha, ethylene and other chemical raw materials as well as other raw materials and supplies.

1.2.2 Sales service

Party B shall provide Party A with agency sales service covering products like resins, synthetic fibers, synthetic fiber monomers and polymers, intermediate petrochemical products and by- products from ethylene cracking and aromatic plants and other substandard products related to the above five products.

Article 2: Transaction Principle

2.1 Party A and Party B agree that under the same sale conditions, both parties shall give priority to purchase the products and services of the other.

2.2 The specific parties to any transaction relating to the products and services under this Agreement may, to the extent permitted by this Agreement, enter into separate contracts. For the purpose of this Article 2.2, such specific parties to the transaction refer to Party A and Party B as well as their respective subordinated enterprises and units.

Article 3: Pricing Principle

The pricing of (i) petroleum products, petrochemical products and (ii) the sales and purchase of the raw materials shall be determined according to the general principle and order as follows: where there are Government Fixed Prices, such Government Fixed Prices shall apply; where there is no Government Fixed Price, but there are Guidance Prices, such Guidance Prices shall apply; where there is neither applicable Government Fixed Price nor Guidance Price, the Market Prices (including the bidding prices) shall apply.

The prices of the sales service hereunder shall the actual sales amount multiplying the applicable market commission rate.

The prices with respect to the property leasing service hereunder shall be decided with reference to the market prices applicable to the property to be leased.

Article 4: Operation Method

4.1 The parties shall, prior to October 31 of each year, provide to the other party their respective demand plan regarding the products and services to be obtained from the other party for the next year (the “Demand Plan”) and shall, prior to November 30 of each year, provide to the other party their respective supply plan regarding the products and services to be furnished to the other party for the next year (the “Supply Plan”).

4.2 Party A and Party B shall ensure and cause their respective subordinated enterprises or units to, in accordance with the Supply Plan as confirmed by the parties, enter into specific products or services contracts in consistence with the principles and provisions hereof.

4.3 During the implementation of this Agreement, adjustments may be made to the Demand Plan and Supply Plan and specific products or services contracts when necessary and with the consents of both Party A and Party B.

Article 5: Rights and Obligations of the Parties

5.1 The parties shall have the rights to:

5.1.1 choose to provide a third party with products and services if the supply of the products and services to the other party pursuant to the provisions hereof is guaranteed;

5.1.2 prepare the annual Demand Plan and Supply Plan and make any adjustment thereto at its discretion provided that there will be no violation of Article 4; and

5.1.3 lawfully collect payments for goods and service fees in accordance with this Agreement.

5.2 The parties shall be obligated to:

5.2.1 cause and ensure that their respective subordinated enterprises or units provide products and services to the other party in accordance with the standards and pricing as provided in this Agreement and relevant specific products or services contracts;

5.2.2 be entrusted by the parties to relevant specific products or services contracts to coordinate matters relating to such specific products or services contracts;

5.2.3 appoint or establish special organizations to be responsible for liaison, document preparation, planning and arrangement, balance-keeping between supply and demand, supervision of the performance of the contracts and coordination in connection with transactions involving relevant products and services under this Agreement; and

5.2.4 pay the purchase prices and service fees in accordance with the provisions contained in this Agreement and relevant specific products or services contracts.

5.3 Subject to the provisions of this Agreement, if the products and services supplied by Party B fails to meet the demands of Party A in any respect (including in quantity and in quality), Party A may choose a third party to supply the relevant products and services.

Article 6: Term; Termination of Specific Products or Services Contracts

6.1 Any parties to any specific products or services contracts (excluding this Agreement), which are entered into in accordance with this Agreement may give the other party a written notice at least six months in advance to terminate the supply of a certain product or service, provided that Article 6.2 and 6.3 hereof is not violated. Such notice must specify the product or service and the effective date of such termination. The supply of such product or service may be terminated upon agreement by the parties after negotiation. If the supply of any product or service is terminated pursuant to this Article 6.1, such termination shall neither affect other rights or obligations of Party A or Party B under this Agreement, nor affect such other rights or obligations of any party under the specific products or services contracts that have been executed in accordance with this Agreement.

6.2 If Party A is unable to obtain a certain product and service of Party B conveniently from a third party (including but not limited to any third party related to Party B) and Party A requires the same to be provided by Party B, then in no event may Party B terminate the supply of such product and service.

6.3 In the event that either party has produced a termination notice to terminate the supply of a certain product or service in accordance with Article 6.1, unless otherwise agreed to by Party A and Party B, such termination notice shall not terminate or affect the parties’ obligations and liabilities arising from this Agreement and any relevant specific products or services contracts at or prior to the time of issuance of such notice.

6.4 This Agreement, upon signatures and seals affixed by the authorized representatives of the parties and approval by the independent shareholders of Party A, shall become effective on January 1, 2008 and be valid for three years from such effective date.

6.5 In case that either party violates any term of this Agreement (the “Defaulting Party”), the other party (the “Non-defaulting Party”) may deliver to the Defaulting Party a written notice notifying its breach of contract and requiring the Defaulting Party to make remedies within such reasonable period as designated therein. If the Defaulting Party fails to remedy such breach within such period, then the Non-defaulting Party may forthwith terminate this Agreement. The Non-defaulting Party shall reserve its rights to seek damages from the Defaulting Party and any other rights and claims as permitted by laws.

6.6 Termination of this Agreement shall not affect any rights or obligations of any party that has already incurred.

Article 7: Representations and Warranties of the Parties

7.1 Representations and Warranties of Party A:

7.1.1 Party A is validly incorporated and has independent status of a corporation and a valid business license;

7.1.2 Party A has consistently engaged in business activities in accordance with the law and has not undertaken any activities beyond its business scope as prescribed by the law;

7.1.3 Party A has been granted with all governmental approvals (if required) and internal authorizations necessary for executing this Agreement and performing all of its obligations as contemplated hereby. The signatory to this Agreement is the authorized representative of Party A. This Agreement shall be binding upon Party A upon execution.

7.1.4 Party A’s execution of this Agreement or performance of any of its obligations hereunder neither violates any other agreements to which it is a party or its articles of association, nor legally conflicts with such agreements or its articles of association.

7.2 Representations and Warranties of Party B:

7.2.1 Party B is validly incorporated and has independent status of a corporation and valid business license;

7.2.2 Party B has consistently engaged in business activities in accordance with the law and has not undertaken any activities beyond its business scope as prescribed by the law;

7.2.3 Party B has been granted with all governmental approvals (if required) and internal authorizations necessary for executing this Agreement and performing all of its obligations as contemplated hereby. The signatory to this Agreement is the authorized representative of Party B. This Agreement shall be binding upon Party B upon execution.

7.2.4 Party B’s execution of this Agreement or performance of any of its obligations hereunder neither violates any other agreements to which it is a party or its articles of association, nor legally conflicts with such agreements or its articles of association.

Article 8: Force Majeure

8.1 In the event that any party hereto fails to perform its obligations hereunder in whole or in part due to a Force Majeure Event, the performance of such obligations shall be suspended for the duration of such Force Majeure Event. A Force Majeure Event means the occurrence of any event after the execution of this Agreement which (i) is beyond reasonable control of, and could not be predicted, avoided or overcome (even though it could be predicted) by the affected party, and (ii) results in that, from an objective point of view, such party’s performance of this Agreement in whole or in part becomes impossible or impractical (including but not limited to failure to perform at reasonable expenses). Force Majeure Events include but not limited to flood, fire, drought, typhoon, earthquake, other natural disasters, traffic accident, strike, turmoil, riot, war (whether or not with a declaration) and the acts or omissions of any governmental authorities.

8.2 The party claiming to be affected by a Force Majeure Event shall notify the other party of the occurrence of such Force Majeure Event in writing within the shortest possible time, and provide the other party with reasonable evidence for such Force Majeure Event and its duration by personal delivery or registered air mail within fifteen (15) days after the occurrence of such Force Majeure Event. The party claiming that the Force Majeure Event has caused performance of its obligations hereunder impossible or impractical from an objective point of view is obligated to use all reasonable efforts to eliminate or mitigate the impact of such Force Majeure Event.

8.3 Upon occurrence of a Force Majeure Event, the parties shall immediately decide, through friendly consultation, on how to perform this Agreement. After termination or elimination of the Force Majeure Event or its impact, the parties shall immediately resume performance of their obligations hereunder.

Article 9: Publicity

Except with the prior written consent of the other party, neither party may make any public announcement regarding this Agreement, other than those made in accordance with PRC Laws, or as required by China Securities Regulatory Commission, Shanghai Stock Exchange, Stock Exchange of Hong Kong Limited, Hong Kong Securities and Futures Commission, New York Stock Exchange, London Stock Exchange, Securities and Exchange Commission of the United States or any other governmental authorities or regulatory organizations.

Article 10: Miscellaneous

10.1 Except as otherwise provided herein, neither party may assign all or part of its rights and obligations under this Agreement without the other party’s written consent.

10.2 This Agreement constitutes the entire agreement between the parties and supersedes any and all prior agreements, contracts, understandings and communications, oral or written, between the parties with respect to the subject matter hereof.

10.3 If any provision of this Agreement becomes illegal, invalid or unenforceable, the validity and enforceability of the remainder hereof shall not be impaired.

10.4 The parties agree that they shall, at its own cost, be responsible for any and all costs and expenditures arising out of the execution of this Agreement in accordance with relevant provisions of PRC laws. If the law does not address any costs or expenditures, such costs or expenditures shall be born by the parties equally.

10.5 This Agreement shall not be amended except by a written agreement executed by each of the authorized representatives of the parties and with approval by the appropriate corporation actions taken by the parties.

10.6 Except as otherwise provided herein, no failure or delay by a party to exercise any right, power or authority under this Agreement shall constitute a waiver thereof, nor shall any single or partial exercise of the same preclude the exercise of any other right, power or authority.

Article 11: Notice

11.1 Any and all notices or other communications given by either party under this Agreement shall be in writing and in Chinese, and delivered in person or sent by registered mail to the other party at its designated address or sent to the facsimile numbers as designated by the other party. The notice shall be deemed delivered and effective on the following date:

11.1.1 If delivered in person, the date on which the person designated by the other party has signed the receipt of the notice;

11.1.2 If sent by registered mail, postage prepaid (subject to the date of the postmark date), on the seventh day following being posted (if the last day is Saturday, Sunday or a public holiday, on the immediately following business day);

11.1.3 If sent by facsimile, upon the completion of transmission.

The addresses of the parties are as follows:

Party A: Sinopec Shanghai Petrochemical Company Limited

Domicile: No. 48 Jinyi Road, Jinshan District, Shanghai 200540

Party B: China Petroleum & Chemical Corporation

Domicile: 22 Chaoyangmen North Street, Chaoyang District, Beijing 100728

In the event that either party changes its address, such party shall notify the other party in accordance with this Article 11 immediately.

Article 12: Governing Law and Dispute Resolution

12.1 This Agreement shall be governed by and construed in accordance with PRC laws.

12.2 Any dispute arising from or in connection with this Agreement shall be settled through consultation between the parties. In the event that the parties are unable to settle the matter through consultation, the matter shall be submitted by either Party A or Party B to the Beijing Arbitration Commission for arbitration in accordance with the arbitration rules of such Commission in effect at the time of submission. The arbitration award shall be final and binding upon the parties.

Article 13: Definitions and Interpretations

13.1 In this Agreement, unless the context otherwise requires, the following words and expressions shall have the following meanings:

13.1.1 Government Fixed Price means the price determined by the laws, regulations, determinations, orders promulgated by, or specified for certain product or service by the central government, provincial government or other regulatory body of the Peoples’ Republic of China.

13.1.2 Guidance Price means the price that may be decided by the parties to a transaction subject to a certain range which is provided by the laws, regulations, determinations, orders promulgated by or specified for certain product or service by the central government, provincial government or other regulatory body of the Peoples’ Republic of China.

13.1.3 Market Price for a certain product or service means the price determined in accordance with the following sequences:

(1) during the ordinary course of business, the price then charged by an independent third party who supplies such product or service at the place or neighboring area where such product or service is supplied; or

(2) during the ordinary course of business, the price then charged by an independent third party who provides such product or service.

13.2 Except as otherwise provided herein, in this Agreement:

13.2.1 all references to one party shall include its successors;

13.2.2 headings hereof are inserted for convenience only and shall not have any legal effect or affect the construction of this Agreement.

Article 14: Supplementary Provisions

14.1 This Agreement shall be written in Chinese.

14.2 This Agreement shall be executed in four (4) originals, each of which shall be of equal legal effect.

14.3 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first written above.

(The remainder is left blank intentionally.)

(Signature page to Product Supply and Services Framework Agreement)

Sinopec Shanghai Petrochemical Company Limited (Seal)

Authorized Representative (signature): Rong Guangdao

China Petroleum & Chemical Corporation (Seal)

Authorized Representative (signature): Liu Yun

EX-4.2

Exhibit 4.2

TRANSLATION OF COMPREHENSIVE SERVICES FRAMEWORK AGREEMENT

Comprehensive Services Framework Agreement

Between

Sinopec Shanghai Petrochemical Company Limited

And

China Petroleum & Chemical Corporation

Table of Contents

III	Background
IV	Agreement
	Article 15: Scope of Services
	Article 16: Transaction Principle
	Article 17: Pricing Principle
	Article 18: Operation Methods
	Article 19: Rights and Obligations of the Parties
	Article 20: Term; Termination of Specific Services Contract
	Article 21: Representations and Warranties of the Parties
	Article 22: Force Majeure
	Article 23: Publicity
	Article 24: Miscellaneous
	Article 25: Notice
	Article 26: Governing Law and Dispute Resolution
	Article 27: Definitions and Interpretations
	Article 28: Supplementary Provisions

Comprehensive Services Framework Agreement

This agreement (this “Agreement”) is entered into on this     day of             , 2010 by and between the following parties:

Party A: Sinopec Shanghai Petrochemical Company Limited, a joint stock company duly incorporated and validly existing under the laws of China.

Party B: China Petrochemical Corporation, a state-owned enterprise duly incorporated and validly existing under the laws of China.

III Background

Party A is a joint stock company listed both domestically and offshore while Party B is the actual controller of Party A. Party A engages in the production and operation of petrochemical products, and Party B undertakes the production and operation of petroleum gas and petrochemical products, and the relevant accessorial production service, engineering construction service, information consultancy service, supply service and other businesses. Party A needs to acquire the production, construction service and other services from Party B. Based on the above, the parties agree to enter into this Agreement and warrant that they will cause their respective subordinated enterprises and units (including the subsidiaries, branches and other units subordinating to the parties) to execute specific services contracts in accordance with the terms and spirits hereof.

This Agreement, entered into in the ordinary course of business of the parties, has been reached through negotiations on an arm’s length basis, and the transactions contemplated under this Agreement shall be conducted in the ordinary course of business of both Party A and Party B.

IV Agreement

Article 15: Scope of Services

15.1 The services to be supplied by Party B to Party A include:

15.1.1 Construction installation and engineering design

Party B shall provide to Party A with such services like installation, engineering design relating to petrochemical equipment.

15.1.2 Financial services

Party B shall supply to Party A with financial services, including arrangements regarding deposits, loans, financial leases, acceptance of bill or bill discount, guarantees and other financial services.

15.1.3 Insurance services pertaining to the petrochemical industry

Party B shall provide to Party A with the insurance services, including the payment of premiums to Party B which shall underwrite such comprehensive insurances as are in connection with the production of petrochemicals.

Article 16: Transaction Principle

16.1 Party A agrees that other than the insurance services pertaining to the petrochemical industry, under the same sale conditions, it shall give priority to use Party B’s services.

16.2 The specific parties to any transaction under this Agreement may, to the extent permitted by this Agreement, enter into separate contracts. For purpose of this Article 2.2, the specific parties to the transactions refer to Party A and Party B as well as their respective subordinated enterprises or units.

16.3 Subject to the provisions of this Agreement, if the services supplied by Party B fail to meet the demands of Party A in any respect (including in quantity and in quality), Party A may choose a third party to provide such services.

Article 17: Pricing Principle

17.1 The pricing for construction installation and engineering design services under this Agreement shall be determined in accordance with the Market Price (including the bidding price).

17.2 The financial services under this Agreement shall be decided based on the following principles:

17.2.1 for deposits and loans:

a) the interest rate for the deposit of Party A with Party B shall be no lower than the minimum interest rate as provided by the People’s Bank of China for deposits of the same type;

b) the interest rate for the loan provided by Party B to Party A shall be no higher than the maximum interest rate as provided by the People’s Bank of China for loans of the same type;

17.2.2 for paid services:

a) Party B currently provides Party A with paid services in connection with financial leases, acceptance of bill or bill discount and/or security, etc.;

b) The commission charged by Party B to Party A for the financial services set forth in Article 3.2.2(a) shall comply with relevant provisions regarding the standard rates as stipulated by the People’s Bank of China or the China Banking Regulatory Commission (if any).

17.2.3 for services free of charge:

Currently the service provided by Party B to Party A free of charge include collecting relevant payments and bills, settlement services and provision of financial information.

17.2.4 miscellaneous:

Where the People’s Bank of China or the China Banking Regulatory Commission has not fixed the applicable interest rate or standard rates for any of the services set forth in Article 3.2.1 and 3.2.2, the terms for the services provided to Party A by Party B shall be no less favorable than those terms provided by any commercial banks in China.

17.3 The pricing and premiums regarding the insurance services for the petrochemical industry under this Agreement shall, according to relevant administrative regulations of the Ministry of Finance and Party B, be determined with reference to the evaluation and property inventory of the fixed assets of Party A.

Article 18: Operation Method

18.1 Party A shall, prior to October 31 of each year, provide to Party B a demand plan regarding services to be obtained for the next year from Party B (the “Demand Plan”), and Party B shall, prior to November 30 of each year, provide to Party A a supply plan regarding the services to be furnished to Party A for the next year (the “Supply Plan”).

18.2 Party A and Party B shall ensure and cause their respective subordinated enterprises or units to, in accordance with the Supply Plan as confirmed by the parties, enter into a specific services contract in consistence with the principles and provisions hereof.

18.3 During the implementation of this Agreement, adjustments may be made to the Demand Plan and Supply Plan and the specific services contract when necessary and with the consents of both Party A and Party B.

Article 19: Rights and Obligations of the Parties

19.1 Each of the parties shall have the rights to prepare the annual Demand Plan and Supply Plan and make adjustment thereto at its discretions provided that no violation of Article 4 of this Agreement shall occur.

19.2 The parties shall, as entrusted by the parties to the specific services contract, be obligated to coordinate matters relating to such specific services contract.

Article 20: Term; Termination of Specific Services Contracts

20.1 Any parties to any specific services contracts (excluding this Agreement), which are entered into in accordance with this Agreement may give the other party a written notice at least six months in advance to terminate the supply of a certain service, provided that Article 6.2 and 6.3 hereof is not violated. Such notice must specify the service and the effective date of such termination. The supply of such service may be terminated upon agreement by the parties after negotiation. If the supply of any service is terminated pursuant to this Article 6.1, such termination shall neither affect other rights or obligations of Party A or Party B under this Agreement, nor affect such other rights or obligations of either party under relevant specific services contracts that have been executed in accordance with this Agreement.

20.2 If Party A is unable to obtain a certain service of Party B conveniently from a third party (including but not limited to any third party related to Party B) and Party A requires the same to be provided by Party B, then in no event may Party B terminate the supply of such service.

20.3 In the event that either party has produced a termination notice to terminate the supple of a certain service according to Article 6.1, unless otherwise agreed to by Party A and Party B, such termination notice shall not terminate or affect the parties’ obligations and liabilities arising from this Agreement and any relevant specific services contracts at or prior to the time of issuance of such notice.

20.4 This Agreement, upon signatures and seals affixed by the authorized representatives of the parties and approval by the independent shareholders of Party A, shall become effective on January 1, 2008 and be valid for three years from such effective date.

20.5 In case that either party violates any term of this Agreement (the “Defaulting Party”), the other party (the “Non-defaulting Party”) may deliver to the Defaulting Party a written notice notifying its breach of contract and requiring the Defaulting Party to make remedies within such reasonable period as designated therein. If the Defaulting Party fails to remedy such breach within such period, the Non-defaulting Party may forthwith terminate this Agreement. The Non-defaulting Party shall reserve its rights to seek damages from the Defaulting Party and any other rights and claims as permitted by laws.

20.6 Termination of this Agreement shall not affect any rights or obligations of any party that has already incurred.

Article 21: Representations and Warranties of the Parties

21.1 Representations and Warranties of Party A:

21.1.1 Party A is validly incorporated and has independent status of a corporation and valid business license;

21.1.2 Party A has consistently engaged in business activities in accordance with the law and has not undertaken any activities beyond its business scope as prescribed by the law;

21.1.3 Party A has been granted with all governmental approvals (if required) and internal authorizations necessary for executing this Agreement and performing all of its obligations as contemplated hereby. The signatory to this Agreement is the authorized representative of Party A. This Agreement shall be binding upon Party A upon execution.

21.1.4 Party A’s execution of this Agreement or performance of any of its obligations hereunder are neither violates any other agreements to which it is a party or its articles of association, nor legally conflicts with such agreements or its articles of association.

21.2 Representations and Warranties of Party B:

21.2.1 Party B is validly incorporated and has independent status of a corporation and valid business license;

21.2.2 Party B has consistently engaged in business activities in accordance with the law and not undertaken any activities beyond its business scope as prescribed by the law;

21.2.3 Party B has been granted with all governmental approvals (if required) and internal authorizations necessary for executing this Agreement and performing all of its obligations as contemplated hereby. The signatory to this Agreement is the authorized representative of Party B. This Agreement shall be binding upon Party B upon execution.

21.2.4 Party B’s execution of this Agreement or performance of any of its obligations hereunder are neither violates any other agreements to which it is a party or its articles of association, nor legally conflicts with such agreements or its articles of association.

Article 22: Force Majeure

22.1 In the event that any party hereto fails to perform its obligations hereunder in whole or in part due to a Force Majeure Event, the performance of such obligations shall be suspended for the duration of such Force Majeure Event. A Force Majeure Event means the occurrence of any event after the execution of this Agreement which (i) is beyond reasonable control of, and could not be predicted, avoided or overcome (even though it could be predicted) by the affected party, and (ii) results in that, from an objective point of view, such party’s performance of this Agreement in whole or in part becomes impossible or impractical (including but not limited to failure to perform at reasonable expenses). Force Majeure Events include but not limited to flood, fire, drought, typhoon, earthquake, other natural disasters, traffic accident, strike, turmoil, riot, war (whether or not with a declaration) and the acts or omissions of any governmental authorities.

22.2 The party claiming to be affected by a Force Majeure Event shall notify the other party of the occurrence of such Force Majeure Event in writing within the shortest possible time, and provide the other party with reasonable evidence for such Force Majeure Event and its duration by personal delivery or registered air mail within fifteen (15) days after the occurrence of such Force Majeure Event. The party claiming that the Force Majeure Event has caused performance of its obligations hereunder impossible or impractical from an objective point of view is obligated to use all reasonable efforts to eliminate or mitigate the impact of such Force Majeure Event.

22.3 Upon occurrence of a Force Majeure Event, the parties shall immediately decide, through friendly consultation, on how to perform this Agreement. After termination or elimination of the Force Majeure Event or its impact, the parties shall immediately resume performance of their obligations hereunder.

Article 23: Publicity

Except with the prior written consent of the other party, neither party may make any public announcement regarding this Agreement, other than those made in accordance with PRC Laws, or as required by China Securities Regulatory Commission, Shanghai Stock Exchange, Stock Exchange of Hong Kong Limited, Hong Kong Securities and Futures Commission, New York Stock Exchange, London Stock Exchange, Securities and Exchange Commission of the United States or any other governmental authorities or regulatory organizations.

Article 24: Miscellaneous

24.1 Except as otherwise provided herein, neither party may assign all or part of its rights and obligations under this Agreement without the other party’s written consent.

24.2 This Agreement constitutes the entire agreement between the parties and supersedes any and all prior agreements, contracts, understandings and communications, oral or written, between the parties with respect to the subject matter hereof.

24.3 If any provision of this Agreement becomes illegal, invalid or unenforceable, the validity and enforceability of the remainder hereof shall not be impaired.

24.4 The parties agree that they shall, at its own cost, be responsible for any and all costs and expenditures arising out of the execution of this Agreement in accordance with relevant provisions of PRC laws. If the law does not address any costs or expenditures, such costs or expenditures shall be born by the parties equally.

24.5 This Agreement shall not be amended except by a written agreement executed by each of the authorized representatives of the parties and with approval by the appropriate corporation actions taken by the parties.

24.6 Except as otherwise provided herein, no failure or delay by a party to exercise any right, power or authority under this Agreement shall constitute a waiver thereof, nor shall any single or partial exercise of the same preclude the exercise of any other right, power or authority.

Article 25: Notice

25.1 Any and all notices or other communications given by either party under this Agreement shall be in writing and in Chinese, and delivered in person or sent by registered mail to the other party at its designated address or sent to the facsimile numbers as designated by the other party. The notice shall be deemed delivered and effective on the following date:

25.1.1 If delivered in person, the date on which the person designated by the other party has signed the receipt of the notice;

25.1.2 If sent by registered mail, postage prepaid (subject to the date of the postmark date), on the seventh day following being posted (if the last day is Saturday, Sunday or a public holiday, on the immediately following business day);

25.1.3 If sent by facsimile, upon the completion of transmission.

The addresses of the parties are as follows:

Party A: Sinopec Shanghai Petrochemical Company Limited

Domicile: No. 48 Jinyi Road, Jinshan District, Shanghai 200540

Party B: China Petroleum & Chemical Corporation

Domicile: 22 Chaoyangmen North Street, Chaoyang District, Beijing 100728

In the event that either party changes its address, such party shall notify the other party in accordance with this Article 11 immediately.

Article 26: Governing Law and Dispute Resolution

26.1 This Agreement shall be governed by and construed in accordance with PRC laws.

26.2 Any dispute arising from or in connection with this Agreement shall be settled through consultation between the parties. In the event that the parties are unable to settle the matter through consultation, the matter shall be submitted by either Party A or Party B to the Beijing Arbitration Commission for arbitration in accordance with the arbitration rules of such Commission in effect at the time of submission. The arbitration award shall be final and binding upon the parties.

Article 27: Definitions and Interpretations

27.1 In this Agreement, unless the context otherwise requires, the following words and expressions shall have the following meanings:

27.1.1 Government Fixed Price means the price determined by the laws, regulations, determinations, orders promulgated by, or specified for certain service by the central government, provincial government or other regulatory body of the Peoples’ Republic of China.

27.1.2 Guidance Price means the price that may be decided by the parties to a transaction subject to a certain range which is provided by the laws, regulations, determinations, orders promulgated by or specified for certain service by the central government, provincial government or other regulatory body of the Peoples’ Republic of China.

27.1.3 Market Price for a certain service means the price determined in accordance with the following sequences:

(1) during the ordinary course of business, the price then charged by an independent third party who supplies such service at the place or neighboring area where such service is supplied; or

(2) during the ordinary course of business, the price then charged by an independent third party who provides such service.

27.2 Except as otherwise provided herein, in this Agreement:

27.2.1 all references to one party shall include its successors;

27.2.2 headings hereof are inserted for convenience only and shall not have any legal effect or affect the construction of this Agreement.

Article 28: Supplementary provisions

28.1 This Agreement shall be written in Chinese.

28.2 This Agreement shall be executed in four (4) originals, each of which shall be of equal legal effect.

28.3 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first written above.

(The remainder is left blank intentionally.)

(Signature page of Comprehensive Services Framework Agreement)

Sinopec Shanghai Petrochemical Company Limited (Seal)

Authorized Representative (signature): Rong Guangdao

China Petrochemical Corporation (Seal)

Authorized Representative (signature): Wang Xinhua

EX-8

Exhibit 8

A LIST OF SUBSIDIARIES

A list of Sinopec Shanghai Petrochemical Company Limited’s principal subsidiaries is provided in Note 1 to the consolidated financial statements included in this annual report following Item 19.

EX-12.1

Exhibit 12.1

CERTIFICATION

I, Rong Guangdao, certify that:

1. I have reviewed this annual report on Form 20-F of Sinopec Shanghai Petrochemical Company Limited;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in

this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Dated: June 27, 2011
By:	/s/ Rong Guangdao
	Rong Guangdao
	Chairman

EX-12.2

Exhibit 12.2

CERTIFICATION

I, Ye Guohua, certify that:

1. I have reviewed this annual report on Form 20-F of Sinopec Shanghai Petrochemical Company Limited;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in

this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Dated: June 27, 2011

By:	/s/ Ye Guohua
	Ye Guohua
	Chief Financial Officer

EX-13.1

Exhibit 13.1

906 Certification

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Ladies and Gentlemen:

In connection with the Annual Report of Sinopec Shanghai Petrochemical Company Limited (the “Company”) on Form 20-F for the year ended December 31, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Rong Guangdao, the Chairman of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) , as applicable, of the Securities Exchange Act of 1934, and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed “filed” with the Securities and Exchange Commission.

Date: June 27, 2011

By:	/s/ Rong Guangdao
Name: Rong Guangdao
Title: Chairman

EX-13.2

Exhibit 13.2

906 Certification

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Ladies and Gentlemen:

In connection with the Annual Report of Sinopec Shanghai Petrochemical Company Limited (the “Company”) on Form 20-F for the year ended December 31, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Ye Guohua, the Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) , as applicable, of the Securities Exchange Act of 1934, and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed “filed” with the Securities and Exchange Commission.

Date: June 27, 2011

By:	/s/ Ye Guohua
Name: Ye Guohua
Title: Chief Financial Officer