Jiangling Motors Corporation, Ltd.2008 Half-year Report

Jiangling Motors Corporation, Ltd.2008 Half-year Report

Contents

Section I JMC’s Basic Information 2Section II Share Capital Changes & Main Shareholders 4Section III Directors, Supervisors, Senior Management 6Section IV Management Discussions and Analysis 7Section V Major Events 11Section VI Financial Statements 20Section VII Catalog on Documents for Reference 67

Important Note: The Board of Directors and its members, the Supervisory Board and its members, and the senior executives are jointly and severally liable for the truthfulness, accuracy and completeness of the information disclosed in the report and undertake that the information disclosed herein does not contain false statements, misrepresentations or major omissions.Chairman Wang Xigao, President Yuan-Ching Chen, CFO Joseph Verga and Chief of Finance Department, Wu Jiehong, ensure that the Financial Statements in this Half-year Report are truthful and complete. The Half-year Financial Statements have not been audited.All financial data in this report are prepared under International Financial Reporting Standards (‘IFRS’) unless otherwise specified.The Half-year Report is prepared in Chinese and English. In the event of any discrepancy, the Chinese version will prevail.

Abbreviations: EVP Executive Vice PresidentCFO Chief Financial OfficerVP Vice President

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Section I JMC’s Basic Information

I. Brief Introduction

Company name in Chinese: 江铃汽车股份有限公司Company name in English: Jiangling Motors Corporation, Ltd.Abbreviation: JMCPlace of listing: Shenzhen Stock ExchangeShare’s name: Jiangling Motors Jiangling BShare’s code: 000550 200550JMC’s registered address and head office’s address: 509, Northern Yingbin

Avenue, Nanchang City, Jiangxi Province, P.R.C.Postcode: 330001Internet web site: http://www.jmc.com.cnLegal representative of JMC: Mr. Wang XigaoBoard Secretary: Mr. Wan HongBoard securities affair representative: Mr. Quan ShiContact address: Jiangling Motors Corporation, Ltd., 509, Northern Yingbin

Avenue, Nanchang City, Jiangxi Province, P.R.C.Telephone: 0791-5266178Fax: 0791-5232839E-mail: [email protected] for financial information disclosure: Mr. Joseph Verga

(Tel: 0791-5266503)Newspapers for information disclosure: China Securities, Securities Times, Hong

Kong Commercial DailyWebsite designated by CSRC for publication of JMC’s Half-year Report:

http://www.cninfo.com.cnPlace for placing Half-year Report: Securities Department, Jiangling Motors

Corporation, Ltd.Other Information:1. JMC was registered with Nanchang Municipal Bureau of Industrial & Commercial

Administration on November 28, 1993. The company registration was changed with Jiangxi Provincial Bureau of Industrial & Commercial Administration on January 8, 1997, on October 25, 2003, on September 23, 2004, on January 11, 2006 and on June 21, 2007.

2. Business License Registration Number: 002473.3. Taxation Registration Number: (State Administration of Taxation) 360108612446943(Nanchang Local Taxation) 360104612446943

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http://www.cninfo.com.cn/

II. Operating HighlightsUnit: RMB ’000

At the end of reporting period*

At the end of the previous year

Change (%)

Total assets 6,681,937 6,125,140 9.09Shareholder’s equity Attributable to the Equity Holders of the Company

3,746,101 3,496,128 7.15

Net Assets Per Share Attributable to the Equity Holders of the Company (RMB)

4.34 4.05 7.15

Reporting period(2008 first half)*

Same period last year* Change (%)

Operating Profit 598,617 462,794 29.35Profit Before Income Tax 626,633 482,946 29.75Profit Attributable to the Equity Holders of the Company

508,937 401,405 26.79

Basic Earnings Per Share (RMB) 0.59 0.47 26.79Diluted Earnings Per Share (RMB) 0.59 0.47 26.79Return on Net Asset Ratio (%)

13.59 12.77Up 0.82

percentage pointsNet Cash Generated From Operating Activities

319,607 519,106 -38.43

Net Cash Flow Per Share from Operating Activities (RMB)

0.37 0.60 -38.43

*Unaudited financial indexes.

Impact of IFRS adjustments on the profit for the period:Unit: RMB ’000

Net assets Profit for the periodJune 30, 2008 2008 first half

As Prepared under the China GAAP** 3,893,463 537,138Adjustment per IFRS:Deferred income -53,281 -21,490Staff bonus and welfare fund appropriated

from net profit of a subsidiary -1,157 -1,157As Restated in Conformity with IFRS 3,839,025 514,491** Based on the financial statements prepared by JMC under the China GAAP.

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Section II Share Capital Changes and Main Shareholders

I. Table of the changes of shareholding structureBefore the change Change (+, -) After the change

SharesProportion

of total shares (%)

New

shares

Bonus

Shares

Reserve-

converted

shares

Others Subtotal SharesProportion

of total shares (%)

I. Limited tradable A shares

316,692,845 36.69% -45,320,700 -45,320,700 271,372,145 31.44%

1.State-owned shares

- - - -

2. State-owned legal person shares

311,015,300 36.03% -43,160,700 -43,160,700 267,854,600 31.03%

3. Other domestic shares

5,677,545 0.66% -2,160,000 -2,160,000 3,517,545 0.41%

Including:Domestic legal person shares

5,673,000 0.66% -2,160,000 -2,160,000 3,513,000 0.41%

Domestic natural person shares

4,545 - 4,545

II. Unlimited tradable shares

546,521,155 63.31% 45,320,700 45,320,700 591,841,855 68.56%

1. A shares 202,521,155 23.46% 45,320,700 45,320,700 247,841,855 28.71%

2. B shares 344,000,000 39.85% 344,000,000 39.85%

III. Total 863,214,000 100% 863,214,000 100%

Note: As of April 7, 2008, the trading restriction on parts of the limited tradable A shares was relieved thereby causing the changes in shareholding structure.

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II. Total shareholders, top ten shareholders, and top ten shareholders holding unlimited tradable shares Total

shareholdersJMC had 31,319 shareholders, including 20,778 A-share holders and 10,541 B-share holders, as of June 30, 2008.

Top ten shareholders

Shareholder Name

Shareholder Type

Shareholding Percentage

（%）Shares

Shares with Trading

Restriction

Shares Due to

Mortgage or Frozen

Jiangling Holdings Limited (‘JHC’)

State-owned legal person

41.03 354,176,000 267,854,600 -

Ford Motor Company (‘Ford’)

Foreign legal person

30 258,964,200 - -

Shanghai Automotive Co., Ltd.


2.05 17,692,500 - -

Everbright & Pramerica Stock Investment Fund

Domestic non-state-

owned legal person

1.00 8,672,213 - -

Bosera Thematic Sector Equity Securities Investment Fund

Domestic non-state-

owned legal person

0.89 7,695,823 - -

Everbright & Pramerica Quantification Investment Fund

Domestic non-state-

owned legal person

0.81 6,993,273 - -

Lion Wealth Increase Stock Investment Fund

Domestic non-state-

owned legal person

0.73 6,273,547 - -

INVESCO Great Wall Dynamic Balanced Fund

Domestic non-state-

owned legal person

0.69 5,952,538 - -

UBS SDIC Dynamic Innovation Fund

Domestic non-state-

owned legal person

0.68 5,900,359 - -

China Life Insurance (Group)


0.66 5,720,348 - -

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CompanyTop ten shareholders holding unlimited tradable shares

Shareholder Name Shares without Trading Restriction Share TypeFord Motor Company 258,964,200 B shareJHC 86,321,400 A shareShanghai Automotive Co., Ltd.

17,692,500 A share

Everbright & Pramerica Stock Investment Fund

8,672,213 A share

Bosera Thematic Sector Equity Securities Investment Fund

7,695,823 A share

Everbright & Pramerica Quantification Investment Fund

6,993,273 A share

Lion Wealth Increase Stock Investment Fund

6,273,547 A share

INVESCO Great Wall Dynamic Balanced Fund

5,952,538 A share

UBS SDIC Dynamic Innovation Fund

5,900,359 A share

China Life Insurance (Group) Company

5,720,348 A share

Notes on association among above-mentioned shareholders

Everbright & Pramerica Stock Investment Fund and Everbright & Pramerica Quantification Investment Fund are related funds.

Section III Directors, Supervisors and Senior Management

I. There was no change in the status of JMC directors, supervisors and senior management holding JMC shares in the reporting period.

II. Changes of Directors, Supervisors and Senior Management During the Reporting Period

Directors Changes:Due to expiration of the three-year term for the fifth Board, the Board was re-elected in accordance with the regulations of the Articles of Association of JMC.

Per approval of the JMC 2007 Annual Shareholders’ Meeting, Mr. Wang Xigao, Mr. Mei Wei Cheng, Mr. Robert J. Graziano, Mr. Cui Yunjiang, Mr. Howard D. Welsh and Mr. Tu Hongfeng were elected as directors of JMC, and Mr. Zhang Zongyi, Mr. Shi Jiansan and Mr. Vincent Pun Fong Kwan were appointed as independent directors on June 26, 2008.

Supervisors Changes:Due to expiration of the three-year term for the fifth Supervisory Board, the Supervisory Board was re-elected in accordance with the regulations of the Articles of

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Association of JMC.

Per approval of the JMC 2007 Annual Shareholders’ Meeting, Mr. Wu Yong, Mr. Alvin Qing Liu and Mr. Zhu Yi were elected as supervisors of JMC on June 26, 2008. Mr. Jin Wenhui and Ms. Xu Lanfeng were elected in the meeting of employee representatives as members of the new Supervisory Board of JMC in June 2008.

Senior Management changes:Due to re-election of the Board of Directors, the first session of the new Board was held on June 26, 2008 and it approved the following resolutions: appointed Mr. Yuan-Ching Chen as the President of the Company; based on the Chairman’s nomination, appointed Mr. Wan Hong as the Board Secretary; based on the President’s nomination, appointed Mr. Tu Hongfeng, Ms. Xiong Chunying and Ms. Liu Nianfeng as EVPs, Mr. Joseph Verga as CFO, and Mr. Wan Hong, Mr. Zhong Wanli, Mr. Zhou Yazhuo, Mr. Mustafa Menkü and Mr. Li Qing as VPs.

Section IV Management Discussion and Analysis

I. Operating ResultsJMC’s core business is production and sales of light vehicles and related components. Its major products include JMC series light truck and pickup, and Transit series commercial vehicles. The Company also produces engines, castings and other components.

In First Half of 2008, JMC sales volume attained a record of 52,000 units including 20,734 JMC series light trucks, 301 Yunba microbuses, 14,409 pickups, 1,823 Baowei SUV and 14,733 Ford Transit series commercial vehicles. Total sales volume was up 14% from same period last year. Total production volume was 51,722 units, including 20,000 light trucks, 292 Yunba microbuses, 14,611 pickups, 1,774 Baowei SUV, and 15,045 Transits.

The Company’s sales increase is primarily explained by industry increases and competitive pricing actions. Transit sales volume increased by 17% compared with same period last year, Light Truck sales were higher by 11%. Pickup sales were higher by 22%

In First Half of 2008, the Company achieved a share of about 1.0% of the Chinese automotive market, maintaining the same level compared with same period last year. (In First Half of 2008, the Company achieved a share of about 2.4% of the Chinese commercial automotive market, decreasing by 0.1 percentage points from same period last year.) JMC light trucks (including pickup) accounted for 5.1% of the light truck market, down about 0.3 percentage points from the 2007 level. Transit, along with the JMC brand Yunba microbus, achieved about 12.2% of the light bus market, about 0.5 percentage points higher than same period last year. (Data source for above analysis: China Association of Automobile Manufacturers and the Company sales records)

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II. Financial ResultsThe Table below summarizes revenue & cost of goods sold from core business:

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Unit: RMB ’000

Product Turnover Cost in core business

Gross margin

I. Vehicles 4,158,431 3,136,258 24.6%

II. Components 314,965 242,858 22.9%

Total 4,473,396 3,379,116 24.5%

Including: related party transactions 489,746 391,124 20.1%

Pricing principle of related party transactions Market price

Regional classification of JMC’s core business are:Unit: RMB ’000

Region TurnoverChanges of turnover in the

reporting period from the same period last year (%)

North-east China 223,240 24.85North China 473,708 28.01East China 2,378,586 10.93South China 633,830 5.89Central China 331,541 48.45North-west China 180,044 26.64South-west China 252,447 15.16

Revenue in First Half of 2008 was RMB 4,585 million, up 13.4% from same period last year. This increase primarily reflected higher vehicle sales volume, partially offset by price reduction.

Under International Financial Reporting Standards, net profit was RMB 509 million, up 26.8% from same period last year’s level. Higher profit derived from one-time government grants, volume increases and cost reductions was offset by vehicle price reduction, cost increases driven by regulatory actions, raw material pricing increases and period expense increases. Distribution costs increased by RMB 97 million, up 36% from same period last year, primarily reflecting volume-related changes including vehicle delivery costs and warranty, and promotion expenses and advertisement expenditure. Administrative expenses increased by RMB 41 million, up 19% from same period last year, primarily reflecting higher program spending and technical development fees associated with higher Transit sales volume.

Cash flow from operations was positive RMB 320 million, reflecting profitability and operating-related changes. Cash flow from investing activities was negative RMB 371 million, primarily reflecting spending for capital goods such as facilities, equipment and tooling. Financing cash flow was negative RMB 0.6 million, primarily reflecting

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dividend payment, bank loan reduction and interest expenses.

At the end of June 2008, Company cash and cash equivalents totaled RMB 2,055 million, down RMB 52 million from the end of 2007. The balance of bank borrowing was RMB 47 million, down RMB 1.7 million from the end of 2007

Total assets were RMB 6,682 million, up 9% from RMB 6,125 million at year-end 2007, primarily reflecting higher Fixed Assets, Intangible Assets, inventory and prepayment to Suppliers. The assets structure remains unchanged from 2007.

Total liabilities were RMB 2,843 million, up 12% from RMB 2,542 million at year-end 2007, primarily reflecting higher accounts payable due to higher production volumes and investment. Lower bank borrowing and customer advances partially offset the above increases.

Shareholder equity, including minority interest, was RMB 3,839 million at June 30, 2008, up RMB 256 million from year-end 2007. This increase is explained by net profit earned in the reporting period.

7. Operational Challenges and ResolutionsIn First Half of 2008, the Company continued to face competitive challenges with new product entries and intensifying cost pressures. Concurrently, the Company focused on initiating new product development and expanding production capacity.

Regarding competition, the Company continued to experience market share pressure from lower-priced competitors in all of its segments. In response, the Company lowered prices for Transit logistic and JMC Pickup Export models in January 2008. Additionally, we launched the new Transit product introduction and promotion in the first half of 2008. The Company also accelerated launch of separate Ford and JMC brand-specific stores to provide sales focus and enhance customer purchase experience. As a result, Transit sales grew by 17%, Light Truck sales were higher by 11%, and Pickup sales were higher by 22% compared with same period last year.

In the area of cost management, the Company continues to deal with higher raw material price and cost associated with increased regulatory requirements. To maintain acceptable profit margin, the Company placed high priority on cost management and continued to push dedicated teams to lead vigorous cost reduction and waste elimination activities throughout the entire enterprise. We also moved upstream in the product development process to reduce costs during the design stage, in addition to tightening cost control on models currently in production and daily operating expenses.

The company anticipates continued market pressures including raw material price pressure and competitive price reduction, government policy revisions including more stringent regulatory requirements, and new competitive vehicle entries in selected market segments.

The Company’s management remains focused on (1) leveraging existing product platforms to generate new revenue streams, (2) introducing new products, and (3) capacity expansion actions. The Company successfully launched the V348 project. The N900 project (the next generation truck product which is self-developed), and the JX4D24 engine manufacturing project to improve localization and to achieve future

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regulatory requirements will launch in the second half of 2008. Additionally, the Board approved the N800 project long lead funding for a next generation independently developed high end Light Truck product in April 2008. These actions will introduce competitive and profitable products into the light commercial vehicle market as soon as possible. A frame plant press line capacity expansion project and a C3 stamping press line capacity project will be completed in the second half of 2008. Additionally, the Board approved to increase investment for A4 line in April 2008, and the Board also approved a JX4D24 engine capacity expansion project in July 2008. These manufacturing actions are aimed at supporting the Company’s present volume growth and increased volume associated with new products.

Finally, the Company is continuing efforts to ensure sustainable growth, including studying project opportunities for adding incremental products and expanding profitable exports and OEM sales.

7. Investment in the Reporting Period1. In First Half year of 2008, JMC did not raise equity funding, nor did it use equity

funding raised in previous years.

2. Self funded major projects:

Project Name

Total Investment Estimate

(RMB Mils)

Spending To Date

(RMB Mils)

Future Investment Forecast

(RMB Mils)

Planned Completion

Date

V348 909 782 78 Second Half,2008

N350 598 149 449 Second Half,2010

JX4D24 Engine 350 244 106 Second Half,2008

N900 250 129 71 First Half,2009

A4 Press Line 384 1 383 Second Half,2009

C3 Press Line 64 40 9 Second Half,2008

Frame Press Machine 53 34 17 Second Half,2008

V348 Stage IV Gas Engine

35.3 27 8 Second Half,2008

JX4D24 Engine Match N350

30 5 25 Second Half,2009

5 Axis High Speed CNC Milling Machine

11.7 0 11.7 Second Half,2009

Four Poster Testing Machine

11 6 5 Second Half,2008

Transit Stage IV Gas 8 6 - Finished

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EngineN800 Program Long Lead Funding

118 6 69 Still Being Planned

Vehicle Storage and Delivery Facility Phase I

35 - 35 First Half,2009

JX4D24 Engine Phase II

315 - 315 Second Half,2010

PDM Program 10.5 2.7 7.8 Second Half,2009

V348 China Heavy Duty Stage IV Long Lead Funding

22 - 22 Still Being Planned

Total 3,204.5 1,431.7 1,533.5The Spending will be funded from cash reserves.

V. 2008 Second Half Year PlanThe Company is projecting revenue in the range of RMB 5,000 to 6,000 million for the Second Half. Intensified competition resulting from new market entries and the launch of news models will require increased levels of marketing expense to support expanded market share. Additionally, R&D and capital expenditures are projected to be higher as we progress with new product programs and capacity expansion actions.

In the Second Half, the Company continues to focus on generating cash and profits, enhancing the formulation of new product development strategies, and executing plans for future growth. Specific actions include:

i. Accelerated efforts to strengthen our brand image by enhancing the Company's distribution network, including brand-specific dealer expansion and improving customer sales service.

ii. Robust governance of existing and new programs to ensure that programs launch when planed within approved program according level, and that they deliver functional and quality targets.

iii. Increased cost reduction efforts by focusing on customer value and eliminating waste.

iv. Development product plans to add new products for introduction in the Chinese market, with capability to export.

v. Expanded export and OEM component sales business.

Section V Major Events

I. Status of the Corporate Governance in JMCIn accordance with the requirements of the relevant regulations promulgated by China Securities Regulatory Commission (“CSRC”), such as the Guidance for the Articles of Association of Listed Companies (2006 Revision), the Guidance on the Working

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Rules for the Audit Committee of the Board of Directors and the Notice on Preparing 2007 Annual Report and Related Items for Listed Companies, and considering the corporate governance issues indicated by the CSRC Jiangxi Branch during an on-site review at the Company, the Company amended the Articles of Association of JMC, the Working Rules for JMC Audit Committee and the Working Rules for JMC Strategy Committee to reflect consistency with the actual operation of the Company and to comply with the legal and regulatory requirements.Please refer to the Statement on Improvement Results of JMC Corporate Governance Review Special Program disclosed on the website www.cninfo.com.cn on July 10, 2008, which details the improved results for the issues addressed to JMC on 2007 Governance Review Special Program for listed companies.

II. Execution of Profit Distribution PlanThe 2007 Annual Shareholders’ Meeting of the Company approved the 2007 calendar year profit distribution plan on June 26, 2008. Announcement of 2007 calendar year dividend distribution was published in China Securities, Securities Times and Hong Kong Commercial Daily on July 12, 2008, and it has been executed accordingly.

The 2007 calendar year dividend distribution plan was as follows:

Based on the total share capital of 863,214,000 shares, a cash dividend of RMB 3 (before tax) per 10 shares was distributed to shareholders. Individual shareholders and investment funds holding the Company’s A shares received an after-tax cash dividend of RMB 2.7 per 10 shares, and the cash dividend for B-share holders was exempt from tax. The B-share dividend was paid in Hong Kong Dollars based on the median of the buy-and-sell exchange rates between the HK dollar and RMB quoted by the People’s Bank of China on the first business day (June 27, 2008) after the resolution of the Shareholders’ Meeting. The exchange rate was HKD 1.00 / RMB 0.8794.

Equity record date and ex-dividend date for A shares were July 18 and July 21, 2008 respectively; Last transaction date, ex-dividend date and equity record date for B shares were July 18, July 21, and July 23, 2008 respectively.

JMC did not convert capital reserves into share capital in the reporting period.

III. JMC had no major litigation or arbitration issues in the reporting period.

IV. Purchase or sale of assetsThe Board of Directors approved the transfer of the Company’s land use right for 218 Mu land, located in Majiashan, Nanchang city, as well as affixtures thereto for RMB 33 million, and acquisition of the land use right for a 2000 Mu Greenfield, located in Xiaolan Economic Development Zone, Nanchang city, P.R.C. (hereinafter referred to as “Xiaolan Zone”), for RMB 33 million on July 10, 2006.

Due to the changes of state regulations for land transactions, the Board of Directors

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re-approved acquisition of the land use right for the 2000 Mu Greenfield, located in Xiaolan Zone, for no more than RMB 160 million on April 10, 2008. The Administrative Committee of Xiaolan Zone and the Company signed an Investment Agreement for acquiring above-mentioned land use right on April 10, 2008, and the Company has obtained the land use right certificate of the 2000 Mu Greenfield on June 23, 2008.

As of the date of the issuance of this Half-year Report, the transaction for the land located in Majiashan is still progressing towards governmental approval.

V. Major related party transactions1. Related party transactions for purchase of commodities and services in the

reporting period(1) JMC purchased certain raw materials, auxiliary materials and components from

related parties. Transactions with half-year value over RMB 15 million are listed bellow:

Transaction Parties Pricing Principle

Settlement Method

Amount(RMB ’000)

% of Total Purchases

Ford Contracted price

Letter of credit 177,319 5.39

Jiangxi Jiangling Chassis Company

Contracted price

60 days after delivery

152,451 4.64

Nanchang Bao-jiang Steel Processing Distribution Co., Ltd.

Contracted price

Prepayment 126,929 3.86

JMCG Interior Trim Factory Contracted price


123,894 3.77

GETRAG (Jiangxi) Transmission Company

Contracted price


117,422 3.57

Jiangling-Lear Interior Trim Factory

Contracted price


85,000 2.58

JMCG Contracted price


75,972 2.31

Jiangxi JMCG Industrial Company

Contracted price


62,173 1.89

Visteon Climate Control (Nanchang) Co., Ltd.

Contracted price


59,623 1.81

Ford Trading Company Contracted price

Telegraphic Transfer 30 days after shipping date

46,950 1.43

Jiangxi Specialty Vehicles Jiangling Motors Group Co., Ltd.

Contracted price

Monthly Netting off payment of purchased goods

39,891 1.21

Nanchang Jiangling Huaxiang Auto Components

Contracted price


37,452 1.14

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Co.Nanchang JMCG Liancheng Auto Component Co.

Contracted price


30,969 0.94

Jiangling Material Co. Contracted price

After delivery 18,764 0.57

(2) The sales of products by JMC to related parties with half-year value over RMB 15 million are listed bellow:

Transaction Parties Pricing Principle

Settlement Method

Amount (RMB’000)

% of Total Sales Revenue

JMCG Import and Export Co., Ltd.

Contracted price

30 days after delivery 372,815 8.13


Contracted price


61,317 1.34

Jiangxi JMCG Industrial Company

Contracted price


40,084 0.87

JHC Contracted price

30 days after invoicing

31,474 0.69

Jiangxi Jiangling Material Utilization Company

Market price

Monthly Settlement

22,409 0.49

JMCG Interior Trim Factory Contracted price

Consignment after receiving payment of purchased goods

18,399 0.40


Contracted price


18,267 0.40

In the above mentioned pricing principle, market price means that it is based on the market price of similar products, and contracted price means that for unique products or services for which comparable market data is difficult to obtain, prices are determined through the process of supplier quotation, cost assessment and negotiations.

(3) Secondee Compensations Pursuant to an agreement between the Company and Ford on March 24 2005, some employees of Ford were assigned to the Company as management staff. In the first half of 2008, the Company should pay approximately USD 1,893 thousand and

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RMB583 thousand to Ford as a service fee for these employees.

Pursuant to an agreement between the Company, Ford and Ford Otosan Company on December 8 2006, some employees of Ford Otosan Company were assigned to the Company as management staff. In the first half of 2008, the Company should pay approximately USD 507 thousand to Ford Otosan Company as a service fee for these employees.

Pursuant to an agreement between the Company and JHC on January 1 2008, some employees of JHC were assigned to the Company as management staff. In the first half of 2008, the Company should pay approximately RMB 314 thousand to JHC as a service fee for these employees.

(4) General ServiceJMCG bears the middle school and primary school educational fees of existing employees and certain retired employees' expenses of the Group, and provides services such as cable television. The related costs were borne by the Group according to agreed percentages as determined by headcount ratio of the Group and JMCG. In the reporting period, RMB 1.10 million of the above-mentioned costs was shared by JMC and its subsidiaries.

(5) Purchasing AgencyJMCG Import and Export Co., Ltd. was the import agent of JMC for acquiring import materials, equipment and technology services. In the reporting period, JMC paid JMCG Import and Export Co., Ltd. commission totaling RMB 1.07 million.

2. The Company had no related party transaction concerning transfer of assets or equity in the reporting period.

3. Creditor’s rights, liabilities and guarantees between JMC and related parties(1) Balance of accounts due to or due from main related parties with value over RMB

30 million:Unit: RMB ’000

Item Related Parties Amount(RMB thousands)

% of Each Account Balance

Receivables Jiangxi Specialty Vehicles Jiangling Motors Group Co., Ltd.

30,461 11.67

Prepayment Nanchang Bao-jiang Steel Processing Distribution Co., Ltd.

148,407 51.12

Prepayment JMCG Import and Export Co., Ltd.

101,175 34.85

Accounts and bills payable

Jiangxi Jiangling Chasis Company

81,420 5.08


Jiangling-Lear Interior Trim Factory

63,301 3.95


JMCG Interior Trim Factory

60,976 3.80



59,500 3.71

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Visteon Climate Control (Nanchang) Co., Ltd.

47,086 2.94



34,179 2.13


JMCG 33,515 2.09

Other payable Ford 89,887 14.82

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(2) DepositOn June 30, 2008, JMC had a deposit of RMB 79.30 million in JMCG Finance Co., Ltd. JMC received a total of RMB 0.97 million in interest from JMCG Finance Co., Ltd. during the first half of 2008.

(3) Guarantees to JMCAs of June 30, 2008, JMCG Finance Co, Ltd provided a guarantee for JMC’s bank loans of US$ 1.28 million.

4. Other major related party transactions during the first half of 2008According to the Joint Development Agreement and the 2nd Amendment Contract to the Joint Development Agreement signed by JMC and Ford, JMC is to pay technology development fee totaling US$ 40 million to Ford. JMC bore a technology development fee of US$ 3.61 million (equal to RMB 25.05 million) in first half of 2008 reflecting 1.8% of Transit sales revenue.

According to the V348 Transit Vehicles Series Technology Licensing Contract signed by JMC and Ford, JMC will pay technology development fee to Ford until sales termination of V348 Transit. JMC bore a technology development fee of US$ 1.09 million (equal to RMB 7.52 million) in first half of 2008 reflecting 2.6% of V348 Transit sales revenue.

VI. There were neither entrustment, contracts or leases assets from other companies, nor entrustment, contracts or leases of JMC’s assets to other companies from which profit was generated in excess of 10% of the reporting period total profit. JMC did not entrust other people with cash asset management in the reporting period.

VII. Commitments of the shareholder holding 5% or more of JMC’s shares JHC, holding 41.03% of JMC total shares, declared its special commitment for the Full Tradable Share Reform as follows:

Name Special Commitments Implementation

JHC JHC promised specifically to pay the consideration on behalf of the unlisted-share holders who opposed the Share Reform or did not express their opinions. The above-mentioned unlisted-share holders should repay the consideration paid by JHC and the interest thereof, or obtain written consent from JHC, if they want to list their shares.

Has been implemented per the special commitments

VIII. Neither the Company nor its directors or senior management were punished by regulatory authorities in the reporting period.

IX. JMC guarantees to outside companiesThe Company Board of Directors approved on December 13, 2007 to provide guarantee to Ford Automotive Finance (China) Ltd. (“FAFC”) with vehicle pledge for Suzhou Hejun Auto Trading Limited, Shanghai Jiuha Auto Industrial Limited, Wuxi Jiangling Auto Sales Limited and Shenzhen Shuncheng Jiangling Auto Trading

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Limited with a total credit line of no more than RMB 55.5 million.

The table below summarizes JMC outside guarantees in first half of 2008.Outside Guarantees (excluding the guarantees to the subsidiaries of the Company)

Name Date

（Signature

Date of the

Agreement）

Amount(RMB)

Type of Guarantee

Term of Guarantee

Whether Has Been Executed

Completely(Y/N)

Whether For A Related

Entity (Y/N)

Suzhou Hejun Auto

Trading Limited

December 24, 2007

10,440,700 Pledge 12 months

N N

Shanghai Jiuha Auto Industrial Limited

December 24, 2007

0 Pledge 12 months

N N

Wuxi Jiangling Auto Sales Limited

December 24, 2007


N N

Shenzhen Shuncheng Jiangling Auto Trading Limited

December 24, 2007


N N

Total amount of the guarantees in the reporting period

213,999,727

Balance of the guarantees as of the end of the reporting period

27,732,385

Guarantees to the subsidiaries of the CompanyTotal amount of the guarantees to the subsidiaries of the Company in the reporting period

0

Balance of the guarantees to the subsidiaries of the Company as of the end of the reporting period

0

Total Guarantees (including the guarantees to the subsidiaries of the Company)

Total Amount 27,732,385

As % of the Company’s net assets 0.7%Including:Guarantees offered to shareholders, actual controlling parties and its related parties

0

Guarantees directly or indirectly offered to guaranteed parties whose ratio of liabilities to assets exceed 70%

0

Amount of the guarantees exceeding 50% of the 0

19

Company’s net assets Subtotal of the aforesaid three items 0

X. Independent directors’ explanation and independent opinions on the Company’s account receivables by related parties and outside guarantees

Independent Director Zhang Zongyi, Shi Jiansan and Vincent Pun Fong Kwan expressed their opinions on the Company’s account receivables by related parties and outside guarantees as follows:

We are aware of the cash flow occurring between the Company and its controlling shareholders and other related parties and the Company’s outside guarantees, and believe that:

1. Cash flow occurring between the Company and its controlling shareholders and other related parties resulted from normal business transactions. There was no illegal embezzlement of company funds.

2. The risk derived from the vehicle pledge provided for such credit facilities is offset because the Company has received the cash payment of the vehicles from FAFC on behalf of the dealers. The Company has no other outside guarantees except the aforesaid guarantees provided for the dealers in the reporting period.

XI. External research and media interviews of the CompanyDate Place Communicatio

n MethodObject Information Discussed

and Materials OfferedJanuary 3, 2008

In the Company

Oral Communication

An analyst from China Asset Management Co., Ltd.

JMC Operating highlights and development strategy

January 13, 2008

In the Company

Oral Communication

An analyst from Great Wall Fund Management Co., Ltd.


January 17, 2008

In the Company

Oral Communication

Five analysts from Great Wall Securities Co., Ltd., Lord Abbett China Asset Management Co., Ltd., China Southern Fund Management Co., Ltd., China Merchants Securities Co., Ltd.


January 23, 2008

In the Company

Oral Communication

An analyst from Nikko Asset Management Co., Ltd.


March 4, 2008

In the Company

Oral Communication

Two analysts from China International Capital Corporation


20

Limited.April 2, 2008

In the Company

Oral Communication

Two analysts from BOC International (China) Limited, China Galaxy Securities Company Limited


April 11, 2008

In the Company

Oral Communication

Ten analysts from CITIC Securities Co., Ltd., AXA SPDB Investment Managers Co., Ltd., Fortis Haitong Investment Management Co., Ltd., Waijia Asset Management Co., Ltd., HSBC Jintrust Fund Management Company Limited, Fortune SGAM Fund Management Co., LTD., Lombarda China Fund Management Co., Ltd., Tianhong Asset Management Co., Ltd., Chang Xin Asset Management Co., Ltd., Golden Eagle Asset Management Co., Ltd.


April 16, 2008

In the Company

Oral Communication

Two analysts from Sinolink Securities Co., Ltd.


April 19, 2008

In the Company

Oral Communication

Four analysts from Golden Sun Securities Co., Ltd., Changjiang Securities Co., Ltd, Zhonghai Fund Management Co., Ltd.


April 26, 2008

Wuhan Oral Communication

Ten analysts from AXA SPDB Investment Managers Co., Ltd., Huaan Fund Management Co., Ltd. Lord Abbett China Asset Management Co., Ltd., Soochow Asset Management Co., Ltd., Fortis Haitong Investment Management Co., Ltd., Aegon-Industrial Fund Management Co., Ltd., Changjiang Securities Co., Ltd, Guoyuan Securities Co., Ltd., Everbright & Pramerica Fund Management Co.,


21

Ltd., Bank Of China Investment Management Co., Ltd.

May 13, 2008

In the Company

Oral Communication

An analyst from Midea Investment Management Co., Ltd.


June 6, 2008

In the Company

Oral Communication

Two analysts form Harvest Fund Management Co., Ltd., JPMorgan Chase & Co.


XII. Establishment & Implementation of Internal Control SystemThe Company conducted a review on the implementation of Internal Control Systems in compliance with the requirements of Internal Control Guidance for Listed Companies promulgated by Shenzhen Stock Exchange and other related regulations in the reporting period. The results indicate that the Company’s operation has been executed strictly in compliance with its Internal Control System and there is no major management vulnerability or fraudulent behavior. Additionally, the Company improves its corporate governance level by participating in a Listed Company Governance Review Special Program. Key internal control activities in the first half of 2008 are as follows:1. Revised parts of statements in the Articles of Association of the

Company which did not comply with the Guidance for the Articles of Association of Listed Companies (2006 Revision);

2. Amended the Working Rules for JMC Strategy Committee for consistency with the actual operation of the Company, and

3. Amended the Working Rules for JMC Audit Committee in accordance with the requirements of the Guidance on the Working Rules for the Audit Committee of the Board of Directors, and the Notice on Preparing 2007 Annual Report and Related Items for Listed Companies, which were promulgated by CSRC.

XIII JMC did not participate in securities investments nor did it increase equity in other listed companies, non-listed finance companies, or companies applying to be listed, during the reporting period.

XIV Indexes for publication of information disclosureAll announcements of the Company are published in China Securities, Securities Time and Hong Kong Commercial Daily. The website for information disclosure is http: //www.cninfo.com.cn . The listing of information disclosed in the first half of 2008 is as follows:1. Year 2007 Performance Flash Report was published on January 22, 2008.2. Extracts from the 2007 Annual Report and announcements on the relevant

resolutions of the Board of Directors and relevant resolutions of the Supervisory Board were published on March 15, 2008.

3. Production and sales volume information in March 2008 and the prompt announcement on relieving the trading restriction on the limited tradable shares in Full Tradable Share Reform were published on April 3, 2008.

4. Announcement on the resolutions of the Twelfth Session of the Fifth Board of Directors was published on April 15, 2008.

5. 2008 First Quarter Report was published on April 24, 2008.6. Production and sales volume information in April 2008 was published on May 6,

22


2008.7. Announcement on changing the Sponsor’s representative was published on May

25, 2008.8. Announcements on the resolutions of the Board of Directors and Supervisory

Board, the Notice on Holding 2007 Annual Shareholders’ Meeting and production and sales volume information in May 2008 were published on June 3, 2008.

9. Announcement of the Supervisory Board was published on June 25, 2008.10. Announcements on the resolutions of the First Session of the Sixth Board of

Directors, of the Supervisory Board and of the 2007 Annual Shareholders’ Meeting as well as the announcement on receiving government grants were published on June 27, 2008.

Section VI Financial StatementsThe Half-year Financial Statements have not been audited.

23

Jiangling Motors Corporation, Ltd.

CONSOLIDATED BALANCE SHEETAS AT 30 JUNE 2008(All amounts in RMB unless otherwise stated)

As at

Note 30 June 2008# 31 December 2007

RMB’000 RMB’000

ASSETS

Non-current assets

Property, plant and equipment 5 2,272,320 2,208,056

Lease prepayment 6 309,088 139,813

Intangible assets 7 34,903 35,987

Investments in associates 8 21,258 17,764

Other non-current assets 367 -

Deferred income tax assets 9 105,516 107,902

2,743,452 2,509,522

Current assets

Inventories 10 1,076,421 866,076

Trade and other receivables 11 807,534 642,630

Held-to-maturity investment 12 - -

Cash and cash equivalents 13 2,054,530 2,106,912

3,938,485 3,615,618

Total assets 6,681,937 6,125,140

EQUITY

Capital and reserves attributable the

Company’s equity holders

Share capital 14 863,214 863,214

Share premium 14 816,609 816,609

Other reserves 15 442,331 442,331

Retained earnings 1,623,947 1,373,974

3,746,101 3,496,128

Minority interests in equity 92,924 87,370

Total equity 3,839,025 3,583,498

LIABILITIES

Non-current liabilities

Borrowings 16 8,310 9,088

Retirement benefits obligations 17 61,769 69,701

Deferred income 53,281 31,791

Warranty provisions 18 109,743 106,910

233,103 217,490

Current liabilities

24

Trade and other payables 19 2,543,363 2,268,798

Current income tax liabilities 12,289 276

Borrowings 16 39,167 40,088

Retirement benefits obligations 17 14,990 14,990

2,609,809 2,324,152

Total liabilities 2,842,912 2,541,642

Total equity and liabilities 6,681,937 6125140

#Unaudited financial indexes

The notes on pages 7 to 49 are an integral part of these consolidated financial statements.

25


CONSOLIDATED INCOME STATEMENTFOR THE SIX MONTHS ENDED 30 JUNE 2008(All amounts in RMB unless otherwise stated)

Six months ended 30 June

Note 2008# 2007#

RMB’000 RMB’000

Sales 20 4,584,730 4,043,188

Sales tax and surcharge (79,429) (68,211)

Net sales 4,505,301 3,974,977

Cost of sales (3,455,347) (3,032,910)

Gross profit 1,049,954 942,067

Distribution costs (365,660) (268,411)

Administrative expenses (252,503) (212,039)

Other gains-net 166,826 1,177

Operating profit 598,617 462,794

Finance income 23 25,942 19,974

Finance costs 23 (1,420) (2,977)

Finance income-net 23 24,522 16,997

Share of profit of associates 3,494 3,155

Profit before income tax 626,633 482,946

Income tax expense 24 (112,142) (72,894)

Profit for the period 514,491 410,052

Attributable to:

Equity holders of the Company 508,937 401,405

Minority interests 5,554 8,647

514,491 410,052

Earnings per share for profit attributable

to the equity holders of the Company

(expressed in RMB per share)

- Basic and diluted 25 0.59 0.47

Dividends 26 258,964 258,964

26



27


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE SIX MONTHS ENDED 30 JUNE 2008(All amounts in RMB unless otherwise stated)

For the six months ended 30 June 2007#

Attributable to equity holders of the Company

NoteShare

Capital

Shares

Premium

Other

Reserves

Retained

Earnings

Minority

Interests

Total

Equity

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Balance at 1 January 2007 863,214 816,609 366,415 955,409 126,012 3,127,659

Profit for the six months - - - 401,405 8,647 410,052

Dividend relating to 2006 - - - (258,964) - (258,964)

Balance at 30 June 2007 863,214 816,609 366,415 1,097,850 134,659 3,278,747

For the six months ended 30 June 2008#

Attributable to equity holders of the Company

NoteShare

Capital

Shares

Premium

Other

Reserves

Retained

Earnings

Minority

Interests

Total

Equity


Balance at 1 January 2008 863,214 816,609 442,331 1,373,974 87,370 3,583,498

Profit for the six months - - - 508,937 5,554 514,491

Dividend relating to 2007 26 - - - (258,964) - (258,964)

Balance at 30 June 2008 863,214 816,609 442,331 1,623,947 92,924 3,839,025

28



29


CONSOLIDATED CASH FLOW STATEMENTFOR THE SIX MONTHS ENDED 30 JUNE 2008(All amounts in RMB unless otherwise stated)

Note Six months ended 30 June

2008# 2007#

RMB’000 RMB’000

Cash flows from operating activities

Cash generated from operations 27 364,076 558,931

Interest paid (1,240) (2,903)

Income tax paid (43,229) (36,922)

Net cash generated from operating activities 319,607 519,106

Cash flows from investing activities

Purchase of held-to-maturity investments (199,461) (179,265)

Purchase of property, plant and equipment (“PPE”) (401,296) (242,946)

Proceeds from disposal of PPE 27 1,164 629

Interest received 28,409 20,833

Proceed from disposal of held-to-maturity investments 200,000 190,024

Net cash used in investing activities (371,184) (210,725)

Cash flows from financing activities

Proceeds from borrowings 39,107 40,429

Repayments of borrowings (39,336) (90,299)

Dividends paid to company’s shareholders (181) (4,203)

Other cash paid relating to financing activities (182) (378)

Net cash used in financing activities (592) (54,451)

Effects of exchange rate changes (213) (227)

Net increase in cash and cash equivalents (52,382) 253,703

Cash and cash equivalents at beginning of period 2,106,912 2,168,225

Cash and cash equivalents at end of period 2,054,530 2,421,928

30

#Unaudited financial indexesThe notes on pages 7 to 49 are an integral part of these consolidated financial statements.

31

JIANGLING MOTORS CORPORATION, LTD.

FOR THE SIX MONTHS ENDED 30 JUNE 2008NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated)

1 General information

Jiangling Motors Corporation, Ltd. (the “Company”) was established in the People’s Republic of China (the “PRC”) under the Company Law of the PRC and under the approval of Hongban (1992) No. 005 of Nangchang Revolution and Authorization Group of Company’s Joint Stock as a joint stock limited company to hold certain operational assets and liabilities of the automotive manufacturing business of Jiangxi Motors Manufacturing Factory, Which was owned by Jiangling Motors Corporation Group (“JMCG”). The legal representative’s operating license of the Company is No.002473.

The address of the Company’s registered office is No.509, Northern Yingbin Avenue, Nanchang, Jiangxi Province, the PRC.

In December 1993, the Company issued 494,000,000 domestic ordinary shares (“A share”). In addition, the Company issued 25,214,000 A shares as bonus shares to the existing shareholders in 1994. The bonus shares were issued by utilisation of the Company’s retained earnings.

In 1995, the Company issued 174,000,000 domestically listed foreign shares (“B share”) and the Company issued 170,000,000 B shares in 1998.

As at 30 June 2008, the total issued shares of the Company are 863,214,000 shares, which are all listed on the Shenzhen Stock Exchange, the PRC.

The Company and its subsidiaries (the “Group”) are principally engaged in the development, manufacturing and selling of automobiles, engines and automobile related parts, dies and tools.

These consolidated financial statements have been approved for issue by the Board of Directors on 27 August 2008.

2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

A Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimations are significant to the consolidated financial statements are disclosed in Note 4.

32



2 Summary of significant accounting policies (continued)

A Basis of preparation (continued) Standards, amendment and interpretations effective in 2008

IFRIC 14, 'IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction' (effective from 1 January 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. This standard does not have any impact on the Group’s financial statements.

Standards, amendments and interpretations effective in 2008 but not relevant for the Group’s operations

The following standard, amendment and interpretation to published standards is mandatory for accounting periods beginning on or after 1 January 2008 but they is not relevant to the Group’s operations:

IFRIC 12, 'Service concession arrangements' (effective from 1 January 2008). IFRIC 12 applies to contractual arrangements whereby a private sector operator participates in the development, financing, operation and maintenance of infrastructure for public sector services. IFRIC 12 is not relevant to the Group’s operations because none of the Group’s companies provide for public sector services.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group

The following standards, amendments and interpretations to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 July 2008 or later periods, but the Group has not early adopted them:

IAS 1 (Revised), “Presentation of Financial Statements” (effective from 1 January 2009). IAS 1 (Revised) requires all owner changes in equity to be presented in a statement of changes in equity. All comprehensive income is presented in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). It requires presenting a statement of financial position as at the beginning of the earliest comparative period in a complete set of financial statements when there are retrospective adjustments or reclassification adjustments. However, it does not change the recognition, measurement or disclosure of specific transactions and other events required by other IFRSs. The Group will apply IAS 1 (Revised) from 1 January 2009.

IAS 23 (Amendment), 'Borrowing costs' (effective from 1 January 2009). The amendment to the standard is still subject to endorsement by the European Union. It requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. The Group will apply IAS 23 (Amended) from 1 January 2009.

33




A Basis of preparation (continued)

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group (continued)

IFRS 8, 'Operating segments ' (effective from 1 January 2009). IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, ‘Disclosures about segments of an enterprise and related information’. The new standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The Group will apply IFRS 8 from 1 January 2009. The expected impact is still being assessed in detail by management, but it appears likely that it does not have any impact on the Group’s accounts.

IAS 32 and IAS 1 Amendments “Puttable Financial Instruments and Obligations Arising on Liquidation” (effective from 1 January 2009). The amendment requires some puttable financial instruments and some financial instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation to be classified as equity. The Group will apply IAS 32 and IAS 1 Amendments from 1 January 2009, but it is not expected to have any impact on the Group’s accounts.

IAS 27 (Revised) “Consolidated and Separate Financial Statements” (effective from annual period beginning on or after 1 July 2009). The amendment requires non-controlling interests (i.e. minority interests) to be presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent. Total comprehensive income must be attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control are accounted for within equity. When control of a subsidiary is lost, the assets and liabilities and related equity components of the former subsidiary are derecognised. Any gain or loss is recognised in profit or loss. Any investment retained in the former subsidiary is measured at its fair value at the date when control is lost. The Group will apply IAS 27 (Revised) from 1 January 2010.

IFRS 3 (Revised) “Business Combination” (effective for business combinations with acquisition date on or after the beginning of the first annual reporting period beginning on or after 1 July 2009). The amendment may bring more transactions into acquisition accounting as combinations by contract alone and combinations of mutual entities are brought into the scope of the standard and the definition of a business has been amended slightly. It now states that the elements are ‘capable of being conducted’ rather than ‘are conducted and managed’. It requires considerations (including contingent consideration), each identifiable asset and liability to be measured at its acquisition-date fair value, except leases and insurance contracts, reacquired right, indemnification assets as well as some assets and liabilities required to be measured in accordance with other IFRSs. They are income taxes, employee benefits, share-based payment and non current assets held for sale and discontinued operations. Any non-controlling interest in an acquiree is measured either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. The Group will apply IFRS 3 (Revised) from 1 January 2010.

IFRS 2 Amendment “Share-based Payment Vesting Conditions and Cancellations” (effective from 1 January 2009). The amendment clarifies the definition of "vesting conditions" and specifies the accounting treatment of "cancellations" by the counterparty to a share-based payment arrangement. Vesting conditions are service conditions (which require a counterparty to complete a specified period of service) and performance conditions (which require a specified period of service and specified performance targets to be met) only. All "non-vesting conditions" and vesting conditions that are market conditions shall be taken into account when estimating the fair value of the equity instruments granted. All cancellations are accounted for as an acceleration of vesting and the amount that would otherwise have been recognised over the remainder of the vesting period is recognised immediately. The Group will apply IFRS 2 Amendment from 1 January 2009, but it is not expected to have any impact on the Group's accounts.


34



A Basis of preparation (continued)

Interpretations to existing standards that are not yet effective and not relevant for the Group’s operations

The following interpretation to existing standards has been published and is mandatory for the Group’s accounting periods beginning on or after 1 July 2008 or later periods but is not relevant for the Group’s operations:

IFRIC 13, 'Customer loyalty programmes' (effective from 1 July 2008). IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. IFRIC 13 is not relevant to the Group’s operations because none of the Group’s companies operate any loyalty programmes.

B Consolidation

(1) Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary in the consolidated financial statements,to ensure consistency with the policies adopted by the Group.

(2) Transactions and minority interests

The Group applies a policy of treating transactions with minority interests as transactions with equity owners of the Group. For purchases from minority interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is deducted from equity. Gains or losses on disposals to minority interests are also recorded in equity. For disposals to minority interests, differences between any proceeds received and the relevant share of minority interests are also recorded in equity.

35




B Consolidation (continued)

(3) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss (see Note 2 H).

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

Dilution gains and losses in associates are recognised in the income statement.

C Segment Reporting

The Group’s turnover and profit for the six months ended 30 June 2008 were mainly derived from the manufacture and domestic sale of automobiles, related spare parts and components, and the principal assets employed by the Group are located in the PRC. Therefore, no additional business segment or geographical segment data is presented.

D Foreign currency translation

(1) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Renminbi (“RMB”), which is the Group’s functional and presentation currency.

(2) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the first day of the month in which the transactions take place. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

36




D Foreign currency translation (continued)

(2) Transactions and balances (continued)

Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in equity.

Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available for sale are included in the available-for-sale reserve in equity.

E Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition or construction of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

Buildings 35-40 yearsPlant and machinery 10-15 yearsMotor vehicles 6-10 yearsMoulds 5 yearsOthers 5-7 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2 H).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement.

Assets under construction represent buildings under construction and plant and equipment pending installation, and are stated at cost. Costs include construction and acquisition costs. No provision for depreciation is made on assets under construction until such time as the relevant assets are completed and ready for intended use. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policy as stated above.

37




F Lease prepayment

Lease prepayments represent upfront prepayments made for the land use rights, and are expensed in the income statement on a straight line basis over the period of the lease or when there is impairment; the impairment is expensed in the income statement.

G Intangible assets

(1) Research and development

Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the following criteria are fulfilled:

(a) it is technically feasible to complete the intangible asset so that it will be available for use or sale;

(b) management intends to complete the intangible asset and use or sell it;(c) there is an ability to use or sell the intangible asset;(d) it can be demonstrated how the intangible asset will generate probable future economic

benefits;(e) adequate technical, financial and other resources to complete the development and to

use or sell the intangible asset are available; and(f) the expenditure attributable to the intangible asset during its development can be

reliably measured.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life.

No development costs were capitalised by the Group during the six months ended 30 June 2008.

(2) Technical know-how

Technical know-how referred to after-sale management model are initially recorded at costs incurred to acquire and are amortised over the estimated useful lives of 6 years.

H Impairment of non-financial assets

Assets that have an indefinite useful life or have not yet available for use are not subject to amortisation and are tested annually for impairment. Assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

38




I Financial assets

The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity financial assets and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

(1) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless they are designated as hedges. Assets in this category are classified as current assets.

(2) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as trade and other receivables in the balance sheet (Note 2 K).

(3) Held-to-maturity financial assets

Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as available for sale. Held-to-maturity financial assets are included in non-current assets, except for those with maturities less than 12 months from the balance sheet date; these are classified as current assets.

39




I Financial assets (continued)

(4) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity financial assets are carried at amortised cost using the effective interest method.

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the income statement within other (losses)/gains – net, in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the Group’s right to receive payments is established.

Changes in the fair value of monetary securities denominated in a foreign Currency and classified as available-for-sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences on monetary securities are recognised in profit or loss; translation differences on non-monetary securities are recognised in equity. Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognised in equity.

When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as gains and losses from investment securities.

Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of other income. Dividends on available-for-sale equity instruments are recognised in the income statement as part of other income when the Group’s right to receive payments is established.

40




I Financial assets (continued)

(4) Available-for-sale financial assets (continued)

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. Impairment testing of trade receivables is described in Note 2 K.

J Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average cost method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling prices in the ordinary course of business, less applicable variable costs of completion and distribution costs.

41




K Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision made for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within “administrative expenses”. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against “administrative expenses” in the income statement.

L Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

M Shares capital

Share capital consists of “A” and “B” ordinary shares.

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

N Trade and other payables

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

O Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

42




P Current and deferred income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Q Employee benefits

(1) Pension obligations

The Group contributes on a monthly basis to a defined contribution retirement scheme managed by the PRC government. The contribution to the scheme is charged to the income statement as and when incurred. The Group’s obligations are determined at a certain percentage of the salaries of the employees.

In addition, the Group provides supplementary pension subsidies to certain qualified employees. Such supplementary pension subsidies are considered as under defined benefit plans. The liability recognised in the balance sheet in respect of these defined benefit plans is the present value of the defined obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service cost. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows according to the terms of the related pension liability.

43




Q Employee benefits (continued)

(2) Housing fund and other benefits

The Group’s full-time employees are entitled to participate in a state-sponsored housing fund. The fund can be used by the employees for the purchase of apartment accommodation, or may be withdrawn upon their retirement. The Group is required to make annual contributions to the state-sponsored housing fund equivalent to a certain percentage of the employees’ salaries.

(3) Profit sharing and bonus plan

The Company recognises a liability and expense for bonus plans based on a formula that takes into consideration the profit attributable to the Company’s shareholders. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

R Provisions

Provisions, mainly warranty costs, are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

S Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after elimination sales within the Group.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

(1) Sales of goods

Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the customer, and the customer has accepted the products and collectibility of the related receivables is reasonably assured.

44




S Revenue recognition (continued)

(2) Sales of services

Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.

(3) Interest income

Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group.

(4) Rental income

Rental income is recognised on an accruals basis in accordance with the substance of the relevant agreements.

T Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

U Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs they are intended to compensate. Government grants not relating to future costs are recognised on receipt basis.

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the income statement on a straight line basis over the expected lives of the related assets.

45



3 Financial risk management

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

Risk management is carried out by Finance Department under policies approved by the Board of Directors.

(1) Market risk

(a) Foreign exchange risk

The Group is not significantly exposed to foreign exchange risk as all of its assets and liabilities are denominated in RMB except for an insignificant amount of bank deposits which are denominated in U.S. dollar.

(b) Commodity price risk

Commodity price risk is the possibility of higher or lower costs due to changes in the prices of commodities, such as non-ferrous metals (e.g. aluminium), ferrous metals (e.g. steel and iron castings), energy (e.g. natural gas and electricity), and plastics/resins (e.g. polypropylene), which we use in the production of motor vehicles. Steel and resins are our two largest commodity exposures and are among the most difficult to hedge.

Our purchasing department negotiates contracts to ensure continuous supply of raw materials. In some cases, these contracts stipulate minimum purchase amounts and specific prices, and as such, play a role in managing price risk.

(c) Cash flow and fair value interest rate risk

As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. As at 30 June 2008, substantially all of its borrowings were at fixed rate. The Group has not used any interest rate swaps to hedge its exposure to interest rate risk.

As at 30 June 2008, if the interest rate of the Group’s bank borrowings had been increased/decreased by 10% and all other variables were held constant, the Group’s net profit and owners’ equity would decrease/increase by RMB102,000 for the six months ended 30 June 2008.

46



3 Financial risk management (continued)3.1 Financial risk factors (continued)(2) Credit risk

The Group does not have a significant exposure to any individual customer or counterparty. Credit risk on receivables has already been accounted for in the financial statements as they are shown net of provisions for bad and doubtful debts.

As at 30 June 2008, all the Group’s bank deposits are deposited in major financial institutions (all of them are state-owned entities incorporated in the PRC), which management believes are of high credit quality without significant credit risk.

All the Group’s trade and other receivables have no collateral. However, the Group has policies in place to ensure that sales are made to customers with appropriate credit history and the Group performs periodic credit evaluations of its customers. The Group assesses the credit quality of each customer by taking into account its financial position, past experience and other factors. Credit limit and terms are reviewed on periodic basis, and the financial department is responsible for such monitoring procedures. In determining whether allowance for bad and doubtful debts is required, the Group takes into consideration the aging status and the likelihood of collection. In this regards, the directors of the Company are satisfied that the risks is minimal and adequate allowance for doubtful debts, if any, has been made in the financial statements after assessing the collectability of individual debts. Further quantitative disclosures in respect of the impairment of trade and other receivables are set out in Note 11.

(3) Liquidity riskPrudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding by keeping committed credit lines available.

Management monitors the Group’s undrawn borrowing facility (Note 16) and cash and cash equivalents (Note 13) on the regular basis of expected cash flow.

The maturity analysis of borrowings that shows the remaining contractual maturities is disclosed in Note 16. Generally there is no specific credit period granted by the suppliers but the related trade payables are normally expected to be settled within one year after receipt of goods or services.The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.

Less than 1 year

Between 1 and 2 years

Between 2 and 5 years Over 5 years

RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000At 30 June 2008Bank borrowings -Principals 39,167 449 1,347 6,514 -Interests 1,455 123 328 733Trade and other payables 2,543,363

2,583,985 572 1,675 7,247At 31 December 2007Bank borrowings -Principals 40,088 478 1,435 7,175 -Interests 880 135 361 834Trade and other payables 2,268,798

2,309,766 613 1,796 8,009

47



3 Financial risk management (continued)

3.2 Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as borrowings divided by total capital. Total capital is calculated as equity, as shown in the combined balance sheets, plus borrowings.The Group aims to maintain the gearing ratio at a reasonable level.

The gearing ratios at 30 June 2008 and 31 December 2007 were as follows:

30 June 2008 31 December 2007RMB’000 RMB’000

Total borrowings 47,477 49,176Total equity 3,839,025 3,583,498Total capital 3,886,502 3,632,674

Gearing ratio 1.22% 1.35%

3.3 Fair value estimation

The carrying amounts of the Group’s financial assets including cash and cash equivalents, deposits in approved financial institutions, trade and other receivables; and financial liabilities including trade and other payables, short-term borrowings, approximate their fair values due to their short maturities. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values.

In assessing the fair value of non-traded financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at the balance sheet date. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments.

48



4 Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

4.1 Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.

(1) Provisions

The Group provides warranties on automobile and undertakes to repair or replace items that fail to perform satisfactorily based on certain pre-determined conditions. Management estimates the related warranty claims based on historical warranty claim information including level of repairs and returns as well as recent trends that might suggest that past cost information may differ from future claims.Factors that could impact the estimated claim information include the success of the Group’s productivity and quality controls, as well as parts and labour costs. Any increase or decrease in the provision would affect profit or loss in future years.

(2) Pension benefits

The present value of the pension obligations depend on a number of factors that are determined on an actuarial basis using a number of assumptions. Any changes in these assumptions will impact the carrying amount of pension obligations.

Key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in Note 17.

(3) Taxation

The Group is subject to various taxes in the PRC, e.g. profit tax, value added tax, consumption tax, etc. Significant judgment is required in determining the provision for these taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from amounts that were initial recorded, such differences will impact the tax provisions in the period such determination is made.

Deferred income tax assets relating to certain temporary differences are recognised as management considers it is probable that future taxable profit will be available against which the temporary differences can be utilised. Where the expectation is different from the original estimate, such differences will impact the recognition of deferred tax assets and tax in the periods in which such estimate is changed.

As at 30 June 2008, the Group has deferred tax assets in the amount of approximately RMB105,516,000. To the extent that it is probable that taxable profit will be available against which the deductible temporary differences will be utilised, deferred tax assets are recognised for temporary differences arising from impairment provisions taken on inventory and receivables, deferred income and retirement benefit obligations. Should the Group be required to increase the tax rate, every 1% increment in tax rate would render a further write up of deferred tax asset in the amount of approximately RMB5,680,000.

49


FOR THE SIX MONTHS ENDED 30 JUNE 2008 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated)

5 Property, plant and equipment

At 1 January 2007 Buildings Plant and

MachineryMotor

Vehicles Moulds Others

Assets under construction Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Cost 626,590 1,696,579 53,667 616,446 749,325 438,081 4,180,688Accumulated depreciation and impairment (138,565) (1,117,914) (29,493) (553,307) (521,188) (692) (2,361,159)

Net book amount 488,025 578,665 24,174 63,139 228,137 437,389 1,819,529

Year ended 31 December 2007Opening net book amount 488,025 578,665 24,174 63,139 228,137 437,389 1,819,529Additions - - - - 1,400 612,882 614,282Transfers 31,538 117,471 7,218 89,713 142,651 (388,591) -Disposals (2,880) (1,142) (86) - (626) - (4,734)Other deduction - - - - - (1,029) (1,029)

Impairment charge - (56) - - (278) - (334)

Depreciation charge (15,114) (98,245) (5,520) (28,420) (72,359) - (219,658)

Closing net book amount 501,569 596,693 25,786 124,432 298,925 660,651 2,208,056

At 31 December 2007Cost 654,535 1,806,859 59,923 706,159 886,340 661,343 4,775,159Accumulated depreciation and impairment (152,966 (1,210,166) (34,137) (581,727) (587,415) (692) (2,567,103)

Net book amount 501,569 596,693 25,786 124,432 298,925 660,651 2,208,056

Six month ended 30 June 2008Opening net book amount 501,569 596,693 25,786 124,432 298,925 660,651 2,208,056Additions - - - - 56 353,536 353,592Transfers 25,431 6,704 2,638 220,431 58,158 (313,362) -Disposals (170) (361) (277) - (285) - (1,093)Other deduction - - - - - (177,429) (177,429)

Impairment charge (Note 21,27) - - - - - - -

Depreciation charge (Note 12,27) (8,027) (31,416) (2,992) (29,592) (38,779) - (110,806)

Closing net book amount 518,803 571,620 25,155 315,271 318,075 523,396 2,272,320

At 30 June 2008Cost 679,737 1,800,730 61,113 926,590 925,558 524,088 4,917,816Accumulated depreciation and impairment (160,934) (1,229,110) (35,958) (611,319) (607,483) (692) (2,645,496)

50


FOR THE SIX MONTHS ENDED 30 JUNE 2008 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated)Net book amount 518,803 571,620 25,155 315,271 318,075 523,396 2,272,320

51



5 Property, plant and equipment (continued)

In connection with the Group’s reorganisation in 1993, the Group’s property, plant and

equipment were revalued on 31 December 1992 by Zhonghua (Shenzhen) Certified Public

Accountants on a depreciated replacement value basis. The opening accumulated depreciation

of the revalued assets was computed using depreciation rates as stipulated by the State

regulations, which are generally consistent with those applied by the Group for the preparation

of its financial statements. Since this was a special purpose valuation conducted for the

purposes of the formation of a joint stock limited company, this became deemed costs of the

Company’s property, plant and equipment. Subsequent revaluations have not been performed

and all further additions have been recorded at cost.

In the six months ended 30 June 2008, depreciation expense of approximately RMB96,245,000

(the six months ended 30 June 2007: RMB107,289,000) has been charged in cost of goods

sold, RMB869,000 (the six months ended 30 June 2007: RMB991,000) in selling and marketing

costs and RMB13,692,000 (the six months ended 30 June 2007: RMB11,762,000) in

administrative expenses.

6 Lease prepayment

Lease prepayments represent the Group’s interests in land which are held on leases of 50

years. The movements are as follows:

30 June 2008 31 December

2007

RMB’000 RMB’000

Opening net book amount 139,813 143,289

Addition 171,323 -

Amortisation charge (Note 21,27) (2,048) (3,476)

Closing net book amount 309,088 139,813

Cost 346,883 175,560

Accumulated amortisation (37,795) (35,747)

Net book amount 309,088 139,813

All amortisation expenses was charged in administrative expenses.

52



7 Intangible assets

After-sale

management

model Software Other Total

RMB’000 RMB’000 RMB’000 RMB’000

Year ended 31 December 2007

Opening net book amount 35,438 - 1,533 36,971

Addition - 5,632 - 5,632

Amortisation charge (6,164) (185) (267) (6,616)

Closing net book amount 29,274 5,447 1,266 35,987

At 31 December 2007

Cost 36,978 5,632 1,600 44,210

Accumulated amortisation (7,704) (185) (334) (8,223)

Net book amount 29,274 5,447 1,266 35,987

Six month ended 30 June 2008

Opening net book amount 29,274 5,447 1,266 35,987

Addition - 2,852 - 2,852

Amortisation charge (Note 21,27) (3,081) (722) (133) (3,936)

Closing net book amount 26,193 7,577 1,133 34,903

At 30 June 2008

Cost 36,978 8,484 1,600 47,062

Accumulated amortisation (10,785) (907) (467) (12,159)

Net book amount 26,193 7,577 1,133 34,903

In the six months ended 30 June 2008,amortisation expenses of approximately RMB3,867,000

(the six months ended 30 June 2007: RMB3,215,000)was charged in administrative expenses

and RMB69,000 in distribution costs.

53



54



8 Investments in associates

(a) Movements of investment in associate are set out as follows:


2007

RMB’000 RMB’000

At beginning of the period 17,764 16,120

Share of results of associates (Note 27) 3,494 7,257

Dividends received - (5,613)

At end of the period 21,258 17,764

In March 1996, the Company entered into a Sino-foreign equity joint venture agreement with

Visteon International Holding Co., Ltd. (“Visteon”) to form Jiangxi Fuchang Climate Systems

Co., Ltd. (“Jiangxi Fuchang”),in which the Company has an 19.15% interest.The tenure of

Jiangxi Fuchang is 30 years, and its principal activities include manufacture and sale of air-

conditioners and spare parts for motor vehicles.

From 1 June 2008,Jiangxi Fuchang changes its name into Visteon Climate Control

(Nanchang) Co.,Ltd.

(b) The Group’s share of assets, liabilities, revenue and results of its associates are as follows:


2007

RMB’000 RMB’000

Total assets 28,459 25,864

Total liabilities (7,201) (8,100)

Net assets 21,258 17,764


2008 2007

RMB’000 RMB’000

Revenue 18,810 19,940

Profit for the period 3,494 3,155

55



56



9 Deferred income tax assets

Deferred income taxes are calculated in full on temporary differences under the liability method

using applicable tax rate as stated in the following.

In March 2007, the PRC Government passed the China Corporate Income Tax Law (“CIT Law”).

Under the CIT Law, the enterprise income tax (“EIT”) for domestic invested enterprises and

foreign invested enterprises are combined into one and the new EIT rate is 25%, which has

become effective on 1 January 2008. The new EIT rate of 25% is gradually effective in a 5 years

period for enterprises. According to the Notice of enterprise income tax rate transition regulation

issued by the State Council of the PRC, the Group applied 18% EIT rate in 2008, 20% in 2009,

22% in 2010, 24% in 2011 and 25% in 2012.

The movements on the deferred income tax assets account are as follows:


2007

RMB’000 RMB’000


Credit to income statement (Note 24) (2,386) 33,088


Provision for

impairment of

assets

Retirement

benefits

obligation

Accrued

expenses

Depreciation

of property,

plant and

equipment Others Total


At 1 January 2007 4,634 9,446 51,353 6,237 3,144 74,814

Credited/(charged) to the

income statement 777 4,517 19,312 3,533 4,949 33,088

At 31 December 2007 5,411 13,963 70,665 9,770 8,093 107,902

Credited/(charged) to the

income statement (957) (1,271) (2,594) 119 2,317 (2,386)

At 30 June 2008 4,454 12,692 68,071 9,889 10,410 105,516

The amounts shown in the balance sheet include the followings:


2007

RMB’000 RMB’000

Deferred tax assets to be recovered after more

than 12 months 13,636 15,016

57



10 Inventories


2007

RMB’000 RMB’000

Raw materials 671,363 516,599

Work in progress 122,559 70,059

Finished goods 282,499 279,418

1,076,421 866,076

During the six months ended 30 June 2008,the cost of inventories recognised as expenses and

included in cost of sales amounted to approximately RMB3,452,982,000 ( the six months ended 30

June 2007: RMB3,029,097,000).

58



11 Trade and other receivables


2007

RMB’000 RMB’000

Trade receivables 261,089 260,626

Less: Provision for impairment of trade

receivables (1,305) (1,303)

Trade receivables -net 259,784 259,323

Notes receivables 248,055 310,387

Other receivables 9,648 17,421

Less: Provision for impairment of other

receivables (267) (455)

Other receivables-net 9,381 16,966

Prepayments 290,314 55,954

807,534 642,630

Refer to Note 30 for details of receivables from related parties.

The carrying amounts of accounts receivable approximate their fair values.

Movements on the provision for impairment of trade receivables are as follows:


2007

RMB’000 RMB’000

At beginning of the period (1,758) (1,666)

Reversal (Provision) for impairment of

receivables 186 (92)

At end of the period (1,572) (1,758)

Trade receivables that are less than three months past due are not considered impaired. As at

30 June 2008, trade receivables of RMB41,356,000 (2007: RMB7,025,000) were past due but

not impaired. These trade receivables have been collected till reporting date. The aging analysis

of these trade receivables is as below:


2007

Up to three months 41,356 7,025

59



The maximum exposure to credit risk at the reporting date is the carrying value of each class of

receivable mentioned above. The group does not hold any collateral as security.

12 Held-to-maturity investment

All of these investments were maturated and disposed during the six months ended 30 June

2008.

60



13 Cash and cash equivalents


2007

RMB’000 RMB’000

Cash at bank and in hand 822,370 1,011,923

Short-term bank deposits (a) 1,232,160 1,094,989

2,054,530 2,106,912

As of 30 June 2008, the Group had cash deposits of approximately RMB79,298,000 (2007:

RMB85,770,000) placed with Jiangling Motor Group Finance Company (“JMCF”) (Note 30

(iii)). The interest rates range from 0.72% to 1.71% per annum (2007: 0.72% to 2.61%).

JMCF, a non-bank financial institution, is a 100% owned subsidiary of JMCG.

(a) Short-term bank deposits have maturities within 12 months and can be withdrawn at the

discretion of the Group without any restriction.

14 Share capital and share premium

Number of

shares

(thousands) Share capital

Share

premium Total

RMB’000 RMB’000 RMB’000

At 1 January 2008 and

30 June 2008 863,214 863,214 816,609 1,679,823

The total authorised number of ordinary shares is 863,214,000 (2007: 863,214,000) with a par

value of RMB1 per share (2007: RMB 1 per share). All issued shares are fully paid.

In January 2006, the Company implemented the share reform scheme (the “Share Reform

Scheme”) in accordance with relevant PRC regulations after which the Company’s shares

would become tradable in the stock market.

With the approval from State-Owned Assets Supervision and Administration Committee of

Guozichanquan [2006] No. 36, the shareholders of the Company approved the Share Reform

Scheme on 16 January 2006.

On 25 January 2006, the change on the nature of the shares relating to the Share Reform

Scheme was approved by the Ministry of Commerce of the PRC of Shangzipi [2006] No. 387.

According to the Share Reform Scheme, registered tradable A-share shareholders of the

Company as at 13 February 2006 received cash consideration of RMB13.40 per 10 shares on

61



14 February 2006, and subsequently these previously non-tradable A shares would be

tradable with conditions.

62



15 Other reserves

Statutory

surplus

reserve fund

(a)

Statutory

public

welfare

fund

Reserve

fund

Others

(b) Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2008 and

30 June 2008 416,288 - 18,627 7,416 442,331

(a) In accordance with the relevant laws and regulations in the PRC and Articles of Association of

the Company, it is required to appropriate 10% and 5%-10% of its annual net profit, after

offsetting any prior years’ losses as determined under the PRC Accounting Standards for

Business Enterprises, to the statutory surplus reserve fund and statutory public welfare fund

respectively before distributing the net profit. When the balance of the statutory surplus reserve

fund reaches 50% of the Company’s share capital, any further appropriation is at the discretion

of shareholders. The statutory surplus reserve fund can be used to offset prior years’ losses, if

any, and may be converted into share capital by issuing new shares to shareholders in

proportion to their existing shareholders or by increasing the par value of the shares currently

held by them. The fund is non-distributable except for liquidation situation.

No statutory surplus reserve fund was appropriated during the six months ended 30 June

2008.

(b) The Group owned 20% equity interests in Jiangxi Fujiang After-Sales Services Co., Ltd.

(“Jiangxi Fujiang”) prior to 30 September 2006 and has been accounted for as an associate of

the Group. On 30 September 2006, the Group acquired the remaining 80% equity interests in

Jiangxi Fujiang. Thereafter, Jiangxi Fujiang became wholly owned by the Group. In this

connection, the difference between the carrying amount of Jiangxi Fujiang and the attributable

share of the fair value of Jiangxi Fujiang before this acquisition is recorded as "other reserve"

in 2006.

63



16 Borrowings


2007

RMB’000 RMB’000

Current

Bank borrowings

- secured(a) 449 478

- unsecured 38,718 39,610

39,167 40,088

Non-current

Bank borrowings - secured(a) 8,310 9,088

Total borrowings 47,477 49,176

(a) Bank borrowings of USD1,276,941 (equivalent to approximately RMB8,759,000)

(2007:USD1,309,683, equivalent to approximately RMB9,566,000) were guaranteed by JMCF (Note

30 (v)).

The interest rate of bank borrowings is ranging from 1.50% to 6.99% per annum (2007: 1.50% to

6.10%).

The fair value of borrowings approximates their carrying values.

The maturity of non-current borrowings is as follows:


2007

RMB’000 RMB’000

Between 1 and 2 years 449 478

Between 2 and 5 years 1,347 1,435

Over 5 years 6,514 7,175

8,310 9,088

The carrying amounts of the Group’s borrowings are denominated in the following currencies:

Currency


2007

RMB’000 RMB’000

RMB 25,000 25,000

US dollar 22,477 24,176

64



47,477 49,176

The group has the following undrawn borrowing facilities:


2007

RMB’000 RMB’000

Fixed rate

– Expiring within one year 953,156 154,774

65



17 Retirement benefits obligations

The amount of early retirement and supplemental benefit obligations recognised in the

balance sheet is as follows:


2007

RMB’000 RMB’000

Present value of defined benefits obligations

Defined benefit obligations 76,759 85,292

Unrecognised past service cost - (601)

Liability on the balance sheet 76,759 84,691

The movements of early retirement and supplemental benefit obligations for the six months

ended 30 June 2008 and the year ended 31 December 2007 are as follows:


2007

RMB’000 RMB’000


For the period

-Current service cost - 74

-Interest Cost - 2,933

-Payment (7,932) (15,547)

-Past service cost - 11,760

-Actuarial losses/(gains) - (334)


Current 14,990 14,990

Non-current 61,769 69,701

76,759 84,691

The material actuarial assumptions used in valuing these obligations are as follows:

(1) Discount rate adopted: 4.5% (2007:4.5%)

(2) The salary and supplemental benefits inflation rate of retiree, early-retiree and employee

at post: 0% to 5% (2007: 0%-5%)

(3) Mortality: average life expectancy of residents in the PRC.

Based on the assessment and IAS 19, the Group estimated that, at 30 June 2008, a

provision of RMB76,759,000 is sufficiently to cover all future retirement-related obligations.

Obligation in respect of retirement benefits of RMB76,759,000 is the present value of the

66



unfunded obligations, of which the current portion amounting to RMB14,990,000 (2007:

RMB14,990,000) has been included under current liabilities.

67



18 Warranty provisions

The movements on the warranty provisions are as follows:


2007

RMB’000 RMB’000


Charged for the period 35,288 81,271

Utilised during the period (32,455) (79,099)


The above represents the warranty costs for repairs and maintenance, which are estimated

based on present after-sale service policies and prior years’ experience on the incurrence of

such cost. The warranty period is the sooner of two years and fifty thousand kilometres

since the motor vehicles are sold to consumer.

19 Trade and other payables


2007

RMB’000 RMB’000

Trade payables 1,604,142 1,440,693

Payroll and welfare payable 110,623 125,407

Dividend payables 263,324 4,567

Other payables 354,077 539,799

Other accrual related to sales 211,197 158,332

2,543,363 2,268,798

Refer to Note 30 for details of amount due to related parties.

20 Sales

The Group principally derives its turnover from the manufacture, assembly and sale of

automobiles, related spare parts and components, and sales are made principally in the

PRC. Sales represent the total invoiced value of goods supplied to customers, net of returns

and allowances. Accordingly, no segment information is presented.

68



21 Expenses by nature


2008 2007

RMB’000 RMB’000

Raw materials and consumables used 3,130,720 2,726,090

Employee benefit expenses (Note 22) 232,693 200,659

Depreciation on property, plant and equipment

(Note 5) 110,806 120,042

Impairment charges of property, plant and

equipment (Note 5) - 4

Repairs and maintenance expenditure on

property, plant and equipment 19,802 18,585

Research and development expenditure 111,177 90,039

Amortisation of lease prepayment (Note 6) 2,048 1,738

Amortisation of intangible assets (Note 7) 3,936 3,215

Impairment for write-down of inventory 315 (297)

Impairment for/(reversal of) receivables and

other receivables (186) 318

Others 462,199 352,967

Total cost of sales, distribution costs and

administrative expenses 4,073,510 3,513,360

22 Employee benefit expenses


2008 2007

RMB’000 RMB’000

Wages and salaries 185,452 162,581

Social security costs 12,167 9,545

Pension costs defined contribution plans 18,664 15,343

Others 16,410 13,190

232,693 200,659

The employees of the Group participated in a retirement benefit plan organised by the

municipal and provincial governments under which the Group was required to make defined

contributions monthly to this plan.

In addition, the Group also paid certain pension subsidies to certain retired employees. In

accordance with the Group’s early retirement programs, the Group was also committed to

make periodic benefit payments to certain early-retired employees until they reach their legal

retirement ages.

69



70



23 Finance income and cost


2008 2007

RMB’000 RMB’000

(a) Finance income

Interest income on bank deposits 17,783 16,612

Interest income on credit sales 8,159 3,362

25,942 19,974

(b) Finance cost

Interest expense on bank loans (1,239) (2,850)

Bank charges (181) (127)

(1,420) (2,977)

Net finance income 24,522 16,997

24 Taxation

(a) Enterprise income tax (“EIT”)

Under the CIT Law passed in March 2007, the EIT for domestic enterprises and foreign

invested enterprises are combined into one and the new EIT rate is 25%, which has became

effective on 1 January 2008. The new EIT rate of 25% will be gradually effective in a 5 years

periods, the Group applicable tax rate was stated in Note 9.

For the six months ended 30 June 2008, the Group applicable EIT rate is 18%.

The amounts of income tax expense charged to the income statements represented:


2008 2007

RMB’000 RMB’000

Current tax (109,756) (73,502)

Deferred tax (Note 9) (2,386) 608

(112,142) (72,894)

71



72



24 Taxation (continued)

(a) Enterprise income tax (“EIT”) (continued)

The difference between the actual income tax charge in the income statements and the

amounts which result from applying the enacted tax rate to profit before income tax can be

reconciled as follows:


2008 2007

RMB’000 RMB’000

Profit before tax 626,633 482,946

Tax calculated at a tax rate of 18% (2007: 15%) (112,794) (72,442)

Expense not deductible for tax purposes (453) (1,180)

Income not subject to tax 1,105 728

Tax charge (112,142) (72,894)

(b) Value-added tax (“VAT”)

Output VAT is levied at a general rate of 17% on the selling price of goods. Input VAT paid on

purchase of goods can be used to offset the output VAT to determine the net VAT payable.

(c) Consumption Tax (“CT”)

The Group’s automobile sale is subject to CT at 5% on the selling price of goods.

25 Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the

Company by the weighted average number of ordinary shares in issue during the years.


2008 2007

Profit attributable to equity holders of the Company

(RMB ‘000) 508,937 401,405

Weighted average number of ordinary shares in issue

(thousands) 863,214 863,214

Basic earnings per share (RMB per share) 0.59 0.47

Diluted earnings per share equals to basic earnings per share as there were no dilutive

potential ordinary shares outstanding during the six months ended 30 June 2008 and 2007.

73



26 Dividends

A final dividend for 2007 of RMB 3 per ten shares, amounting to a total dividend of RMB

258,964,200 has been approved at the Shareholders’ Meeting on 26 June 2008.

27 Cash generated from operations


2008 2007

RMB’000 RMB’000

Profit before tax 626,633 482,946

Depreciation (Note 5) 110,806 120,042

Amortisation of lease prepayment (Note 6) 2,048 1,738

Amortisation of intangible assets (Note 7) 3,936 3,215

Impairment charge of PPE (Note 5) - 4

Impairment for/(reversal of) receivables and other

receivables (Note 21) (186) 318

Impairment for/(reversal of)write-down of inventory

(Note 21) 315 (297)

(Gain)/loss on disposals of PPE (71) 1,760

Interest expense (Notes 23) 1,420 2,977

Interest income (Notes 23) (25,942) (19,974)

Net foreign exchange transaction gain (2,094) (1,490)

Share of profit of associates (Note 8) (3,494) (3,155)

Income from held-to-maturity investment (539) (801)

Changes in working capital (excluding the effects of

acquisition and exchange difference on

consolidation):

- Increase in inventories (214,890) (156,001)

- Increase in trade and other receivables (166,061) (14,232)

- Increase/(decrease) in warranty provisions 2,833 (605)

- Decrease in deferred income (2,643) (1,698)

- Increase in trade and other payables 39,937 152,148

- Decrease in pensions and other retirement benefits (7,932) (7,964)

Cash generated from operations 364,076 558,931

In the cash flow statement, proceeds from disposal of property, plant and equipment comprise:


74



2008 2007

RMB’000 RMB’000

Net book amount 1,093 2,389

Gain (loss) on disposal of property, plant and equipment 71 (1,760)

Proceeds from disposal of property, plant and equipment 1,164 629

75



28 Contingencies

At 30 June 2008, the Group did not have any significant contingent liabilities.

29 Commitments

(a) Capital commitments

Capital expenditure contracted for at the balance sheet date but not recognised in the

financial statements, comprises purchases of buildings, plant and machinery and additional

investments in associates, are as follows:


2007

RMB’000 RMB’000Contracted but not provided for:

Purchases of buildings, plant and machinery 266,740 198,900

(b) Royalty fee payable to a shareholder

Pursuant to a joint development agreement entered into with Ford on 21 August 1995, and an

amendment on 29 September 2000, Ford agreed to provide technical assistance to the

Company for the production of automobiles. In return, the Company agreed to pay Ford the

royalty fee with a total amount of USD40,000,000, and it is calculated based on 1.8% of sale

value of Transit series automobiles. As at 30 June 2008, the Company has paid

approximately USD35,986,000. The outstanding amount approximately USD4,014,000 will be

paid in future but not recognised in the financial statement.

30 Related party transactions

Related parties are those parties that have the ability to control the other party or exercise

significant influence in making financial and operating decisions. Parties are also considered

to be related if they are subject to common control.

76



Jiangling Holdings Limited (“Jiangling Holdings”), which owns 41.03% of the Company’s

shares, and Ford, which owns 30% of the Company’s shares, are major shareholders of the

Company as at 30 June 2008. In addition, Chongqing Changan Automobile Corporation Ltd.

(“Changan Auto”) and JMCG hold 50% equity interest of Jiangling Holdings, respectively.

The following is a summary of the significant transactions carried out between the Group, its

associates, JMCG and its subsidiaries, Ford, Isuzu-Motors Corporation of Japan (“Isuzu”) and

their subsidiaries in the ordinary course of business during the six months ended 30 June

2008:

77



30 Related party transactions (continued)

i) Purchases of goods, provision of services

Purchase of goods: Six months ended 30 June

2008 2007

RMB’000 RMB’000

JMCG 75,972 159,783

Ford 177,319 62,295

JMCG Interior Trim Factory 123,894 119,641

Jiangxi Specialty Vehicles Jiangling Motors Group

Co., Ltd. 39,891 42,878

Jiangxi JMCG Industrial Co. 62,173 18,692

Jiangling Material Co. 18,764 12,381

Visteon Climate Control (Nanchang) Co.,Ltd 59,623 61,250

Jiangxi Jiangling Chassis Company 152,451 136,755

Jiangling-Lear Interior Trim Factory 85,000 77,267

Jiangling Metal Casting Co. 7,483 8,943

Nanchang Gear Co., Ltd. 3,013 3,801

Nanchang Jiangling Hua Xiang Auto Components

Co. 37,452 70

Jiangling Auto Component Co. 4,167 2,881

Ford Trading Company 46,950 -

JMCG Industrial Co. Shangrao Motor parts Plant 2,359 2,532

GETRAG (Jiangxi) Transmission Company 117,422 113,495

Ford Otosan Company 3,552 447

Nanchang JMCG Liancheng Auto Component Co. 30,969 11,933

JMCG Hequn Costume Co., Ltd. 2,005 554

Getrag Ford Transmissions Gmbh 3,839 -

Nanchang Bao-jiang Steel Processing Distribution

Co., Ltd. 126,929 -

Others 1,385 1,232

1,182,612 836,830

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i) Purchases of goods, provision of services (continued)

Provision of services and others: Six months ended 30 June

2008 2007

RMB’000 RMB’000

JMCG Import & Export Co., Ltd.

- commission expenses 1,072 2,970

JMCG Construction & Development Co.

- services 974 6,701

JMCG

- services (a) 990 1,195

- rental expense 1,550 1,283

- other 112 108

Getrag Ford Transmissions Gmbh

- services - 1,512

Ford

- services 10,065 7,297

JMCG Jiangxi Engineering Construction Co., Ltd.

- services 8,127 23,962


- services 9,000 -

Jiangxi JMCG Industrial Co.

- services 3,640 339

Others 1,224 2,100

36,754 47,467

(a) JMCG bears the middle school and primary school educational fees of existing employees

and certain retired employees' expenses of the Group, and provides services such as

cable television. The related costs were borne by the Group according to agreed

percentages as determined by headcount ratio of the Group and JMCG.

Purchases of property, plant and equipment : Six months ended 30 June

2008 2007

RMB’000 RMB’000


Co., Ltd.

- 616

Jiangling Overseas Motors Sales&Service Co., Ltd. 240 -

240 616

79



80




ii) Sales of goods and provision of services

Sales of goods: Six months ended 30 June

2008 2007

RMB’000 RMB’000

JMCG Import & Export Co., Ltd. 372,815 260,293



Co., Ltd. 61,317 41,505

JMCG Property Co. 3,062 2,839



Nanchang Gear Co., Ltd. - 6,083


Co. - 2,968

Land Wind Sales Company 1,137 1,085

Jiangxi Jiangling Material Utilization Co., Ltd. 22,409 15,439

Jiangling Holdings 31,474 81,729



Others 2,495 883

586,759 565,809


Rental income: 2008 2007

RMB’000 RMB’000

Jiangling Material Co. 132 -

Others 11 -

143 -

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iii) Balances arising from sales/purchases of goods/services

Receivables from related parties:


2007

RMB’000 RMB’000

Jiangxi JMCG Industrial Co. 540 13,551



Co., Ltd. 30,461 5,000

Jiangling Holdings 3,996 24,041

Jiangxi Jiangling Material Utilization Co., Ltd. 5,243 3,148

Nanchang JMCG Liancheng Auto Component Co. 6,323 164

Nanchang Bao-jiang Steel Processing Distribution

Co., Ltd. 148,407 -

Others 1,729 791

299,786 65,747

Prepayment for construction in progress:


2007

RMB’000 RMB’000

JMCG Import & Export Co., Ltd. 1,217 595

JMCG Jiangxi Engineering Construction Co., Ltd. 2,834 3,006

Others - 475

4,051 4,076

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iii) Balances arising from sales/purchases of goods/services (continued)

Payables to related parties:


2007

RMB’000 RMB’000


Ford 114,687 163,801

JMCG 34,288 59,584



Co., Ltd. 34,816 33,039

Visteon Climate Control (Nanchang) Co.,Ltd 47,140 35,037



Jiangling-Lear Interior Trim Factory 63,589 58,387

Nanchang Gear Co., Ltd. 1,965 1,525


Co. 22,281 572

Jiangling Metal Casting Co. 3,329 3,810

JMCG Industrial Co. Shangrao Motor parts Plant 854 1,400


Jiangling Material Co. 838 1,024

Jiangling Auto Component Co. 2,439 2,405


JMCG Jiangxi Engineering Construction Co., Ltd. 1,528 6,317

Ford Motor (China) Co., Ltd. 1,259 2,602

Ford Otosan Company 1,332 2,320

Getrag Ford Transmissions Gmbh 2,286 2,286

Others 1,648 2,339

593,941 572,594

83




iii) Balances arising from sales/purchases of goods/services (continued)

Cash deposit in related parties:


2007

RMB’000 RMB’000

JMCF(Note 13) 79,298 85,770

iv) Service fee paid to Ford, Ford Otosan Company and Jiangling Holdings for

management staff

Pursuant to an agreement between the Company and Ford in March 2005, some employees

of Ford were assigned to the Company as management staff. During the six months ended 30

June 2008, the Company paid approximately USD1,893,000 and RMB583,000 to Ford as

service fee for these employees.

Pursuant to an agreement between the Company, Ford and Ford Otosan Company in

December 2006, some employees of Ford Otosan Company were assigned to the Company

as management staff. During the six months ended 30 June 2008, the Company paid

approximately USD507,000 to Ford Otosan Company as service fee for these employees.

Pursuant to an agreement between the Company and Jiangling Holdings in January 2008,

some employees of Jiangling Holdings were assigned to the Company as management staff.

During the six months ended 30 June 2008, the Company paid approximately RMB314,000 to

Jiangling Holdings as service fee for these employees.

v) Guarantee

As at 30 June 2008, bank loans of USD1,276,941 (equivalent to approximately

RMB8,759,000) (2007:USD1,309,683, equivalent to approximately RMB9,566,000) were

guaranteed by JMCF (Note 16).

vi) Key management remuneration

During the six months ended 30 June 2008, the total remuneration of the key management

was about RMB4,309,000.

vii) Royalty fee

As mentioned in Note 29 (b), pursuant to the joint development agreement, the Company

commit royalty fee to Ford with a total amount of USD40,000,000. As at 30 June 2008, the

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Company has paid approximately USD35,986,000. The outstanding amount approximately

USD4,014,000 will be paid in future.

Pursuant to a development agreement between the Company and Ford. The Company

commit royalty fee to Ford with the amount of 2.6% of V348 series automobiles net sale.

During the six months ended 30 June 2008, the total amount of the royalty fee was

approximately USD1,085,000 (equivalent to approximately RMB7,522,000) which has not

been paid.

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viii) Transaction with other state-owned entities

The Group’s largest shareholder is Jiangling Holdings, which was established by state-

owned enterprises, Changan Auto and JMCG, with the equity interests of 50% and 50%,

respectively. Jiangling Holdings is owned by Changan Auto, and the Group is thereby

considered to be indirectly controlled by the PRC Government, which controls a substantial

number of entities in the PRC. In accordance with IAS 24 “Related Party Disclosure”, state-

owned enterprises and their subsidiaries, other than Changan Auto and its subsidiaries as

well as JMCG and its subsidiaries, directly or indirectly controlled by the PRC Government

are also deemed as related parties of the Group (“other state-owned entities”). For purpose

of related party transactions disclosure, the Group has in place procedures to assist the

identification of the immediate ownership structure of its customers and suppliers as to

whether they are state-owned entities. Many state-owned entities have multi-layered

corporate structure and the ownership structures change overtime. Nevertheless the

Management believes that meaningful information relating to such kind of related parties

transactions has been adequately disclosed.

Transactions with other state-owned entities:


2008 2007

RMB’000 RMB’000

Purchase of goods 499,825 632,097

Purchase of fixed assets 23,189 30,337

Purchase of services 11,325 13,999

Sales of goods 466 2,547

Interest income 16,815 13,947

Interest expense 1,240 2,744

Borrowings 39,107 40,429

Repayment of borrowings 39,336 90,299

Balances with other state-owned entities:


2007

RMB’000 RMB’000

Cash and cash equivalents 1,975,232 2,021,142

Borrowings 47,477 49,176

Trade and other receivables 34,663 37,974

Trade and other payables 201,061 184,484

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87



31 Principal subsidiary

As of the date of this report, the Group has the following subsidiary:

Entity

Place and date of

incorporation

Percentage of equity

interest held Principal activities

Jiangling Isuzu Nanchang, PRC /

10 March 1993

75% Manufacture and sale of

automobiles and spare

parts

Impact of IFRS adjustments on the consolidated profit after tax and shareholders’

equity

Net assets as at

30 June 2008

Net profit for

the six months ended

30 June 2008

RMB’000 RMB’000

As reported in the accounts of the Group

under PRC accounting principles 3,893,463 537,138

1. Deferred income (53,281) (21,490)

2. Staff bonus and welfare fund appropriated

from net profit of a subsidiary (1,157) (1,157)

As restated in conformity with IFRS 3,839,025 514,491

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Section VII Catalog on Documents for reference

I. Originals of 2008 half-year report signed by Chairman;I. Originals of 2008 half-year financial statements signed by Chairman, Chief Financial

Officer and Chief of Finance Department;II. Originals of all the documents and public announcements disclosed in newspapers

designated by CSRC during the reporting period.III. The Half-year Report in China GAAP.

Board of DirectorsJiangling Motors Corporation, Ltd.August 18, 2008

67

Jiangling Motors Corporation, Ltd.2008 Half-year Report

Documents

Transcript of Jiangling Motors Corporation, Ltd.2008 Half-year Report