Major Shareholder:

• AVIC II ¡V 62.18% interest

Company Subsidiaries:

• Beijing Wisewell (51.0%): Aviation avionics system integration and avionics
• Hafei Industry Company (100%): Automobile, aviation and machinery
• Dongan Motor (70.01%): Production of vehicle engines
• Changha Industry Company (100%): Automobile, aviation and machinery
• Hongdu Industry Company (100%): Aviation

The Group is engaged principally in the research, development, manufacture and sale of vehicles and civilian aircraft. In 2002, the Group was the largest mini-sized vehicle manufacturer and the fourth largest vehicle manufacturer in terms of sales volume in te PRC, the Group is the only helicopter manufacturer capable of scale production and one of the leading airplane manufactures in the PRC. The Group carries out operations primarily through the subsidiaries and associates.

The Group develops, manufacture and sell mini-sized vehicles using own brands including Songhuajiang and Changhe and economy sedans using annual production capacity of 360,000 vehicle. The Group produces vehicle engines, which are primarily used in the mini-sized vehicles and economy sedans. The vehicle and vehicle engine production facilities are located in Heilongjiang, Jiangxi and Anhui provinces.

The Group contained a extensive sales and service network throughout 30 provinces, autonomous regions and municipalities in the PRC. The Group distributes the vehicles through four direct sales centres and approximately 790 distributors. The Group provides after sale and repair services for the customers through 37 after sale services and parts supply centres and approximately 1180 designated service stations.

The major aviation products include the Z-8, Z-9 and Z-11 series of helicopters, having maximum take off weights of 13 tonnes, 4.15 tonnes and 2.2 tonnes, respectively K-8 series basic jet trainers and CJ-6 primary trainers; Y-12 series multi-purpose aeroplanes and the N-5 series agricultural aeroplane. The Group is also engaged in the manufacture, assembly and sub-contracting of aviation parts and components, the development and production of unmanned aerial vehicles and avionics and the provision of a full range of after sales services.

The Directors believe that the Group has the following competitive advantages:

• The Group was in 2002, the largest mini-sized vehicle manufacture in the PRC in terms of sales volume.
• The Group has a well established and exte4nsive sales and after sale service network
• The Group has a well-established reputation and has developed recognized brands.
• The Group is the only helicopter manufacturer in the PRC capable of scale production
• The Group is one of the leading manufacturer of aeroplanes in the PRC
• The Group will benefit from the rapid growth in air transpiration in the PRC through the leading position.

• The interest of the controlling shareholder, AVICC II, may differ from those of the other shareholder.
• The operations are reliant on AVICC II to a certain extent
• The interest of other shareholders of the A Shares subsidiaries in the PRC may differ from those of the Company and the company's shareholders
• The Group cannot assure the operations and businesses will be integrated in accordance with the plans
• Insufficient demand in the market could result in a failure to recover the initial capital investment required for the research, development and production of the vehicle and aviation products.
• The insurance the Group maintained may not be sufficient to cover all potential claims against us.

The Group intend to implement the following measures to improve profit margin of the Group;

• The Group plans to standards gradually the design parameters of the parts and components for vehicle4s, thus allowing the parts and components to be used among various types of the vehicles. With standardized parts and components, the Group can market bulk purchases of the parts and components and therefore reduce purchasing costs. The Group also plans to increase further the domestic content of the vehicle products.;
• The Group plant to integrate further the national sales and after sale services network. The Group aim to increase the market share in the vehicle market and therefore improve the profit margin through economies of scale;
• The Group plan to control the employee level strictly, the Group aim to reduce the staff level through natural attrition and other methods in the next two to three years to reduce employee costs; and
• Together with CATIC, the Group plan to strengthen the contact with overseas customers to market the aviation products. The Group also plans to further the discussion with the PRC Government to develop and expand the domestic aviation market and obtain more sales orders.

The net proceeds from the Placing, after deducting the related expenses, are estimated to amount to approximately HK$1496 million (based on the offer price HK$1.08 per share). The Group at present intends to apply the net proceeds as follows: