INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED

IMPORTANT: If you are in any doubt about any of the contents of this prospectus, you should obtainindependent professional advice.

INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

GLOBAL OFFERING

Number of Offer Shares under the Global Offering: 35,391,000,000 H shares (subject to adjustment and over-allotment option)

Number of Hong Kong Offer Shares: 1,769,550,000 H shares (subject to adjustment)Number of International Offer Shares: 33,621,450,000 H shares (subject to adjustment and over-

allotment option)Maximum offer price: HK$3.07 per H share (payable in full on application, plus

brokerage of 1%, SFC transaction levy of 0.005% andHong Kong Stock Exchange trading fee of 0.005% andsubject to refund)

Nominal value: RMB1.00 eachStock code: 1398

Joint Global Coordinators

China International CapitalCorporation Limited

ICEA Capital Limited Merrill Lynch & Co.

Joint Bookrunners

Merrill Lynch & Co. China InternationalCapital Corporation

Limited

Credit Suisse(Hong Kong) Limited

Deutsche Bank AG,Hong Kong Branch

ICEA CapitalLimited

Joint Sponsors

China International CapitalCorporation (Hong Kong) Limited

ICEA Capital Limited Merrill Lynch Far East Limited

The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited (“HKSCC”) take no responsibility for thecontents of this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any losshowsoever arising from or in reliance upon the whole or any part of the contents of this prospectus.

A copy of this prospectus, having attached thereto the documents specified in “Appendix X—Documents Delivered to the Registrar of Companiesand Available for Inspection,” has been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Hong KongCompanies Ordinance (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission and the Registrar of Companies in HongKong take no responsibility for the contents of this prospectus or any other document referred to above.

The offer price is expected to be fixed by agreement between the Joint Bookrunners (on behalf of the underwriters) and us (for ourselves and onbehalf of the Selling Shareholders) on the price determination date which is expected to be on or before October 20, 2006 and, in any event, not laterthan October 25, 2006. The offer price will be not more than HK$3.07 and is currently expected to be not less than HK$2.56.

The underwriters may, with our consent, reduce the number of Hong Kong Offer Shares and/or the indicative offer price range below that stated inthis prospectus at any time prior to the morning of the last day for lodging applications under the Hong Kong Public Offering. Further details are setforth in the sections headed “Structure of the Global Offering” and “How to Apply for Hong Kong Offer Shares.”

We are incorporated, and substantially all of our businesses are located, in China. Potential investors should be aware of the differences in the legal,economic, and financial systems between China and Hong Kong, and that there are different risk factors relating to investment in companiesincorporated in China. Potential investors should also be aware that the regulatory framework in China is different from the regulatory framework inHong Kong, and should take into consideration the different market nature of our H shares. Such differences and risk factors are set forth in thesections headed “Risk Factors” and “Appendix VII—Summary of Principal Legal and Regulatory Provisions” and “Appendix VIII—Summary ofArticles of Association.”

October 16, 2006

Global Reports LLC

EXPECTED TIMETABLE(1)

Latest time to lodge white and yellow application forms . . . . . . . . . 12:00 noon on Thursday, October 19, 2006

Latest time to complete electronic applications under the WhiteForm eIPO service through the designated websitewww.eipo.com.hk(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Thursday, October 19, 2006

Latest time to give electronic application instructions toHKSCC(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Thursday, October 19, 2006

Application lists open(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11:45 a.m. on Thursday, October 19, 2006

Application lists close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Thursday, October 19, 2006

Expected price determination date . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, October 20, 2006

Announcement of the offer price for H shares under the GlobalOffering and the offer price for A shares under the A ShareOffering expected to be published in South China Morning Post(in English) and Hong Kong Economic Times (in Chinese) . . . . . Monday, October 23, 2006

Announcement of

Š the level of applications in the Hong Kong PublicOffering;

Š the level of indications of interest in the InternationalOffering; and

Š the basis of allotment of the Hong Kong Offer Shares

to be published in South China Morning Post (in English) andHong Kong Economic Times (in Chinese) . . . . . . . . . . . . . . . . . . Thursday, October 26, 2006

Results of allocations in the Hong Kong Public Offering (withsuccessful applicants’ identification document numbers, whereappropriate) to be available through a variety of channels (see“How To Apply For Hong Kong Offer Shares—10. Results ofAllocations”) from . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, October 26, 2006

Despatch of H share certificates(5) on or before . . . . . . . . . . . . . . . . . Thursday, October 26, 2006

Despatch of refund cheques on or before . . . . . . . . . . . . . . . . . . . . . . Friday, October 27, 2006

Dealings in H shares on the Hong Kong Stock Exchange expectedto commence on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, October 27, 2006

(1) All times refer to Hong Kong local time.(2) You will not be permitted to submit your application to the eIPO Service Provider through the designated website www.eipo.com.hk

after 11:30 a.m. on the last day for submitting applications. If you have already submitted your application and obtained a paymentreference number from the designated website prior to 11:30 a.m., you will be permitted to continue the application process (bycompleting payment of application monies) until 12:00 noon on the last day for submitting applications, when the application lists close.

(3) Applicants who apply for Hong Kong Offer Shares by giving electronic application instructions to HKSCC should refer to the sectionheaded “How to Apply for Hong Kong Offer Shares—6. Applying by giving electronic application instructions to HKSCC.”

(4) If there is a tropical cyclone warning signal number 8 or above, or a “black” rainstorm warning on Thursday, October 19, 2006, theapplication lists will not open on that day. See “How to Apply for Hong Kong Offer Shares—7. When may applications be made—(e) Effects of bad weather conditions on the opening of the application lists.”

(5) H share certificates will only become valid certificates of title if the Hong Kong Public Offering has become unconditional andneither of the underwriting agreements has been terminated in accordance with its terms, which will be at 8:00 a.m. on Friday,October 27, 2006. Investors who trade H shares on the basis of publicly available allocation details prior to the receipt of sharecertificates or prior to the share certificates becoming valid certificates of title do so entirely at their own risk.

For details of the structure of the Global Offering, including its conditions, see the sectionheaded “Structure of the Global Offering.”

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IMPORTANT NOTICE TO INVESTORS

This prospectus is issued by Industrial and Commercial Bank of China Limited solely inconnection with the Hong Kong Public Offering and the Hong Kong Offer Shares and does notconstitute an offer to sell or a solicitation of an offer to buy any security other than the HongKong Offer Shares offered by this prospectus pursuant to the Hong Kong Public Offering. Thisprospectus may not be used for the purpose of, and does not constitute, an offer or invitation inany other jurisdiction or in any other circumstances. No action has been taken to permit apublic offering of the Offer Shares in any jurisdiction other than Hong Kong and Japan and noaction has been taken to permit the distribution of this prospectus in any jurisdiction other thanHong Kong. The distribution of this prospectus and the offering and sale of the Offer Shares inother jurisdictions are subject to restrictions and may not be made except as permitted underthe applicable securities laws of such jurisdictions pursuant to registration with orauthorization by the relevant securities regulatory authorities or an exemption therefrom.

You should rely only on the information contained in this prospectus and the applicationforms to make your investment decision. We have not authorized anyone to provide you withinformation that is different from what is contained in this prospectus. Any information orrepresentation not made in this prospectus must not be relied on by you as having beenauthorized by us, the Selling Shareholders, the Joint Global Coordinators, the Joint Bookrunners,the Joint Sponsors, the underwriters, the financial advisor, any of their respective directors orany other person or party involved in the Global Offering.

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Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Definitions and Conventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Information about this Prospectus and the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Parties Involved in the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Banking Industry in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Regulation and Supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Our Restructuring and Operational Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Our Strategic Investors and Other Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102Our Competitive Strengths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103Our Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107Our Principal Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111Product Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123Distribution Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

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Information Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130Legal and Regulatory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

Relationship with Our Promoters and Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . 156

Directors, Supervisors and Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195Liabilities and Sources of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235

Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239Financial Impact of Our Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239General Factors Affecting Our Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240Interim Results of Operations for the Six Months Ended June 30, 2006 and 2005 . . . . . . . . 241Results of Operations for the Years Ended December 31, 2005, 2004 and 2003 . . . . . . . . . . 260Summary Segment Operating Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286Off-balance Sheet Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288Tabular Disclosure of Contractual Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288Quantitative and Qualitative Analysis of Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291Critical Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291Recent Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297Rules 13.11 to 13.19 of the Hong Kong Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298Profit Forecast for the Year Ending December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298Unaudited Pro Forma Adjusted Consolidated Net Tangible Assets . . . . . . . . . . . . . . . . . . . . 301No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302

Future Plans and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303

Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304

Structure of the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311

A Share Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317

How to Apply for Hong Kong Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320

Further Terms and Conditions of the Hong Kong Public Offering . . . . . . . . . . . . . . . . . . . . . 334

Appendix I—Accountants’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix I-1

Appendix II—Unaudited Supplementary Financial Information . . . . . . . . . . . . . . . . . . . . . . Appendix II-1

Appendix III—Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . Appendix III-1

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Appendix IV—Profit Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix IV-1

Appendix V—Property Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix V-1

Appendix VI—Taxation and Foreign Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix VI-1

Appendix VII—Summary of Principal Legal and Regulatory Provisions . . . . . . . . . . . . . . Appendix VII-1

Appendix VIII—Summary of Articles of Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix VIII-1

Appendix IX—Statutory and General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix IX-1

Appendix X—Documents Delivered to the Registrar of Companies and Available forInspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix X-1

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SUMMARY

This summary aims to give you an overview of the information contained in thisprospectus. As this is a summary, it does not contain all the information that may be important toyou. You should read this prospectus in its entirety before you decide to invest in our shares.

There are risks associated with any investment. Some of the particular risks in investing inour shares are set out in the section headed “Risk Factors.” You should read that sectioncarefully before you decide to invest in our shares.

The market share and industry data in this prospectus were derived from data prepared inaccordance with PRC GAAP or other applicable local GAAP, which may differ from IFRS incertain significant respects.

OVERVIEW

We are the largest commercial bank in China in terms of total assets, loans and deposits. AtDecember 31, 2005, we had RMB6,456.1 billion (US$816.8 billion) in total assets, RMB3,289.6billion (US$416.2 billion) in total loans, RMB5,736.9 billion (US$725.8 billion) in total deposits, andour total operating income in 2005 was RMB171.6 billion (US$21.7 billion). Our assets, loans anddeposits represented 16.8%, 15.4% and 19.4% of the total assets, total loans and total deposits,respectively, of all banking institutions in China, and 31.4%, 30.4% and 32.6% of the total assets, totalloans and total deposits, respectively, of the Big Four commercial banks at December 31, 2005, basedon PRC GAAP statistical data published by the PBOC.

We primarily operate in China and provide an extensive range of commercial banking productsand services. According to the PBOC, we were:

Š the largest corporate bank in China in terms of outstanding corporate loans, discountedbills and corporate deposits at December 31, 2005;

Š the largest personal bank in China in terms of outstanding personal loans and personaldeposits at December 31, 2005; and

Š the leading service provider in credit card, quasi-credit card and debit card businesses inChina in terms of the aggregate transaction volume in 2005.

At June 30, 2006, we had more than 2.5 million corporate customers and more than 150 millionpersonal customers. We serve our customers through our traditional branch network, which, at June 30,2006, comprised 18,038 domestic branches, outlets and other establishments (including our headoffice), and through our electronic banking network, which, at June 30, 2006, comprised a range ofInternet and telephone banking services, 1,610 self-service banking centers and 19,026 ATMs.

We are headquartered in Beijing and, at June 30, 2006, had 98 overseas branches, subsidiaries,representative offices and outlets. We currently maintain branches in Hong Kong, Macau, Singapore,Tokyo, Seoul, Busan, Frankfurt and Luxembourg and representative offices in New York, Moscow andSydney. In addition, we have subsidiaries in Hong Kong, London and Almaty. ICBC (Asia), which iscontrolled by us, was the sixth largest Hong Kong-incorporated bank listed, or controlled by acompany that is listed, on the Hong Kong Stock Exchange in terms of total assets at December 31,2005.

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SUMMARY

We believe that “Industrial and Commercial Bank of China” ( ) is one of the mostrecognized financial services brands in China. We were named “Bank of the Year in 2004 (China)” byThe Banker, “Best Bank Award” for China in 2005 by Global Finance, “Best Bank in China” in 2004by EuroMoney, “Best Domestic Commercial Bank in China” in 2004 and 2005 by Asiamoney, “BestRetail Bank in China” in 2004 and 2005 and “Best Retail Bank (State-owned) in China” in 2006 byThe Asian Banker, “Best Consumer Internet Bank” in China in 2004, 2005 and 2006 by GlobalFinance, “Bank with Best Investment Management Services in Corporate Internet Banking” in AsiaPacific in 2006 by Global Finance, “Best Local Bank in China” in 2003 and 2004 by FinanceAsia,“Best Custodian Bank in China” in 2005 by The Asset, “Best Custodian Bank in China” in 2004 and2005 by Global Custodian, and “Best Sub-Custodian in China” in 2004 by Asiamoney. We receivedthe worldwide “Networking Initiative of the Year” award in 2006 from The Banker, the “Best BankingTechnology Development Award” in 2004 from the PBOC, the First Prize of “China Internet IndustrySurvey Report for Internet Banking” in 2005 from the Internet Society of China, the “Gold Award forCustomer Care and Public Service in China” in 2005 from the Ministry of Information Industry, “TheMost-Used Bank by Consumers in China” in 2003 from AC Nielsen and the title of “Best Finance,Economics and Securities Website in China” in 2005 from Securities Times.

Since 1999, we have implemented a series of reform measures that we believe havesignificantly transformed our business, operations and corporate culture. In particular, we have focusedon developing comprehensive risk management systems and rationalizing our business structure andorganization. Our business focus and structure have evolved to meet our customers’ demand for abroad range of banking products and services. We have focused on expanding our personal bankingoperations, particularly in high-growth fee- and commission-based segments, and we have establishedourselves as a leading electronic banking service provider. Through significant investments ininformation technology, we have established centralized information systems designed to enable us toanalyze the activities of our customer base, target attractive client segments and enhance our riskmanagement and other internal control capabilities. We believe that, as a result of our reforms, ourbusiness structure and processes, corporate governance practices and internal controls are among themost advanced of PRC commercial banks. Our financial restructuring in 2005 has significantlystrengthened our capital base, and we believe that we are currently well-positioned to pursue our nextphase of growth.

OUR COMPETITIVE STRENGTHS

Our principal competitive strengths include:

Š Largest PRC Commercial Bank with a Leading Market Position in Major BusinessSegments. We are the largest PRC commercial bank in terms of total loans and deposits. Inaddition, we have also established leading positions in numerous corporate banking,personal banking and treasury business lines.

Š Large High-Quality Corporate and Personal Banking Customer Base. We believe that wehave the largest corporate banking customer base in China with more than 2.5 millioncorporate banking customers, including approximately 57,710 borrowers at June 30, 2006.We have established banking relationships with many leading business conglomerates andcorporations, including 492 out of the 500 top domestic companies in terms of revenuesand 238 of the Fortune 500 companies at June 30, 2006. We believe that we have thelargest personal banking customer base in China with more than 150 million personalbanking customers. At June 30, 2006, we had more than 50 million customers maintaining

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a financial asset balance in the range of RMB5,000 to RMB50,000 each with us. At thesame date, we had over 16 million customers maintaining a financial asset balance of overRMB50,000 each with us. The average financial asset balance of these customers was overRMB150,000.

Š Extensive Distribution Network and Largest Electronic Banking Service Provider. Wehave a nationwide presence, with 18,038 branches, outlets and other establishments(including head office) in China at June 30, 2006. Our traditional branch network issupported by a large sales force in both corporate and personal banking and supplementedby our convenient electronic banking network.

Š Leading Information Technology Capabilities. We believe that we have the most advancedinformation technology platform among PRC commercial banks. We were the first BigFour commercial bank to complete a bank-wide data consolidation project, which enablescentralized real-time processing of operational data from all of our domestic branchoffices. We received the worldwide “Networking Initiative of the Year” award in June2006 from The Banker, the “Best Banking Technology Development Award” in 2004from the PBOC for our bank-wide data consolidation project, the “Best Consumer InternetBank” in China award in 2004, 2005 and 2006 from Global Finance, the First Prize of“China Internet Industry Survey Report for Internet Banking” in 2005 from the InternetSociety of China, the “Gold Award for Customer Care and Public Service in China” in2005 from the Ministry of Information Industry and the “Bank with Best InvestmentManagement Services in Corporate Internet Banking” in Asia Pacific award in 2006 fromGlobal Finance. Our leading technology infrastructure provides comprehensive support toour operations and facilitates the growth of our revenues.

Š Fast Growing Fee and Commission Income. We have experienced fast growth in our feeand commission income, as a result of our strategic focus on developing our non-interestbased businesses. In 2005, our net fee and commission income was the highest among theBig Four commercial banks. Our net fee and commission income increased fromRMB5,624 million in 2003 to RMB10,546 million in 2005, representing a compoundannual growth rate of 36.9%. As we plan to focus on and expand our leadership in non-interest based businesses, we believe that we will be able to further increase our fee andcommission income.

Š Comprehensive Risk Management and Internal Controls. We have a risk managementframework covering credit, liquidity, market and operational risks. This framework, whichis supported by our advanced risk management information technology, enables us tobetter manage our risks and has contributed to the improvement of our asset quality.

Š Stable and Experienced Management Team. Our senior management team has extensiveindustry and leadership experience in China’s commercial banking industry. Our seniormanagement team has a track record of successfully implementing innovative andindustry-leading business initiatives.

OUR STRATEGY

We aim to strengthen our market leadership in China’s banking industry and focus ontransforming our bank into a world-class financial institution. Our overall goal is to maximizeshareholder value and achieve sustainable growth. We believe we have distinguished ourselves through

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our innovative business approach and market leading initiatives. We led the market in investing incentralized information technology, introducing new products and services, establishingcomprehensive risk management systems and developing electronic banking networks. We intend tocontinue this innovative approach and differentiate ourselves through the following strategies:

Š Diversify Our Revenue and Asset Mix by Expanding into Higher Growth Non-CreditBusinesses. We plan to diversify our revenue sources by continuing to develop ournon-credit businesses. We believe that many fee- and commission-based products andservices will experience strong growth over the next few years as China’s economycontinues to grow, the financial services sector in China further liberalizes and ourcustomers’ banking needs become more sophisticated.

Š Prudently Grow Our Credit Businesses and Actively Enhance Our Credit Portfolio. Weseek to leverage our market leadership in corporate and personal lending to prudentlygrow our credit businesses and improve our risk-adjusted return by actively managing thesector, geographical, customer and product composition of our credit portfolio.

Š Continue to Improve Our Customer Mix and Profitability through Increased CustomerSegmentation, Targeted Marketing and Enhanced Customer Service. We will continue toleverage our extensive customer base and database to identify and retain profitablecustomers in both our corporate banking and personal banking businesses. By betterunderstanding the characteristics, needs and preferences of our customers, we can designnew products, attract more customers and actively cross-sell our financial products andservices.

Š Strategically Expand Our Traditional Branch Network and Enhance Our Sales andMarketing Capabilities through Strengthening Our Electronic Banking Operations. Weintend to fully leverage our advanced information technology platform and customerrelationship management systems. In order to provide our customers with convenientaccess to our products and services, we also intend to expand our electronic bankingoperations and improve the productivity of our traditional branch network throughstreamlining the operations of our branch network. In addition, to take advantage of therapid growth in foreign trade and better serve our multinational clients, we intend tofurther expand our network by establishing additional overseas branches and outlets.

Š Continue to Strengthen Our Risk Management and Internal Control Capabilities. We planto continue to align our risk management and internal control capabilities withinternational best practices.

Š Leverage Our Partnerships with Strategic Investors. We are cooperating with our overseasstrategic investors to improve our corporate governance, strengthen our new productdevelopment capabilities and diversify our product and service offerings.

Š Enhance Employee Performance through Performance-linked Incentive Schemes andContinuous Training and Development. We will continue to develop our human resourcesthrough various initiatives in order to support our business strategies. We believe thatthrough adopting an economic value-added (EVA)-based incentive scheme and enhancingthe training and development of our employees, we can attract, retain, motivate anddevelop a high quality workforce.

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OUR RESTRUCTURING AND INCORPORATION

We were converted from a state-owned commercial bank to a joint-stock limited company onOctober 28, 2005, with the MOF and Huijin as our promoters, and our legal name was changed toIndustrial and Commercial Bank of China Limited. All of the businesses, assets and liabilities ofIndustrial and Commercial Bank of China were assumed by Industrial and Commercial Bank of ChinaLimited upon the conversion.

As part of our financial restructuring in 2005 (i) the MOF retained RMB124.0 billion of ourthen existing capital, (ii) Huijin made a capital contribution of US$15.0 billion to us, (iii) we disposedof certain non-performing assets in an aggregate amount of RMB705.0 billion at book value, (iv) thegovernment contributed certain land use rights to us, and (v) the MOF amended the terms of a specialgovernment bond issued by it to us.

To further accelerate our corporate governance reform and business development, we haveestablished non-exclusive strategic cooperations with The Goldman Sachs Group, Inc., Allianz Groupand American Express Company. In addition, the National Council for Social Security Fund has madean investment in us.

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SUMMARY FINANCIAL INFORMATION

The summary historical consolidated income statement data for the years ended December 31,2003, 2004, 2005, and the six months ended June 30, 2005 and 2006 and the summary historicalconsolidated balance sheet data at December 31, 2003, 2004, 2005, and June 30, 2006 set forth belowhave been derived from the Accountants’ Report issued by Ernst & Young, Certified PublicAccountants, Hong Kong, which has been prepared in accordance with IFRS and is included inAppendix I to this prospectus. You should read the summary historical financial information below inconjunction with Appendix I “Accountants’ Report”.

Summary Historical Consolidated Income Statement DataFor the year ended

December 31,For the six months ended

June 30,

2003 2004 2005 2005 (unaudited) 2006

(in millions of RMB, except per share data)

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189,069 204,889 240,202 112,283 129,038Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66,361) (70,161) (86,599) (40,558) (52,530)

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,708 134,728 153,603 71,725 76,508

Fee and commission income . . . . . . . . . . . . . . . . . . . . . . . 7,059 9,780 12,376 5,502 8,761Fee and commission expense . . . . . . . . . . . . . . . . . . . . . . (1,435) (1,572) (1,830) (635) (895)

Net fee and commission income . . . . . . . . . . . . . . . . . . . 5,624 8,208 10,546 4,867 7,866

Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,452 5,023 7,471 4,500 1,376

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,784 147,959 171,620 81,092 85,750

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62,575) (62,639) (81,585) (33,964) (34,696)

Provisions for impairment losses on—Loans and advances to customers . . . . . . . . . . . . . (34,914) (30,511) (26,589) (11,558) (11,645)—Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,379) (348) (425) (165) (573)

Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,916 54,461 63,021 35,405 38,836

Share of profits and losses of associates . . . . . . . . . . . . . . (32) (50) 5 — 5

Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,884 54,411 63,026 35,405 38,841

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,292) (23,193) (25,007) (9,957) (13,199)

Profit for the year/period . . . . . . . . . . . . . . . . . . . . . . . . 22,592 31,218 38,019 25,448 25,642

Attributable to:Equity holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,472 30,863 37,555 25,161 25,399Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 355 464 287 243

22,592 31,218 38,019 25,448 25,642

Earnings per share attributable to equity holders—Basic and diluted (RMB) . . . . . . . . . . . . . . . . . . . . 0.09 0.12 0.15 0.10 0.10

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Summary Historical Consolidated Balance Sheet DataAt December 31, At June 30,

2003 2004 2005 2006

(in millions of RMB)

AssetsCash and balances with central banks . . . . . . . . . . . . . . . . . . . . . . . 457,816 508,616 553,873 598,269Due from banks and other financial institutions . . . . . . . . . . . . . . . 66,009 69,430 132,162 131,133Reverse repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,239 21,764 89,235 105,542Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,766,055 3,109,191 3,205,861 3,375,342Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,044,730 1,230,416 2,305,689 2,657,819Income tax recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427 — — —Investments in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 117 120 125Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,767 75,579 92,984 88,709Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,381 8,805 — —Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,253 45,406 76,207 97,686

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,556,951 5,069,324 6,456,131 7,054,625

LiabilitiesDue to a central bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,383 28,402 — —Due to banks and other financial institutions . . . . . . . . . . . . . . . . . . 219,009 205,695 232,910 367,218Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,253 26,339 32,301 11,622Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,376 3,680 5,704 6,991Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,706,861 5,176,282 5,736,866 6,119,038Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 2,792 14,641 12,812Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1,418 270Debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3,294 38,076 37,987Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,119 130,885 134,339 169,222

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,096,085 5,577,369 6,196,255 6,725,160

EQUITYIssued share capital/paid-up capital . . . . . . . . . . . . . . . . . . . . . . . . . 160,671 160,669 248,000 286,509Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,151 15,334 2,559 19,681Retained profits/(accumulated losses) . . . . . . . . . . . . . . . . . . . . . . . (718,571) (687,716) 5,280 19,183

Equity attributable to equity holders . . . . . . . . . . . . . . . . . . . . . . . . (540,749) (511,713) 255,839 325,373Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,615 3,668 4,037 4,092

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (539,134) (508,045) 259,876 329,465

Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,556,951 5,069,324 6,456,131 7,054,625

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Selected Financial Ratios

For the year endedDecember 31,

For thesix months ended

June 30,

2003 2004 20052005

(unaudited) 2006

(in percentages)

Profitability indicatorsReturn on total assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.50% 0.62% 0.59% 0.83%(13) 0.73%(13)

Return on average total assets(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 0.65 0.66 0.91(13) 0.76(13)

Return on equity(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 14.68 21.86(13) 15.61(13)

Net interest spread(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.59 2.54 2.58 2.56(13) 2.30(13)

Net interest margin(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.59 2.55 2.61 2.56(13) 2.35(13)

Non-interest income to operating income(6) . . . . . . . . . . . . . . . . . . . . . 7.59 8.94 10.50 11.55 10.78Operating expenses to operating income(7) . . . . . . . . . . . . . . . . . . . . . 47.1 42.3 47.5 41.9 40.5Operating expenses to operating income (excluding business tax and

surcharges and interest income and expenses in relation to aspecial government bond)(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.8 34.0 40.1 34.0 34.2

At December 31,At

June 30,

2003 2004 2005 2006

(in percentages)

Capital adequacy indicatorsCore capital adequacy ratio(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 8.11 8.97Capital adequacy ratio(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 9.89 10.74Total equity to total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 4.03 4.67

Assets quality indicatorsNon-performing loan ratio(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.24 21.16 4.69 4.10Allowance to non-performing loans(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77.15 76.28 54.20 60.37Allowance to total loans(12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.70 16.14 2.54 2.48

(1) Represents the profit for the period (including profit attributable to minority interests) as a percentage of the period end balance of totalassets.

(2) Represents the profit for the period (including profit attributable to minority interests) as a percentage of the average balance of totalassets at the beginning and end of the period.

(3) Represents the profit attributable to equity holders as a percentage of the period end balance of total equity excluding minority interests.(4) Calculated as the difference between the average yield on average interest-earning assets and the average cost on average interest-bearing

liabilities.(5) Calculated by dividing net interest income by average interest-earning assets.(6) Calculated by dividing (i) net fee and commission income and other operating income, by (ii) operating income.(7) Calculated by dividing total operating expenses by operating income.(8) Calculated by dividing (i) total operating expenses minus business tax and surcharges and expenses in relation to the special government

bond, by (ii) operating income, which, for the years ended December 31, 2003, 2004 and 2005 and the six months ended June 30, 2005,is subtracted by interest income in relation to the special government bond (other than interest income accrued after December 1, 2005 inthe case of the year ended December 31, 2005).

(9) The ratios at December 31, 2005 are prepared in accordance with the statutory financial statements and do not reflect the impact ofCaikuai (2005) No. 14 “Provisional Guidelines on Recognition and Measurement of Financial Instruments” issued by the MOF. Theratios as at June 30, 2006 are prepared in accordance with the PRC GAAP. We had a capital deficit for each of 2003 and 2004.

(10) Calculated by dividing non-performing loans and advances to customers by total loans and advances to customers.(11) Calculated by dividing the allowance for impairment losses on total loans and advances by total non-performing loans and advances to

customers.(12) Calculated by dividing the allowance for impairment losses on total loans and advances by total loans and advances to customers.(13) Calculated by using annualized average rates.

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PROFIT FORECAST

All statistics set forth in the table below do not give effect to the A Share Offering and arebased on the assumption that (i) the Global Offering is completed and (ii) the over-allotment option forthe Global Offering is not exercised.

Forecast consolidated profit attributable to equity holders(1) . . . . . . . . . . . . . . . . . not less than RMB47,200 millionForecast earnings per share

(a) pro forma basis(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RMB0.16 (HK$0.16)(b) weighted average basis(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RMB0.17 (HK$0.17)

(1) The bases and assumptions on which the profit forecast has been prepared are set out in Appendix IV to this prospectus.(2) The calculation of the forecast earnings per share on a pro forma basis is based on the forecast consolidated profit attributable to equity

holders for the year ending December 31, 2006, and a weighted average of 300,044,723,024 shares assumed to be issued and outstandingduring the year ending December 31, 2006. The weighted average of 300,044,723,024 shares is calculated based on the 248,000,000,000shares issued and outstanding as of December 31, 2005, the 24,184,737,403 shares issued in aggregate on April 28, 2006 uponcompletion of the investment by Goldman Sachs, Allianz and American Express, the 14,324,392,623 shares issued on June 29, 2006upon completion of the investment by the SSF and the 28,312,800,000 H shares to be issued pursuant to the Global Offering assumingthat the Global Offering had been completed on January 1, 2006. The forecast consolidated profit attributable to equity holders for theyear ending December 31, 2006 is based on the audited consolidated results for the six months ended June 30, 2006 and a forecast of theconsolidated results for the six months ending December 31, 2006. Had effect been given to the A Share Offering in this calculation, theforecast earnings per share on a pro forma basis would have been RMB0.15 (HK$0.15), based on the assumption that the 13,000,000,000A shares newly issued in the A Share Offering had been issued on January 1, 2006 (assuming the over-allotment option for the A ShareOffering is not exercised).

(3) The calculation of the forecast earnings per share on a weighted average basis is based on the forecast consolidated profit attributable toequity holders for the year ending December 31, 2006 and a weighted average of 276,851,497,819 shares issued and outstanding duringthe year. This calculation assumes that the 28,312,800,000 H shares newly issued in the Global Offering were issued on October 27,2006. Had effect been given to the A Share Offering in this calculation, the forecast earnings per share on a weighted average basiswould have been RMB0.17 (HK$0.17), based on the assumption that the 13,000,000,000 A shares newly issued in the A Share Offeringwere issued on October 24, 2006 (assuming the over-allotment option for the A Share Offering is not exercised).

GLOBAL OFFERING

The global offering, or Global Offering, consists of:

Š the offer by us of initially 1,769,550,000 H shares, or Hong Kong Offer Shares, forsubscription by the public in Hong Kong, referred to in this prospectus as the Hong KongPublic Offering; and

Š the offer by us and the Selling Shareholders of initially 33,621,450,000 H shares, orInternational Offer Shares, in the international offering, referred to in this prospectus asthe International Offering, consisting of the offering of our H shares (a) in the UnitedStates to qualified institutional buyers in reliance on Rule 144A under the U.S. SecuritiesAct of 1933, as amended, or the Securities Act, and (b) outside the United States inreliance on Regulation S under the Securities Act. The International Offering includes apublic offering without listing in Japan. At any time from the date we sign theinternational purchase agreement until 30 days after the last day for the lodging ofapplications in the Hong Kong Public Offering, the Joint Bookrunners, as representativesof the International Offering underwriters, have an option to require our company to allotand issue and the Selling Shareholders to sell up to an aggregate of 5,308,650,000additional H shares, representing 15% of the initial size of the Global Offering, at the offerprice, solely to cover over-allotments in the International Offering.

The Selling Shareholders are initially offering a total of 7,078,200,000 H shares,representing 20% of the total shares in the Global Offering (prior to any exercise of theover-allotment option) for sale in the International Offering. The Selling Shareholders maysell an additional 1,061,730,000 H shares if the over-allotment option is exercised in full.

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The number of Hong Kong Offer Shares and International Offer Shares, or together, OfferShares, is subject to adjustment and reallocation as described in “Structure of the Global Offering.”

A SHARE OFFERING

Concurrently with the Global Offering, we are undertaking a public offering of our A shares inthe PRC, which offering is referred to in this prospectus as our A Share Offering. Our A ShareOffering comprises an offering of initially 13,000,000,000 A shares (or 14,950,000,000 A shares if theover-allotment option for the A Share Offering is exercised in full) for subscription. Assuming an offerprice of RMB2.86 per A share, being the mid-point of the price range of the A Share Offering, weestimate that the net proceeds to us from the A Share Offering will be approximately RMB36.3 billion(HK$35.8 billion) if the over-allotment option is not exercised, or RMB41.8 billion (HK$41.1 billion)if the over-allotment option is exercised in full. Neither our Global Offering nor our A Share Offeringis conditional upon the other. See “A Share Offering.”

OUR SHAREHOLDING AND GROUP STRUCTURE

The following chart sets forth our shareholding and group structure upon the completion of theGlobal Offering and the A Share Offering, assuming that neither of the over-allotment options for theGlobal Offering and the A Share Offering is exercised(1):

Industrial and Commercial Bank of China Limited

Major domesticcontrolledentities(3)

Overseascontrolledentities(4)

Domestic branches (2)

Overseas whollyowned

subsidiarybanks

Overseas representativeoffices(7)Overseas branches(6)

(5)

MOF Huijin Goldman SachsSSF Allianz American Express

36.24% 36.24% 5.39% 5.03% 1.96% 0.39% 10.80%

Other publicH share shareholders

3.97%

Other publicA share shareholders

(1) For information regarding our shareholding and group structure immediately following the completion of the Global Offering, withoutgiving effect to the A Share Offering, see “Substantial Shareholders” and “Share Capital.”

(2) Includes our head office, 35 tier-1 branches, 412 tier-2 branches, 17,506 sub-branches and outlets and 84 other establishments at June 30,2006.

(3) Includes ICBC Credit Suisse Asset Management Co., Ltd.(4) Includes Industrial and Commercial Bank of China (Asia) Limited and ICEA Finance Holdings Limited.(5) Includes Industrial and Commercial International Capital Limited, ICBC (London) Limited and Industrial and Commercial Bank of

China (Almaty) Joint Stock Company.(6) Includes Singapore, Hong Kong, Macau, Tokyo, Seoul, Busan, Frankfurt and Luxembourg branches.(7) Includes New York, Moscow and Sydney representative offices.

OFFER STATISTICS

Based on the 77,245,975,188 H shares expected to be issued and outstanding following thecompletion of the Global Offering (assuming that the over-allotment option for the Global Offering isnot exercised), the market capitalization of our H shares would be HK$197,749,696,481, based on anoffer price of HK$2.56 per H share, or HK$237,145,143,827, based on an offer price of HK$3.07 perH share.

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The statistics in the following table do not give effect to the A Share Offering and are based onthe assumptions that (i) the Global Offering is completed, (ii) 28,312,800,000 H shares are newlyissued in the Global Offering, (iii) the over-allotment option for the Global Offering is not exercised,and (iv) 314,821,930,026 shares are issued and outstanding following the completion of the GlobalOffering:

Based on an offerprice of

HK$2.56 per H share

Based on an offerprice of

HK$3.07 per H share

Prospective price/earnings multiple(a) pro forma basis(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.0 times 19.2 times(b) weighted average basis(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 times 18.1 times

Unaudited pro forma adjusted consolidated net tangible assets pershare(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$1.23 HK$1.28

(1) The calculation of the prospective price/earnings multiple on a pro forma basis is based on the forecast earnings per share for the yearending December 31, 2006 on a pro forma basis at the respective offer prices of HK$2.56 per H share and HK$3.07 per H share. Hadeffect been given to the A Share Offering in this calculation, the prospective price/earnings multiple on a pro forma basis would havebeen 17.1 times based on an offer price of HK$2.56 per H share and 20.5 times based on an offer price of HK$3.07 per H share. Thiscalculation is based on the assumption that there were 13,000,000,000 A shares newly issued in the A Share Offering (assuming theover-allotment option for the A Share Offering is not exercised).

(2) The calculation of the prospective price/earnings multiple on a weighted average basis is based on the forecast earnings per share for theyear ending December 31, 2006 on a weighted average basis at the respective offer prices of HK$2.56 per H share and HK$3.07 perH share. Had effect been given to the A Share Offering in this calculation, the prospective price/earnings multiple on a weighted averagebasis would have been 15.1 times based on an offer price of HK$2.56 per H share and 18.1 times based on an offer price of HK$3.07 perH share. This calculation is based on the assumption that there were 13,000,000,000 A shares newly issued in the A Share Offering(assuming the over-allotment option for the A Share Offering is not exercised).

(3) The unaudited pro forma adjusted consolidated net tangible assets per share is calculated after making the adjustments referred to inAppendix III. Had effect been given to the A Share Offering in this calculation, our unaudited pro forma adjusted consolidated nettangible assets per share would have been HK$1.28 or RMB1.30 based on the offer prices of HK$2.56 per H share and RMB2.60 per Ashare and HK$1.35 or RMB1.37 based on the offer prices of HK$3.07 per H share and RMB3.12 per A share. This calculation is basedon the assumption that there were 13,000,000,000 newly issued A shares in the A Share Offering (assuming the over-allotment option forthe A Share Offering is not exercised) and the resulting net proceeds (after deduction of the estimated underwriting fees and other relatedexpenses payable by us) of RMB33.0 billion (based on the offer price of RMB2.60 per A share) and RMB39.6 billion (based on the offerprice of RMB3.12 per A share) from the A Share Offering.

If the over-allotment option for the Global Offering is exercised in full, the unaudited pro formaadjusted consolidated net tangible assets per H share will be approximately HK$1.25 (based on anoffer price of HK$2.56 per H share) or approximately HK$1.30 (based on an offer price of HK$3.07per H share), while the forecast earnings per H share on a pro forma basis and on a weighted averagebasis will be approximately HK$0.15 per H share and HK$0.17 per H share, respectively.

If the over-allotment options for both the Global Offering and the A Share Offering areexercised in full, the unaudited pro forma adjusted consolidated net tangible assets per H share will beapproximately HK$1.31 (based on offer prices of HK$2.56 per H share and RMB2.60 per A share) orapproximately HK$1.38 (based on an offer price of HK$3.07 per H share and RMB3.12 per A share),while the forecast earnings per H share on a pro forma basis and on a weighted average basis will beapproximately HK$0.15 per H share and HK$0.17 per H share, respectively.

USE OF PROCEEDS

After deducting the underwriting commission and our estimated offering expenses, we estimatethat the net proceeds to us from the Global Offering will be approximately HK$77.4 billion (RMB78.6billion) if the underwriters do not exercise their over-allotment option, or HK$89.1 billion (RMB90.5billion) if the underwriters exercise their over-allotment option in full, assuming an offer price of

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HK$2.815 (RMB2.86) per H share, the midpoint of the range set forth on the cover page of thisprospectus. We will not receive any of the proceeds from the sale of shares by the Selling Shareholdersin the Global Offering. The Selling Shareholders will bear their proportional underwriting commissionand offering expenses.

We expect to use the net proceeds from the Global Offering to strengthen our capital base tosupport the ongoing growth of our business as set forth in “Business—Our Strategy.”

RISK FACTORS

There are certain risks and considerations relating to an investment in our shares. These can becategorized into: (i) risks relating to our business; (ii) risks relating to the banking industry in China;(iii) risks relating to China; and (iv) risks relating to the Global Offering. These risks andconsiderations are further described in “Risk Factors” and are summarized below.

Risks Relating to Our Business

Š Our current results of operations and financial condition reflect a number of extraordinarydisposals of non-performing loans.

Š Actual losses on our loan portfolio may exceed our allowance for impairment losses in thefuture.

Š We have a concentration of exposures to certain industries.

Š The collateral or guarantees securing our loans may not fully protect us from the relatedcredit risks.

Š We may fail to satisfy the capital adequacy requirements established by the CBRC.

Š We cannot assure you that our risk management and internal control policies andprocedures can adequately control or protect us against all credit and other risks.

Š We face certain risks relating to our operational reform initiatives.

Š Our expanding range of products, services and business activities exposes us to new risks.

Š We may not be able to detect and prevent fraud or other misconduct committed by ouremployees or third parties.

Š We are subject to liquidity risk.

Š We are subject to risks relating to our information technology systems.

Š We are subject to credit risk with respect to certain off-balance sheet commitments.

Š We are required to meet PRC and overseas regulatory requirements and guidelines and ournon-compliance could result in fines, sanctions and other penalties.

Š We do not, and some of our lessors may not, possess the relevant title certificates or haveconsent from the owners to sublet some of the properties occupied by us.

Š We are subject to certain risks relating to the bonds issued by Huarong.

Š Our largest shareholders have the ability to exercise significant influence over us.

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Risks Relating to the Banking Industry in China

Š Competition in the banking industry in China is increasing.

Š China’s banking regulatory environment is continually evolving and may change.

Š We are subject to changes in interest rates and other market risks, and our ability to hedgemarket risks is limited.

Š PRC regulations impose certain limitations on the types of investments we may make and,as a result, our ability to seek higher investment returns and our ability to diversify ourinvestment portfolio or hedge the risks relating to our Renminbi-denominated assets arelimited.

Š We face risks relating to the inspections and examinations carried out by PRC andoverseas regulatory authorities.

Š The effectiveness of our credit risk management is affected by the quality and scope ofinformation available in China.

Š Our loan classification and other policies are different in certain respects from thoseapplicable to banks in certain other countries or regions.

Š Future amendments to IAS39 and interpretive guidance on its application may require usto change our loan provisioning practice.

Š We cannot assure you of the accuracy or comparability of facts, forecasts and statisticscontained in this prospectus with respect to China, its economy or the PRC and globalbanking industries.

Š The ability of our shareholders to pledge their shares is limited by applicable PRC legaland regulatory requirements.

Š Any acquisition of 5% or more of our total outstanding shares will require the CBRC’sprior approval.

Risks Relating to China

Š China’s economic, political and social conditions, as well as government policies, couldaffect our business.

Š The legal protections available to you under the PRC legal system may be limited.

Š You may experience difficulties in effecting service of legal process and enforcingjudgments against us and our management.

Š Holders of H shares may be subject to PRC taxation.

Š Payment of dividends is subject to restrictions under PRC law.

Š We are subject to PRC government controls on currency conversion and future movementsin exchange rates.

Risks Relating to the Global Offering

Š An active trading market for our H shares may not develop, and their trading prices mayfluctuate significantly.

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Š We are conducting a concurrent but separate A Share Offering; the characteristics of the Ashare and H share markets are different.

Š Future sales or perceived sales of a substantial number of our H shares or A shares inpublic markets could adversely affect the prevailing market price of our H shares.

Š Because the initial public offering price of the H shares is higher than the net tangibleasset value per share, you will incur immediate dilution.

Š Dividends declared in the past may not be indicative of our dividend policy in the future.

Š We strongly caution you not to place any reliance on any information contained in pressarticles or other media regarding our Global Offering or the A Share Offering orinformation released by us in connection with the A Share Offering.

DIVIDEND POLICY

Our shareholders’ general meeting decides whether to pay any dividends and in what amountbased on our results of operations, cash flow, financial condition, capital adequacy ratios, futureprospects, statutory and regulatory restrictions on the payment of dividends by us and other relevantfactors. Under the PRC Company Law and our articles of association, all of our shareholders haveequal rights to dividends and distributions.

Under PRC law, dividends may be paid only out of distributable profits. Distributable profitsmeans, as determined under PRC GAAP or IFRS, whichever is lower, the net profits for a period, plusthe distributable profits or net of the accumulated losses, if any, at the beginning of such period, lessappropriations to statutory surplus reserve (determined under PRC GAAP), general reserve, anddiscretionary surplus reserve (as approved by our shareholders meeting). Any distributable profits thatare not distributed in a given year are retained and available for distribution in subsequent years.

At an extraordinary general meeting of shareholders on April 28, 2006, our board of directorsrecommended and our shareholders approved a cash dividend to the MOF and Huijin in the amount ofRMB3,537 million for the year ended December 31, 2005.

At the extraordinary general meetings of shareholders on July 31, 2006 and September 22,2006, respectively, our board of directors recommended, and our shareholders approved, the dividenddistributions and policies for the period beginning on January 1, 2006 and ending on December 31,2008. See “Financial Information—Dividend Policy.”

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DEFINITIONS AND CONVENTIONS

In this prospectus, unless the context otherwise requires, the following terms shall have themeanings set out below.

“CBRC” China Banking Regulatory Commission

“CCASS” The Central Clearing and Settlement Systemestablished and operated by HKSCC

“CEPA” The Mainland and Hong Kong Closer EconomicPartnership Arrangement, and the Mainland andMacau Closer Economic Partnership Arrangement

“China,” “PRC” and “Mainland China” The People’s Republic of China, excluding, forpurposes of this prospectus, the Hong Kong SpecialAdministrative Region of the PRC, or Hong Kong, theMacau Special Administrative Region of the PRC, orMacau, and Taiwan

“CIRC” China Insurance Regulatory Commission

“COSO” The Committee of Sponsoring Organizations of theTreadway Commission

“CSRC” China Securities Regulatory Commission

“Hong Kong Listing Rules” The Rules Governing the Listing of Securities on TheStock Exchange of Hong Kong Limited

“Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited

“Huarong” China Huarong Asset Management Corporation

“Huijin” Central SAFE Investments Limited, previously knownas China SAFE Investments Limited

“IAS” International Accounting Standards and theirinterpretations

“IFRS” International Financial Reporting Standardspromulgated by the International AccountingStandards Board (“IASB”), which include IAS

“MOF” Ministry of Finance of the PRC

“NAO” National Audit Office of the PRC

“NDRC” National Development and Reform Commission of thePRC

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“Net Capital Base” Core capital and supplementary capital of a bank lessdeductions, in each case, as specified in the relevantCBRC regulations

“PBOC” People’s Bank of China

“PRC GAAP” The accounting rules and regulations in the PRC,currently consisting of the Accounting Standards forBusiness Enterprises, the Accounting System forFinancial Institutions (2001) and other relatedregulations, including Caikuai (2005) No. 14“Provisional Guidelines on Recognition andMeasurement of Financial Instruments”

“SAFE” State Administration of Foreign Exchange of the PRC

“SAIC” State Administration of Industry and Commerce of thePRC

“SAT” State Administration of Taxation of the PRC

“SSF” National Council for Social Security Fund of the PRC

“State Council” The PRC State Council

In this prospectus, the “Company,” “we,” “us,” “our,” “our bank” and “our company” refer toeither or both of Industrial and Commercial Bank of China Limited and our predecessor, Industrial andCommercial Bank of China, as applicable, and, except as the context may otherwise require, thesubsidiaries of Industrial and Commercial Bank of China Limited and of our predecessor, Industrialand Commercial Bank of China.

References to “controlling shareholder” mean any shareholder or other person or group ofpersons together entitled to exercise, or control the exercise of, 30% (or such other amount as mayfrom time to time be specified in applicable PRC law as being the level for triggering a mandatorygeneral offer or for otherwise establishing legal or management control over a business enterprise) ormore of the voting power at our general meetings or who is in a position to control the composition ofa majority of our board of directors.

For the purposes of this prospectus, we use the terms “impaired loans,” “non-performing loans”or “NPLs” synonymously to refer to the loans identified as “identified impaired loans and advances” inNote 16 to our financial information included in the Accountants’ Report in Appendix I to thisprospectus.

References to the “Selling Shareholders” mean (i) the MOF and (ii) Huijin.

References to the “Latest Practicable Date” mean October 3, 2006, which is the latestpracticable date for the purposes of ascertaining certain information for inclusion in this prospectus.

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In this prospectus, we define the geographical regions of China to which we refer for thepurpose of describing our branch network and presenting certain results of operations and financialcondition as follows:

Geographical regions Tier-1 branches

“Yangtze River Delta” Š Shanghai Municipality Š Jiangsu ProvinceŠ Zhejiang Province Š City of Ningbo

“Pearl River Delta” Š Guangdong Province Š City of ShenzhenŠ Fujian Province Š City of Xiamen

“Bohai Rim” Š Beijing Municipality Š Tianjin MunicipalityŠ Hebei Province Š Shandong ProvinceŠ City of Qingdao

“Central China” Š Shanxi Province Š Henan ProvinceŠ Hubei Province Š Anhui ProvinceŠ Jiangxi Province Š Hainan ProvinceŠ Hunan Province

“Northeastern China” Š Liaoning Province Š Heilongjiang ProvinceŠ Jilin Province Š City of Dalian

“Western China” Š Sichuan Province Š Gansu ProvinceŠ Guizhou Province Š Qinghai ProvinceŠ Yunnan Province Š Chongqing MunicipalityŠ Ningxia Autonomous Region Š Xinjiang Autonomous RegionŠ Inner Mongolia Autonomous

RegionŠ Shaanxi Province

Š Guangxi Autonomous Region

Solely for your convenience, this prospectus contains translations of certain Renminbi amountsinto Hong Kong dollars, Renminbi amounts into U.S. dollars, and Hong Kong dollars into U.S. dollarsat specific rates. You should not construe these translations as representations that the Renminbiamounts could actually be converted into any Hong Kong dollar or U.S. dollar amounts (as the casemay be) at the rates indicated or at all. Unless we indicate otherwise, the translations of Renminbi intoHong Kong dollars, Renminbi into U.S. dollars and Hong Kong dollars into U.S. dollars have beenmade at the rates of RMB1.0154 to HK$1.00, the exchange rate set by the PBOC for foreign exchangetransactions prevailing on September 29, 2006, and RMB7.9040 to US$1.00 and HK$7.7907 toUS$1.00, the noon buying rates in New York City for cable transfers as certified for customs purposesby the Federal Reserve Bank of New York on October 3, 2006. Further information on exchange ratesis set forth in “Appendix VI—Taxation and Foreign Exchange.”

Any discrepancies in any table or chart between the total shown and the sum of the amountslisted are due to rounding.

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FORWARD-LOOKING STATEMENTS

We have included in this prospectus forward-looking statements regarding our plans,intentions, beliefs, expectations and predictions for the future, particularly under “Banking Industry inChina,” “Our Restructuring and Operational Reform,” “Our Strategic Investors and Other Investors,”“Business,” “Risk Management,” “Relationship with Our Promoters and Connected Transactions,”“Assets and Liabilities,” “Financial Information” and “Future Plans and Use of Proceeds.” By theirnature, these forward-looking statements are subject to significant risks and uncertainties.

The forward-looking statements in this prospectus include, without limitation, statementsrelating to:

Š future developments in the banking industry and our competitive environment in China;

Š our recently completed operational reforms, including our existing risk managementframework, our expectations regarding the effect of these reforms and our continuingefforts to enhance our risk management and internal controls;

Š our plans to continue to enhance our information technology capabilities and systems;

Š our plans to expand into new and high growth business areas and our product and servicedevelopment plans;

Š our business cooperation and relationship with our overseas strategic investors and theirability to assist our business development and corporate governance reforms;

Š the regulatory environment and general outlook for the banking industry in China;

Š the amount and nature of, and potential for, future development of our business;

Š our business strategy and plans to achieve this strategy; and

Š our dividend policy.

In addition, statements regarding our future financial position, strategy, projected costs andplans and the objectives of our management for future operations are forward-looking statements. Insome cases, we use words such as “believe,” “seek,” “intend,” “anticipate,” “estimate,” “project,”“forecast,” “plan,” “potential,” “will,” “may,” “could,” “should” and “expect,” and the negative ofthese words and other similar expressions, to identify forward-looking statements. Although we believethat the expectations reflected in these forward-looking statements are reasonable, we cannot assureyou that those expectations will prove to be correct, and you are cautioned not to place undue relianceon such statements.

We undertake no obligation to publicly update or revise any forward-looking statementscontained in this prospectus, whether as a result of new information, future events or otherwise, exceptas required by law and the Hong Kong Listing Rules. All forward-looking statements contained in thisprospectus are qualified by reference to this cautionary statement.

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RISK FACTORS

You should carefully consider all of the information in this prospectus, including the risksand uncertainties described below, before making an investment in our H Shares. Our business,financial condition or results of operations could be materially and adversely affected by any ofthese risks. The trading price of our H Shares could significantly decrease due to any of theserisks, and you may lose all or part of your investment. You should also pay particular attention tothe fact that we are a PRC company and are governed by a legal and regulatory environmentwhich in some respects may differ from that which prevails in other countries. For moreinformation concerning the PRC and certain related matters discussed below, see “Regulationand Supervision,” Appendix VII—“Summary of Principal Legal and Regulatory Provisions” andAppendix VIII—“Summary of Articles of Association.”

RISKS RELATING TO OUR BUSINESS

Our current results of operations and financial condition reflect a number of extraordinarydisposals of non-performing loans.

Our results of operations have been, and will continue to be, negatively affected by ournon-performing loans. Our non-performing loan ratio, which is the ratio of loans classified assubstandard, doubtful and loss, to the balance of our total loans, was 4.10% at June 30, 2006, 4.69% atDecember 31, 2005, 21.16% at December 31, 2004 and 24.24% at December 31, 2003. Ournon-performing loan ratios at these dates may not fully reflect the actual changes in our asset qualityand historical trends in our non-performing loans due to our one-time disposals of non-performingloans that were not in our ordinary course of business. In 1999 and 2000, we disposed of non-performing assets in the aggregate amount of RMB407.7 billion at book value to Huarong, one of thefour asset management companies set up by the government in 1999 primarily to acquire and managenon-performing assets from the Big Four commercial banks. As consideration for the transfer, wereceived RMB94.7 billion in cash and non-transferable ten-year bonds issued by Huarong with anaggregate face value of RMB313.0 billion from 1999 to 2001. As part of our financial restructuringwhich took place between April and June 2005, we disposed of non-performing loans and other assetswith an aggregate amount of RMB705.0 billion at their book value, before allowance for impairmentlosses, to Huarong and three other asset management companies. These disposals were made at valueshigher than the net carrying value of those non-performing loans and assets. See “Our Restructuringand Operational Reform.” In the absence of such disposals, our non-performing loan ratio atDecember 31, 2003, 2004 and 2005 and June 30, 2006 would have been substantially higher. In thefuture, we do not expect to make any similar government-sponsored disposals. As a result, ourhistorical financial and asset quality data must be viewed in light of such disposals.

We cannot assure you that the quality of our existing or future loans and advances to customerswill not deteriorate. Deterioration in the overall quality of our loan portfolio may occur for a number ofreasons, including factors beyond our control, such as an economic slowdown in China, that mayadversely affect the businesses, operations or liquidity of our borrowers or their ability to service theirdebt. Future increases in our non-performing loans may have a material adverse effect on our results ofoperations and financial condition.

Actual losses on our loan portfolio may exceed our allowance for impairment losses in the future.

At June 30, 2006, our allowance for impairment losses on loans was RMB85.7 billion, the ratioof our allowance for impairment losses to total loans was 2.48% and the ratio of our allowance for

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impairment losses to non-performing loans was 60.4%. The amount of the allowance is based on ourcurrent assessment of various factors affecting the quality of our loan portfolio. These factors include,among other things, our borrowers’ financial condition, repayment ability and repayment intention, therealizable value of any collateral and the prospect for support from any guarantor, as well as China’seconomy, government macroeconomic policies, interest rates, exchange rates, and legal and regulatoryenvironment. Many of these factors are beyond our control. The adequacy of our allowance forimpairment losses depends on the reliability of, and our skills in applying, our assessment system toestimate these losses, as well as our ability to accurately collect, process and analyze relevant statisticaldata. If our assessment of and expectations concerning the factors that affect the quality of our loanportfolio differ from actual developments, if the quality of our loan portfolio deteriorates, or if ourassessment system proves to be inaccurate or our skill in applying the assessment systems or ourability to collect relevant statistical data proves to be insufficient, our allowance for impairment lossesmay not be adequate to cover our actual losses and we may need to make additional provisions forimpairment losses, which may reduce our profit and otherwise materially and adversely affect ourresults of operations and financial condition.

We have a concentration of exposures to certain industries.

At June 30, 2006, our loans to China’s (i) manufacturing, (ii) transportation and logistics,(iii) power generation and supplies, and (iv) retail, wholesale and catering industries represented27.8%, 17.2%, 13.0% and 11.9% of our domestic corporate loans, respectively. In addition, we are alsoexposed to the real estate market in China through property development loans and personal propertymortgage loans. At June 30, 2006, our property development loans represented 9.1% of our domesticcorporate loans and personal property mortgage loans represented 86.3% of our domestic personalloans. A significant downturn in any industry in which our loans are highly concentrated may lead to asignificant increase in non-performing loans, and may negatively affect our level of new lending orrefinancing of existing loans to borrowers in that industry, which may materially and adversely affectour results of operations and financial condition.

The collateral or guarantees securing our loans may not fully protect us from the related creditrisks.

A significant percentage of our loans is secured by collateral or guarantees. At June 30, 2006,32.3%, 22.9% and 23.1% of our total loans were secured by mortgage, collateral and guarantees,respectively. However, the procedures for liquidating or otherwise realizing the value of such collateralmay be protracted, and the process of enforcing security interests against collateral can be difficult. Asa result, it may be difficult and time-consuming for us to take control of or liquidate the collateralsecuring our non-performing loans.

The collateral securing our loans primarily consists of assets that are located in China, the valueof which may significantly fluctuate or decline due to factors beyond our control, includingmacroeconomic factors affecting China. A slowdown in China’s economy or other factors may lead todeclines in the value of collateral securing many of our loans to levels below the outstanding principalamount of such loans. Any decline in the value of collateral securing our loans may decrease theamounts we can recover on the underlying loans.

In addition, a portion of our loans is secured by guarantees provided by affiliates of theborrower or by third parties. Our exposure to guarantors is generally unsecured. A deterioration in the

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financial condition of the guarantors may significantly reduce the amounts we may recover under theguarantees. Moreover, guarantees may be deemed invalid by a court if a guarantor fails to satisfycertain requirements under PRC laws. For instance, under the PRC Guaranty Law, operationaldepartments and branches without appropriate authorization from an enterprise legal person cannot actas guarantors. For the foregoing reasons, we are exposed to the risk that we may not be able to recoveramounts payable under the guarantees. Moreover, our rights to loan collateral may become subject tocertain rights of the employees of the entities to which we extend credit. According to the newBankruptcy Law of the PRC promulgated in August 2006 which will become effective from June2007, claims brought by employees for salaries, benefits and other fees and expenses incurred prior toAugust 27, 2006 against their employers that become subject to bankruptcy proceedings shall havepriority over the rights of secured creditors of the employers over their collateral in the event that theemployers’ other assets are insufficient to cover such employees’ claims.

Our inability to realize the full value of collateral or guarantees securing our loans on a timelybasis may materially and adversely affect our asset quality, results of operations and financialcondition.

We may fail to satisfy the capital adequacy requirements established by the CBRC.

As a PRC commercial bank, we are required by the CBRC to maintain a core capital adequacyratio of not less than 4% and a capital adequacy ratio of not less than 8%. Prior to our restructuring in2005, our capital adequacy ratio and core capital ratio were lower than the regulatory requirement and,in particular, we had capital deficits in 2003 and 2004. In 2005, the PRC government providedsignificant financial support to us to improve our capital adequacy. See “Our Restructuring andOperational Reform.” At June 30, 2006, our core capital adequacy ratio was 8.97% and our capitaladequacy ratio was 10.74%. Although we currently meet the applicable capital adequacy requirements,certain adverse developments could affect our ability to continue to satisfy the capital adequacyrequirements, including:

Š deterioration in our asset quality;

Š declines in the value of our investments;

Š increases in the CBRC minimum capital adequacy requirements; and

Š changes in the CBRC guidelines regarding the calculation of capital adequacy ratios.

We do not expect the PRC government to provide additional financial support to us in thefuture. We may be required to raise additional core or supplementary capital in the future in order tomeet the minimum CBRC capital adequacy requirements. To raise additional capital, we may issueadditional equity securities that qualify as core capital or additional subordinated bonds that qualify assupplementary capital. Any equity securities that we issue may dilute your interest in us. We havereceived approvals from the CBRC and the PBOC to issue subordinated bonds in an aggregate amountup to RMB100 billion before December 31, 2007, of which RMB35 billion was issued by us in thesecond half of 2005. However, our ability to obtain additional capital may still be restricted by anumber of factors, including:

Š our future business, financial condition, results of operations and cash flows;

Š necessary government regulatory approvals;

Š our credit rating;

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Š general market conditions for capital-raising activities by commercial banks and otherfinancial institutions; and

Š economic, political and other conditions both within and outside China.

We cannot assure you that we will be able to obtain additional capital on commerciallyreasonable terms in a timely manner, or at all. If we fail to meet the capital adequacy requirements, theCBRC may take certain actions, including restricting our lending and investment activities, and thepayment of dividends by us. These actions could materially and adversely affect our reputation, resultsof operations and financial condition.

We cannot assure you that our risk management and internal control policies and procedurescan adequately control or protect us against all credit and other risks.

We have in the past suffered from certain credit-quality problems, lapses in credit approval andcontrol processes, internal control deficiencies and operational problems as a result of weaknesses inour risk management and internal controls. We cannot assure you that our risk management andinternal control policies and procedures will adequately control, or protect us against, all credit andother risks. Certain risks are unidentified or unforeseeable, and could be greater than our empirical datawould otherwise indicate. In addition, as some of our risk management and internal control policiesand procedures are relatively new, we will require additional time to fully evaluate the effectiveness of,and ensure compliance with, these policies and procedures. We cannot assure you that all of our staffwill adhere to our policies and procedures. Moreover, our growth and expansion may affect our abilityto implement and maintain stringent internal controls. Our risk management and internal controlcapabilities are also limited by the information, tools and technologies available to us. Any materialdeficiency in our risk management or other internal control policies or procedures may expose us tosignificant credit, liquidity, market or operational risk, which may in turn have a material adverseeffect on our asset quality, results of operations and financial condition.

We face certain risks relating to our operational reform initiatives.

We are continuing to develop and implement a number of operational reform initiatives in aneffort to become a more competitive and customer-oriented company, including those relating toreengineering our business process and organizational structure. See “Our Restructuring andOperational Reform—Operational Reform.” If we do not successfully implement all or any of thesereform initiatives or, if implemented, these initiatives do not achieve the intended benefits generally orwithin our desired time frame, our business, results of operations and financial condition may beadversely affected.

Our expanding range of products, services and business activities exposes us to new risks.

We have launched a number of new products and services and extended the range of ourexisting products and services, including, among others, various wealth management products andservices in recent years. This exposes us to a number of risks and challenges, including the following:

Š we may have limited or no experience in certain new products, services or businessactivities and we may be unable to successfully manage our operations or competeeffectively in these areas;

Š we cannot assure you that our anticipated market demand for our new products or serviceswill materialize or that our new business activities will meet our profit expectations;

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Š we may not successfully hire personnel who have the relevant skills and experience orretain some of our existing personnel;

Š we will need to enhance our risk management and information technology systems tosupport a broader range of activities, which requires time and additional fundings andother resources; and

Š regulators may revoke or withhold their approval of any products and services that weoffer or intend to offer.

If we are unable to successfully expand into growing products, services or business areas due tothese operational risks and challenges, or because we fail to anticipate increased demand, our overallbusiness growth and market share could be materially and adversely affected. In addition, as a result ofthese operational risks and challenges, the returns on our new products, services or businesses may beless than anticipated.

We may not be able to detect and prevent fraud or other misconduct committed by ouremployees or third parties.

There have been publicized cases involving fraud or other misconduct by employees or thirdparties against PRC commercial banks in recent years. Fraud and other misconduct by employees orthird parties can be difficult to fully detect and deter. Such incidents could subject us to financial lossesand seriously harm our reputation. Detected incidents of past fraud and other misconduct by thirdparties against us include, among other things, misrepresentation, forgery, theft, robbery and certainarmed crimes. In addition, the types of fraud and other misconduct committed on us may go beyondthose detected in the past. We cannot assure you that our internal control policies and procedures areeffective to prevent, or that we can otherwise fully detect or deter, all incidents of fraud andmisconduct. Other than potential financial losses that we may suffer as a result of such incidents,improper acts of our employees could subject us to third party claims and regulatory actions. Wecannot assure you that such fraud and other misconduct committed against us, whether involving pastacts that have gone undetected or future acts, will not have an adverse effect on our business, results ofoperations and financial condition.

For example, Fuxi Investment Holding Co., Ltd., or Fuxi Investment, is currently undergovernment investigation for alleged misappropriation of social security funds and certain othermisconduct. In June 2001 and January 2003, our Shanghai branch approved project loans in theamount of RMB2,192 million and RMB3,235 million, respectively, to Shanghai-HangzhouExpressway and Jiading-Jinshan Expressway, each a state-controlled project company. The state-owned interests in these two project companies were subsequently acquired by Fuxi Investment. AtAugust 31, 2006, the aggregate amount of our outstanding loans to the foregoing project companieswas RMB6,134 million. We have never been involved in any entrusted loans to Fuxi Investment. InMarch 2006, we underwrote certain short-term commercial papers issued by Fuxi Investment in theaggregate amount of RMB1.0 billion. We have conducted a review of our business transactions withFuxi Investment and its affiliates. Based on the results of our review to date, we have not identified anymisconduct or unlawful activities on the part of our bank. We will continue to monitor the creditquality of the foregoing project loans.

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We are subject to liquidity risk.

Customer deposits historically have been the main source of our funding. At June 30, 2006,91.0% of our total customer deposits (including certificates of deposit) had remaining maturities of oneyear or less or were payable on demand. There is a mismatch between the maturities of our fundingsources and the maturities of our assets. In our experience, in part due to the lack of alternativeinvestment products in China, our short-term customer deposits have generally not been withdrawnupon maturity and have thus represented a stable source of funding. However, we cannot assure youthat this will continue to be the case. If a substantial portion of our depositors withdraw their demanddeposits or do not roll over their time deposits upon maturity, we may need to seek more expensivesources of funding to meet our funding requirements, and we cannot assure you that we will be able toobtain additional funding on commercially reasonable terms as and when required. Our ability to raiseadditional funds may be impaired by factors over which we have little or no control, such asdeteriorating market conditions, severe disruptions of the financial markets, or negative outlooks forthe industries to which we have significant credit exposure.

We are subject to risks relating to our information technology systems.

We depend on our information technology systems to process a large number of transactions onan accurate and timely basis, and to store and process substantially all of our business and operatingdata. The proper functioning of our financial control, risk management, credit analysis and reporting,accounting, customer service and other information technology systems, as well as the communicationnetworks between our branches and our main data processing centers, are critical to our business andour ability to compete effectively. Our Beijing data center provides back-up for our Shanghai datacenter and could be used in the event of a catastrophe or a failure of our primary systems. We have alsoestablished alternative communication networks where available. However, our business activitieswould be materially disrupted if there is a partial or complete failure of any of our informationtechnology systems or communications networks. Such failures can be caused by a variety of reasons,including natural disasters, extended power outages and computer viruses. The proper functioning ofour information technology systems also depends on accurate and reliable data and other system input,which is subject to human errors. Any failure or delay in recording or processing our transaction datacould subject us to claims for losses and regulatory fines and penalties.

In particular, the secure transmission of confidential information is a critical element of ouroperations. Our networks and systems may be vulnerable to unauthorized access and other securityproblems. No assurance can be given that our existing security measures will prevent securitybreaches, including break-ins and viruses, or other disruptions such as those caused by defects inhardware or software and errors or misconduct of operators. Persons that circumvent our securitymeasures could use our or our client’s confidential information wrongfully. Any material securitybreach or other disruptions could expose us to risk of loss and regulatory actions and harm ourreputation.

Our ability to remain competitive will to a certain extent depend on our ability to upgrade ourinformation technology systems on a timely and cost-effective basis. In addition, the informationavailable to and received by us through our existing information technology systems may not be timelyor sufficient for us to manage risks and plan for, and respond to, market changes and otherdevelopments in our current operating environment. Any substantial failure to improve or upgrade ourinformation technology systems effectively or on a timely basis could materially and adversely affectour competitiveness, results of operations and financial condition.

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We are subject to credit risk with respect to certain off-balance sheet commitments.

In the normal course of our business, we make commitments which are not reflected asliabilities on our balance sheet, including bank acceptances, loan commitments, guarantees and lettersof credit to guarantee the performance of our customers. See “Financial Information—Off-BalanceSheet Commitments.” We are subject to credit risk on our off-balance sheet commitments becausethese commitments may need to be fulfilled by us in certain circumstances. If we are unable to recoverpayment from our customers in respect of the commitments that we are called upon to fulfill, ourresults of operations and financial condition could be harmed.

We are required to meet PRC and overseas regulatory requirements and guidelines and our non-compliance could result in fines, sanctions and other penalties.

We are required to meet certain operational requirements and guidelines set by PRC regulatoryauthorities, including the PBOC and the CBRC. We did not comply with certain operationalrequirements and guidelines at certain times in the past, such as our non-compliance with the CBRC’scapital adequacy ratio requirement. We cannot assure you that we will meet these operationalrequirements and guidelines at all times in the future. If sanctions are imposed on us in the future fornon-compliance of these or other operational requirements and guidelines, our business, results ofoperations and financial condition may be materially and adversely affected.

The PRC Commercial Banking Law imposes strict limitations on the use of funds by PRCcommercial banks and generally prohibits them from holding equity interests in non-banking entities inthe PRC. As with the other Big Four commercial banks, we have historically held equity interests indomestic non-banking entities that do not comply with these requirements. We have disposed of alarge percentage of these equity interests. We intend to continue to dispose of these equity interestsfollowing the Global Offering and have obtained a notification from the CBRC on June 16, 2006 that itwill not take enforcement action against us for holding these remaining non-complying equity interestsfor a one-year period. We cannot assure you that we will be able to successfully dispose of all suchnon-complying equity interests by June 15, 2007 on commercially reasonable terms, or at all. Wecannot assure you that the CBRC will not take action against us in the future if we fail to carry outthese asset disposals as planned. Any such action may have an adverse effect on our business, resultsof operations and financial condition.

In addition, our overseas branches, subsidiaries and representative offices are subject to locallaws and regulations in their respective jurisdictions, as well as regulatory reviews by relevantauthorities in their local jurisdictions. We cannot assure you that our overseas branches, subsidiariesand representative offices will meet applicable legal and regulatory requirements at all times and theirfailure to do so may have a material adverse effect on our operations in the relevant jurisdiction.

We do not, and some of our lessors may not, possess the relevant title certificates or have consentfrom the owners to sublet some of the properties occupied by us.

At August 31, 2006, we occupied 25,393 properties in the PRC, including 1,801 properties inrespect of which we have not obtained relevant title ownership certificates, which account for 6.12% interms of total gross floor area and 7.09% in terms of value of the properties we owned. See“Business—Properties—Owned Properties.” We started the process of applying for the relevant titlecertificates in mid 2004, and we plan to continue with the process particularly for properties which weexpect to use for a long-term period by working closely with local land and building administrationdepartments to hasten the title applying procedure.

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In addition, at August 31, 2006, we had leased 7,616 properties in the PRC, primarily asbusiness premises for our branch outlets. See “Business—Properties—Leased Properties.” Withrespect to 5,229 of these 7,616 leased properties, the lessors or landlords may not have obtained orprovided to us the relevant title ownership certificates or consent from the owners to sublet. As a result,we may be required to surrender possession of or stop using these premises. Although we will requestand facilitate the lessors to obtain titles, if any of our leases are terminated as a result of the defectivelegal title of the leased properties or non-registration of the relevant lease agreements, we are of theview that most of these leased properties occupied by us can, if necessary, be replaced by othercomparable alternative premises without any material adverse effect on our operations. Thus, it isexpected that any termination of those leased premises will not have any material adverse effect on ourresults of operations and financial condition.

We are subject to certain risks relating to the bonds issued by Huarong.

Between 1999 and 2001, we received a series of non-transferable ten-year bonds with anaggregate face value of RMB313.0 billion issued by Huarong and RMB94.7 billion in cash inexchange for the disposal of non-performing assets with an aggregate amount of RMB407.7 billion atbook value to Huarong. See “Our Restructuring and Operational Reform—Our History.” Huarong’sability to make full and timely payment of interest and principal on the bonds depends primarily on theavailability of proceeds generated by its disposals of the non-performing assets that it holds. Huaronghas been making timely payments of interest on the bonds in the past. There is no assurance thatHuarong would be able to repay the principal or interest on the bonds as they become due in the future.

The MOF issued a notice dated June 14, 2005 providing that (i) beginning July 1, 2005, in theevent that Huarong is unable to pay any interest on any bonds to us in full, the MOF will providefinancial support, and (ii) if necessary, the MOF will provide support to Huarong for repayment of theprincipal of the bonds. We have been advised by our PRC legal counsel, King & Wood, that (i) theabove-mentioned notice is valid, legal and effective, (ii) no existing PRC laws, regulations or rules willcause the notice to be rescinded by the MOF, and (iii) the notice should be deemed as support providedby the MOF based on the sovereign credit of China for Huarong’s payment obligations with respect tothe interest on and principal of the bonds.

We expect the MOF to meet its obligations under the notice if necessary. However, as there isno precedent of any claims or other proceedings brought in the past to enforce similar undertakings bythe MOF or other PRC government entities, we cannot assure you that we would be able to enforce itunder the law. If Huarong were to default on its payment obligations under these bonds and if we wereunable to enforce the MOF’s obligations under this notice, our results of operations and financialcondition may be materially and adversely affected.

Our largest shareholders have the ability to exercise significant influence over us.

Our largest shareholders, the MOF and Huijin, will own approximately 36.24% and 36.24%,respectively, of our outstanding shares immediately following the completion of the Global Offeringand A Share Offering, assuming that neither of the over-allotment options for the Global Offering andthe A Share Offering is exercised. In accordance with our articles of association and applicable lawsand regulations, the MOF and Huijin will have the ability to exercise a controlling influence over ourbusiness, including matters relating to:

Š the timing and amount of the distribution of dividends;

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Š the issuance of new securities;

Š the election of our directors and supervisors;

Š our business strategies and policies;

Š any plans relating to mergers, acquisitions, joint ventures, investments or divestitures; and

Š amendments to our articles of association.

At times, the interests of the MOF and Huijin may conflict with our interests or those of ourother shareholders. In addition, since the MOF is a ministry of the State Council and Huijin is a whollystate-owned limited liability company formed under PRC law, they have strong interests in thesuccessful implementation of the economic or fiscal policies enacted by the State Council and/or thePBOC, which policies may not be in our best interest or in the best interest of our other shareholders.

RISKS RELATING TO THE BANKING INDUSTRY IN CHINA

Competition in the banking industry in China is increasing.

The banking industry in China is becoming increasingly competitive. See “Banking Industry inChina—Industry Trends.” At present, we compete principally with other PRC commercial banks,including the other Big Four commercial banks. In addition, we expect competition from foreigncommercial banks to increase significantly in the future as existing restrictions on their geographicalpresence, customer base and operating licenses in China are scheduled to be removed by December2006 pursuant to China’s WTO commitments. For instance, the CBRC has indicated that it will abolishthe current restrictions that only allow foreign banks to issue credit cards jointly with PRC commercialbanks and will permit a foreign bank to issue credit cards under its own brand. Such policy, if adopted,will intensify our competition in the bank card business in China. China’s CEPA arrangements withHong Kong and Macau allow smaller banks from those jurisdictions to operate in the PRC, which hasalso increased competition in the PRC banking industry. See “Banking Industry in China—IndustryTrends—Greater Participation by Foreign-invested Banks.” Many of these banks compete with us forthe same customers and some of them may have greater financial, management and technical resourcesthan we do. The increased competition from other banks may result in an increase in the amount of ourloans made at a discount to the PBOC benchmark rate, which may reduce the average yield on ourloans.

Moreover, the PRC government has, in recent years, implemented a series of measuresdesigned to further liberalize the banking industry which are changing the basis on which we competewith other banks for customers. A program was introduced in 2005 which allowed qualifiedcorporations to issue commercial paper, instead of relying on traditional bank loans, to meet theirshort-term financial needs. In addition, many corporate borrowers are increasingly relying ondiscounted bills as a lower cost replacement for their short-term corporate loans. The increasedcompetitive pressure may adversely affect our business and prospects, the effectiveness of ourstrategies, our results of operations and financial condition by potentially:

Š reducing our market share in our principal products and services;

Š reducing the growth of our loan or deposit portfolios and other products and services;

Š reducing our interest income and decreasing our net interest margin;

Š reducing our fee and commission income;

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Š increasing our non-interest expenses, such as marketing expenses; and

Š increasing competition for qualified managers and employees.

China’s banking regulatory environment is continually evolving and may change.

Our business could be directly affected by changes in China’s banking regulatory policies, lawsand regulations, such as those affecting the extent to which we can engage in specific businesses, aswell as changes in other governmental policies. Since its establishment as the primary banking industryregulator assuming the majority of the bank regulatory functions from the PBOC in 2003, the CBRChas promulgated a series of bank regulations and guidelines. The laws and regulations governing thebanking sector are subject to future changes, and we cannot assure you that such changes will notadversely affect our business, results of operations and financial condition, nor can we assure you thatwe will be able to adapt to all such changes on a timely basis.

We are subject to changes in interest rates and other market risks, and our ability to hedgemarket risks is limited.

As with most commercial banks, our results of operations depend to a great extent on our netinterest income. For the six months ended June 30, 2006 and the year ended December 31, 2005, ournet interest income represented 89.2% and 89.5%, respectively, of our operating income. Interest ratesin China historically were highly regulated but have been gradually liberalized in recent years.Currently, Renminbi-denominated loans are subject to minimum rates based on the PBOC benchmarkrates, but are not subject to maximum rates. On the other hand, PRC commercial banks may pay anyinterest not less than zero and not greater than the PBOC benchmark rates on Renminbi-denominateddeposits. Since January 1, 2002, the PBOC has adjusted the benchmark rates for several times, whichoccurred in February 2002, October 2004, April 2006 and August 2006. The remaining constraints onour ability to set the interest rates we pay on deposits or charge on loans and our relative lack ofexperience in reflecting interest rates in our pricing decisions may adversely affect our ability to reactto changes in market conditions, our lending operations, our results of operations and our financialcondition. In addition, increasing competition in the banking industry and further liberalization of theinterest rate regime may result in more volatility in interest rates. Changes in market interest ratescould affect the interest rates we charge on the interest-earning assets differently from the interest rateswe pay on the interest-bearing liabilities. Any adjustments to benchmark rates or changes in marketinterest rates, may result in an increase in our interest expense relative to our interest income, leadingto a reduction in our net interest income, which may materially and adversely affect our results ofoperations and financial condition. Furthermore, we cannot assure you that we will be able to adjust thecomposition of our asset and liability portfolios and our product pricing to enable us to effectivelyrespond to the further liberalization of interest rates.

We also undertake trading and investment activities involving certain financial instrumentsboth in China and abroad. Our income from these activities is subject to volatilities caused by, amongother things, changes in interest rates and foreign currency exchange rates. For example, increases ininterest rates generally have an adverse effect on the value of our fixed rate securities portfolio, whichmay materially and adversely affect our results of operations and financial condition. Furthermore, asthe derivatives market has yet to fully develop in China, there is limited availability of riskmanagement tools to enable us to reduce market risks.

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PRC regulations impose certain limitations on the types of investments we may make and, as aresult, our ability to seek higher investment returns and our ability to diversify our investmentportfolio or hedge the risks relating to our Renminbi-denominated assets are limited.

As a result of PRC regulatory restrictions, substantially all of our Renminbi-denominatedinvestment assets are concentrated in a limited number of investments permitted for PRC commercialbanks, such as, among others, the treasury bonds issued by the MOF, finance bonds issued by PRCpolicy banks, notes issued by the PBOC, debt securities issued by other PRC commercial banks,commercial paper issued by eligible PRC corporate entities, derivative products and domesticcorporate bonds traded in the inter-bank market. These restrictions on our ability to invest limit ourability to seek higher returns on our assets. In addition, we are exposed to risks associated with thesetypes of investments. For example, we hold a substantial amount of fixed-income debt securities thathave fixed interest rates, and a general increase in interest rates may result in a significant decline inthe value of these securities. A decrease in the value of any of our investments could have a materialadverse effect on our results of operations and financial condition.

We face risks relating to the inspections and examinations carried out by PRC and overseasregulatory authorities.

We are subject to inspections and examinations by PRC regulatory authorities, including thePBOC, the CBRC, the MOF, the CSRC, the CIRC, the SAT, the SAIC, the SAFE and the NAO, aswell as by overseas regulatory authorities in those jurisdictions where we operate. Some of theseinspections and examinations have resulted in fines and penalties for cases of non-compliance at ourbank. We cannot assure you that future examinations by regulatory authorities would not result in finesand penalties. Any such fines or penalties could materially and adversely affect our reputation,business, results of operations and financial condition. For a discussion of the results of principalregulatory inspections and examinations performed on our bank since January 1, 2003, see“Business—Legal and Regulatory—Regulatory Reviews and Proceedings.”

The effectiveness of our credit risk management is affected by the quality and scope ofinformation available in China.

A nationwide individual credit information database developed by the PBOC, the first of itskind in China, commenced operation in January 2006. In addition, the PBOC expects to launch anationwide corporate credit information system in the second half of 2006. However, due to their shortoperational history, limitations in the availability of information and the developing informationinfrastructure in China, these nationwide credit information systems are relatively undeveloped.Therefore, our assessment of the credit risks associated with particular customers may not be based oncomplete, accurate or reliable information. Until these unified nationwide credit systems become morefully developed, we have to rely on other publicly available resources and our internal resources, whichare not as extensive nor as effective as a unified, nationwide credit information system.

Our loan classification and other policies are different in certain respects from those applicableto banks in certain other countries or regions.

We classify our loans using a five-category loan classification system, which complies withPRC regulatory guidelines. Our loan classification policies are different in certain respects from thoseof banks incorporated in certain other countries or regions. As a result, our loan classification is notfully comparable to amounts reported by international banks located overseas.

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In addition, we have begun the process of incorporating the IRB approach recommended by theNew Basel Capital Accord in our risk management systems, and intend to meet the Foundation IRBApproach by the end of 2007. Our determination of risk weighting in respect of our assets under thesecapital measurement systems may differ in certain respects from those of banks incorporated in certainother countries or regions. As a result, our allocation of capital to our assets may not be fullycomparable to that of other banks.

Future amendments to IAS 39 and interpretive guidance on its application may require us tochange our loan provisioning practice.

We assess our loans for impairment under IAS 39. The International Financial ReportingInterpretation Committee, or, IFRIC, and other relevant accounting standard-setting bodies andregulators have been asked by their constituents to consider providing interpretive guidance relating tothe application of IAS 39. We cannot assure you that the IASB or the IFRIC will not amend IAS 39, orthat the other relevant accounting standard-setting bodies and regulators will not issue authoritativeinterpretive guidance on the application of IAS 39 relating to loan provisioning. Any such futureamendments to IAS 39 and interpretive guidance on the application of IAS 39 may require us tochange our current loan provisioning practice, which may in turn materially affect our financialcondition and results of operations.

We cannot assure you of the accuracy or comparability of facts, forecasts and statistics containedin this prospectus with respect to China, its economy or the PRC and global banking industries.

Facts, forecasts and statistics in this prospectus relating to China, China’s economy and thePRC and global banking industries, including our market share information, are derived from variousgovernmental sources which are generally believed to be reliable. However, we cannot guarantee thequality and reliability of such material. In addition, these facts, forecasts and statistics have not beenindependently verified by us and may not be consistent with information available from other sources,and may not be complete or up to date. We have taken reasonable care in reproducing or extracting theinformation from such sources. However, because of potentially flawed methodologies, discrepanciesin market practice and other problems, these facts, forecasts and other statistics may be inaccurate ormay not be comparable from period to period or to facts, forecasts or statistics of other economies.

The ability of our shareholders to pledge their shares is limited by applicable PRC legal andregulatory requirements.

Under the PRC Company Law, we may not accept our shares as collateral. In addition, anyshareholder who owns 5% or more of our shares must give prior notice to our board of directors if itwishes to pledge its shares as collateral to any other lender. See “Regulation and Supervision—PRCRegulation and Supervision—Restrictions on Equity Investments in Commercial Banks.” As a result ofthe foregoing, you may be unable to pledge your shares in our bank as collateral unless you complywith applicable PRC legal and regulatory requirements.

Any acquisition of 5% or more of our total outstanding shares will require the CBRC’s priorapproval.

Under the current ownership restrictions imposed on investments in commercial banks in thePRC, any natural or legal person intending to acquire 5% or more of the total equity interest of a

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commercial bank is required to obtain the prior approval of the CBRC. See “Regulation andSupervision—PRC Regulation and Supervision—Restrictions on Equity Investments in CommercialBanks.” As a result, if one of your investment goals is to acquire a substantial equity interest in us,your goal may not be achieved unless you are able to obtain the prior approval of the CBRC.

RISKS RELATING TO CHINA

China’s economic, political and social conditions, as well as government policies, could affect ourbusiness.

Substantially all of our business, assets and operations are located in China. Accordingly, ourresults of operations, financial condition and business prospects are, to a significant degree, affected byeconomic, political and legal developments in China. The economy of China differs from theeconomies of more developed countries in many respects, including, among others, governmentinvolvement, level of development, growth rate, control of foreign exchange and allocation ofresources.

For many decades, China maintained a planned economy. The government exercisedsignificant control over China’s economic growth through measures such as the allocation ofresources, its monetary policy and preferential treatment for particular industries or companies. Sincethe end of 1970s, the government has implemented economic reform measures emphasizing thedevelopment of a market economy.

In recent years, the government has also implemented various policies in an effort to control thegrowth rate of certain industries and limit inflation. Beginning in the second half of 2003, thegovernment implemented a series of macroeconomic policies, which included raising the benchmarkinterest rates, increasing the PBOC statutory reserve deposit ratio and imposing commercial banklending guidelines and taking measures to restrict loans to certain industries. Certain of thesemacroeconomic policies may materially and adversely affect our asset quality, results of operationsand financial condition. For example, in order to tighten credit growth and reduce funds available forlending or investment activities, the PBOC increased the statutory reserve requirements for commercialbanks by 0.5% on July 5, 2006 and August 15, 2006. To meet this requirement, we havecorrespondingly increased our reserve deposits with the PBOC.

We cannot assure you that the PBOC or other PRC governmental entities will not implementadditional measures in the future to control credit growth, or other areas of growth in the PRCeconomy. Any such measures could materially slow down the growth of our net interest income orhave other adverse impact on our operations.

China has been one of the world’s fastest growing economies as measured by GDP in recentyears. However, it is uncertain whether China can sustain such a growth rate. The current rate ofgrowth and development of the PRC banking market may not be sustainable in the future. In addition,any future calamities, including, among others, natural disasters and outbreak of contagious diseasesmay cause a decrease in the level of economic activity and adversely affect economic growth in thePRC, Asia and elsewhere in the world. If China’s economy, and particularly, China’s banking market,experiences a significant downturn for any reason, our financial condition and results of operations, aswell as our future prospects, would be materially and adversely affected.

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The legal protections available to you under the PRC legal system may be limited.

We are organized under the laws of the PRC. The PRC legal system is based on writtenstatutes. Prior court decisions may be quoted for reference but have limited precedential value. Since1979, the PRC government has promulgated laws and regulations dealing with such economic mattersas securities, shareholders’ rights, foreign investment, corporate organization and governance,commerce, taxation and trade, with a view towards developing a comprehensive system of commerciallaw. However, as these laws and regulations are relatively new and the development of products,instruments and environment in the PRC banking industry continue to evolve, the effect of these lawsand regulations on the rights and obligations of the parties involved may involve uncertainty. As aresult, the legal protections available to you under the PRC legal system may be limited.

Our articles of association provide that disputes between holders of H shares and us, ourdirectors, supervisors or senior officers or holders of A shares arising out of our articles of associationor any rights or obligations conferred or imposed upon by the PRC Company Law and related rulesand regulations concerning our affairs are to be resolved through arbitration. Our articles of associationfurther provide that such arbitral award will be final, conclusive and binding on all parties. A claimantmay elect to submit a dispute to arbitration organizations in Hong Kong or the PRC. Awards that aremade by PRC arbitral authorities recognized under the Arbitration Ordinance of Hong Kong can beenforced in Hong Kong. Hong Kong arbitration awards may be recognized and enforced by PRCcourts, subject to the satisfaction of certain PRC legal requirements. However, to our knowledge, noaction has been brought in the PRC by any holder of H shares to enforce an arbitral award, and wecannot assure you that any action brought in the PRC by any holder of H shares to enforce a HongKong arbitral award made in favor of holders of H shares would succeed.

You may experience difficulties in effecting service of legal process and enforcing judgmentsagainst us and our management.

We are a company incorporated under the laws of the PRC, and substantially all of ourbusiness, assets and operations are located in China. In addition, a majority of our directors,supervisors and executive officers reside in China, and substantially all of the assets of such directors,supervisors and executive officers are located in China. As a result, it may not be possible to effectservice of process within the United States or elsewhere outside China upon us or such directors,supervisors or executive officers, including with respect to matters arising under U.S. federal securitieslaws or applicable state securities laws. Moreover, China has not entered into a treaty for the reciprocalrecognition and enforcement of court judgments with the United States, the United Kingdom, Japanand many other countries. In addition, Hong Kong has no arrangement with the United States forreciprocal enforcement of judgments. As a result, recognition and enforcement in China or Hong Kongof a court judgment obtained in the United States and any of the other jurisdictions mentioned abovemay be difficult or impossible.

Although we will be subject to the Hong Kong Listing Rules and the Hong Kong Codes onTakeovers and Mergers and Share Repurchases upon the listing of our H shares on the Hong KongStock Exchange, the holders of H shares will not be able to bring actions on the basis of violations ofthe Hong Kong Listing Rules and must rely on the Hong Kong Stock Exchange to enforce its rules.The Hong Kong Listing Rules and Hong Kong Codes on Takeovers and Mergers and ShareRepurchases do not have the force of law in Hong Kong.

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Holders of H shares may be subject to PRC taxation.

Under the PRC’s current tax laws, regulations and rules, dividends paid by us to holders of Hshares outside the PRC are currently exempt from PRC income tax. In addition, gains realized byindividuals or enterprises upon the sale or other disposition of H shares are currently not subject toPRC income tax. If these tax policies are changed in the future, holders of H shares may be subject towithholding taxes on dividends, or income tax on capital gains. See “Appendix VI—Taxation andForeign Exchange—PRC.”

Payment of dividends is subject to restrictions under PRC law.

Under PRC law, dividends may be paid only out of distributable profits. Distributable profitsmeans, as determined under PRC GAAP or IFRS, whichever is lower, the net profits for a period, plusthe distributable profits or net of the accumulated losses, if any, at the beginning of such period, lessappropriations to statutory surplus reserve (determined under PRC GAAP), general reserve, anddiscretionary surplus reserve (as approved by our shareholders’ meeting). As a result, we may not havesufficient distributable profits, if any, to make dividend distributions to our shareholders in the future,including in respect of periods where we register an accounting profit. Any distributable profits that arenot distributed in a given year are retained and available for distribution in subsequent years.

In addition, the CBRC has the discretionary authority to restrict dividend payments and otherdistributions by any bank that has a capital adequacy ratio below 8% or a core capital adequacy ratiobelow 4%, or that has violated certain other PRC banking regulations. See “Regulation andSupervision—PRC Regulation and Supervision—Capital Adequacy—CBRC Supervision of CapitalAdequacy” and “Regulation and Supervision—PRC Regulation and Supervision—PrincipalRegulators—The CBRC.”

We are subject to PRC government controls on currency conversion and future movements inexchange rates.

We receive substantially all of our revenues in Renminbi, which currently is not a freelyconvertible currency. A portion of these revenues must be converted into other currencies to meet ourbusiness and operational needs. For example, we need to obtain foreign currency to make payments ondeclared dividends, if any, on our H shares.

Capital account transactions in foreign currencies are subject to significant foreign exchangecontrols and generally require the approval of PRC governmental authorities, including the SAFE.Under China’s existing foreign exchange regulations, following the completion of the Global Offering,by complying with certain procedural requirements, we will be able to pay dividends, as currentaccount transactions, in foreign currencies without prior approval from the SAFE. However, we cannotassure you that the PRC government will not take measures to restrict access to foreign currencies forcertain current account transactions in the future. If this occurs, we may not be able to pay dividends inforeign currencies to our shareholders.

The value of the Renminbi against the U.S. dollar and other currencies fluctuates and isaffected by, among other things, changes in China’s and international political and economicconditions and the PRC government’s fiscal policies. Since 1994, the conversion of the Renminbi intoforeign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the PBOC,which are set daily based on the previous business day’s inter-bank foreign exchange market rates and

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current exchange rates in the world financial markets. The official exchange rate for the conversion ofRenminbi to U.S. dollars generally remained stable during the past decade. On July 21, 2005, the PRCgovernment started to allow the value of the Renminbi to fluctuate within a regulated band based onmarket supply and demand and by reference to a basket of currencies. On the same day, the value ofthe Renminbi appreciated by approximately 2% against the U.S. dollar. Any appreciation of theRenminbi against the U.S. dollar or any other foreign currencies may result in the decrease in theRenminbi-equivalent value of our foreign currency-denominated assets, including our proceeds fromthe Global Offering. Conversely, any devaluation of the Renminbi may adversely affect the value of,and any dividends payable on, our H shares in foreign currency terms. At June 30, 2006, 7.2% of ourassets and 5.2% of our liabilities were denominated in foreign currencies. In an effort to reduce ourexchange rate exposure on our U.S. dollar assets, we have purchased an option from Huijin to sell upto US$12 billion to Huijin at a specified Renminbi-U.S. dollar exchange rate in 12 installments in2008. See “Financial Information—Quantitative and Qualitative Analysis of Market Risk—ExchangeRate Risk” and “Risk Management—Market Risk Management—Exchange Rate Risk Management.”Future movements in exchange rates could adversely affect our financial condition, results ofoperations and our ability to satisfy capital adequacy and other regulatory requirements.

RISKS RELATING TO THE GLOBAL OFFERING

An active trading market for our H shares may not develop, and their trading prices mayfluctuate significantly.

Prior to the Global Offering and the A Share Offering, no public market for our shares hasexisted. We cannot assure you that a liquid public market for our H shares will develop or be sustainedafter the Global Offering. In addition, the offer price of our H shares is expected to be fixed byagreement between the Joint Bookrunners (on behalf of the underwriters) and us (for ourselves and onbehalf of the Selling Shareholders), and may not be indicative of the market price of our H sharesfollowing the completion of the Global Offering. If an active public market for our H shares does notdevelop after the Global Offering, the market price and liquidity of our H shares may be adverselyaffected.

We are conducting a concurrent but separate A Share Offering; the characteristics of the Ashare and H share markets are different.

We intend to conduct an offering of our A shares in the PRC concurrently with the GlobalOffering and list such shares on the Shanghai Stock Exchange. We refer to this offering in thisprospectus as the A Share Offering. Our A Share Offering will initially comprise an offering of13,000,000,000 A shares, representing approximately 3.97% of our total outstanding sharesimmediately following the completion of both the A Share Offering and the Global Offering, assumingthat neither of the over-allotment options for the Global Offering and the A Share Offering isexercised.

Our Global Offering and our A Share Offering are two separate and independent offerings, andneither offering is conditional upon the other. If for any reason we do not proceed with the A ShareOffering as proposed, or if the number of our A shares offered in the A Share Offering is reduced orthe actual issue price for our A shares is not within the estimated price range of our A Share Offering,the Global Offering may nevertheless proceed as described in this prospectus. Due to differences in thetimetables and market practices for the Global Offering and the A Share Offering, you will not benotified of the final issue price or final size of our A Share Offering, and we cannot assure you that you

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will be notified of any delay or termination of the A Share Offering, prior to the last time for lodgingapplications under the Hong Kong Public Offering.

Following the Global Offering and the A Share Offering, our H Shares will be traded on theHong Kong Stock Exchange and our A shares will be traded on the Shanghai Stock Exchange. Underthe current laws and regulations, except for the A shares held by the MOF and Huijin, which may beconverted into H shares, our H shares and A shares are neither interchangeable nor fungible, and thereis no trading or settlement between the H share and the A share markets. The H share and A sharemarkets have different trading characteristics and investor bases, including different levels of retail andinstitutional participation. As a result of these differences, the trading price of our H shares and Ashares may not be the same. Fluctuations in our A share price may adversely affect our H share price.

Future sales or perceived sales of a substantial number of our H shares or A shares in publicmarkets could adversely affect the prevailing market price of our H shares.

Future offerings or sales of a substantial number of our H shares or A shares in public markets,or any perception that such sales may occur, could adversely impact the market price of our H shares.

In particular, the shares held by our overseas strategic investors and the National Council forSocial Security Fund, or the SSF, will be converted into H shares upon completion of the GlobalOffering. The shares held by the SSF will include the shares purchased by the SSF as part of itsinvestment made in June 2006, as well as the shares to be acquired by the SSF in the Global Offeringin accordance with certain PRC regulations relating to the disposal of state-owned shares, or theScheme of State Share Reductions. Sales of the shares held by our overseas strategic investors and14,131,137,785 shares held by the SSF (assuming that the over allotment option for the GlobalOffering is not exercised) are subject to certain contractual restrictions. See “Our Strategic Investorsand Other Investors—Terms of Investments by Overseas Strategic Investors and SSF—Lock-up” and“Underwriting—Underwriting Arrangements and Expenses—Hong Kong Public Offering—Undertakings to the Underwriters.” Sales of the 3,539,100,000 shares (assuming that the over allotmentoption for the Global Offering is not exercised) that will be held by the SSF pursuant to the Scheme ofState Share Reductions will not be subject to any contractual restrictions and may be sold at any timeafter the Global Offering. Future sales, or perceived sales, of our H shares by these shareholders afterthe expiry of or in breach of the contractual restrictions, may adversely affect the market price of our Hshares.

Following the Global Offering and the A Share Offering, all of the remaining shares held by theMOF and Huijin will become A shares eligible for listing on the Shanghai Stock Exchange. The Ashares held by the MOF and Huijin will be subject to a lock-up period of 36 months following thecompletion of the A Share Offering. In addition, subject to the approval of the CSRC or the authorizedsecurities approval authorities of the State Council, these A shares may be converted into H shareswithout the approval of a class shareholder meeting, and such H shares may be listed and traded on theHong Kong Stock Exchange. The 36 month lock-up restriction under the Shanghai Stock ExchangeListing Rules will not apply to such converted H Shares. See “Share Capital—Shares Held By theMOF and Huijin.” Future sales, or perceived sales, of the shares held by the MOF and Huijin on theShanghai Stock Exchange or the Hong Kong Stock Exchange may adversely affect the trading price ofour H shares.

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Because the initial public offering price of the H shares is higher than the net tangible asset valueper share, you will incur immediate dilution.

The initial public offering price of our H shares is higher than the net tangible asset value pershare of the outstanding shares issued to our existing shareholders. Therefore, purchasers of our Hshares in the Global Offering will experience an immediate dilution in net tangible asset value ofHK$1.51 per H share (assuming an offer price of HK$2.815 per share for our H shares and RMB2.86per share for our A shares, being the mid-points of our indicative offer price ranges of the GlobalOffering and A Share Offering, respectively, and assuming that neither of the over-allotment optionsfor the Global Offering and the A Share Offering is exercised), and our existing shareholders willreceive an increase in the pro forma adjusted consolidated net tangible asset value per share of theirshares. In addition, holders of our H shares may experience a dilution of their proportional interest ifwe obtain additional capital in the future.

Dividends declared in the past may not be indicative of our dividend policy in the future.

On April 28, 2006, we declared a cash dividend of RMB3,537 million in respect of the yearended December 31, 2005. A declaration of dividends proposed by our board and the amount of anydividends will depend on various factors, including, without limitation, our results of operations,financial condition, future prospects and other factors which our board may determine are important.For further details of our dividend policy, see “Financial Information—Dividend Policy.” We cannotguarantee if and when we will pay dividends in the future.

We strongly caution you not to place any reliance on any information contained in press articlesor other media regarding our Global Offering or the A Share Offering or information releasedby us in connection with the A Share Offering.

There may have been prior to the publication of this prospectus, and there may be subsequent tothe date of this prospectus but prior to the completion of the Global Offering, press and media coverageregarding us, the Global Offering and the A Share Offering. Such press and other media coverage mayinclude references to certain events or information disclosed by us in China as part of the A ShareOffering, including information relating to us and the A Share Offering. The prospectus and otherinformation announced by us in connection with the A Share Offering are based on regulatoryrequirements and market practices in China, which are different from those applicable to the GlobalOffering. You should rely solely upon the information contained in this prospectus, the applicationforms and any formal announcements made by us in Hong Kong in making your investment decisionregarding our H shares. We do not accept any responsibility for the accuracy or completeness of anyinformation reported by the press or other media, nor the fairness or appropriateness of any forecasts,views or opinions expressed by the press or other media regarding our H shares or A shares, the GlobalOffering or the A Share Offering, or us. We make no representation as to the appropriateness,accuracy, completeness or reliability of any such information or publication. Accordingly, prospectiveinvestors should not rely on any such information, reports or publications in making their decisionswhether to invest in our H shares or in the Global Offering.

We are also required, in connection with our A Share Offering, to make certain formalannouncements in the PRC relating to us and the A Share Offering, including the publication of our Ashare prospectus. This information is released in connection with our A Share Offering pursuant toPRC regulatory requirements that are not applicable to the Global Offering. Certain announcements inrelation to our A Share Offering will be published on the website of the Hong Kong Stock Exchange.

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However, such information and the prospectus for the A Share Offering do not and will not form partof this prospectus. Prospective investors in H shares are reminded that, in making their decisions as towhether to purchase our H shares, they should rely only on the financial, operational and otherinformation included in this prospectus and the application forms. By applying to purchase our Hshares in the Global Offering, you will be deemed to have agreed that you will not rely on anyinformation other than that contained in this prospectus and the application forms.

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INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING

DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS

This prospectus contains particulars given in compliance with the Hong Kong CompaniesOrdinance, the Securities and Futures (Stock Market Listing) Rules of Hong Kong and the Hong KongListing Rules for the purpose of giving information to the public with regard to us. Our directorscollectively and individually accept full responsibility for the accuracy of the information contained inthis prospectus and confirm, having made all reasonable enquiries, that, to the best of their knowledgeand belief, there are no other facts the omission of which would make any statement in this prospectusmisleading.

APPROVAL OF THE CBRC AND THE CSRC

The CBRC and the CSRC gave their written approval on August 17, 2006 and September 19,2006, respectively, for the Global Offering and the application to list the H shares on the Hong KongStock Exchange. In granting such approval, neither the CBRC nor the CSRC accepts any responsibilityfor our financial soundness, nor for the accuracy of any of the statements made or opinions expressedin this prospectus or in the application forms.

UNDERWRITING

The listing of our H shares on the Hong Kong Stock Exchange is sponsored by ChinaInternational Capital Corporation (Hong Kong) Limited, ICEA Capital Limited and Merrill Lynch FarEast Limited, collectively referred to as our Joint Sponsors.

China International Capital Corporation Limited, ICEA Capital Limited and Merrill Lynch,Pierce, Fenner & Smith Incorporated are the joint global coordinators of the Global Offering,collectively referred to as the Joint Global Coordinators. Merrill Lynch, Pierce, Fenner & SmithIncorporated, China International Capital Corporation Limited, Credit Suisse (Hong Kong) Limited,Deutsche Bank AG, Hong Kong Branch and ICEA Capital Limited are the joint bookrunners of theGlobal Offering, collectively referred to as the Joint Bookrunners.

The Hong Kong Public Offering is underwritten by the Hong Kong underwriters listed in thesection headed “Underwriting,” subject to agreement on the offer price between us (on behalf ofourselves and the Selling Shareholders) and the Joint Bookrunners (on behalf of the underwriters).Merrill Lynch Far East Limited, China International Capital Corporation (Hong Kong) Limited, CreditSuisse (Hong Kong) Limited, Deutsche Bank AG, Hong Kong Branch and ICEA Capital Limited arethe joint lead managers of the Hong Kong Public Offering, collectively referred to as the Joint LeadManagers.

The International Offering is expected to be underwritten by the International Offeringunderwriters.

For further information about the underwriters and the underwriting arrangements, see“Underwriting.”

RESTRICTIONS ON THE USE OF THIS PROSPECTUS

No action has been taken to permit a public offering of the Offer Shares, other than in HongKong and Japan, or the distribution of this prospectus in any jurisdiction other than Hong Kong.

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Accordingly, this prospectus may not be used for the purpose of, and does not constitute, an offer orinvitation in any jurisdiction or in any circumstances in which such an offer or invitation is notauthorized or to any person to whom it is unlawful to make such an offer or invitation. The distributionof this prospectus and the offering and sales of the Offer Shares in other jurisdictions are subject torestrictions and may not be made except as permitted under the applicable securities laws of suchjurisdictions pursuant to registration with or authorization by the relevant securities regulatoryauthorities or an exemption therefrom. In particular, the Offer Shares have not been offered and sold,and will not be offered or sold, directly or indirectly, in the PRC.

APPLICATION FOR LISTING ON THE HONG KONG STOCK EXCHANGE

We have applied to the Listing Committee of the Hong Kong Stock Exchange for the listing of,and permission to deal in, our H shares including (i) any H shares which may be issued or soldpursuant to the exercise of the over-allotment option; (ii) any H shares, converted from state-ownedshares, which are to be held by the MOF, Huijin and SSF; and (iii) any H shares, converted fromforeign legal person shares, which are to be held by The Goldman Sachs Group, Inc., or GoldmanSachs, Allianz Group, or Allianz, and American Express Company, or American Express.

Shares held by the MOF and Huijin may be converted to H shares subject to satisfying certainrequirements. See “Share Capital—Shares held by the MOF and Huijin” for further information.

Save that an application has been made for the listing of our A shares on the Shanghai StockExchange as disclosed in the section headed “A Share Offering” in this prospectus, no part of our shareor loan capital is listed on or dealt in on any other stock exchange and no such listing or permission todeal is being or proposed to be sought in the near future.

PROFESSIONAL TAX ADVICE RECOMMENDED

If you are unsure about the taxation implications of subscribing for, purchasing, holding ordealing in our H shares, you should consult an expert.

It is emphasized that none of us, the Selling Shareholders, the Joint Global Coordinators, theJoint Sponsors, the Joint Bookrunners, the underwriters, their respective directors nor any other personinvolved in the Global Offering accepts responsibility for any tax effects on, or liabilities of, anyperson resulting from subscribing for, purchasing, holding or disposing of our H shares.

H SHARE REGISTER AND STAMP DUTY

All of the H shares issued pursuant to applications made in the Hong Kong Public Offering willbe registered on our H share branch register to be maintained in Hong Kong. Our principal register ofmembers will be maintained by us at our head office in the PRC.

Dealings in the H shares registered on our H share branch register will be subject to Hong Kongstamp duty.

OVER-ALLOTMENT AND STABILIZATION

Details of the arrangements relating to the stabilization and over-allotment option are set out in“Underwriting.”

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PROCEDURES FOR APPLICATION FOR HONG KONG OFFER SHARES

The application procedure for the Hong Kong Offer Shares is set out in “How to Apply forHong Kong Offer Shares” and on the relevant application forms.

STRUCTURE OF THE GLOBAL OFFERING

Details of the structure of the Global Offering, including its conditions, are set out in “Structureof the Global Offering.”

REGISTRATION OF SUBSCRIPTION, PURCHASE AND TRANSFER OF H SHARES

Each acquirer of our H shares agrees with us and each of our shareholders, and we agree witheach shareholder, to observe and comply with the PRC Company Law, the Special Regulations of theState Council on Overseas Offering and Listing of Shares by Joint Stock Limited Companies and ourarticles of association.

Each acquirer of our H shares agrees with us, each of our shareholders, directors, supervisors,managers and officers, and we acting for ourselves and for each of our directors, supervisors, managersand officers agrees with each of our shareholders to refer all differences and claims arising from ourarticles of association or any rights or obligations conferred or imposed by the PRC Company Law orother relevant laws and administrative regulations concerning our affairs to arbitration in accordancewith our articles of association, and any reference to arbitration shall be deemed to authorize thearbitration tribunal to conduct hearings in open session and to publish its award. Such arbitration shallbe final and conclusive.

Each acquirer of our H shares agrees with us and each of our shareholders that the H shares arefreely transferable by the holders thereof.

Each acquirer of our H shares authorizes us to enter into a contract on his behalf with each ofour directors and officers whereby such directors and officers undertake to observe and comply withtheir obligations to our shareholders as stipulated in our articles of association.

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PARTIES INVOLVED IN THE GLOBAL OFFERING

DIRECTORS

Name Address Nationality

Chairman and Executive Director

Mr. JIANG Jianqing . . . . . . . . . . . . . . . . . . . . . . . . . . . . Room 601, Gate 1, Building 10, FenghuiYuan, Xicheng District, Beijing, PRC

Chinese

Executive directors

Mr. YANG Kaisheng . . . . . . . . . . . . . . . . . . . . . . . . . . . . Room 302, Gate 3, Building 10, FenghuiYuan, Xicheng District, Beijing, PRC

Chinese

Mr. ZHANG Furong . . . . . . . . . . . . . . . . . . . . . . . . . . . . Room 502, Gate 3, Building 10, FenghuiYuan, Xicheng District, Beijing, PRC

Chinese

Mr. NIU Ximing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Room 504, Building 4, Yard 8, WeigongCun, Haidian District, Beijing, PRC

Chinese

Non-Executive Directors

Mr. FU Zhongjun . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Room 1304, Floor 4, 11 West Street Jia,Wanshou Road, Haidian District, Beijing,PRC

Chinese

Mr. KANG Xuejun . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Room 602, Floor 4, 11 West Street Jia,Wanshou Road, Haidian District, Beijing,PRC

Chinese

Mr. SONG Zhigang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Room 402, Unit 3, Building 19, Yard 9,Yuyuantan Road South, Haidian District,Beijing, PRC

Chinese

Mr. WANG Wenyan . . . . . . . . . . . . . . . . . . . . . . . . . . . . Room 302, Gate 1, Building 6, GuoyingYuan, Xicheng District, Beijing, PRC

Chinese

Ms. ZHAO Haiying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Room 302, Building 1, Yinghuashengjia,6 West Street, Yuetan Road, XichengDistrict, Beijing, PRC

Chinese

Mr. ZHONG Jian’an . . . . . . . . . . . . . . . . . . . . . . . . . . . . Room 801, Gate 4, Building 2, LianhuaYuan, Haidian District, Beijing, PRC

Chinese

Mr. Christopher A. COLE . . . . . . . . . . . . . . . . . . . . . . . . 226 Hopewell-Amwell Road, Hopewell,New Jersey 08525, U.S.A.

American

Independent Non-Executive Directors

Mr. LEUNG Kam Chung, Antony . . . . . . . . . . . . . . . . . 3B, 41 Repulse Bay Road, Hong Kong Chinese

Mr. John L. THORNTON . . . . . . . . . . . . . . . . . . . . . . . 1095 Larger Cross Road, Far Hills,Bedminster, New Jersey 07931, U.S.A.

American

Mr. QIAN Yingyi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Qitiao, Dongsi, Dongcheng DistrictBeijing, PRC

Chinese

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SUPERVISORSName Address Nationality

Mr. WANG Weiqiang . . . . . . . . . . . . . . . . . . . . . . . Room 8A, Unit 6, Building 2, Zhonghai ZijinYuan, Haidian District, Beijing, PRC

Chinese

Ms. WANG Chixi . . . . . . . . . . . . . . . . . . . . . . . . . . Room 1408, Building 22, Balizhuang Bei Li,Haidian District, Beijing, PRC

Chinese

Mr. WANG Daocheng . . . . . . . . . . . . . . . . . . . . . . . Room 301, Gate 1, Building 1, Cuiwei Xi Li,Wanshou Road, Haidian District, Beijing, PRC

Chinese

Mr. MIAO Gengshu . . . . . . . . . . . . . . . . . . . . . . . . . 5 Sanlihe Road, Haidian District, Beijing, PRC Chinese

Mr. ZHANG Wei . . . . . . . . . . . . . . . . . . . . . . . . . . . Room 801, Unit 2, Building 4, Fengrong Yuan,Xicheng District, Beijing, PRC

Chinese

PARTIES INVOLVED

Joint Global Coordinators China International Capital Corporation Limited28th Floor, China World Tower 21 Jianguomenwai AvenueBeijing, PRC

ICEA Capital Limited26th Floor, ICBC Tower3 Garden RoadCentral, Hong Kong

Merrill Lynch, Pierce, Fenner & Smith Incorporated4 World Financial Center250 Vesey StreetNew York, NY10080U.S.A.

Joint Sponsors China International Capital Corporation (Hong Kong) LimitedSuite 2307, 23rd FloorOne International Finance Centre1 Harbour View StreetCentral, Hong Kong


Merrill Lynch Far East Limited17th Floor, ICBC Tower3 Garden RoadCentral, Hong Kong

Joint Bookrunners Merrill Lynch, Pierce, Fenner & Smith Incorporated4 World Financial Center250 Vesey StreetNew York, NY10080U.S.A.

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China International Capital Corporation Limited28th Floor, China World Tower 21 Jianguomenwai AvenueBeijing, PRC

Credit Suisse (Hong Kong) Limited45th Floor, Two Exchange Square8 Connaught PlaceCentral, Hong Kong

Deutsche Bank AG, Hong Kong Branch55th Floor, Cheung Kong Center2 Queen’s Road CentralHong Kong


Joint Lead Managers of the Hong KongPublic Offering


China International Capital Corporation (Hong Kong) LimitedSuite 2307, 23rd FloorOne International Finance Centre1 Harbour View StreetCentral, Hong Kong




Joint Lead Managers of theInternational Offering

Merrill Lynch, Pierce, Fenner & Smith Incorporated4 World Financial Center250 Vesey StreetNew York, NY10080U.S.A.

China International Capital Corporation Limited28th Floor, China World Tower 21 Jianguomenwai AvenueBeijing, PRC

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Financial advisor Lehman Brothers Asia Limited26th Floor, Two International Finance Centre8 Finance StreetCentral, Hong Kong

Legal advisors to our Company As to Hong Kong lawHerbert Smith23/F Gloucester Tower15 Queen’s Road CentralCentral, Hong Kong

As to United States lawDavis Polk & Wardwell18th Floor, The Hong Kong Club Building3A Chater RoadCentral, Hong Kong

As to PRC lawKing & WoodFortune PlazaTower A, 40th Floor7 Dongsanhuan ZhongluChaoyang DistrictBeijing, PRC

Legal advisors to the underwriters As to Hong Kong lawFreshfields Bruckhaus Deringer11th Floor, Two Exchange SquareCentral, Hong Kong

As to United States lawShearman & Sterling LLP12/F, Gloucester TowerThe Landmark15 Queen’s Road CentralCentral, Hong Kong

As to PRC LawHaiwen & PartnersRoom 1711, Beijing Silver TowerNo. 2 Dong San Huan North RoadChaoyang DistrictBeijing, PRC

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International auditors and reportingaccountants

Ernst & YoungCertified Public Accountants18th FloorTwo International Finance Centre8 Finance StreetCentral, Hong Kong

Property valuers Sallmanns (Far East) Limited22nd Floor, Siu On Centre188 Lockhart RoadWanchai, Hong Kong

Receiving bankers The Hongkong and Shanghai Banking Corporation Limited1 Queen’s Road CentralHong Kong

Industrial and Commercial Bank of China (Asia) Limited33/F, ICBC Tower3 Garden RoadCentral, Hong Kong

Bank of China (Hong Kong) Limited1 Garden RoadHong Kong

Bank of Communications Co., Ltd. Hong Kong Branch20 Pedder StreetCentral, Hong Kong

The Bank of East Asia, Limited10 Des Voeux Road CentralHong Kong

Hang Seng Bank Limited83 Des Voeux RoadCentral, Hong Kong

Standard Chartered Bank (Hong Kong) Limited15th Floor, Standard Chartered Tower388 Kwun Tong RoadKwun Tong, Hong Kong

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CORPORATE INFORMATION

Registered office No. 55 Fuxingmennei AvenueXicheng District, Beijing 100032, PRC

Principal place of business in Hong Kong 33/F, ICBC Tower3 Garden RoadCentral, Hong Kong

Company secretary Mr. PAN Gongsheng, Ph.D

Qualified accountant Mr. YEUNG Manhin, BBA, FCCA, HKICPA

Authorized representatives Mr. YANG KaishengRoom 302, Gate 3, Building 10,Fenghui Yuan, Xicheng District,Beijing, PRC

Mr. PAN GongshengRoom 801, Unit 3, Building 4,Fengrong Yuan, Xicheng District,Beijing, PRC

H share registrar and transfer office Computershare Hong Kong Investor Services Limited1712 – 1716, 17/F, Hopewell Centre,183 Queen’s Road East,Wanchai, Hong Kong

Compliance advisors China International Capital Corporation (Hong Kong) LimitedSuite 2307, 23rd FloorOne International Finance Centre1 Harbour View StreetCentral, Hong Kong


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BANKING INDUSTRY IN CHINA

This section contains certain information which has been derived from official sources.While we have exercised reasonable care in compiling and reproducing such information, it hasnot been independently verified by us or any of our affiliates or advisors, nor by any of theunderwriters or any of their affiliates or advisors. This information may not be consistent withinformation from other sources. In addition, certain financial data contained in this section,including data relating to us, have been determined in accordance with PRC GAAP, and differfrom our IFRS financial data presented elsewhere in this prospectus.

OVERVIEW

Since the late 1970s, China’s economy has grown rapidly as a result of the extensive economicreforms initiated by the PRC government. According to the National Bureau of Statistics of China,China’s GDP grew at a compound annual growth rate of 13.6% between 2001 and 2005. In 2005,China’s total GDP amounted to RMB18.2 trillion, making China’s economy the fourth largest in theworld. China is also the third largest import and export country in the world with a total import andexport volume of US$1.4 trillion in 2005. The following table sets forth the total and per capita GDP ofthe PRC from 2001 to 2005:

For the year ended December 31,

Compoundannualgrowth

rate

2001 2002 2003 2004 2005 2001-2005

GDP (in billions of RMB) . . . . . . . . . . . . . . . . . . . 10,965.5 12,033.3 13,582.3 15,987.8 18,232.1 13.6%GDP per capita (in RMB) . . . . . . . . . . . . . . . . . . . 8,622 9,398 10,542 12,336 13,985 12.9%

Source: National Bureau of Statistics of China.

The following table sets forth, for the periods indicated, the annual real GDP growth of the sixlargest economies in the world, including China, based on 2005 GDP:


2001 2002 2003 2004 2005

(in percentages)

China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3% 9.1% 10.0% 10.1% 9.9%France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 1.3 0.9 2.1 1.4Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 0.1 (0.2) 1.6 0.9Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.1 1.8 2.3 2.7United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 2.0 2.5 3.2 1.8United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 1.6 2.7 4.2 3.5

Source: Economist Intelligence Unit.

The financial services sector in China has grown significantly primarily as a result of the rapiddevelopment of China’s economy. The banking sector has benefited from the rapid economicdevelopment in China and plays a leading role in financing activities and allocation of credit resourcesin China. In addition, bank deposits remain the primary vehicle for domestic savings. According to thePBOC, the amount of total Renminbi-denominated deposits and loans in China increased at acompound annual growth rate of 18.9% and 14.7%, respectively, from December 31, 2001 toDecember 31, 2005. At December 31, 2005, the total assets of China’s banking industry amounted toRMB38.4 trillion. The following table sets forth, at the dates indicated, total Renminbi-denominated

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and foreign currency-denominated deposits and total Renminbi-denominated and foreign currency-denominated loans, and the related compound annual growth rates, for the period indicated, forbanking institutions in China:

At December 31,


rate

2001 2002 2003 2004 2005 2001-2005

Total Renminbi-denominated deposits (in billionsof RMB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,361.7 17,091.7 20,805.6 24,142.4 28,716.9 18.9%

Total Renminbi-denominated loans (in billions ofRMB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,231.5 13,129.4 15,899.6 17,819.8 19,469.0 14.7%

Total foreign currency-denominated deposits (inbillions of U.S. dollars) . . . . . . . . . . . . . . . . . . . 134.9 150.7 148.7 153.0 161.6 4.6%

Total foreign currency-denominated loans (inbillions of U.S. dollars) . . . . . . . . . . . . . . . . . . . 80.6 102.8 130.2 135.3 150.5 16.9%

Source: PBOC.Note: Amounts of the total deposits and loans presented above consist, as applicable, of the deposits or loans of the PBOC, the Big Four

commercial banks, other national commercial banks, city commercial banks, urban credit cooperatives, rural commercial banks, ruralcredit cooperatives, foreign-invested banks, policy banks, finance companies, trust and investment companies, financial leasingcompanies and the postal savings bureau.

The Big Four commercial banks, namely, our bank, Agricultural Bank of China, Bank of Chinaand China Construction Bank, are the primary players in the banking industry in China. At December31, 2005, total assets of the Big Four commercial banks represented 53.5% of the total assets ofbanking institutions in China.

In recent years, in addition to the traditional corporate lending business, there has beensignificant growth in fee- and commission-based products and services and personal loans in the PRCcommercial banking industry. From December 31, 2001 to December 31, 2005, total outstandingprincipal amount of Renminbi-denominated personal loans in China increased at a compound annualgrowth rate of 33.1%. Continuing economic growth and rising income levels in China are expected toresult in greater demand for sophisticated corporate and personal banking products and services,presenting further growth potential for China’s banking industry.

HISTORY AND DEVELOPMENT

Pre-1984

China established a centralized national banking system in 1953. Not only did the PBOC act asChina’s central bank, but it also engaged in ordinary commercial banking activities, such as deposit-taking, loan extension, and clearing and settlement services. During this period, Bank of China was theinternational business arm of the PBOC, China Construction Bank, formerly known as the People’sConstruction Bank of China, which operated under the direction of the MOF, was primarilyresponsible for administering and disbursing government funds designated for infrastructure projects,and Agricultural Bank of China, which merged into the PBOC in 1965, was established to providefinancing for China’s agriculture sector. This banking system remained in place until the beginning ofChina’s economic reforms in the late 1970s.

As part of its economic reform program, the PRC government began to implement changes tothe banking system in China at the end of the 1970s. One of the significant measures taken by the PRC

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government was to establish state-owned specialized banks. In early 1979, the government separatedAgricultural Bank of China and Bank of China from the PBOC and placed China Construction Bankunder the direct supervision of the State Council. These three banks were designated to specialize inagrarian financing; foreign exchange and trade financing; and construction and infrastructurefinancing, respectively. At the end of 1983, the State Council officially designated the PBOC as thecentral bank of China and the principal regulator and supervisor of China’s banking system.

1984 - 1994

We were established as a state-owned specialized bank designated to specialize in urbancommercial financing on January 1, 1984, when all of the commercial banking functions of the PBOCwere transferred to our bank. The State Council allowed the four state-owned specialized banks to havelimited autonomy with respect to their commercial operations and permitted them to expand into othercommercial banking businesses beyond their specialized functions. Beginning from the mid-1980s,with the encouragement and support of the PRC government, a number of small- and medium-sizedjoint-stock commercial banks and rural and urban credit cooperatives were established. However,during this period, China’s banking system continued to be tightly restricted by governmental plansand policies, and China’s banks were not operated on an independent and commercial basis.

1994 - 2003

In the mid-1990s, the PRC government accelerated its financial reforms and began toencourage the state-owned specialized banks to operate on a more commercial basis. In 1994, the PRCgovernment established three policy banks—China Development Bank, The Export-Import Bank ofChina and Agricultural Development Bank of China—to assume substantially all policy lendingfunctions of the state-owned specialized banks. Accordingly, the four state-owned specialized bankswere transformed into state-owned commercial banks. In 1995, China adopted the PRC CommercialBanking Law, which required that PRC commercial banks be responsible for their own businessoperations, risk management and financial performance. However, due to the transitional nature of theChinese economy at that time, PRC commercial banks continued to operate under significantgovernmental influence.

In the late 1990s, the PRC government undertook further initiatives to improve the bankingindustry’s risk management and asset quality, and to strengthen its capital base. In 1998, the MOFcontributed RMB270.0 billion to the Big Four commercial banks as equity to improve their capitaladequacy by issuing special government bonds. In 1999, the PRC government established four assetmanagement companies—China Huarong Asset Management Corporation, China Great Wall AssetManagement Corporation, China Cinda Asset Management Corporation and China Orient AssetManagement Corporation—as vehicles to primarily acquire and manage non-performing assets of theBig Four commercial banks. The PBOC also required all PRC commercial banks to implement a five-category loan classification system. Furthermore, the PBOC issued directives to require that PRCcommercial banks implement strict credit extension policies and authorization procedures. In 2003, theCBRC was established to assume a majority of the banking regulatory functions of the PBOC and actas the primary regulator of the banking industry in China. For a description of the CBRC and a numberof initiatives undertaken by the PRC government in recent years with respect to China’s bankingindustry, see “Regulation and Supervision—PRC Regulation and Supervision.”

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2003 - Present

At the end of 2003, the PRC government commenced a major restructuring of China’s bankingindustry. In December 2003, Huijin contributed US$22.5 billion as equity to each of ChinaConstruction Bank and Bank of China. Subsequent to these equity contributions in 2004, ChinaConstruction Bank and Bank of China each disposed of or wrote off non-performing assets, introducedforeign and domestic strategic investors and issued subordinated debts. Our restructuring commencedin April 2005 when Huijin contributed US$15.0 billion as equity to our bank, and the MOF retainedRMB124.0 billion of our then existing capital. For a description of our restructuring, see “OurRestructuring and Operational Reform—Financial Restructuring.”

INDUSTRY STRUCTURE

The following table sets forth, at December 31, 2005, certain information relating to the totalassets, loans and deposits of the banking institutions in each category, which are based on PRC GAAPdata.

At December 31, 2005

Number ofinstitutions

Total assets Total loans Total deposits

Amount% oftotal Amount(6)

% oftotal Amount

% oftotal

(in billions of RMB, except numbers of institutions and percentages)

Big Four commercial banks . . . . . . . . . . . . . . 4 20,552.2 53.5% 10,810.2 50.5% 17,374.4 58.7%Other national commercial banks(1) . . . . . . . . . 13 5,897.5 15.3 3,530.6 16.5 4,570.0 15.4City commercial banks . . . . . . . . . . . . . . . . . . 115 2,059.1 5.4 1,112.6 5.2 1,691.1 5.7Urban credit cooperatives . . . . . . . . . . . . . . . . 681(5) 205.1 0.5 114.8 0.5 181.3 0.6Rural credit cooperatives(2) . . . . . . . . . . . . . . . 32,876(5) 3,175.4 8.3 1,900.9 8.9 2,767.4 9.4Foreign-invested banks(3) . . . . . . . . . . . . . . . . 211(5) 635.3 1.6 330.1 1.6 169.5 0.6Others(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149(5) 5,923.5 15.4 3,603.7 16.8 2,839.8 9.6

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,448.1 100.0% 21,402.9 100.0% 29,593.5 100.0%

Source: PBOC, annual reports and prospectuses of relevant banks.(1) Amounts of total assets, loans and deposits do not include those of China Zheshang Bank and Bohai Bank.(2) Consists of rural commercial banks and rural credit cooperatives.(3) At December 31, 2004, there were 67 foreign-invested banks involved in 211 operations in China, consisting of 186 branches, nine

wholly owned banks, 13 joint-venture banks and three finance companies.(4) Consists of policy banks, finance companies, trust and investment companies, financial leasing companies and the postal savings bureau.

Amounts of total assets, loans and deposits, however, do not include those of the postal savings bureau.(5) At December 31, 2004.(6) Amounts for total loans are before allowance for impairment losses.

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The Big Four Commercial Banks

Since their establishment, the Big Four commercial banks have been the principal source offinancing in China, particularly for state-owned enterprises. At December 31, 2005, total assets of theBig Four commercial banks represented 53.5% of the total assets of banking institutions in China. Thefollowing table sets forth, at December 31, 2005, the total assets, loans and deposits, which are basedon PRC GAAP data, and the approximate number of domestic and overseas branches, outlets and otherestablishments of each of the Big Four commercial banks:

At December 31, 2005

Total assets Total loans Total deposits

Approximatenumber ofbranches,

outlets andother

establishmentsAmount% oftotal Amount(1)

% oftotal Amount

% oftotal

(in billions of RMB, except numbers of branches, outlets and otherestablishments and percentages)

Industrial and Commercial Bank ofChina . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,454.1 31.4% 3,289.6 30.4% 5,660.5(2) 32.6% 18,870

Agricultural Bank of China . . . . . . . . . . . . 4,771.0 23.2 2,829.3 26.2 4,036.9 23.2 28,234Bank of China . . . . . . . . . . . . . . . . . . . . . . . 4,742.8 23.1 2,235.0 20.7 3,703.8 21.3 11,618China Construction Bank . . . . . . . . . . . . . . 4,584.3 22.3 2,456.3 22.7 3,973.2 22.9 14,250

Total . . . . . . . . . . . . . . . . . . . . . . . . . . 20,552.2 100.0% 10,810.2 100.0% 17,374.4 100.0% 72,972

Source: Annual reports and prospectuses of relevant banks.(1) Amounts for total loans are before allowances for impairment losses.(2) Amounts for total deposits exclude the fiscal deposits and outward remittance.

Other National Commercial Banks

At December 31, 2005, there were 13 other national commercial banks in China. These banksare licensed to engage in commercial banking activities nation-wide. The total assets of these nationalcommercial banks represented 15.3% of the total assets of banking institutions in China atDecember 31, 2005.

Other Market Participants

City commercial banks are permitted to engage in commercial banking activities within specificgeographic areas. Urban and rural credit cooperatives and rural commercial banks provide a limitedrange of designated banking products and services for small enterprises and local residents in specificurban and rural areas.

Foreign-invested banks are currently subject to certain restrictions on their operations. See“Regulation and Supervision—PRC Regulation and Supervision—Regulation of Foreign-investedFinancial Institutions Operating in China.” Pursuant to its WTO accession commitments, China hasprogressively permitted foreign-invested banks to conduct Renminbi-denominated banking businessesand, by the end of 2006, all restrictions on the geographic presence, customer base and operationallicenses of foreign-invested banks are expected to be removed.

Other financial institutions include policy banks, finance companies, trust and investmentcompanies, financial leasing companies and the postal savings bureau. China’s postal savings bureauoperates through the nation-wide network of post offices and offers savings deposits, remittance and alimited number of other banking services.

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INDUSTRY TRENDS

Strengthened Regulation and Other Banking Sector Reforms

The PBOC and, since its establishment in 2003, the CBRC have implemented a series of reforminitiatives designed to strengthen the regulation and supervision of China’s banking sector, liberalizethe financial markets, and enhance corporate governance and risk management of PRC commercialbanks. These initiatives include, among others:

Š strengthening regulation and supervision with respect to issues such as capital adequacy,asset quality, liquidity, operating efficiency and profitability;

Š the gradual liberalization of market entry and interest rates;

Š encouraging banks to establish a corporate governance structure that includes a board ofdirectors with independent directors and audit, risk management and other boardcommittees, and requiring banks to create an independent internal audit function withclearly defined policies and procedures and develop an internal control system in line withinternational best practices;

Š requiring banks to improve credit approval procedures and other lending practices,supervising the implementation of the five-category loan classification and the related loanloss provisioning practices, and strengthening the regulatory requirements for market riskand operational risk management;

Š encouraging foreign investment in China’s banking sector by, among other measures,raising the 15% ownership limit on individual foreign investments in PRC domesticcommercial banks to 20%, with a 25% maximum limit on total foreign holdings in non-listed PRC commercial banks; and

Š encouraging commercial banks to expand into new business areas and selecting certainqualified banks to adopt the universal banking model on a trial basis, includingencouraging commercial banks to jointly develop businesses with insurance companiesand establish fund management companies.

See “Regulation and Supervision.”

Further Growth of Fee- and Commission-based Products and Services

Historically, PRC commercial banks were restricted in their ability to charge fees andcommissions for banking services. Since 2001, the PRC government has begun to allow PRCcommercial banks greater flexibility to charge fees and commissions for their banking services.According to the CBRC, the domestic fee and commission income of the Big Four commercial banksincreased from RMB6.9 billion in 1995 to RMB38.9 billion in 2004, representing a compound annualgrowth rate of 21.2%. Fee- and commission-based products and services are expected to contributeincreasingly to the operating income of PRC commercial banks as the PRC government continues itsfinancial reforms and PRC commercial banks seek to meet the increasingly sophisticated demand oftheir corporate and personal banking customers.

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Increasing Demand for Personal Banking Products and Services

In recent years, demand for personal banking products and services in China has grownsignificantly. We believe that rising income levels in China will continue to foster demand for personalbanking products, including consumer finance and personal wealth management products and services.The following table sets forth certain key personal income data for China and their respectivecompound annual growth rates for the periods indicated:



rate

2001 2002 2003 2004 2005 2001-2005

(in RMB, except percentages)

Per capita annual disposable income of urban households . . . . 6,860 7,703 8,472 9,422 10,493 11.2%Per capita annual net income of rural households . . . . . . . . . . . 2,366 2,476 2,622 2,936 3,255 8.3%

Source: National Bureau of Statistics of China.

Renminbi-denominated personal loans totalled RMB2.2 trillion at December 31, 2005,representing 11.3% of total loans in China, according to the PBOC. By comparison, at December 31,2005, outstanding personal loans as a percentage of total loans was 39.2% in the U.S. and 28.2% inJapan. Accordingly, we believe that the personal lending business in China has significant potential forgrowth. From December 31, 2001 to December 31, 2005, total outstanding principal amount ofRenminbi-denominated personal loans in China increased at a compound annual growth rate of 33.1%.

Property mortgage loans have been the largest component of personal loans. Private homeownership has grown significantly in China primarily as a result of the housing reform programsimplemented by the PRC government since the 1980s. Total personal property mortgage loans grewfrom RMB559.8 billion at December 31, 2001 to approximately RMB1.8 trillion at December 31,2005, according to the PBOC. Although the PRC government has adopted various measures to tightenlending to the property sector since 2003 to address the overheating of the housing market, personalproperty mortgage loans have continued to grow significantly in the past few years. Since April 2006,the PRC government has introduced certain new monetary policies and other regulatory measures tocontain the expansion of the real estate industry, as well as certain other industries. See “RiskFactors—Risks Relating to China—China’s Economic, Political and Social Conditions, as well asGovernment Policies, Could Affect Our Business.”

The bank card business in China has also expanded rapidly in recent years. The total number ofbank cards in China increased from approximately 383 million at December 31, 2001 to approximately960 million at December 31, 2005. This growth was accompanied by an expansion of the electronicbanking terminal network. Debit cards have been the primary type of bank card issued in China. AtDecember 31, 2005, there were approximately 920 million debit cards and approximately 40 millioncredit cards in issue. The development of the credit card market has been limited to date for a variety ofreasons, including strict regulation on licensing, underdeveloped nation-wide payment infrastructureand, until recently, the absence of a nation-wide consumer credit information system. However, withthe increasing number of banks being licensed to engage in credit card business, the development of aunified national inter-bank information exchange network for bank cards by China Unionpay and thedevelopment of a nation-wide personal credit information system by the PBOC, we expect China’scredit card industry to grow significantly in the future.

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In addition, personal wealth management business has experienced significant growth in Chinain recent years. For example, the annual volume of open-end funds issued in China increased from 11.7billion units in 2001 to 101.8 billion units in 2005, representing a compound annual growth rate of71.7%. At December 31, 2005, the total net assets of all the open-end funds outstanding in Chinaamounted to RMB386.9 billion. With the continued transformation of the PRC financial system andthe further development of the universal banking model in the PRC banking industry, demand forpersonal wealth management products and services is expected to continue to grow rapidly.

Rapid Growth of Inter-bank Market

Since its establishment in the mid-1990s, the inter-bank market in China has grownsignificantly. The PRC inter-bank market currently consists of a number of segments, including inter-bank borrowings, discounted bills, bonds, foreign exchange, futures and gold. In addition, in recentyears, there have been significant developments in new financial tools and derivative products in thePRC inter-bank market, which include, among others, non-recourse repurchase of bonds, bondforwards, interest rate swaps, foreign exchange forwards, foreign exchange swaps and commercialpaper. According to the PBOC, the total amount of inter-bank borrowings increased from RMB197.8billion in 1998 to RMB1.3 trillion in 2005, representing a compound annual growth rate of 30.9%. Thetotal amount of bonds repurchased on a non-recourse basis increased from RMB1.4 trillion in 1998 toRMB18.2 trillion in 2005, representing a compound annual growth rate of 44.3%. The total amount offoreign exchange traded in the inter-bank market of China increased from US$40.8 billion in 1994 toUS$209.0 billion in 2004, representing a compound annual growth rate of 17.7%.

Improvement in Asset Quality

Historically, China’s banking sector was burdened with a high level of non-performing loans.Since the late 1990s, the PRC government has undertaken a series of measures designed to assist theBig Four commercial banks in improving asset quality. These measures include establishing four assetmanagement companies as vehicles primarily to acquire and manage the non-performing loans of theBig Four commercial banks, which contributed to the decrease in their ratios of non-performanceloans. According to the CBRC, the ratio of non-performing loans of the Big Four commercial banks, ascalculated in accordance with PRC GAAP, decreased to 10.5% at December 31, 2005 from 20.4% atDecember 31, 2003. In addition, pursuant to PRC government directives and regulatory requirements,the Big Four and other PRC commercial banks have adopted various measures designed to enhancetheir risk management capabilities and improve their asset quality.

Development of National Credit Information System

In recent years, the PRC government has begun to develop a nation-wide credit informationsystem in order to enable PRC commercial banks to make better-informed credit decisions. InSeptember 2003, the PBOC established the Credit Information System Bureau, or CISB, to focus ondeveloping nation-wide credit information systems.

In 1997, the PBOC began to develop a bank loan registration system to collect creditinformation on corporate borrowers. At November 30, 2005, the system had collected data onapproximately 4.5 million corporate loan borrowers, and the outstanding Renminbi-denominated loansrecorded in the system amounted to RMB17.4 trillion, representing approximately 90.0% of the totaloutstanding Renminbi-denominated loans of financial institutions in China. By the end of 2005, the

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PBOC had upgraded this system into a consolidated nation-wide corporate credit information database.In December 2005, the upgraded system was introduced in selected regions on a trial basis. It isexpected that, beginning from the second half of 2006, all PRC commercial banks and certain qualifiedrural credit cooperatives will implement this system.

In 2004, the CISB started to develop a personal credit information system to collect informationon personal credit data. At December 31, 2005, the outstanding personal loans recorded in this systemamounted to RMB2.2 trillion, representing 97.5% of the total outstanding personal loans in China.After implementing this system on a trial basis in selected PRC commercial banks and rural creditcooperatives, the CISB officially launched the system on a nation-wide basis in January 2006.

Greater Participation by Foreign-invested Banks

Historically, foreign-invested banks operating in China faced significant restrictions. SinceChina’s accession to the WTO in December 2001, China has gradually lifted restrictions imposed onforeign-invested banks and, as described above, all the remaining restrictions are expected to beremoved by the end of 2006. In addition, in recent years, the PRC government has adopted a series ofinitiatives to encourage participation in China’s banking industry by foreign-invested banks, including:

Š lowering capital requirements for the establishment of branches in China by foreign-invested banks;

Š simplifying the procedures for foreign-invested financial institutions to enter the PRCmarket;

Š increasing the maximum percentage of ownership interests in domestic financialinstitutions that may be held by foreign investors; and

Š encouraging qualified overseas strategic investors to participate in the restructuring andreform of China’s banking industry.

Furthermore, as a result of the CEPA, more commercial banks in Hong Kong and Macau areexpected to enter the PRC banking market. Under the CEPA, commercial banks incorporated in HongKong or Macau with US$6 billion or more in total assets may apply to establish branches in the PRC.This minimum asset requirement is significantly lower than the minimum requirement of US$20billion in total assets for banks incorporated in other jurisdictions.

The trend of greater foreign participation in China’s banking industry is also reflected in therecent significant increase in investments in PRC domestic commercial banks by major internationalcommercial banks and financial institutions. In connection with their equity investments, theseinternational banks and financial institutions have generally entered into business cooperationarrangements with the respective PRC commercial banks to cooperate with them in developing theircorporate governance and risk management capabilities. In addition, these business cooperationarrangements include plans to jointly develop products and services in credit cards, wealthmanagement, treasury services and other areas considered to have high growth potential. As China’seconomy continues to grow, we expect foreign investments in China’s banking industry to increase.

Increasing Direct Access of Corporations to China’s Capital Markets

In May 2005, the PBOC promulgated regulations allowing qualified corporations to issuecommercial paper in the domestic inter-bank market. Following this regulatory change, the domestic

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commercial paper market has grown significantly. Compared to bank loans, commercial papercurrently represents a less expensive source of financing for corporations. In addition, China’s capitalmarkets continue to evolve and expand. Consequently, direct financing channels are expected tobecome an increasingly important source of financing for Chinese corporations.

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REGULATION AND SUPERVISION

PRC REGULATION AND SUPERVISION

Overview

The commercial banking industry is highly regulated in the PRC, with the CBRC and thePBOC acting as the principal regulatory authorities. The CBRC is responsible for the supervision andregulation of banking institutions in China. The PBOC, as the central bank of the PRC, is responsiblefor formulating and implementing monetary policy. The applicable laws and regulations governingactivities in the PRC banking industry consist principally of the PRC Banking Supervision andRegulation Law, the PRC Commercial Banking Law and the PRC People’s Bank of China Law, aswell as rules and regulations promulgated thereunder.

The PRC Banking Supervision and Regulation Law became effective on February 1, 2004, anddefines the scope of duties of the State Council banking regulatory authority. The PRC CommercialBanking Law became effective on July 1, 1995, and was later amended on December 27, 2003. Itprovides the fundamental operating principles for commercial banks. The PRC People’s Bank of ChinaLaw became effective on March 18, 1995 and was later amended on December 27, 2003. It defines thescope of duties and the organizational structure of the PBOC and grants the PBOC the mandate toformulate and implement monetary policy and maintain the stability of the financial markets.

Principal Regulators

Prior to April 2003, the PBOC acted both as China’s central bank and as the principal regulatorof the banking industry in China. In April 2003, the CBRC was established to become the primarybanking industry regulator and assumed the majority of the regulatory functions from the PBOC. ThePBOC retained its role as the central bank.

The CBRC

The CBRC is the primary supervisory authority and is responsible for the regulation of thebanking industry in China, including commercial banks, urban credit cooperatives, rural creditcooperatives, other deposit-taking institutions and policy banks, as well as certain non-bankingfinancial institutions such as financial asset management companies, trust and investment companies,finance companies, financial leasing companies, and other financial institutions. According to the PRCBanking Supervision and Regulation Law and related regulations, the main regulatory responsibilitiesof the CBRC include:

Š setting rules and regulations to govern banking institutions and their activities;

Š authorizing the establishment, changes, dissolution and business scope of bankinginstitutions;

Š establishing qualification requirements for the directors and senior management ofbanking and financial institutions;

Š establishing prudent operational guidelines and standards for the risk management,internal controls, capital adequacy, asset quality, allowance for impairment losses, riskconcentration, related party transaction, liquidity and other aspects of banking institutionsin accordance with relevant laws and regulations;

Š conducting on-site inspection and off-site monitoring of the business activities and risks ofbanking institutions;

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Š imposing corrective and punitive measures for violations of applicable bankingregulations, including suspension of business operations and closure of banking andfinancial institutions;

Š examining the qualifications of the shareholders of banking institutions; and

Š compiling and publishing statistics and reports on the banking industry.

The CBRC and its local offices monitor the operations of commercial banks and their branchesthrough on-site inspections and off-site surveillance. On-site inspections generally include visiting abank’s premises, interviewing bank employees and, for significant issues relating to a bank’soperations or risk management, senior management and directors, as well as reviewing documents andmaterials maintained by the bank. The CBRC also conducts off-site surveillance by reviewing financialand other reports regularly submitted by banks. If a banking institution is not in compliance with aregulation, the CBRC has the power to issue corrective and punitive measures, including, but notlimited to, imposing fines, ordering the suspension of certain business activities, imposing restrictionson dividends and other forms of distributions and asset transfers, and suspending the opening of newbranches. In the event of a credit crisis within a banking institution, the CBRC may assumemanagement control over, or arrange for the restructuring of, such banking institution. In extreme casesor when the commercial bank fails to take corrective actions within the time period specified by theCBRC, the CBRC may order a banking institution to suspend operations and revoke its financialoperating license.

In 2006, the CBRC promulgated several rules on administrative licensing to clearly set forthand standardize the procedures and enhance the transparency and effectiveness of its banking andfinancial institution licensing activities in connection with, among others, the establishment of abanking institution, its organizational change, or any change or expansion in its business scope.

The PBOC

As China’s central bank, the PBOC is responsible for formulating and implementing monetarypolicy and maintaining the stability of the financial markets. Under the PRC People’s Bank of ChinaLaw and the relevant regulations, the primary responsibilities of the PBOC include:

Š promulgating and implementing the decrees or rules necessary to perform its functions;

Š formulating and implementing monetary policy by establishing benchmark interest ratesand setting the reserve deposit ratios for commercial banks;

Š extending loans to commercial banks, accepting discounted bills and conducting openmarket operations;

Š regulating the domestic inter-bank lending market and the inter-bank bond market;

Š holding, managing and operating China’s foreign exchange reserves and gold reserves;

Š regulating foreign exchange activities and the inter-bank foreign exchange market;

Š organizing and supervising anti-money laundering activities in the PRC financial sectorand monitoring fund transfers for compliance with anti-money laundering regulations;

Š managing the state treasury;

Š maintaining the normal operation of the clearing and settlement systems;

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Š collecting data and performing analysis and forecasts for the financial industry; and

Š supervising the collection of credit information and rating industry and promoting theestablishment of a nation-wide credit information database.

Other Regulatory Authorities

In addition to the CBRC and the PBOC, commercial banks are also subject to supervision andregulation by other regulatory authorities including primarily:

Š SAFE, in relation to foreign exchange settlement business;

Š CSRC, in relation to fund custody business and the regulation of companies listed inChina; and

Š CIRC, in relation to bancassurance business.

Licensing Requirements

Basic Requirements

The PRC Commercial Banking Law and the Measures of the CBRC on Implementation ofAdministrative Licensing Relating to Domestic Commercial Banks, which became effective onFebruary 1, 2006, define the permitted business scope of commercial banks and establish licensingstandards and other requirements. The establishment of a commercial bank requires the CBRC’sapproval and issuance of a financial operating license. In general, the establishment of a commercialbank is subject to the following principal conditions:

Š the articles of association of the proposed commercial bank must comply with relevantrequirements of the PRC Commercial Banking Law and the PRC Company Law;

Š the registered capital of the proposed bank must meet the minimum requirement under thePRC Commercial Banking Law. The minimum required registered capital for a nationalcommercial bank, city commercial bank and rural commercial bank is RMB1.0 billion,RMB100 million and RMB50 million, respectively;

Š the directors and senior management of the proposed bank must possess the requisiteprofessional skills and work experience;

Š the organizational structure and management system must be well-established; and

Š the business premises, safety and preventive measures and other operational facilities mustcomply with relevant requirements.

Approvals for Certain Activities

PRC commercial banks are required to obtain the CBRC’s approval if they undergo certainchanges, including principally:

Š change of name;

Š change of registered capital;

Š change of the location of the head office or any branch;

Š change of business scope;

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Š change of shareholders holding 5% or more of the bank’s total capital or shares;

Š amendment to the articles of association;

Š merger or separation; and

Š dissolution and liquidation.

Establishment of Branches

Domestic Branches

A commercial bank must apply to the CBRC or its local offices for approval and issuance of afinancial operating license to establish a branch. In order to obtain this license, the branch must havesufficient operating funds commensurate with its scale and must meet other operating requirements.The sum of the operating funds provided to all branches of a bank may not exceed 60% of the totalcapital of the bank.

Overseas Branches

The establishment of overseas branches by PRC commercial banks is subject to the CBRC’sapproval, and to applicable regulations in the relevant foreign jurisdiction. In general, the CBRC willnot approve an overseas branch application unless the applicant bank has satisfied a number ofrequirements, including, among others, (i) a capital adequacy ratio of not less than 8%, (ii) total equityinvestments not exceeding 50% of its net assets, (iii) recorded profits for the preceding three fiscalyears, (iv) total assets in the immediately preceding year-end exceeding RMB100 billion, and(v) legitimate and adequate sources of foreign currency.

Regulation of Commercial Banking Activities

Lending

PRC banking regulations require commercial banks to take government macroeconomicpolicies into consideration in making lending decisions. Accordingly, commercial banks areencouraged to limit their lending to restricted industries in accordance with relevant governmentpolicies.

The CBRC promulgated Due Diligence Guidelines on Credit Extension by Commercial Banks,effective since July 25, 2004, which further specify rules relating to pre-lending due diligenceinvestigations on corporate borrowers. After credit is granted, PRC commercial banks must continue tomonitor factors that may affect the ability of the borrower to repay and must prepare written creditassessment reports on a regular basis.

The CBRC imposes a number of restrictions on commercial banks extending certain types ofloans. Under the Guidelines on Credit Extension to Group Companies by Commercial Banks, effectivesince October 23, 2003, a commercial bank’s total outstanding credit exposure to a group customermay not exceed 15% of its Net Capital Base.

Under the Automobile Loan Measures, effective since October 1, 2004, the amount of loansextended for automobiles for personal use may not exceed 80% of the purchase price of suchautomobiles, while for commercial automobiles and second-hand automobiles, the amount of loansmay not exceed 70% and 50%, respectively, of the purchase price of such automobiles.

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Under the Real Estate Loan Guidelines, effective since August 30, 2004, commercial banks areprohibited from making loans to real estate developers unless they have funded a minimum of 35% ofthe total investment of the real estate development project in the form of equity. Commercial banks arerequired to focus on the repayment ability of the residential mortgage loan borrower to ensure that theborrower’s monthly housing expense and his total monthly debt service is no more than 50% and 55%,respectively, of his monthly income. Under the Opinion of Adjusting the Housing Supply Structure andStabilizing Housing Prices approved by the State Council, effective since June 1, 2006, the downpayment of any personal residential mortgage loan should not be less than 30% of the housing price,except that for any housing for personal use by the borrower with a gross floor area of less than 90square meters, the down payment should not be less than 20% of the housing price.

Personal Wealth Management

The Tentative Guidelines for the Administration of the Personal Wealth ManagementBusinesses of Commercial Banks, or the Wealth Management Guidelines, became effective onNovember 1, 2005. In an effort to establish standardized management systems in this area, the WealthManagement Guidelines place a number of restrictions on commercial banks offering personal wealthmanagement products, including obtaining CBRC approval or filing with the CBRC prior to launchingpersonal wealth management products.

In addition to the Wealth Management Guidelines, the CBRC has also issued the Guidelines forRisk Control of the Personal Wealth Management Businesses of Commercial Banks, effective sinceNovember 1, 2005, which require commercial banks to establish analysis, examination and reportingsystems for personal wealth management services, and to keep the relevant authorities informed as tothe risk management methods, risk assessment criteria and measures and other major risk managementissues pertaining to its personal wealth management business.

In addition to permitting commercial banks to conduct domestic wealth managementbusinesses, the PBOC, the CBRC and the SAFE jointly issued the Provisional Measures for OverseasWealth Management by Commercial Banks, which became effective since April 17, 2006, to permitduly licensed commercial banks to make overseas investments in pre-approved financial products onbehalf of domestic institutions and resident individuals.

Securities and Asset Management Businesses

Under the PRC Commercial Banking Law, commercial banks are generally prohibited fromconducting securities business in China. However, commercial banks are permitted to:

Š underwrite and trade bonds issued by the PRC government and PRC financial institutionsand commercial paper issued by qualified non-financial institutions;

Š act as agents in transactions involving securities, including bonds issued by thegovernment and commercial paper issued by qualified non-financial institutions;

Š provide institutional and individual investors with asset management advisory services;

Š act as financial advisors in connection with large infrastructure projects, mergers andacquisitions, bankruptcy and reorganizations; and

Š act as custodians for asset management companies and investment funds.

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Under the Trial Administrative Measures on Fund Management Companies Owned byCommercial Banks, effective since May 20, 2005, state-owned commercial banks and joint-stockcommercial banks are permitted to establish or acquire fund management companies with the approvalof the CBRC and the CSRC. Commercial banks are required to implement detailed measures tosegregate risks associated with the securities market and the banking sector.

Securitization of Credit Assets by Financial Institutions

Under the Measures for the Pilot Supervision and Management of the Securitization of CreditAssets by Financial Institutions, issued by the CBRC and effective since December 1, 2005, the CBRCis responsible for supervising the securitization of credit assets by financial institutions. Without theapproval of the CBRC, a financial institution is not permitted to act as a promoter in the business ofcredit asset securitization in the PRC nor as a trustee for special purpose trusts created to holdsecuritized credit assets. Such approval is subject to meeting relevant qualification requirements,including, among others, the establishment of sound corporate governance, risk management andinternal control systems, and a competent professional team.

Insurance

Commercial banks in China are not permitted to underwrite insurance policies, but arepermitted to act as agents to sell insurance products through their distribution network. Commercialbanks that conduct agency sales of insurance products are required to comply with applicable rulesissued by the CIRC. Pursuant to the Interim Measures on the Administration of Ancillary AgencyInsurance Business promulgated by the CIRC on August 4, 2000, commercial banks are required toobtain licenses from the CIRC before conducting agency insurance business. Pursuant to the NoticeRegarding Standardization of Agency Insurance Business Conducted by Banks issued by the CIRC andthe CBRC on June 15, 2006, such licenses are required for all tier-1 branches of commercial banksconducting such business.

Proprietary Investments

Unless otherwise provided by the relevant laws and regulations, PRC commercial banksgenerally are prohibited from engaging in the trust investment and securities businesses, investing inreal estate other than for their own use, and making equity investments in non-bank financialinstitutions and other entities in China. Currently, commercial banks are allowed to make investmentsin debt instruments issued by the PRC government and PRC financial institutions, commercial paperissued by qualified PRC non-financial institutions, domestic corporate bonds traded in the inter-bankmarket, and derivative products.

Derivatives

The Provisional Administrative Measures on the Derivatives Business of Financial Institutionsissued by the CBRC, which became effective on March 1, 2004, set forth, among other matters,detailed regulations on market access and risk management with respect to the derivatives businessconducted by financial institutions. On March 22, 2005, the CBRC issued the Circular on Risk AlertRegarding Trading of Derivative Products by Domestic Banks to further strengthen the riskmanagement of the derivatives businesses conducted by commercial banks.

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Under the Provisional Administrative Measures on Derivative Business of FinancialInstitutions, commercial banks seeking to engage in the derivatives business must obtain prior approvalfrom the CBRC. Such approval is subject to relevant qualification requirements, which include, amongothers, the establishment of a sound risk management and internal control system, a sophisticatedbusiness processing system and a real-time risk monitoring system. In addition, the bank must have acompetent professional team to conduct its derivatives business. According to the Circular on RiskAlert Regarding Trading of Derivative Products by Domestic Banks, banks engaging in the derivativesbusiness are required to strictly implement trading and exposure authorization limits and stop losslimits. All material derivatives trading activities and all trading activities involving new derivativeproducts must be approved by the bank’s board of directors or senior management duly authorized bythe board of directors.

Pricing of Products and Services

Interest Rates for Loans and Deposits

Commercial banks are required to set interest rates on Renminbi-denominated loans anddeposits within permitted bands around the benchmark rates set by the PBOC. During the three yearperiod ended December 31, 2005 and the six-month period ended June 30, 2006, the PBOC hasincreased the overall benchmark rates for Renminbi-denominated loans and/or deposits on October 29,2004 and April 28, 2006. On August 18, 2006, the PBOC further increased the benchmark rates forRenminbi-denominated loans and deposits. In addition, on March 17, 2005, the PBOC abolished themandatory discount, from the PBOC benchmark rates for loans, on residential mortgage loans.

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The following table sets forth the applicable benchmark interest rates in effect for the periodsindicated:

PBOC benchmark interest rates forRenminbi-denominated loans and deposits

From06/10/99 to

02/20/02

From02/21/02 to

10/28/04

From10/29/04 to

04/27/06

From04/28/06 to

08/18/06Since

08/19/06

(in percentages per annum)

LoansShort-term loans

Less than six months . . . . . . . . . . . . . . . . . . . . . . . . . 5.58% 5.04% 5.22% 5.40% 5.58%Six months to one year . . . . . . . . . . . . . . . . . . . . . . . 5.85 5.31 5.58 5.85 6.12

Medium- and long-term loansOne to three years . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.94 5.49 5.76 6.03 6.30Three to five years . . . . . . . . . . . . . . . . . . . . . . . . . . 6.03 5.58 5.85 6.12 6.48More than five years and up to thirty years . . . . . . . 6.21 5.76 6.12 6.39 6.84

Residential mortgage loans(1):Five years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.31 4.77 4.95 6.12 6.48More than five years . . . . . . . . . . . . . . . . . . . . . . . . . 5.58 5.04 5.31 6.39 6.84

Entrusted provident housing fund mortgage loans:Five years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.14 3.60 3.78(2) 4.14(4) 4.14More than five years . . . . . . . . . . . . . . . . . . . . . . . . . 4.59 4.05 4.23(3) 4.59(5) 4.59

DepositsDemand deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.99 0.72 0.72 0.72 0.72Time deposits

Three months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.98 1.71 1.71 1.71 1.80Six months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.16 1.89 2.07 2.07 2.25One year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.25 1.98 2.25 2.25 2.52Two years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.43 2.25 2.70 2.70 3.06Three years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.70 2.52 3.24 3.24 3.69Five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.88 2.79 3.60 3.60 4.14

(1) Effective since March 17, 2005, the PBOC benchmark mortgage rates are the same as the PBOC benchmark rates for loans with thesame terms.

(2) Increased to 3.96% per annum during the period from March 17, 2005 to May 8, 2006.(3) Increased to 4.41% per annum during the period from March 17, 2005 to May 8, 2006.(4) With the consent of the PBOC, the general office of the Ministry of Construction issued a circular on April 28, 2006, which stipulates

that the interest rates of all levels of entrusted provident housing fund mortgage loans increase by 0.18%. Accordingly, the interest rate ofloans with a five-year term or less increased to 4.14% from 3.96% (which was the applicable rate from March 17, 2005 to May 8, 2006).

(5) With the consent of the PBOC, the general office of the Ministry of Construction issued a circular on April 28, 2006, which stipulatesthat the interest rates of all levels of entrusted provident housing fund mortgage loans increase by 0.18%. Accordingly, the interest rate ofloans with a term more than five years increased to 4.59% from 4.41% (which was the applicable rate from March 17, 2005 to May 8,2006).

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As the PRC government further liberalizes its interest rate regime, commercial banks have beengiven more discretion in determining the interest rates for Renminbi-denominated loans and deposits.The following table sets forth the permitted interest rate bands for Renminbi-denominated loans anddeposits for the periods indicated:

Loans Deposits

Between 09/01/99and 12/31/03(1)

Between 01/01/04and 10/28/04(2)

Since10/29/04

Between 09/01/99and 12/31/03

Between 01/01/04and 10/28/04

Since10/29/04

Maximum interestrates

Up to 130% ofthe PBOCbenchmark ratefor small- andmedium-sizedenterprises (upto 150% forrural creditcooperatives)and up to 110%for largeenterprises

Up to 170% ofthe PBOCbenchmark rate(up to 200% forrural creditcooperatives)

No cap (up to230% for ruraland urban creditcooperatives)

PBOCbenchmark rate,except fornegotiateddeposits



Minimum interestrates

Not lower than90% of thePBOCbenchmark rate

Not lower than90% of thePBOCbenchmark rate

Not lower than90% of thePBOCbenchmarkrate(3)



0%

(1) Interest rates for residential mortgage loans, public assistance loans, policy loans and certain other loans specified by the State Councilmay not exceed the PBOC benchmark rate.

(2) Interest rates for residential mortgage loans, public assistance loans and certain other loans specified by the State Council may not exceedthe PBOC benchmark rate.

(3) Starting from August 19, 2006, the interest rates for residential mortgage loans may not be lower than 85% of the PBOC benchmark rate.

Prior to January 1, 2004, all Renminbi-denominated loans with a maturity of one year or lesswere required to have fixed interest rates and all Renminbi-denominated loans with a maturity longerthan one year were required to have floating interest rates. When the applicable PBOC benchmarkinterest rates changed, the interest rates on floating rate corporate loans were generally reset on thenext anniversary of the loan origination date following the date of change, while the interest rates onfloating rate residential mortgage loans were generally reset on January 1 of the year following the dateof change.

Since January 1, 2004, loans with a maturity longer than one year have been allowed to bearfixed interest rates. For corporate loans and personal consumption loans, commercial banks have beenallowed to negotiate the terms of floating interest rates on a monthly, quarterly or annual basis. Forresidential mortgage loans, personal educational loans and certain other specified loans, the terms offloating interest rates are reset on January 1 of the year following the date of the change in theapplicable benchmark interest rate. Since March 17, 2005, interest rates for residential mortgage loanshave the same reset mechanism as other commercial loans.

Starting from October 29, 2004, commercial banks have been allowed to set their own interestrates on Renminbi deposits so long as such interest rates are not higher than the applicable PBOCbenchmark rates. However, these restrictions do not apply to interest rates on negotiated deposits,which include deposits from insurance companies in amounts of RMB30 million or more, or depositsfrom provincial level social security fund management institutions in amounts of RMB500 million ormore, both with a term greater than five years, or deposits from the postal savings bureau in amounts ofRMB30 million or more with a term longer than three years.

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The PBOC generally does not regulate interest rates for foreign currency-denominated loansand generally does not regulate foreign currency-denominated deposits other than U.S. dollar-, HongKong dollar-, Japanese yen- or Euro-denominated deposits of less than US$3 million or the equivalentwith a maturity of one year or less, the interest rates on which may not exceed the maximum interestrates based on the PBOC benchmark rates for small foreign currency deposits.

Commercial banks are allowed to set interest rates for discounted bills based on the PBOCrediscount rates, provided that they do not exceed the benchmark interest rates for loans of the samematurity period. The PBOC rediscount rate was 2.16% from June 10, 1999 to September 10, 2001,2.97% from September 11, 2001 to March 24, 2004, and has been 3.24% since March 25, 2004.

Pricing for Fee- and Commission-based Products and Services

According to the Tentative Administrative Measures on Pricing of Commercial BankingServices promulgated by the CBRC and the NDRC and effective since October 1, 2003, non-lendingservices which are subject to government price guidance include basic Renminbi settlement services,such as bank drafts, bank acceptance drafts, promissory notes, checks, remittances, entrustedcollection, and other services specified by the CBRC and the NDRC. Fees for other fee- andcommission-based products and services are determined by commercial banks based on marketconditions. Commercial banks are also required to report to the CBRC at least 15 business days priorto the implementation of new fee schedules and to publish such fee schedules in their relevant businessoffices at least ten business days prior to their implementation.

Statutory Reserve Deposit and Surplus Reserve Deposit

Commercial banks are required to maintain a percentage of the balance of their general depositsin the form of reserves with the PBOC to ensure that they have sufficient liquidity for customerwithdrawals. The required percentage, or reserve deposit ratio, for a commercial bank with respect tocustomer deposits denominated in Renminbi varies in accordance with its capital adequacy ratiocalculated in accordance with the formula promulgated by the CBRC. The reserve deposit ratio isdetermined based on PRC GAAP and other factors such as asset quality. Effective since August 15,2006, most commercial banks, including the Big Four commercial banks, are required to maintainreserves equal to at least 8.5% of their total outstanding balance of Renminbi-denominated deposits.Those commercial banks which fail to meet certain PBOC standards may be required to maintain ahigher reserve deposit ratio. Commercial banks are also required to maintain reserves with the PBOCequal to at least 3% of their total foreign currency-denominated deposits. Effective since September 15,2006, commercial banks are required to increase their foreign currency-denominated deposit reserveswith the PBOC to 4% of their total foreign currency-denominated deposits. Unlike in many developedcountries, such as the United States, there is no deposit insurance with respect to retail deposits in thePRC. See “Risk Factors—Risks Relating to China—China’s economic, political and social conditions,as well as government policies, could affect our business.”

In addition, PRC commercial banks and foreign banks in the PRC maintain surplus reservedeposits with the PBOC, which are deposits exceeding the statutory deposit reserve. Surplus reservedeposits are used for settlement and other routine payment purposes.

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Capital Adequacy

Capital Adequacy Guidelines

According to the PRC Commercial Banking Law and the Administrative Measures on theCapital Adequacy Ratios of Commercial Banks, or the New Measures, which were promulgated by theCBRC on February 23, 2004, and implemented on March 1, 2004, PRC commercial banks are subjectto a minimum capital adequacy ratio of 8% and a minimum core capital adequacy ratio of 4%.

The New Measures provide that all commercial banks are required to meet minimum capitaladequacy standards by January 1, 2007. Commercial banks not immediately in compliance with theNew Measures must formulate and implement a capital increase plan under the supervision of theCBRC. The CBRC monitors the progress made by such banks under their phase-in plans and may takecorrective measures.

The New Measures assign risk weighting for a variety of assets and require deductions fromcore capital for certain kinds of assets. In addition, the New Measures require PRC commercial banksto make adequate allowances for various impairment losses, including for loans, before calculatingtheir capital adequacy ratios. The capital adequacy ratio and core capital adequacy ratio are calculatedin accordance with the New Measures as follows:

Components of Capital

Total capital consists of core capital and supplementary capital. Supplementary capital ofcommercial banks may not exceed 100% of core capital.

Core capital includes paid-in capital, capital reserves, surplus reserves, retainedearnings and minority interests.

Supplementary capital includes up to 70% of the revaluation reserve, general allowance forimpairment losses, preference shares, qualifying convertible bonds,and qualifying long-term subordinated debt not exceeding 50% ofcore capital.

Capital deductions include goodwill, 100% of equity investments in unconsolidatedfinancial institutions, and 100% of equity investments in non-financial institutions and capital investment in real estate not for self-use.

Core capital deductions include goodwill, 50% of equity investments in unconsolidatedfinancial institutions, and 50% of equity investments in non-financialinstitutions and capital investment in real estate not for self-use.

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Risk-weighted Assets

The New Measures provide for the calculation of risk-weighted assets net of any allowance forimpairment losses by multiplying on-balance sheet items by their corresponding risk weighting, aftertaking into account risk mitigating factors. Off-balance sheet risk-weighted assets are calculated bymultiplying the nominal principal amount by a credit conversion factor, which then converts to balancesheet credit-equivalent amounts. With respect to risk-weighted assets, such as exchange rate, interestrate and other derivative products, commercial banks are required to analyze them according to currentrisk exposure. In addition, loans secured by certain types of collateral or guarantees are allocated therisk weighting of the collateral or guarantors. Partially collateralized or guaranteed loans receive lowerrisk-weightings only on the portion of the loan that is collateralized or guaranteed. The following tablesets forth risk weightings for different categories of assets:

Risk Weighting Assets

0% . . . . . . . . . . . . . . . Cash

Gold

Claims on PRC commercial banks with an original maturity of four months or less

Claims on the PRC central government or deposits at the PBOC

Claims on the PBOC

Claims on PRC policy banks

Bonds issued by PRC financial asset management companies invested by PRC centralgovernment for the purpose of acquiring non-performing loans from state-ownedcommercial banks

Claims on non-PRC central governments or central banks in countries or regions wherethe sovereign or region is rated AA- or above(1)

Claims on multilateral development banks

20% . . . . . . . . . . . . . . Claims on PRC commercial banks with an original maturity of more than four months

Claims on non-PRC commercial banks and securities companies incorporated in othercountries or regions where the sovereign or region is rated AA- or above(1)

50% . . . . . . . . . . . . . . Residential mortgages

Claims on PRC public-sector entities invested by the PRC central government

Claims on non-PRC public-sector entities invested by governments of countries orregions where the sovereign or region is rated AA- or above(1)

100% . . . . . . . . . . . . . All other assets

(1) These ratings refer to credit ratings of Standard & Poor’s or the equivalent thereof.

Capital Charge for Market Risk

Commercial banks with trading books that exceed the lower of (i) 10% of the aggregate valueof their on- and off-balance sheet assets and (ii) RMB8.5 billion are required to make a capital chargefor market risk. Market risk refers to the risk of losses in a bank’s on- and off-balance sheet positionsarising from movements in market prices and includes risks related to interest-rate sensitive financialinstruments and securities under trading accounts, and all of the foreign exchange risk and commodity

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risk of PRC commercial banks. If the market risk capital charge is applicable, capital must be appliedagainst the sum of risk-weighted assets and market risk to determine capital adequacy.

CBRC Supervision of Capital Adequacy

The CBRC reviews and evaluates banking institutions’ capital adequacy through both on-siteexamination and off-site surveillance. Commercial banks are required to report to the regulators theirunconsolidated capital adequacy ratios on a quarterly basis, and their consolidated capital adequacyratios on a semi-annual basis. Commercial banks are classified into three categories based on theircapital adequacy as follows:

Category Capital adequacy ratio Core capital adequacy ratio

Adequately capitalized banks . . . . . . . . . . . . . . . . . . . . . . . . not less than 8% and not less than 4%Undercapitalized banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . less than 8% or less than 4%Significantly undercapitalized banks . . . . . . . . . . . . . . . . . . less than 4% or less than 2%

The actions that the CBRC takes to enforce the capital adequacy requirements may vary basedon the classification of a bank. These actions may include, among others, issuing a supervisory notice,requiring such bank to submit and implement an acceptable capital restoration plan, restricting assetgrowth or reducing risk-bearing assets, restricting the purchase of fixed assets, restricting dividendsand other forms of distributions, suspending all businesses except low-risk activities and suspendingthe establishment of new branches or restricting the launch of new services.

Significantly undercapitalized banks may be required to take further actions, includingremoving senior management, transferring control, restructuring organizations, or, in the most severecases, closing in accordance with relevant laws and regulations.

Basel Accords

The Basel Capital Accord, or Basel I, was introduced by the Basel Committee on BankingSupervision, or the Basel Committee, in 1988. Basel I is a capital measurement system for banks thatprovides for the implementation of a credit risk measurement framework with a minimum capitalstandard of 8%. Since 1999, the Basel Committee has issued certain proposals for the New BaselCapital Accord, known as Basel II, to replace Basel I. Basel II retains the key elements of Basel I,including the general requirement for banks to hold total capital equivalent to at least 8% of their risk-weighted assets, but seeks to improve the capital framework in various key aspects, including(i) making recommendations relating to capital requirements and credit risk measurement to improvethe capital framework’s sensitivity to credit risks, (ii) introducing supervision and review standards forbanks to conduct internal assessments of their overall risks and (iii) enhancing the degree oftransparency in banks’ public reporting. Basel II is expected to be made available in its entirety at theend of 2007.

The CBRC has advised that the New Measures are based on Basel I while taking intoconsideration certain aspects of Basel II.

Issuance of Subordinated Bonds

The Measures on the Administration of Issuance of Subordinated Bonds by Commercial Banksbecame effective on June 17, 2004. Under such measures, PRC commercial banks are permitted to

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issue subordinated bonds. A PRC commercial bank may, upon approval by the CBRC, include suchsubordinated bonds in its supplementary capital. Subordinated bonds can be issued either in a publicoffering in the inter-bank bond market or in a private placement. A PRC commercial bank may nothold an aggregate amount of subordinated bonds issued by other PRC commercial banks in excess of20% of its core capital. The PBOC regulates the issuance and trading of subordinated bonds in theinter-bank bond market.

On December 12, 2005, the CBRC issued the Notice Regarding the Issuance of Hybrid CapitalBonds by Commercial Banks for the Replenishment of Supplementary Capital, permitting eligiblecommercial banks to issue hybrid capital bonds in the inter-bank market and include such bonds intheir supplementary capital. The introduction of hybrid capital bonds in China opened a new channelfor commercial banks to replenish their supplementary capital and improve their capital adequacy ratio.

Loan Classification, Provisioning and Write-offs

Loan Classification

PRC commercial banks are currently required to classify loans under a five-categoryclassification system based on the estimated likelihood of repayment of principal and interest. Thefive-category classification was initially promulgated by the PBOC in 1999 on a pilot basis, and in2002 banks were formally required to adopt it under the PBOC’s Loan Classification Principles. Theprimary factors for evaluating the likelihood of repayment include the borrower’s cash flow, financialcondition, credit history, as well as the provision of any collateral and guarantees. The table below setsforth the five classification categories and their corresponding definitions.

Classification Description(1)

Normal . . . . . . . . . . . . . . . Borrowers can honor the terms of their loans. There is no reason to doubt theirability to repay principal and interest in full on a timely basis.

Special mention . . . . . . . . Borrowers are able to service their loans currently, although repayment may beadversely affected by specific factors.

Substandard . . . . . . . . . . . Borrowers’ abilities to service their loans are in question as they cannot relyentirely on normal business revenues to repay principal and interest. Losses mayensue even when collateral or guarantees are invoked.

Doubtful . . . . . . . . . . . . . . Borrowers cannot repay principal and interest in full, and significant losses willneed to be recognized even when collateral or guarantees are invoked.

Loss . . . . . . . . . . . . . . . . . Only a small portion or no principal and interest can be recovered after taking allpossible measures and exhausting all legal remedies.

(1) PRC commercial banks may implement more detailed guidelines consistent with these definitions.

The CBRC monitors the quality of loans extended by commercial banks through on-siteinspections and/or off-site surveillance.

Provision Requirements

Under the Bank Loan Loss Provisioning Guidelines of the PBOC, or Provisioning Guidelines,which became effective on January 1, 2002, commercial banks are required to make provisions on aprudent and timely basis based on a reasonable estimate of the probability of loss. According to theLoan Classification Principles, a loan classified as substandard, doubtful or loss is considered to benon-performing. According to the Provisioning Guidelines, provisions for loan loss include general

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provisions, specific provisions, and special provisions. General provisions refer to the provisions madefor all unidentified but possible losses, which are required to be not less than 1% of the year-endbalance of total outstanding loans; specific provisions refer to the provisions made for each riskcategory under the Loan Classification Principles, by reference to the provisioning percentages, asstipulated in the table below, of the total balance of outstanding loans in each risk category.

Category Provisioning Ratio

Normal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —Special mention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%Substandard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%Doubtful . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50%Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%

For substandard and doubtful loans, commercial banks have the discretion to maintain theirspecific allowances for impairment losses at levels ranging from 20% below the guidance level to 20%above the guidance level, depending on the banks’ own assessment of the risks relating to the relevantloans. Special provisions refer to the provisions made for the risks related to certain countries, regions,industries, or certain types of loans. Commercial banks have the discretion to make special provisionson a quarterly basis in accordance with special risk factors (including risks in association with certainindustries and countries), general loss rates and historical experience.

In addition, the MOF has also promulgated the Administrative Measures for Non-performingLoan Provisioning by Financial Institutions, which became effective on July 1, 2005. Pursuant to thesemeasures and a subsequent notice issued by the MOF, commercial banks and certain other financialinstitutions in the PRC are required to maintain adequate allowance for impairment losses against theirassets. These new measures are consistent with the policies for assessing allowance for impairmentlosses under IAS39 and, accordingly, there is no difference between IFRS and the PRC GAAP on thetreatment of allowance for impairment losses. In addition, financial institutions should also set up ageneral reserve through appropriation of profit after tax to cover their potential losses that are not yetidentified. The general reserve forms part of the equity of the financial institutions. Financialinstitutions are required to assess the risk profile of their assets in determining the general reservelevel. The general reserve is made to cover those assets in respect of which the financial institutionsbear risk of potential impairment losses, and is in principle not less than 1% of the aggregate amount ofthose assets before allowance for impairment losses as at the balance sheet date. Financial institutionsare not allowed to make profit distributions to shareholders until adequate allowance for impairmentlosses and general reserve have been made. If a financial institution cannot meet the requirement ofmaintaining adequate general reserves as stipulated in these MOF regulations and notices as of July 1,2005, the financial institution is required to take the necessary steps to ensure that such requirementcan be met in approximately three years, but not more than five years, from the year 2005. At June 30,2006, our balance of general reserve was RMB7.0 billion. We plan to meet the 1% requirement by theend of 2010 whereby we will be in compliance with the transition period set forth in the MOFguidelines. See “Financial Information—Dividend Policy.”

Supervision of Loan Classification and Allowances

In 2003, the CBRC published a circular that reiterated the implementation of the LoanClassification Principles and provided additional guidance on loan classification criteria. Pursuant to ajoint announcement made by the PBOC and the CBRC in 2004, the CBRC supervises and examinescommercial banks’ implementation of the PBOC’s Loan Classification Principles and Loss

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Provisioning Guidelines. Commercial banks are required to formulate detailed internal procedures thatclearly define the responsibilities of each relevant department with respect to loan classification,approval, review and related matters. In addition, beginning in 2002, commercial banks have beenrequired to submit quarterly and annual reports to the regulators on the classification of their loanportfolios and their allowances for loan losses. Based on its review of these reports, the regulators mayrequire commercial banks to explain significant changes in loan classification and loan loss allowancelevels, or may carry out further inspections.

Loan Write-offs

Under the current rules issued by the MOF, including the Administrative Measures for theProvisioning for and the Write-off of Non-Performing Loans by Financial Institutions, effective sinceJanuary 1, 2001, PRC commercial banks are required to establish a strict review and approval processto control the loan write-off procedures. A loan needs to meet the standards set by the MOF to bewritten off. According to the SAT regulations, including the Administrative Measures for TaxDeduction of Financial Companies’ Bad Debt Loss, effective since October 1, 2002, certain bad loansmay be deducted before taxes, but the deduction must first be reviewed and approved for compliancewith the relevant standards of the tax authorities.

Liquidity and Other Operational Ratios

The following table sets forth, at the dates indicated, the required liquidity and loan-to-depositratios for commercial banks, as well as our liquidity and loan-to-deposit ratios as reported to the PBOCand the CBRC. Our ratios were calculated in accordance with the formula under the ExaminationMeasures and Supervision Indicators Relating to the Administration of Assets/Liabilities Ratio ofCommercial Banks issued by the PBOC in 1996, or the 1996 Ratio Rules, and were based on ourbalance sheet data prepared in accordance with PRC GAAP.

Requirement

At December 31,At

June 30,

2003 2004 2005 2006

Liquidity ratiosRenminbi current assets to Renminbi current liabilities . . . . . . . . . . . ≥25.0% 45.5% 45.2% 48.9% 50.8%Foreign currency current assets to foreign currency current

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ≥60.0% 81.8% 75.2% 83.4% 73.0%

Loan-to-deposit ratios(1)

Renminbi loans(2) to Renminbi deposits . . . . . . . . . . . . . . . . . . . . . . . ≤75.0% 68.8% 65.1% 49.1% 48.4%Foreign currency loans(2) to foreign currency deposits . . . . . . . . . . . . ≤85.0% 70.3% 72.6% 79.1% 70.5%

(1) The ratios were based on the financial data of domestic branches.(2) Exclude discounted bills and before provisions.

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The following table sets forth, at the dates indicated, certain other operational ratios forcommercial banks under the relevant PRC regulations, as well as such ratios for our bankingoperations as reported to the PBOC and the CBRC, which were calculated in accordance with the 1996Ratio Rules and were based on our balance sheet data prepared in accordance with the applicable PRCGAAP. The ratios set forth in the table below were based on the financial data of domestic branchesexcept for borrower concentration ratios (please see note (1) below).

Requirement

At December 31, At June 30,

2003 2004 2005 2006

Borrower concentration ratiosTotal outstanding loans to a single borrower to

Net Capital Base(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ≤10.0% —(2) —(2) 5.2% 5.8%Total loans granted to top ten borrowers to Net Capital Base(1) . . . ≤50.0% —(2) —(2) 35.4% 31.0%

Inter-bank ratiosTotal Renminbi inter-bank borrowings from other banks and

financial institutions to total Renminbi deposits . . . . . . . . . . . . ≤ 4.0% 0.0% 0.1% 0.0% 0.0%Total Renminbi inter-bank lending to other banks and financial

institutions(3) to total Renminbi deposits . . . . . . . . . . . . . . . . . . ≤ 8.0% 0.1% 0.1% 0.1% 0.1%

Reserve ratiosRenminbi reserve deposits with the PBOC plus Renminbi cash to

Renminbi deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ≥ 5.0% 9.7% 9.6% 9.3% 9.3%Foreign currency deposits with other financial institutions plus

cash in foreign currencies to total foreign currency deposits . . . ≥ 5.0% 5.6% 5.0% 8.9% 9.5%

(1) Net Capital Base at December 31, 2005 is prepared in accordance with the statutory financial statements and do not reflect the impact ofCaikuai (2005) No. 14 “Provisional Guidelines on Recognition and Measurement of Financial Instruments” issued by the MOF.

(2) We had a capital deficit for each of 2003 and 2004.(3) Net of provisions.

On January 1, 2006, the CBRC issued the Provisional Rule on Core Indicators for RiskSupervision on Commercial Banks, which became effective on a trial basis on January 1, 2006 toreplace the 1996 Ratio Rules. This Provisional Rule amends a number of existing core indicators andintroduced a number of new core indicators. According to the CBRC, however, the Provisional Rule isstill subject to necessary amendments and will officially come into force in 2007.

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The CBRC issued the Guidelines on Corporate Governance and other Regulatory Issuesregarding State-owned Commercial Banks, effective since April 24, 2006, which evaluate and monitorthe restructuring of the state-owned commercial banks by seven indicators in three categories. Thetable below demonstrates the core indicators set forth in these guidelines. We expect to file our firstreport to the CBRC under these guidelines for the year ending December 31, 2006. Our ratios will becalculated in accordance with these guidelines and based on our balance sheet data prepared inaccordance with applicable PRC GAAP.

Requirement

Return on assetsROA = (Net Profit + Minority Interest) / Average Total Assets ×100%

≥ 0.6%within one year after the completion ofthe financial restructuring and in line withthe best international practice in threeyears

Return on equityROE = (Net Profit + Minority Interest) / Average Equity × 100%

≥ 11%within one year after the completion ofthe financial restructuring; and

≥ 13%in a number of years thereafter

Cost to income ratioCTI = (Operating Expenses + Depreciation) / (Net InterestIncome + Net Non-interest Income) × 100%

≥ 35% and ≤ 45%within one year after the completion ofthe financial restructuring

Non-performing loan ratioNPL = (Total Non-performing loans / Total Outstanding Loans) ×100%

≤ 5%after the completion of the financialrestructuring

Capital adequacy ratioCAR = (Total Capital � Deductibles) / (Risk-weighted Assets +12.5 × Market Risk) × 100%

≥ 8%after the completion of the financialrestructuring

Concentration of loans to a single borrowerConcentration of Loans to a Single borrower = (Loans to a SingleBorrower / Total Equity) × 100%

≤ 10%

Allowance coverage ratioAllowance coverage ratio = (General Allowance + SpecificAllowance + Special Allowance) / (Substandard Loans +Doubtful Loans + Loss Loans) × 100%

≥ 60%within one year after the completion ofthe financial restructuringand ≥ 100%in five years

Corporate Governance


In accordance with the Provisional Guidelines on Due Diligence of the Board of Directors ofJoint Stock Commercial Banks, which were promulgated by the CBRC and became effective onSeptember 12, 2005, and the Guidelines on Corporate Governance of Joint Stock Commercial Banks,which were promulgated by the PBOC and became effective on June 4, 2002, or the CorporateGovernance Guidelines, joint stock commercial banks are required to appoint at least two independentdirectors or three independent directors if the registered capital of the bank exceeds RMB1 billion. Inaddition, joint stock commercial banks are required to establish an audit committee, a related partytransaction control committee and a risk management committee of the board of directors, and to theextent that the registered capital of such bank exceeds RMB1 billion, it is also required to establish a

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nomination and compensation committee and strategy committee of the board of directors. They arealso required to establish a supervisory board with at least two external supervisors.

The Provisional Measures Due Diligence of the Board of Directors of Joint-Stock CommercialBanks sets out, among other things, the rights and duties of the board of directors, the rules andprocedures of the board meeting, the board committees, the obligations of the directors and supervisionof the performance by the board of its duties.

The Guidelines on Corporate Governance and Other Regulatory Issues Regarding State-ownedCommercial Banks provide that shareholders’ general meetings are the governing bodies of state-owned commercial banks and shareholders of state-owned commercial banks shall exercise their rightsthrough shareholders’ general meetings and comply with laws, regulations and their own articles ofassociation. In addition, these guidelines set out, among other things, relevant principles of corporategovernance applicable to the Big Four commercial banks and Bank of Communications.

Internal Controls

Under the Internal Control Guidelines for Commercial Banks, issued by the PBOC onSeptember 18, 2002, commercial banks are required to establish internal controls to ensure effectiverisk management for their business activities. Commercial banks are also required to establish a riskmanagement department that formulates and implements risk management policies and procedures. Inaddition, commercial banks are required to establish an internal audit department that canindependently supervise and evaluate all aspects of the banks’ operations.

On February 1, 2005, the Provisional Measures on Evaluation of the Internal Control ofCommercial Banks issued by the CBRC became effective. These provisional measures set out theprinciples, elements, procedures and other matters regarding the evaluation of the internal control ofthe commercial banks. The measures also provide for periodic evaluations to be conducted by theCBRC and its local offices and the regulatory actions they would take based on the results of theirevaluations.

Transactions with Related Parties

In accordance with the Administrative Measures on Related Party Transactions BetweenCommercial Banks and Insiders or Shareholders, or the Related Party Transactions Measures,promulgated by the CBRC, which became effective on May 1, 2004, related parties include, amongothers, (i) shareholders holding 5% or more of the bank’s outstanding shares; (ii) legal persons or otherorganizations under direct or indirect common control with the bank; (iii) such legal persons’ ororganizations’ individual controlling shareholders, directors and executive officers; (iv) directors,senior management officers of headquarters and branches, employees with decision-making authorityin bank lending and asset transfers, and their respective close relatives, and organizations over whichthe above persons have direct, indirect or joint control or may exert significant influence; and (v) otherindividuals, legal persons or other organizations that have direct, indirect or joint control over thecommercial banks or that may exert significant influence over them.

Under the above measures of the CBRC, transactions with related parties include, among othertransactions, credit extensions, asset transfers, and the provision of services between a commercialbank and its related parties. Commercial banks are required to adopt appropriate policies and

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procedures to manage related party transactions and to establish a related party transaction controlcommittee of the board of directors to supervise the implementation of, and compliance with, suchpolicies and procedures and to examine proposed related party transactions.

Transactions with related parties are subject to certain limitations. For example, when theamount of any single related party transaction represents more than 1% of the bank’s Net Capital Base,or if any single related party transaction causes the total outstanding value of transactions with thatrelated party to represent more than 5% of the bank’s Net Capital Base, the transaction must beexamined by the related party transaction control committee of the commercial bank and submitted tothe board of directors for approval. It must also be reported to the supervisory board of the bank andthe CBRC within ten business days after such board approval. Any related party transaction that doesnot exceed the threshold level has to be examined and approved according to the internal authorizationprocedure of the commercial bank and submitted to the related party transactions control committee forfiling or approval.

In addition, commercial banks may not grant unsecured loans to related parties or extend creditsecured by the bank’s own equity. They may not provide security for the financing activities of relatedparties, unless such related parties provide adequate security in the form of certificates of deposit andtreasury bonds as collateral. If a commercial bank suffers a loss from credit extension to a relatedparty, it may not extend credit to the same related party in the next two years except for the purpose ofmitigating the loss from credit facilities extended and as otherwise approved by the board of directors.Moreover, a related party transaction may not be resubmitted for consideration within six months afterit has been rejected. The credit facilities granted to a single related party may not exceed 10% of thecommercial bank’s Net Capital Base. The credit facilities granted to all affiliates of a related party maynot exceed 15% of the bank’s Net Capital Base. The aggregate amount of credit facilities granted to allrelated parties may not exceed 50% of the bank’s Net Capital Base.

Commercial banks are required under the Related Party Transactions Measures to submit to theCBRC, on a quarterly basis, status reports regarding their related party transactions, and disclosematters relating to related parties and related party transactions in their financial statements. Moreover,the board of directors is required to report annually at the shareholders’ meetings related partytransactions and the implementation of mechanisms for monitoring and approving related partytransactions. The CBRC has the power to request the rectification of transactions that violate theRelated Party Transactions Measures and impose sanctions on the bank and/or the relevant parties

We have established the Related Party Transactions Control Sub-Committee under our RiskManagement Committee of the board of directors.

Disclosure Requirements

Under the Provisional Measures on Information Disclosure of Commercial Banks issued by thePBOC which became effective on May 21, 2002, commercial banks with total assets of RMB1.0billion or more or deposits of RMB500 million or more are required to publish financial statementsaudited by accounting firms in their annual reports. In addition, each such bank is required to discloseinformation relating to its risk management, corporate governance, ten largest shareholders, relatedparty transactions and other significant information relating to the bank during the relevant fiscal year.The annual reports are required to be published within four months of the end of each fiscal year. TheCBRC issued a circular on February 17, 2004 to set out further requirements regarding the annualreport of joint-stock commercial banks.

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Anti-money Laundering Regulation

Pursuant to the Anti-money Laundering Rules for Financial Institutions issued by the PBOCwhich became effective on March 1, 2003, commercial banks are required to establish an internal anti-money laundering procedure and file it with the PBOC. Commercial banks are also required to eitherestablish an independent anti-money laundering department or designate a relevant department, in eachcase staffed with qualified personnel, to implement their anti-money laundering procedure. In addition,commercial banks are required to establish a system to record the identities of all customers and theirrespective deposits, settlement and other transactions with the bank. Upon the detection of anysuspicious transactions or transactions involving large amounts, commercial banks are required toreport the transactions to the PBOC or the SAFE, which supervises and regulates the reporting offoreign currency transactions. Where necessary and pursuant to relevant laws and regulations,commercial banks are required to cooperate with government authorities in preventing moneylaundering activities and in freezing assets. The PBOC supervises and conducts on-site inspections ofcommercial banks’ compliance with the anti-money laundering regulations, and may impose penaltiesfor any violations thereof.

Operational Risk Management

On March 22, 2005, the CBRC issued the Circular on Strengthening Control of OperationalRisk in an effort to further strengthen commercial banks’ ability to identify, manage and controloperational risk. Under this circular, commercial banks are required to establish internal policies andprocedures for the management and control of operational risk. A bank’s internal audit and businessoperation departments are required to conduct independent and ad hoc reviews and examinations of thebank’s business operations on a periodic basis. Ongoing reviews and examinations are required forpreviously identified deficiencies. Moreover, a commercial bank’s head office is required to assess,from time to time, the implementation of and compliance with its internal policies and procedures withreference to operational risk.

In addition, the circular sets forth detailed requirements for commercial banks to follow, whichinclude, among other things: establishing a system under which branch officers in charge of businessoperations are required to rotate and take compulsory leave on a regular basis; establishing a system toencourage full compliance with applicable regulations and internal rules and contributing to policies byall employees; improving the timely reconciliation of account statements between banks and theircustomers, between banks, and between operational departments and accounting departments within abank; and strictly segregating persons in charge of account-keeping and persons in charge of accountreconciliation.

Market Risk Management

The CBRC promulgated the Guidelines on Market Risk Management of Commercial Banks onDecember 29, 2004, which became effective since March 1, 2005, in an effort to strengthen the marketrisk management of commercial banks. These guidelines address, among other things, (i) theresponsibilities of the board of directors and senior management of a bank in the effective supervisionof market risk management; (ii) policies and procedures for market risk management; (iii) thedetection, quantification, monitoring and control of market risk; and (iv) internal controls and externalaudits.

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Risk Rating System

According to the Provisional Risk Rating System for Joint-Stock Commercial Banks, whichwas issued by the CBRC on February 5, 2004, the CBRC has implemented a provisional risk ratingsystem regarding joint-stock commercial banks. Under this system, capital adequacy, asset security,management quality, profitability, liquidity and exposure to market risk of joint-stock commercialbanks are evaluated and scored by the CBRC on a continual basis. Each joint-stock commercial bank isclassified into one of five risk rating categories. The CBRC determines its supervision activities,including the frequency and scope of its on-site inspections, with respect to each bank based on its riskrating results. The risk rating also constitutes a basis for the CBRC’s evaluation of a bank’sapplications for new business licenses. These risk ratings are currently not publicly available. Theregulator will decide when to disclose them to the public.

Restrictions on Equity Investments in Commercial Banks

According to the PRC Commercial Banking Law, any natural or legal person intending toacquire 5% or more of the total equity interest of a commercial bank is required to obtain the priorapproval of the CBRC. If any existing shareholder of a commercial bank increases its shareholding inexcess of the 5% threshold without obtaining the CBRC’s prior approval, the shareholder will besubject to CBRC sanctions, which include, among others, rescission of the acquisition anddisgorgement of profits, if any. Furthermore, the bank and the relevant shareholder may also be subjectto fines imposed by the CBRC for not obtaining the prior approval of the CBRC.

In addition, the Corporate Governance Guidelines impose certain additional requirements onshareholders of PRC joint-stock commercial banks. For example, in the event that a commercial bankencounters liquidity problems, its shareholders are required to immediately repay outstanding loansdue and repay in advance outstanding loans not yet due from the bank. Furthermore, if a commercialbank fails to meet the required capital adequacy ratios required by relevant regulations, its shareholdersare obligated to endorse measures determined by the bank’s board of directors that are aimed atincreasing the capital adequacy level. Moreover, if shareholders of a commercial bank fail to repayoutstanding loans when due, their voting rights will be restricted for the period during which therelevant loan is overdue.

Under the PRC Company Law and relevant rules and regulations, a joint-stock commercialbank may not accept its own shares as collateral. Moreover, there are legal limitations on the ability ofshareholders in a joint-stock commercial bank to pledge to any other party their shares in the bank.According to the Corporate Governance Guidelines, (i) any shareholder of a joint-stock commercialbank must give prior notice to the board of directors of the bank if it wishes to pledge its shares ascollateral, and (ii) if the outstanding amount of the bank’s loans to a shareholder exceeds the auditedvalue of such shareholder’s equity in the bank for the immediately preceding year, and suchshareholder does not pledge any government bonds or bank deposit certificates as collateral, theshareholder may not pledge its shares. Under our articles of association, which have been approved bythe CBRC, this restriction applies only to those shareholders that hold 5% or more of our shares. Wehave been advised by our PRC legal counsel, King & Wood, that this provision of our articles ofassociation is legal and valid under PRC law.

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Regulation of Foreign-invested Financial Institutions Operating in China

Foreign-invested Banks

Currently, foreign financial institutions may establish branches, joint venture banks or whollyowned banks in China, subject to minimum capital, asset value and other requirements. Foreign-invested financial institutions currently can provide services denominated in foreign currencies in thePRC without geographic and client restrictions. With respect to Renminbi business, since December 5,2005, foreign-invested financial institutions have been permitted to provide services to PRC enterprisesin 25 cities in accordance with the CBRC Notice on the Further Opening of the Banking Sectorpublished on December 3, 2005. By December 2006, any existing non-prudential measures restrictingthe geographic presence, customer base and operational licenses of foreign banks operating in China,including restrictions on establishing new branches, are required to be eliminated under China’s WTOcommitments.

Under the Foreign-invested Financial Institutions Regulations promulgated on December 20,2001 by the State Council, which became effective since February 1, 2002, its implementation rulesissued by the CBRC and effective since September 1, 2004, and the Measures of CBRC onImplementation of Administrative Licensing relating to Foreign-Invested Financial Institutionspromulgated on January 2, 2006 and effective since February 1, 2006, the establishment of foreign-invested banks in the PRC, including in the form of wholly foreign-owned banks, joint venture banksand branch offices of foreign banks, are subject to the approval from the CBRC. Wholly foreign-owned banks and joint venture banks shall have a registered capital as well as paid-in capital inconvertible foreign currency equivalent to at least RMB300 million. For branch offices, foreign banksshall allocate to each of their branch offices in the PRC operating capital of no less than anyconvertible foreign currency equivalent of RMB100 million.

Equity Investment by Foreign Financial Institutions in Domestic Commercial Banks

Under the Administrative Measures on Equity Investments of Overseas Financial Institutions inDomestic Financial Institutions promulgated by the CBRC on December 8, 2003, which becameeffective on December 31, 2003, and the Measures of CBRC on Implementation of AdministrativeLicensing relating to Domestic Commercial Banks, certain foreign financial institutions may makeequity investments in domestic commercial banks, subject to the CBRC’s approval. However, nosingle foreign financial institution may own 20% or more of the equity of such a bank. In addition, ifforeign investment in the aggregate exceeds 25% of the total equity interest in a non-listed domesticcommercial bank, such bank will be regulated as a foreign-invested commercial bank. A listeddomestic commercial bank will continue to be regulated as a domestic commercial bank even if foreigninvestment in the aggregate exceeds 25% of its total equity interest.

HONG KONG FINANCIAL DISCLOSURE REQUIREMENTS

Banking activities in Hong Kong are primarily governed by the Banking Ordinance and areregulated by Hong Kong Monetary Authority, or the HKMA. The principal function of the Hong KongMonetary Authority is to promote the general stability and effectiveness of the banking system in HongKong. The Hong Kong Monetary Authority is responsible for supervising compliance with theprovisions of the Banking Ordinance and also supervises compliance with the Hong Kong MonetaryAuthority’s guidelines, and legislation promulgated by the Securities and Futures Commission. TheHong Kong Monetary Authority has responsibility for regulating banking institutions and granting

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banking licenses, and has the discretion to attach conditions to a bank’s operating license. The HongKong Monetary Authority requires every authorized institution to implement a comprehensive riskmanagement system to identify, measure, monitor and control the various types of risks relating to itsactivities and, where appropriate, to hold capital against those risks.

The Banking Ordinance requires banks to report to the Hong Kong Monetary Authority certainperiodic returns and other information and establishes certain minimum standards and ratios relating tocapital adequacy, liquidity, capitalization, limitations on shareholdings, exposure to any one customer,unsecured advances to persons affiliated with the bank and holdings of interests in land, with which allbanks operating in Hong Kong must comply.

Pursuant to Rule 4.10 of the Hong Kong Listing Rules, the financial information to be disclosedin our Accountants’ Report must be in accordance with best practice, which is the least that is requiredto be disclosed in respect of specific matters in the accounts of a company under the CompaniesOrdinance, IFRS, and the Financial Disclosure by Locally Incorporated Authorised Institutions issuedby the Hong Kong Monetary Authority.

We are currently unable to provide certain disclosures described below as required by theGuidelines as such information is currently not available. We believe that the financial disclosureswhich we are currently unable to provide are immaterial to potential investors under the GlobalOffering. However, we are endeavoring to collect the relevant information so that we will be in aposition to provide such required disclosures under the Guidelines within a reasonable time frame inthe future.

Š The Guidelines require separate disclosure of the movements in the allowance for loanimpairment losses for individually assessed loans and for collectively assessed loans. Wedid not break down the movements in the allowance for loan impairment losses intoallowances for individually assessed loans and collectively assessed loans, and, in lieu ofthat, we disclosed the movements on an aggregate basis in Note 16 to the financialinformation included in the Accountant’s Report in Appendix I to this prospectus. Weexpect to be able to make such disclosure by December 31, 2008.

Š The Guidelines require separate disclosure of the amount of new provisions charged to theincome statement and the amount of provisions released back to the income statement inthe movement of allowance for loan impairment losses. We did not segregate the amountof new provisions from the amount of provisions released back, and, in lieu of that, wedisclosed these two amounts on a net basis in Note 16 to the financial informationincluded in the Accountants’ Report in Appendix I of this prospectus. We expect to beable to make such disclosure by December 31, 2008.

REGULATION AND SUPERVISION OF OUR HONG KONG OPERATIONS ANDOVERSEAS OPERATIONS

Our branch in Hong Kong and our subsidiaries, Industrial and Commercial Bank of China(Asia) Limited, ICEA Finance Holdings Limited, and Industrial and Commercial International CapitalLtd. are subject to the regulation of the HKMA and the Securities and Futures Commission of HongKong . Our overseas branches in Macau, Singapore, Tokyo, Seoul, Busan, Frankfurt and Luxembourgare respectively subject to the regulation of the Monetary Authority of Macau, the MonetaryAuthority of Singapore, the Financial Services Agency of Japan, the Financial Supervisory

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Commission of the Republic of Korea, the German Bundesanstalt für Finanzdienstleistungsaufsichtand Commission de Surveillance du Secteur Financier (CSSF). Our overseas subsidiaries, ICBC(London) Limited and Industrial and Commercial Bank of China (Almaty) Joint Stock Company, andour representative offices in New York, Moscow and Sydney are respectively subject to the regulationof the U.K. Financial Services Authority, the Agency of the Republic of Kazakhstan on Regulationand Supervision of Financial Market and Financial Organizations, Federal Reserve Bank of NewYork and Banking Department of State of New York, the Central Bank of the Russian Federation andthe Australian Prudential Regulatory Authority.

Our overseas branches, subsidiaries and representative offices are also subject to the respectivelocal banking regulatory requirements, including requirements with respect to internal controls, capitaladequacy, and others. We have been duly licensed to operate in these jurisdictions by the respectivebanking regulatory authorities.

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OUR RESTRUCTURING AND OPERATIONAL REFORM

OUR HISTORY

We were established on January 1, 1984 as a state-owned specialized bank to assume allcommercial banking functions of the PBOC following its official designation as China’s central bank.See “Banking Industry in China—History and Development.”

Since our establishment, we have evolved from a state-owned specialized bank to a state-owned commercial bank, and subsequently a joint-stock commercial bank.

From 1984 to 1993, we operated as a state-owned specialized bank. During this period, weexpanded our operations and distribution network, strengthened our financial accounting andmanagement systems and increased our focus on profitability and risk management.

We became a state-owned commercial bank in 1994 following establishment of the three policybanks that assumed substantially all policy lending functions of the state-owned specialized banks,which later became the Big Four commercial banks. From 1994 to 2004, we made significantimprovements in many aspects of our operations to bring our business practices in line with those of amodern commercial bank, such as enhancing our capital base, operational performance, asset quality,risk management, information technology, internal controls, organizational structure, businessprocesses and management transparency.

During the past decade, the PRC government has undertaken a number of initiatives tostrengthen the capital base and asset quality of state-owned commercial banks. The MOF issued aRMB85.0 billion, 30-year special government bond to us and used the proceeds as a capitalcontribution to us in 1998, as part of the government’s effort to improve the capital adequacy of theBig Four commercial banks. In 1999 and 2000, we transferred non-performing assets in the aggregateamount of RMB407.7 billion at book value to Huarong. As consideration for the transfer, we receivedRMB94.7 billion in cash and non-transferable ten-year bonds issued by Huarong with an aggregateface value of RMB313.0 billion during the period from 1999 to 2001.

As part of a more recent restructuring of China’s banking sector, Huijin made a capitalcontribution of US$15.0 billion to us in April 2005, and the MOF retained RMB124.0 billion of ourthen existing capital. Our legal status changed from a state-owned commercial bank to a joint-stocklimited company on October 28, 2005. In April 2006, The Goldman Sachs Group, Inc., Allianz Group(through its wholly owned subsidiary, Dresdner Bank Luxembourg S.A.), and American ExpressCompany acquired equity stakes in us, which represented 5.75%, 2.25% and 0.45%, respectively, ofour outstanding shares at the Latest Practicable Date. In June 2006, the SSF also made an investment inus through the acquisition of an equity stake, which represented 4.9996% of our outstanding shares atthe Latest Practicable Date.

FINANCIAL RESTRUCTURING

As part of our financial restructuring in 2005 (i) the MOF retained RMB124.0 billion of ourthen existing capital, (ii) Huijin made a capital contribution of US$15.0 billion to us, (iii) we disposedof certain non-performing assets in an aggregate amount of RMB705.0 billion at book value, (iv) thegovernment contributed certain land use rights to us, and (v) the MOF amended the terms of a specialgovernment bond issued by it to us.

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Our Capital Retained by the MOF

As part of our financial restructuring in 2005, the MOF retained RMB124.0 billion of our thenexisting capital.

Huijin Capital Contribution

On April 22, 2005, Huijin made a capital contribution of US$15.0 billion to us in cash, which isgenerally referred to as the “Huijin capital contribution” in this prospectus.

Disposal of Non-performing Assets

On May 27, 2005, we disposed of non-performing loans classified under the loss category in anaggregate amount of RMB176.0 billion and other impaired assets in an aggregate amount of RMB70.0billion at book value, before allowance for impairment losses, to the MOF on a non-recourse basis. TheMOF designated Huarong to hold these non-performing loans and assets. In this section, we refer tothese loans and assets as the “assets under loss category.” These assets under loss category weretransferred on a non-recourse basis at book value. In connection with the disposal, we recorded areceivable from the MOF in the amount of RMB246.0 billion. Interest is payable on the outstandingbalance of the MOF receivable at an annual rate of 3.0% from June 21, 2005.

Together with the MOF, we set up a jointly managed fund to repay to us over five years theprincipal of and interest accrued on the MOF receivable. It was agreed that the funding sources for thejointly managed fund may consist of: (i) all corporate income taxes payable by us during the periodthat the jointly managed fund remains outstanding, (ii) all cash dividends payable by us to the MOFduring the period that the jointly managed fund remains outstanding, (iii) the net cash proceeds, whichare designated for the purposes of making relevant payments to us, recovered by the MOF fromdisposals of the assets under loss category in accordance with the disposal arrangements for non-performing assets, (iv) the portion of sales proceeds, which are designated for the use of the jointlymanaged fund, received by the MOF from the sales of our shares held by it, (v) other funds allocatedby the MOF, and (vi) any interest income arising from outstanding funds in the jointly managedaccount. The fund is owned by the MOF, but the MOF has agreed that we are entitled to request theMOF to allocate these specific sources of fund into this account and to make payment to us in a timelymanner. We are also obligated to report the payment status and balance of the jointly managed fund tothe MOF on a periodic basis. The MOF has agreed not to withdraw any amount from this jointlymanaged fund for any uses other than making payments for the MOF receivable and related expensesuntil the MOF receivable is repaid in full. If the jointly managed fund is insufficient to repay theoutstanding principal of and accrued interest on the MOF receivable by June 20, 2010, the MOF willprovide funding support to ensure full repayment of the MOF receivable in a timely manner.

On June 27, 2005, with the approval of and pursuant to the arrangements made by the PBOCand MOF, four asset management companies, Huarong, China Great Wall Asset ManagementCorporation, China Orient Asset Management Corporation and China Cinda Asset ManagementCorporation, purchased, on a non-recourse basis, our non-performing loans at book value beforeallowance for impairment losses, at an aggregate price of RMB459.0 billion. We used RMB430.5billion of the proceeds received from this disposal as consideration for a five-year special PBOC bill.The special PBOC bill bears interest at an annual rate of 1.89%. This special PBOC bill is nottransferable. We have received the PBOC’s approval to treat the amount of this special PBOC bill asavailable for intraday settlement purposes.

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Grant of Land Use Rights by the PRC Government

The PRC government contributed, as a capital injection, the land use rights to 10,994 parcels ofland formerly allocated to us, with a fair value of approximately RMB19.9 billion at June 30, 2005.

Amendment to the Terms of a Special Government Bond Issued by the MOF

The MOF issued a RMB85.0 billion, 30-year special government bond to us and used theproceeds as a capital contribution to us in 1998. The bond bore an annual interest rate of 7.20%, but wewere required to make an annual payment to the government equal to the amount of the annual interestaccrued on the bond. Accordingly, the interest on this special government bond was effectively offsetby the annual payment and no cash settlement was ever made between the MOF and us. As part of ourfinancial restructuring in 2005 and in accordance with a notice issued by the MOF, we are no longerobligated to make the annual payment and the MOF began to pay interest on the bond at a reduced rateof 2.25% per annum, effective from December 1, 2005.

ISSUANCE OF SUBORDINATED BONDS

To strengthen our capital base, we publicly issued two tranches of 10-year and one tranche of15-year subordinated bonds with an aggregate principal amount of RMB35.0 billion following ourfinancial restructuring in the second half of 2005 in accordance with approvals issued by the PBOCand CBRC. According to the approvals, we may issue additional subordinated bonds with an aggregateprincipal amount of up to RMB65.0 billion prior to December 31, 2007. These subordinated bondscurrently qualify as supplementary capital pursuant to the relevant CBRC regulations on capitaladequacy.

ESTABLISHMENT OF OUR BANK AS A JOINT-STOCK LIMITED COMPANY

We were converted from a state-owned commercial bank to a joint-stock limited company onOctober 28, 2005, with the MOF and Huijin as our promoters, and our legal name was changed toIndustrial and Commercial Bank of China Limited. All of the businesses, assets and liabilities ofIndustrial and Commercial Bank of China were assumed by Industrial and Commercial Bank of ChinaLimited upon the conversion.

Based on an appraisal conducted in connection with our incorporation, the appraised value ofour net assets at June 30, 2005 amounted to RMB256.0 billion. On October 28, 2005, we wereincorporated as a joint-stock limited company with a total registered capital of RMB248.0 billion. Thedifference of RMB8.0 billion, which was related to the government’s grant of land use rights to us, wasrecorded as a payable to the MOF. Upon our incorporation, our total registered capital in the amount ofRMB248.0 billion was divided into 248.0 billion shares, with par value of RMB1.00 each, with theMOF and Huijin each receiving 50% of our shares immediately following our incorporation.

STRATEGIC INVESTMENTS

On January 27, 2006, we entered into separate share purchase agreements with three overseasstrategic investors, The Goldman Sachs Group, Inc., Allianz Group and American Express Company.On April 28, 2006, Goldman Sachs, Allianz and American Express completed the subscription of ournewly issued ordinary shares representing 5.75%, 2.25% and 0.45%, respectively, of our outstandingshares at the Latest Practicable Date.

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On June 29, 2006, the SSF also subscribed for our newly issued ordinary shares for anaggregate consideration of approximately RMB18.0 billion. The shares acquired by the SSF accountedfor 4.9996% of our outstanding shares at the Latest Practicable Date.

As a result of these investments, the ownership stakes of the MOF and Huijin was each reducedto 43.28% of our outstanding shares at the Latest Practicable Date.

See “Our Strategic Investors and Other Investors.”

OUR SHAREHOLDING AND GROUP STRUCTURE

The following chart sets forth our shareholding and group structure upon the completion of theGlobal Offering and the A Share Offering, assuming that neither of the over-allotment options for theGlobal Offering and the A Share Offering is exercised(1).

Industrial and Commercial Bank of China Limited

Major domesticcontrolledentities(3)

Overseascontrolledentities(4)

Domestic branches (2)

Overseas whollyowned

subsidiarybanks

Overseas representativeoffices(7)Overseas branches(6)

(5)

MOF Huijin Goldman SachsSSF Allianz American Express

36.24% 36.24% 5.39% 5.03% 1.96% 0.39% 10.80%

Other publicH share shareholders

3.97%

Other publicA share shareholders

(1) For information regarding our shareholding and group structure immediately following the completion of the Global Offering, withoutgiving effect to the A Share Offering, see “Substantial Shareholders” and “Share Capital.”

(2) Includes our head office, 35 tier-1 branches, 412 tier-2 branches, 17,506 sub-branches and outlets and 84 other establishments at June 30,2006.

(3) Includes ICBC Credit Suisse Asset Management Co., Ltd.(4) Includes Industrial and Commercial Bank of China (Asia) Limited and ICEA Finance Holdings Limited.(5) Includes Industrial and Commercial International Capital Limited, ICBC (London) Limited and Industrial and Commercial Bank of

China (Almaty) Joint Stock Company.(6) Includes Singapore, Hong Kong, Macau, Tokyo, Seoul, Busan, Frankfurt and Luxembourg branches.(7) Includes New York, Moscow and Sydney representative offices.

OPERATIONAL REFORM

We have been taking initiatives to re-engineer our business processes and our operationalstructure since 1997. We launched a new phase of business process reengineering in the first half of2006, which has been completed at our head office and is expected to be completed at our branches bythe end of 2006. In order to continue our business transformation and promote sustainable growth, ouroperational reform is currently focused on enhancing our customer services, risk management andoperation efficiency. Our recent reengineering and reform efforts are mainly focused on the followingareas:

Š realigning our customer-facing business units;

Š streamlining our operational structure;

Š enhancing and centralizing our risk management and internal control functions;

Š centralizing our capital and financial management; and

Š improving employee incentive schemes.

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Realigning Our Customer-facing Business Units

In order to better integrate our internal resources and more effectively align them to our productand service offerings, we have reengineered the business processes in our corporate banking, personalbanking and treasury operations. We believe that this will create attractive business opportunities andimprove our service offerings to our customers.

In order to improve the competitiveness of our corporate banking business, we have separatedthe sales and marketing function and customer service function of our corporate department to focusrespectively on direct sales to large-scale quality customers and the overall management of all othersales and marketing and customer service functions. In addition, we have strengthened our sales andmarketing to small- and medium-enterprises and improved the related credit management processes. Inaddition, we have consolidated the functions of several departments into a newly established settlementand cash management department to focus on our product development and client service efforts.

In personal banking, we have integrated the sales and marketing team of our personal propertymortgage loan business into our personal banking department, which consolidated all of the sales andmarketing functions of our personal customer-facing business. In order to enhance cross-selling to ourpersonal customers, we are further integrating our internally-generated personal credit information thatsupports our personal banking lending decisions. In addition, we have reorganized our distributionnetwork, established standardized customer service processes and procedures and strengthened ourteam of customer relationship managers and wealth management specialists, which we believe has hada key impact on our efforts to expand high quality customer base, improve financial products sales andservices and rationalize distribution channels.

In treasury operations, we have consolidated the trading functions of our treasury departmentand our international department into a newly established financial markets department. This hascreated a unified trading platform for our trading of Renminbi- and foreign currency-denominatedfinancial instruments in both domestic and international financial markets. There is a dedicated riskmanagement subdivision in the financial markets department that deals with the risks related to ourtrading business. This subdivision is separated from our trading operations. We believe thisreorganization not only enhances our risk management, but will also help us capture revenueopportunities as financial markets evolve.

Streamlining Our Operational Structure

In recent years, we have commenced a program to rationalize our branch network. As a result,the total number of our domestic branches, outlets and other establishments (including head office)decreased to 18,038 at June 30, 2006 from 41,990 at December 31, 1997. In connection with thisinitiative, we have also consolidated our previously dispersed operations and the powers ofmanagement and decision-making from our lower tier branches to our head office and tier-1 branches,while converting lower tier branches from management units to distribution and customer serviceoutlets.

In addition, we have conducted pilot programs at certain of our branches in recent years toreduce management layers between these branches and their respective distribution outlets. We expectto extend this program to all of our tier-2 branches by the end of 2007. We believe that this programnot only improves our risk management and operational efficiency, but also our ability to cross-sellproducts.

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Enhancing and Centralizing Our Risk Management and Internal Control Functions

To enhance our risk management, we have further separated the assessment, approval andmanagement functions in our credit risk management process. In addition, we have established theposition of chief risk officer, or CRO, to assist our president in overseeing our risk management andmaking related decisions. The primary objectives of our risk management reorganization are toestablish an integrated and independent risk management system, introduce a culture of riskaccountability into our business, and improve the effectiveness of our risk management structure andframework.

To further strengthen our internal control functions, we have divided our internal auditdepartment into two separate departments, which consist of an internal control and compliancedepartment that reports to our president and an internal audit department that reports to the auditcommittee of our board of directors.

We believe these initiatives have contributed to our making substantial progress in improvingthe effectiveness of our risk management and internal control. For a discussion of our risk managementand internal control, see “Risk Management.”

Centralizing Our Capital and Financial Management

In order to improve the allocation, management and return on our economic capital, we havereorganized the departments responsible for our asset and liability management and financialaccounting management. We have also reengineered, or are in the process of reengineering, our capitaland financial management processes by:

Š building an accounting platform that provides management accounting and budgetaryinformation along product and business lines in addition to by geographical regions;

Š establishing capital management systems to manage our accounting capital, regulatorycapital and economic capital;

Š centralizing all funding sources from tier-2 branches to tier-1 branches to rationalize ourfunding allocations and using internal fund transfer pricing tools to rationalize our assetand liability structure; and

Š introducing a comprehensive review system that balances our focus on risks, profits andsustainable growth using performance evaluation tools, such as RAROC and EVA.

Improving Employee Incentive Schemes

In order to establish a market-oriented incentive system, we have adopted a new system thatorganizes our management based on job functions and value added. In addition, we have establishedfour different career tracks for our employees: managerial, professional, sales and marketing, andoperational. We use these career tracks for the purposes of performance evaluations, promotions andcompensation.

We intend to further improve our management and employee incentive system, includingadopting an EVA-based profit sharing program to align the interests of our shareholders and ouremployees. See “Business—Employees.”

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OUR STRATEGIC INVESTORS AND OTHER INVESTORS

OVERVIEW

We have established non-exclusive strategic cooperations with The Goldman Sachs Group,Inc., or Goldman Sachs, Allianz Group, or Allianz, and American Express Company, or AmericanExpress, as part of our efforts to accelerate our corporate governance reform and businessdevelopment. For the following discussion in this section, we refer to Goldman Sachs, Allianz andAmerican Express collectively as the “overseas strategic investors.” In addition, the National Councilfor Social Security Fund, or the SSF, has made an investment in us.

Overseas Strategic Investors

On April 28, 2006, pursuant to their respective share purchase agreements with us, GoldmanSachs subscribed for 16,476,014,155 shares of our newly issued shares for an aggregate considerationof US$2,582.2 million, Allianz, through its wholly owned subsidiary, Dresdner Bank LuxembourgS.A., or Dresdner, subscribed for 6,432,601,015 shares of our newly issued shares for an aggregateconsideration of €824.7 million, and American Express subscribed for 1,276,122,233 shares of ournewly issued shares for an aggregate consideration of US$200 million. The number of sharessubscribed for was determined by dividing the aggregate consideration, converted into Renminbi onthe basis of an agreed exchange rate of 8.0304 in terms of U.S. dollars and 9.8167 in terms of Euros,by 1.22 times our book value per outstanding share as at December 31, 2005, as determined byreference to our audited net asset value at December 31, 2005 in accordance with the IFRS.

Goldman Sachs, Allianz and American Express held shares, which represented 5.75%, 2.25%and 0.45%, respectively, of our outstanding shares at the Latest Practicable Date and will hold 5.03%,1.96% and 0.39%, respectively, of our issued and outstanding shares immediately following thecompletion of the Global Offering and the A Share Offering, assuming that neither of the over-allotment options for the Global Offering and the A Share Offering is exercised.

We, the MOF and Huijin entered into separate shareholders rights agreements with each of ouroverseas strategic investors. Each of the shareholders rights agreements became effective on April 28,2006, the closing of the share subscriptions by our overseas strategic investors.

Goldman Sachs

Goldman Sachs is a global investment bank and securities and investment managementcompany. It provides products and services to a worldwide group of customers, which includecorporations, financial institutions, governments and high net-worth individuals. We believe GoldmanSachs’s extensive experience and expertise in risk management, treasury management and products,asset management and financing, coupled with its commitment to corporate governance and internalcontrol, makes it a valuable partner for us in achieving our objectives in improving our corporategovernance, risk management and business development. We further believe that the respectivecorporate cultures of Goldman Sachs and ours complement each other, which is critical in building along-term strategic partnership.

Allianz

Allianz is one of the world’s leading insurers and financial services providers. We believeAllianz’s extensive experience and expertise in the insurance business makes it a valuable partner forus in developing leading bancassurance products and services.

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American Express

American Express is a diversified worldwide travel, financial and network services company.Its primary business includes charge and credit cards, Travelers Cheques, travel, and business services.We believe American Express’s extensive experience and expertise in the credit card business make ita valuable partner for us in developing credit card products for our customers.

SSF

On June 29, 2006, the SSF subscribed for 14,324,392,623 shares of our newly issued shares foran aggregate consideration of RMB18.0 billion, of which 6,378,821,833 shares were subscribed onbehalf of and are held in custody for the MOF. The number of shares purchased was determined bydividing the aggregate consideration by 1.22 times our book value per outstanding share as atDecember 31, 2005, as determined by reference to our audited net asset value at December 31, 2005 inaccordance with the IFRS.

The SSF and the MOF entered into a custody agreement on June 19, 2006, pursuant to whichthe MOF provided the SSF with funding in the amount of RMB8.0 billion, in the form of a payable byus to the MOF relating to the government’s grant of land use rights to us, to purchase on its behalf andhold in custody 6,378,821,833 of our newly issued shares. Pursuant to the custody agreement enteredinto with the SSF, the MOF is entitled to the dividends, rights of disposal and discretionary exerciseright in any rights offerings with respect to these shares. In the case of its discretionary exercise right inrights offerings, the MOF may decide whether to exercise the rights, and is required to fund anyexercises. The SSF will hold in custody the shares received as a result of exercising such rights. TheSSF is entitled to all other shareholder rights prescribed under our articles of association and applicablePRC laws, which include, without limitation, the rights to participate in, appoint proxy for, proposeresolutions to, and cast votes on, shareholders’ meetings and the right to inspect our corporatedocuments. For a description of our payable to the MOF, see “Our Restructuring and OperationalReform—Establishment of Our Bank as a Joint-Stock Limited Company.”

The SSF otherwise enjoys complete shareholder rights with respect to the remaining7,945,570,790 shares that it has subscribed for.

The SSF held shares equal to 4.9996% of our outstanding shares at the Latest Practicable Dateand will hold 5.39% of our issued and outstanding shares upon completion of the Global Offering andthe A Share Offering, assuming that neither of the over-allotment options for the Global Offering andthe A Share Offering is exercised.

We, the MOF and Huijin entered into a shareholders rights agreement with the SSF, whichbecame effective on June 29, 2006, the closing date of the share subscription by the SSF.

The National Social Security Fund is a fund set up by the PRC government to provide socialsecurity for the nation’s aging population and to support the nation’s economic development and socialstability. It is funded by government appropriations and proceeds from disposals of state-owned sharesand other capital raising activities approved by the State Council and its own investment returns. TheSSF manages and operates the National Social Security Fund.

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TERMS OF INVESTMENTS BY OVERSEAS STRATEGIC INVESTORS AND SSF

Board Representation

As part of our strategic relationship with Goldman Sachs and pursuant to the shareholdersrights agreement with Goldman Sachs, the parties agreed that Goldman Sachs has the right to nominateone director on our board prior to completion of the Global Offering. In addition, we, the MOF andHuijin have agreed to elect the director nominated by Goldman Sachs to serve on our board ofdirectors and not remove or replace this director unless for cause prior to completion of the GlobalOffering. Consistent with PRC laws and our articles of association, any Goldman Sachs nominee forelection to our board must be elected by our shareholders and approved by the CBRC. Under theshareholders rights agreement between Goldman Sachs and us, Goldman Sachs’s director nominationright lapses upon completion of the Global Offering. However, according to our articles of association,to the extent any of our shareholders, including Goldman Sachs, holds not less than 5.0% of our shares,such shareholder shall have the right to nominate board directors and supervisors. See “AppendixVIII—Summary of Articles of Association.”

Goldman Sachs nominated and our shareholders elected Mr. Christopher A. Cole to serve onour board of directors. All of our directors, including Mr. Cole, are required to comply with the PRCCompany Law and our articles of association and act in our best interests.

Information Rights

As long as the overseas strategic investors hold in aggregate a number of our shares equal to atleast 50% of the aggregate number of shares acquired from us by them in the strategic investment, wewill provide such investor with all financial and operating data which are disclosed to our shareholdersand board of directors and various financial statements. The SSF has the same information rights aslong as it holds not less than 2% of the outstanding ordinary shares issued by us. Such informationrights granted to our overseas strategic investors and the SSF will lapse upon completion of the GlobalOffering.

Rights Granted to Our Overseas Strategic Investors and the SSF

Other than the rights disclosed below, there are no material rights to which each of our overseasstrategic investors and the SSF are entitled but are not generally available to our other shareholdersupon or following the completion of our Global Offering.

Conversion of the Shares

All of our shares held by our overseas strategic investors and the SSF will be converted into Hshares upon completion of the Global Offering.

Anti-dilution Rights in connection with the Global Offering

We have granted each of our overseas strategic investors and the SSF a right to purchase our Hshares in the Global Offering at the offer price to maintain its percentage of ownership interest in ourshares. The anti-dilution rights will lapse upon completion of the Global Offering. Each of ouroverseas strategic investors and the SSF has informed us that it does not intend to exercise such right.

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Registration Rights

Each of our overseas strategic investors has the right to register our shares held by it in theevent that we register our shares with the U.S. Securities and Exchange Commission under the U.S.Securities Exchange Act of 1934, as amended. We have no current intention to register our shares inthe United States.

Lock-up

Each of our overseas strategic investors and the SSF has agreed not to sell, dispose of orotherwise transfer any shares purchased in the strategic investment or upon exercise of the anti-dilutionright prior to the expiration date of a lock-up period, which is the later of (i) the third anniversary of theclosing date for the strategic investment or (ii) the second anniversary of the price determination datefor the Global Offering. In addition, each of our overseas strategic investors and the SSF has agreedwith us that from this expiration date to the third anniversary of the price determination date for theGlobal Offering, it will only be permitted to sell, dispose of or transfer up to 50% of the aggregatenumber of shares purchased by it on the closing date for the strategic investment and upon exercise ofthe anti-dilution right.

Our consent to any release of such overseas strategic investors and the SSF from their lock-upobligations described above are subject to applicable requirements under the Hong Kong Listing Rules.

STRATEGIC COOPERATION WITH OUR OVERSEAS STRATEGIC INVESTORS

Goldman Sachs

We have entered into a strategic cooperation agreement with Goldman Sachs. The term of thisagreement is five years, beginning on January 27, 2006, and the term may be extended by mutualagreement between Goldman Sachs and us. We have established working procedures and processeswith Goldman Sachs and have established a joint steering committee, joint working groups and aproject management office at each party for these purposes. The joint steering committee is responsiblefor the overall implementation of the strategic cooperation. Mr. Yang Kaisheng, our president, andMr. Michael Evans, the Chairman of Goldman Sachs Asia (L.L.C.), co-chair the joint steeringcommittee. The joint working groups are responsible for the execution of the strategic cooperation inspecific business areas, by formulating business cooperation plans, including targets, measures andtimetables. The project management offices are responsible for coordinating the execution of thestrategic cooperation from both sides.

Our strategic cooperation with Goldman Sachs aims to leverage the respective strengths ofGoldman Sachs and us to enhance our businesses pursuant to the following guiding principles:

Š Goldman Sachs provides technical assistance, consultation and employee training to us inorder to help us in our continued development into a world-class financial institution withlong-term sustainable competitiveness and profitability;

Š Goldman Sachs assists us in developing our corporate and management culture, improvingour risk management system and corporate governance structure; and

Š Goldman Sachs assists us in developing non-lending products in order to further enhanceour product and service offerings to our customers and which also lays the foundation forthe continuous development of attractive business opportunities for our respectiveorganizations.

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The strategic cooperation agreement has identified seven areas of strategic cooperation andassistance that will help us meet our objectives:


Goldman Sachs is assisting us in establishing corporate governance measures that areconsistent with international best practices. Such assistance consists of consultation and training,including skills and practice training, seminars, and site visits on a variety of corporate governancetopics, including the latest developments in corporate governance practices, regulatory developmentsand trends in corporate governance and on-going disclosure and corporate governance obligations as alisted company.

Risk management

Goldman Sachs is assisting us in strengthening our risk management framework, developingand improving our risk management systems and fostering a more risk-focused corporate culture. Inconnection with this, Goldman Sachs is (i) sharing appropriate risk management tools and models withus and assisting us in developing our risk management systems and analytical models in order toprovide us with tools to develop a rigorous risk management infrastructure, and (ii) providing us withtechnical assistance, consultation and training in:

Š credit risk management;

Š market and liquidity risk management;

Š operational risk management;

Š portfolio management methodologies;

Š risk management for new products;

Š risk management relating to related-party transactions;

Š evaluating and improving the performance of our risk management system; and

Š environmental related risk management.

Treasury business

Goldman Sachs is assisting us in developing innovative financial products. Goldman Sachs isalso assisting us in establishing a trading platform for interest rates, foreign exchange, credit andcommodities products and related derivatives, improving our pricing capabilities and developingrelated risk management systems.

Asset management

Goldman Sachs is assisting us in improving our ability to provide diversified asset managementservices to corporate and retail clients.

Corporate and investment banking

Goldman Sachs is providing training and assistance to us in developing our corporate andinvestment banking, mergers and acquisitions, financial advisory and underwriting services, asset

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securitization and direct investment businesses. We have also agreed to cooperate with each other inclient referrals.

Non-performing loan disposal

Goldman Sachs is sharing its expertise and knowledge on non-performing loan disposal andmanagement with us to improve our recovery rates on non-performing loans in the long term.

Training

In addition to the training and consultation identified above, as part of its strategic assistance,Goldman Sachs has agreed to assign at least 50 of its personnel as senior advisors dedicated toproviding training and technical support to us, and conduct at least 50 training sessions for us on keybusiness areas. In addition, we will nominate at least 50 senior executives to attend Goldman Sachs’sleadership development program and at least 50 employees to attend training programs for periods ofthree to six months at Goldman Sachs’s headquarters or other Goldman Sachs locations in key businessareas.

Current Status

We have made significant progress in our cooperation with Goldman Sachs. The following hasbeen achieved:

Š Risk management: Goldman Sachs has made a series of recommendations forimprovement in our risk management and has assisted us in establishing an internalreporting system for risk management purposes;

Š Treasury business: We and Goldman Sachs jointly developed Zhulianbihe ( ),which are RMB notional structured investment products linked to foreign currencyderivatives. In addition, Goldman Sachs has granted us unrestricted access to itsInstitutional Portal;

Š Asset management: We and Goldman Sachs are working together to explore cooperationopportunities in money market funds and offshore fund management;

Š Non-performing loan disposal: Goldman Sachs has advised us in connection with therealization of loan collateral and the individual approach and portfolio approach withrespect to the disposal of non-performing loans; and

Š Training: Goldman Sachs has given us presentations in areas of risk management, humanresources, internal controls, corporate governance and non-performing loan management.

Allianz

Allianz is providing us with training, consultation and other assistance to develop ourbancassurance business, which primarily includes:

Š establishing a training program tailored to enhance the sales skills and capabilities of ourbancassurance personnel;

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Š sharing their know-how and experiences relating to:

Š Internet bancassurance business through workshops for our sales staff and on-sitevisits to give our management an opportunity to observe Internet insurance salespractices conducted by European banks;

Š enterprise annuity business;

Š asset management business;

Š insurance risk management practices; and

Š establishing a service hotline to provide sales and help-desk support for Allianz’sinsurance products and services to our bancassurance sales department.

Current Status

We have made significant progress in our cooperation with Allianz. Allianz has established anumber of supporting hotlines for us in Shanghai and other regions. Allianz is also planning toestablish a training program at its Bancassurance Institute and a remote education curriculum for ourbancassurance staff. Allianz has arranged 16 exclusive training sessions conducted by 81 experts forus.

American Express

Prior to the strategic investments we entered into a card partnership agreement with AmericanExpress in March 2004, and we launched ICBC American Express Card in December 2004. We arecontinuing our existing strategic cooperation with American Express in the bank card business.

In connection with their strategic investment in us, American Express has reaffirmed theircommitment to cooperate with us in the bank card business. American Express has been cooperatingwith us in the following areas:

Š conducting credit card market surveys in major cities and overhauling our customerloyalty bonus point programs;

Š technical training and product design;

Š developing an asset quality reporting system to improve our risk management on creditcard business; and

Š presentations on tailored service to high-end clients or group clients, client differentiationand quality management and other related client services.

Current Status

We have made significant progress in our cooperation with American Express. AmericanExpress and we have formed a joint task force to develop a corporate card business. In addition,American Express has assisted us in developing a new marketing strategy and is assisting us indeveloping an asset quality report system for our credit card business. As of June 30, 2006, AmericanExpress had arranged 23 exclusive training sessions conducted by 41 experts for us.

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THE CORPORATE PLACING

As part of the International Offering, we and the Joint Bookrunners have entered into placingagreements with the following investors, or the Corporate Investors, for the subscription by theCorporate Investors at the offer price of the Global Offering for such number of Offer Shares that maybe purchased with an aggregate of HK$30.8 billion, or the Corporate Placing. Assuming an offer priceof HK$2.815, being the mid-point of the price range set out in this prospectus, the total number of Hshares subscribed by the Corporate Investors would be 10,941,376,000, which represents 3.34% of theshares outstanding immediately following the completion of the Global Offering and the A ShareOffering, assuming that neither of the over-allotment options for the Global Offering and the A ShareOffering is exercised, or, without giving effect to the A Share Offering, 3.48% of the sharesoutstanding immediately following the completion of the Global Offering, assuming that the over-allotment option for the Global Offering is not exercised.

China Life Group

China Life Insurance (Group) Company, or China Life Group, has agreed to subscribe for suchnumber of H shares (rounded down to the nearest whole board lot of 1,000 shares) which may bepurchased for HK$4.4 billion at the offer price of the Global Offering. Assuming an offer price ofHK$2.815, being the mid-point of the price range set out in this prospectus, the total number of Hshares that China Life Group would subscribe for would be 1,563,055,000, which is 0.48% of theshares outstanding immediately following the completion of the Global Offering and the A ShareOffering, assuming that neither of the over-allotment options for the Global Offering and the A ShareOffering is exercised, or, without giving effect to the A Share Offering, 0.50% of the sharesoutstanding immediately following the completion of the Global Offering, assuming that the over-allotment option for the Global Offering is not exercised. China Life Group, headquartered in Beijing,is a large state-owned financial and insurance group.

China Life Insurance Company Limited, or China Life Insurance, has also agreed to subscribefor such number of H shares (rounded down to the nearest whole board lot of 1,000 shares) which maybe purchased for HK$2.0 billion at the offer price of the Global Offering. Assuming an offer price ofHK$2.815, being the mid-point of the price range set out in this prospectus, the total number of Hshares that China Life Insurance would subscribe for would be 710,479,000, which is 0.22% of theshares outstanding immediately following the completion of the Global Offering and the A ShareOffering, assuming that neither of the over-allotment options for the Global Offering and the A ShareOffering is exercised, or, without giving effect to the A Share Offering, 0.23% of the sharesoutstanding immediately following the completion of the Global Offering, assuming that the over-allotment option for the Global Offering is not exercised. China Life Insurance is a companyincorporated in the People’s Republic of China and listed on the New York Stock Exchange and theHong Kong Stock Exchange. China Life Insurance is one of the largest life insurance companies inChina.

Cheung Kong and Hutchison

Issamed Investments Limited has agreed to subscribe for such number of H shares (roundeddown to the nearest whole board lot of 1,000 shares) which may be purchased for HK$800 million atthe offer price of the Global Offering. Assuming an offer price of HK$2.815, being the mid-point ofthe price range set out in this prospectus, the total number of H shares that Issamed InvestmentsLimited would subscribe for would be 284,191,000, which represents 0.09% of the shares outstanding

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immediately following the completion of the Global Offering and the A Share Offering, assuming thatneither of the over-allotment options for the Global Offering and the A Share Offering is exercised, or,without giving effect to the A Share Offering, 0.09% of the shares outstanding immediately followingthe completion of the Global Offering, assuming that the over-allotment option for the Global Offeringis not exercised.

Issamed Investments Limited is an indirect wholly-owned subsidiary of Cheung Kong(Holdings) Limited, or Cheung Kong. Cheung Kong has entered into the placing agreement as theinvestor parent for Issamed Investments Limited. Cheung Kong is a company listed on the Hong KongStock Exchange, and its principal activities are property development and investment, investmentholding, hotel and serviced suite operation, property and project management and investment insecurities.

Turbo Top Limited has agreed to subscribe for such number of H shares (rounded down to thenearest whole board lot of 1,000 shares) which may be purchased for HK$800 million at the offer priceof the Global Offering. Assuming an offer price of HK$2.815, being the mid-point of the price rangeset out in this prospectus, the total number of H shares that Turbo Top Limited would subscribe forwould be 284,191,000, which represents 0.09% of the shares outstanding immediately following thecompletion of the Global Offering and the A Share Offering, assuming that neither of the over-allotment options for the Global Offering and the A Share Offering is exercised, or, without givingeffect to the A Share Offering, 0.09% of the shares outstanding immediately following the completionof the Global Offering, assuming that the over-allotment option for the Global Offering is notexercised.

Turbo Top Limited is an indirect wholly-owned subsidiary of Hutchison Whampoa Limited, orHutchison. Hutchison has entered into the placing agreement as the investor parent for Turbo TopLimited. Hutchison is a Hong Kong-based multinational conglomerate whose securities are listed onthe Main Board of the Hong Kong Stock Exchange.

Chow Tai Fook Nominee Limited

Chow Tai Fook Nominee Limited has agreed to subscribe for such number of H shares(rounded down to the nearest whole board lot of 1,000 shares) which may be purchased for HK$1.6billion at the offer price of the Global Offering. Assuming an offer price of HK$2.815, being themid-point of the price range set out in this prospectus, the total number of H shares that Chow TaiFook Nominee Limited would subscribe for would be 568,383,000, which is 0.17% of the sharesoutstanding immediately following the completion of the Global Offering and the A Share Offering,assuming that neither of the over-allotment options for the Global Offering and the A Share Offering isexercised, or, without giving effect to the A Share Offering, 0.18% of the shares outstandingimmediately following the completion of the Global Offering, assuming that the over-allotment optionfor the Global Offering is not exercised.

Chow Tai Fook Nominee Limited is a company incorporated in Hong Kong and is whollybeneficially owned by Dr. Cheng Yu-Tung.

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CITIC Pacific Limited and Mr. Yung Chi Kin

Allied Stars Enterprises Inc. and Kingswell International Holdings Ltd. have each agreed tosubscribe for such number of H shares (rounded down to the nearest whole board lot of 1,000 shares)which may be purchased for HK$800 million at offer price of the Global Offering. Assuming an offerprice of HK$2.815, being the mid-point of the price range set out in this prospectus, the total numberof H shares that each of Allied Stars Enterprises Inc. and Kingswell International Holdings Ltd. wouldsubscribe for would be 568,383,000 which represents 0.17% of the shares outstanding immediatelyfollowing the completion of the Global Offering and the A Share Offering, assuming that neither of theover-allotment options for the Global Offering and the A Share Offering is exercised, or, withoutgiving effect to the A Share Offering, 0.18% of the shares outstanding immediately following thecompletion of the Global Offering, assuming that the over-allotment option for the Global Offering isnot exercised.

Allied Stars Enterprises Inc. and Kingswell International Holdings Ltd. are companiesincorporated in the British Virgin Islands. Allied Stars Enterprises Inc. is a wholly-owned subsidiary ofCITIC Pacific Limited. CITIC Pacific Limited has entered into the placing agreement as the investorparent for Allied Stars Enterprises Inc. Kingswell International Holdings Ltd. is wholly beneficiallyowned by Mr. Yung Chi Kin. Mr. Yung Chi Kin has entered into the placing agreement as thecontrolling shareholder of Kingswell International Holdings Ltd.

CITIC Pacific Limited is listed on the Hong Kong Stock Exchange. CITIC Pacific Limited’smain businesses include special steel manufacturing, property development and investment, powergeneration, aviation, tunnels, communications and distribution of motor vehicles and consumerproducts throughout China.

Dr. Lee Shau Kee

Chinfit Limited has agreed to subscribe for such number of H shares (rounded down to thenearest whole board lot of 1,000 shares) which may be purchased for HK$1.6 billion at the offer priceof the Global Offering. Assuming an offer price of HK$2.815, being the mid-point of the price rangeset out in this prospectus, the total number of H shares that Chinfit Limited would subscribe for wouldbe 568,383,000, which is 0.17% of the shares outstanding immediately following the completion of theGlobal Offering and the A Share Offering, assuming that neither of the over-allotment options for theGlobal Offering and the A Share Offering is exercised, or, without giving effect to the A ShareOffering, 0.18% of the shares outstanding immediately following the completion of the GlobalOffering, assuming that the over-allotment option for the Global Offering is not exercised.

Chinfit Limited is a private company incorporated in the British Virgin Islands and is indirectlywholly owned by Shau Kee Financial Enterprises Limited which in turn is wholly owned by LeeFinancial (Cayman) Limited of which Dr. Lee Shau Kee is a substantial shareholder. Shau KeeFinancial Enterprises Limited has entered into the agreement as the investor parent for Chinfit Limited.

GIC Direct Investments Pte. Ltd.

GIC Direct Investments Pte. Ltd., or GICDI, has agreed to subscribe for such number of Hshares (rounded down to the nearest whole board lot of 1,000 shares) which may be purchased forHK$2.8 billion at the offer price of the Global Offering. Assuming an offer price of HK$2.815 per Hshare, being the mid-point of the price range set out in this prospectus, the total number of H shares

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that GICDI would subscribe for would be 994,671,000, which represents 0.30% of the sharesoutstanding upon the completion of the Global Offering and the A Share Offering, assuming thatneither of the over-allotment options for the Global Offering and the A Share Offering is exercised, or,without giving effect to the A Share Offering, 0.32% of the shares outstanding immediately followingthe completion of the Global Offering, assuming that the over-allotment option for the Global Offeringis not exercised.

Incorporated in Singapore, GICDI is an investment holding company managed by GIC SpecialInvestments Pte. Ltd., the private equity investment arm of the Government of Singapore InvestmentCorporation Pte. Ltd.

Kuok Group

Silver Pebble Holdings Limited has agreed to subscribe for such number of H shares (roundeddown to the nearest whole board lot of 1,000 shares) which may be purchased for HK$1.6 billion at theoffer price of the Global Offering. Assuming an offer price of HK$2.815, being the mid-point of theprice range set out in this prospectus, the total number of H shares that Silver Pebble Holdings Limitedwould subscribe for would be 568,383,000, which is 0.17% of the shares outstanding immediatelyfollowing the completion of the Global Offering and the A Share Offering, assuming that neither of theover-allotment options for the Global Offering and the A Share Offering is exercised, or, withoutgiving effect to the A Share Offering, 0.18% of the shares outstanding immediately following thecompletion of the Global Offering, assuming that the over-allotment option for the Global Offering isnot exercised.

Silver Pebble Holdings Limited is a private company limited by shares incorporated in HongKong and is a member of the Kuok Group, being the group of companies owned or controlled byMr. Kuok Hock Nien and/or interests associated with him. Kerry Holdings Limited has entered into theplacing agreement as the controlling shareholder of Silver Pebble Holdings Limited.

Kuwait Investment Authority

Kuwait Investment Authority has agreed to subscribe for such number of H shares (roundeddown to the nearest whole board lot of 1,000 shares) which may be purchased for HK$5.6 billion at theoffer price of the Global Offering. Assuming an offer price of HK$2.815, being the mid-point of theprice range set out in this prospectus, the total number of H shares that Kuwait Investment Authoritywould subscribe for would be 1,989,342,000, which is 0.61% of the shares outstanding immediatelyfollowing the completion of the Global Offering and the A Share Offering, assuming that neither of theover-allotment options for the Global Offering and the A Share Offering is exercised, or, withoutgiving effect to the A Share Offering, 0.63% of the shares outstanding immediately following thecompletion of the Global Offering, assuming that the over-allotment option for the Global Offering isnot exercised.

Kuwait Investment Authority is an autonomous government body of Kuwait responsible formanagement and administration of funds and assets entrusted to it by the Ministry of Finance ofKuwait for and on behalf of the State of Kuwait.

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Nan Fung Group

Gavast Estates Limited and Gentfull Investment Limited have agreed to subscribe for suchnumber of H shares (rounded down to the nearest whole board lot of 1,000 shares) which may bepurchased for HK$1.44 billion and HK$160 million, respectively, at the offer price of the GlobalOffering. Assuming an offer price of HK$2.815, being the mid-point of the price range set out in thisprospectus, the total number of H shares that Gavast Estates Limited and Gentfull Investment Limitedwould subscribe for would be 511,545,000 and 56,838,000, respectively, which is 0.16% and 0.02%,respectively, of the shares outstanding immediately following the completion of the Global Offeringand the A Share Offering, assuming that neither of the over-allotment options for the Global Offeringand the A Share Offering is exercised, or, without giving effect to the A Share Offering, 0.16% and0.02% of the shares outstanding immediately following the completion of the Global Offering,assuming that the over-allotment option for the Global Offering is not exercised.

Gavast Estates Limited and Gentfull Investment Limited are companies incorporated in HongKong, and are members of the Nan Fung Group. Gavast Estates Limited is indirectly wholly-owned byMr. Chen Din Hwa and Gentfull Investment Limited is directly owned by Ms. Chen Wai Wai Vivien.Mr. Chen and Ms. Chen have entered into the agreement as the investor parent for Gavast EstatesLimited and Gentfull Investment Limited respectively.

Qatar Investment Authority

Qatar Investment Authority, or QIA, has agreed to subscribe for such number of H shares(rounded down to the nearest whole board lot of 1,000 shares) which may be purchased for HK$1.6billion at the offer price of the Global Offering. Assuming an offer price of HK$2.815, being the mid-point of the price range set out in this prospectus, the total number of H shares that QIA wouldsubscribe for would be 568,383,000, which is 0.17% of the shares outstanding immediately followingthe completion of the Global Offering and the A Share Offering, assuming neither of the over-allotment options for the Global Offering and the A Share Offering is exercised, or, without givingeffect to the A Share Offering, 0.18% of the shares outstanding immediately following the completionof the Global Offering, assuming that the over-allotment option for the Global Offering is notexercised.

Incorporated in Qatar, QIA is wholly owned by the government of Qatar and is conductingworldwide investment activities on behalf of the government of Qatar.

Sun Hung Kai Properties Group

Joylight Limited and Rupert International Limited have each agreed to subscribe for suchnumber of H shares (rounded down to the nearest whole board lot of 1,000 shares) which may bepurchased for HK$800 million at the offer price of the Global Offering. Assuming an offer price ofHK$2.815, being the mid-point of the price range set out in this prospectus, the total number of Hshares that each of Joylight Limited and Rupert International Limited would subscribe for would be568,383,000 which represents 0.17% of the shares outstanding immediately following the completionof the Global Offering and the A Share Offering, assuming that neither of the over-allotment optionsfor the Global Offering and the A Share Offering is exercised, or, without giving effect to the A ShareOffering, 0.18% of the shares outstanding immediately following the completion of the GlobalOffering, assuming that the over-allotment option for the Global Offering is not exercised.

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Joylight Limited and Rupert International Limited are companies incorporated in the BritishVirgin Islands. Joylight Limited is wholly owned by Winlead Limited, which in turn is wholly andultimately owned by Sun Hung Kai Properties Limited, or SHKP. Winlead Limited has entered into theplacing agreement as the investor parent for Joylight Limited. Rupert International Limited is whollyowned by Kerrisdale Company Limited, which in turn is wholly and ultimately owned by a family trustestablished for the benefit of the Kwok family, the controlling shareholders of SHKP. KerrisdaleCompany Limited has entered into the placing agreement as the investor parent for RupertInternational Limited. SHKP is one of the largest property companies in Hong Kong and is listed onthe Hong Kong Stock Exchange.

United Overseas Bank Limited

United Overseas Bank Limited has agreed to subscribe for such number of H shares (roundeddown to the nearest whole board lot of 1,000 shares) which may be purchased for HK$1.6 billion at theoffer price of the Global Offering. Assuming an offer price of HK$2.815, being the mid-point of theprice range set out in this prospectus, the total number of H shares that United Overseas Bank Limitedwould subscribe for would be 568,383,000, which is 0.17% of the shares outstanding immediatelyfollowing the completion of the Global Offering and the A Share Offering, assuming that neither of theover-allotment options for the Global Offering and the A Share Offering is exercised, or, withoutgiving effect to the A Share Offering, 0.18% of the shares outstanding immediately following thecompletion of the Global Offering, assuming that the over-allotment option for the Global Offering isnot exercised.

United Overseas Bank Limited is one of the leading banks in Singapore that provides a widerange of financial services through its global network in 18 countries and territories in Asia Pacific,Western Europe and North America.

Mr. Woo Kwong Ching

Bright Palace Investments Limited, East Advance Investments Limited, Hero HonourInvestments Limited and United Develop Investments Limited have agreed to subscribe for suchnumber of H shares (rounded down to the nearest whole board lot of 1,000 shares) which may bepurchased for a total amount of HK$1.6 billion at the offer price of the Global Offering. Assuming anoffer price of HK$2.815, being the mid-point of the price range set out in this prospectus, the totalnumber of H shares that Bright Palace Investments Limited, East Advance Investments Limited, HeroHonour Investments Limited and United Develop Investments Limited would subscribe for would be568,383,000 in total, which is 0.17% of the shares outstanding immediately following the completionof the Global Offering and the A Share Offering, assuming that neither of the over-allotment optionsfor the Global Offering and the A Share Offering is exercised, or, without giving effect to the A ShareOffering, 0.18% of the shares outstanding immediately following the completion of the GlobalOffering, assuming that the over-allotment option for the Global Offering is not exercised.

Bright Palace Investments Limited, East Advance Investments Limited, Hero HonourInvestments Limited and United Develop Investments Limited are companies incorporated in theBritish Virgin Islands and are ultimately controlled by Mr. Woo Kwong Ching. Mr. Woo KwongChing has entered into the placing agreement as controlling shareholder of Bright Palace InvestmentsLimited, East Advance Investments Limited, Hero Honour Investments Limited and United DevelopInvestments Limited. Based on Wheelock and Company Limited’s (“Wheelock”) latest annual report,

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as of March 31, 2006, Mr. Woo Kwong Ching has an interest in 1,204,934,330 shares (59.30%) ofWheelock’s issued capital.

Conditions Precedent

The subscription obligation of each Corporate Investor is conditional upon (i) the Hong KongUnderwriting Agreement and International Purchase Agreement becoming unconditional by no laterthan the date and time as specified in those agreements; (ii) none of the underwriting agreementsmentioned in (i) above having been terminated; and (iii) where applicable, the Listing Committee ofthe Hong Kong Stock Exchange having granted the listing of, and permission to deal in, the H shares.

Restrictions on Disposal by the Corporate Investors

Each of the Corporate Investors agrees that without the prior written consent of us and all theJoint Bookrunners, it will not whether directly or indirectly, at any time during the period of twelvemonths following the Listing Date, or the Lock-up Period, dispose of any of the H shares subscribedpursuant to the Corporate Placing or any interest in any company or entity holding any of the H sharessubscribed pursuant to the Corporate Placing. After the Lock-up Period, the Corporate Investors havefurther agreed to inform us in writing prior to the disposal of any of their H shares subscribed pursuantto the Corporate Placing.

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OVERVIEW

We are the largest commercial bank in China in terms of total assets, loans and deposits. AtDecember 31, 2005, we had RMB6,456.1 billion (US$816.8 billion) in total assets, RMB3,289.6billion (US$416.2 billion) in total loans, RMB5,736.9 billion (US$725.8 billion) in total deposits, andour total operating income in 2005 was RMB171.6 billion (US$21.7 billion). Our assets, loans anddeposits represented 16.8%, 15.4% and 19.4% of the total assets, total loans and total deposits,respectively, of all banking institutions in China, and 31.4%, 30.4% and 32.6% of the total assets, totalloans and total deposits, respectively, of the Big Four commercial banks at December 31, 2005, basedon PRC GAAP statistical data published by the PBOC.

We primarily operate in China and provide an extensive range of commercial banking productsand services. According to the PBOC, we were:

Š the largest corporate bank in China in terms of outstanding corporate loans, discountedbills and corporate deposits at December 31, 2005;

Š the largest personal bank in China in terms of outstanding personal loans and personaldeposits at December 31, 2005; and

Š the leading service provider in credit card, quasi-credit card and debit card businesses inChina in terms of the aggregate transaction volume in 2005.

At June 30, 2006, we had more than 2.5 million corporate customers and more than 150 millionpersonal customers. We serve our customers through our traditional branch network, which, at June 30,2006, comprised 18,038 domestic branches, outlets and other establishments (including our headoffice), and through our electronic banking network, which, at June 30, 2006, comprised a range ofInternet and telephone banking services, 1,610 self-service banking centers and 19,026 ATMs.

We are headquartered in Beijing and, at June 30, 2006, had 98 overseas branches, subsidiaries,representative offices and outlets. We currently maintain branches in Hong Kong, Macau, Singapore,Tokyo, Seoul, Busan, Frankfurt and Luxembourg and representative offices in New York, Moscow andSydney. In addition, we have subsidiaries in Hong Kong, London and Almaty. ICBC (Asia), which iscontrolled by us, was the sixth largest Hong Kong-incorporated bank listed, or controlled by a companythat is listed, on the Hong Kong Stock Exchange in terms of total assets at December 31, 2005.

We believe that “Industrial and Commercial Bank of China” ( ) is one of the mostrecognized financial services brands in China. We were named “Bank of the Year in 2004 (China)” byThe Banker, “Best Bank Award” for China in 2005 by Global Finance, “Best Bank in China” in 2004by EuroMoney, “Best Domestic Commercial Bank in China” in 2004 and 2005 by Asiamoney, “BestRetail Bank in China” in 2004 and 2005 and “Best Retail Bank (Stated-owned) in China” in 2006 byThe Asian Banker, “Best Consumer Internet Bank” in China in 2004, 2005 and 2006 by GlobalFinance, “Bank with Best Investment Management Services in Corporate Internet Banking” in AsiaPacific in 2006 by Global Finance, “Best Local Bank in China” in 2003 and 2004 by FinanceAsia,“Best Custodian Bank in China” in 2005 by The Asset, “Best Custodian Bank in China” in 2004 and2005 by Global Custodian, and “Best Sub-Custodian in China” in 2004 by Asiamoney. We receivedthe worldwide “Networking Initiative of the Year” award in 2006 from The Banker, the “Best BankingTechnology Development Award” in 2004 from the PBOC, the First Prize of “China Internet IndustrySurvey Report for Internet Banking” in 2005 from the Internet Society of China, the “Gold Award forCustomer Care and Public Service in China” in 2005 from the Ministry of Information Industry, “The

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Most-Used Bank by Consumers in China” in 2003 from AC Nielsen and the title of “Best Finance,Economics and Securities Website in China” in 2005 from Securities Times.

Since 1999, we have implemented a series of reform measures that we believe havesignificantly transformed our business, operations and corporate culture. In particular, we have focusedon developing comprehensive risk management systems and rationalizing our business structure andorganization. Our business focus and structure have evolved to meet our customers’ demand for abroad range of banking products and services. We have focused on expanding our personal bankingoperations, particularly in high-growth fee- and commission-based segments, and we have establishedourselves as a leading electronic banking service provider. Through significant investments ininformation technology, we have established centralized information systems designed to enable us toanalyze the activities of our customer base, target attractive client segments and enhance our riskmanagement and other internal control capabilities. We believe that, as a result of our reforms, ourbusiness structure and processes, corporate governance practices and internal controls are among themost advanced of PRC commercial banks. Our financial restructuring in 2005 has significantlystrengthened our capital base, and we believe that we are currently well-positioned to pursue our nextphase of growth.

OUR COMPETITIVE STRENGTHS

Our principal competitive strengths include:

Largest PRC Commercial Bank with a Leading Market Position in Major Business Segments

We are the largest PRC commercial bank in terms of total loans and deposits. In addition, wehave also established leading positions in numerous corporate banking, personal banking and treasurybusiness lines. We believe that our size, leading market position and recognized brand name willenable us to continue to increase our penetration in key market segments, diversify our revenuestreams and achieve attractive economies of scale. We were:

Š the largest corporate bank in China in terms of outstanding domestic corporate loans(RMB2,277.4 billion), discounted bills (RMB392.7 billion) and corporate deposits(RMB2,483.7 billion) at December 31, 2005;

Š the largest personal bank in China in terms of outstanding personal loans, personalmortgage loans and personal deposits at December 31, 2005;

Š the leading service provider in the credit card, quasi-credit card and debit card businessesin China in terms of total transaction volume in 2005;

Š the leading provider of custodian services in China in terms of the number of open-endfunds and total assets under custody at December 31, 2005; and

Š the leader among PRC commercial banks in physical gold bullion trading in terms oftransaction volume and settlement amount in 2005.

In addition, we believe we were the leading PRC commercial bank in the following areas:

Š Renminbi-denominated clearing and settlement services in terms of total revenue in 2005;

Š syndicated loans in terms of outstanding balance at December 31, 2005;

Š distribution of open-end funds in terms of total volume distributed in 2005;

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Š distribution of bearer form treasury bonds in terms of total value sold in 2005;

Š corporate cash management services in terms of the number of customers at December 31,2005; and

Š personal wealth management services in terms of total sales volume in 2005.

Large High-Quality Corporate and Personal Banking Customer Base

We believe that we have the largest corporate banking customer base in China with more than2.5 million corporate banking customers, including approximately 57,710 borrowers at June 30, 2006.We have established banking relationships with many leading business conglomerates andcorporations, including 492 out of the 500 top domestic companies in terms of revenues and 238 of theFortune 500 companies at June 30, 2006. We are well-positioned in important industries, such asenergy, transportation and telecommunications. In addition, we have maintained long-standing bankingrelationships with government agencies, public institutions and financial institutions. In addition toproviding a stable source of funding, our large corporate banking customer base provides valuablebusiness development opportunities as we seek to continue to expand our product and service offeringsin new areas, such as corporate cash management, investment banking and other fee- and commission-based businesses.

We believe that we have the largest personal banking customer base in China with more than150 million personal banking customers. At June 30, 2006, we had more than 50 million customersmaintaining a financial asset balance in the range of RMB5,000 to RMB50,000 each with us. At thesame date, we had over 16 million customers maintaining a financial asset balance of over RMB50,000each with us. The average financial asset balance of these customers was over RMB150,000. Our largepersonal customer base enables us to identify and introduce attractive new product and serviceopportunities. We believe the demand for new fee- and commission-based products and services, suchas wealth management and bank cards, should increase significantly as personal wealth grows andcustomer needs become more sophisticated in China.

Extensive Distribution Network and Largest Electronic Banking Service Provider

We have a nationwide presence, with 18,038 branches, outlets and other establishments(including head office) in China at June 30, 2006. We have a strong presence in the economicallydeveloped Yangtze River Delta, Pearl River Delta and Bohai Rim regions with 7,738 branches andoutlets in these regions at June 30, 2006. We also operate more than 3,000 wealth management centersthroughout China. Our traditional branch network is supported by a large sales force in both corporateand personal banking, which includes more than 25,000 corporate banking relationship managers andapproximately 10,000 personal banking customer managers (including the largest number of associatefinancial planners among all PRC commercial banks) who, in cooperation with our product managers,focus on our relationships with high-quality customers. We will continue to deliver standardized andhighly effective customer service through streamlining the operations of our branches and outlets.

We have an efficient and advanced electronic banking network, which includes Internet,telephone, mobile phone, ATM and self-service banking centers. We are the leading provider ofelectronic clearing and settlement services in terms of both the number of customers and transactionvolume. Through our electronic banking network, we processed transactions that totalledRMB46,769.9 billion in value for 2005, which, we believe, made us the market leader in terms of total

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electronic banking transaction volume in China during that year. In addition, our electronic bankingnetwork reduces our per transaction cost which contributes to lowering our overall cost-to-incomeratio.

Our extensive distribution network provides us with a strong sales platform, which enables usto establish leading positions in new products and services, such as bearer form treasury bonds, open-end fund and bancassurance products, increase customer convenience, satisfaction and loyalty, andsource new customers more effectively.

Leading Information Technology Capabilities

We believe that we have the most advanced information technology platform among PRCcommercial banks. We were the first Big Four commercial bank to complete a bank-wide dataconsolidation project, which enables centralized real-time processing of operational data from all ofour domestic branch offices. Our data consolidation project has enabled us to further develop variouscustomer applications, accelerate the development of our electronic banking network and realize theeconomic benefits of our size.

We believe that we were the first Big Four commercial bank to establish a multifunctionalapplication platform for business processing, customer information management and operationalmanagement through our proprietary core banking system—NOVA. Our NOVA system provides,among others, the following benefits:

Š its credit management systems enable us to better monitor our corporate and personal loanbusiness and enhance our credit risk management;

Š its customer relationship management systems enable us to develop products tailored totargeted customer segments through customer data mining;

Š its comprehensive statistics system provides our management with financial andoperational data on a T+1 basis; and

Š its performance evaluation management system enables our management to moreeffectively assess the performance of our products, business lines and branches and toallocate resources more efficiently based on such assessment.

Our information technology platform is supported by our strong information technologyresearch and development capabilities. We received the worldwide “Networking Initiative of the Year”award in June 2006 from The Banker, the “Best Banking Technology Development Award” in 2004from the PBOC for our bank-wide data consolidation project, the “Best Consumer Internet Bank” inChina award in 2004, 2005 and 2006 from Global Finance, the First Prize of “China Internet IndustrySurvey Report for Internet Banking” in 2005 from the Internet Society of China, the “Gold Award forCustomer Care and Public Service in China” in 2005 from the Ministry of Information Industry and the“Bank with Best Investment Management Services in Corporate Internet Banking” in Asia Pacificaward in 2006 from Global Finance.

We intend to continue to strengthen our information technology systems to bring them in linewith best international practice, including, for example, integrating our overseas and domestic ITplatforms.

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Fast Growing Fee and Commission Income

We have experienced fast growth in our fee and commission income, as a result of our strategicfocus on developing our non-interest based businesses. In 2005, our net fee and commission incomewas the highest among the Big Four commercial banks. Our net fee and commission income increasedfrom RMB5,624 million in 2003 to RMB10,546 million in 2005, representing a compound annualgrowth rate of 36.9%.

Rapid growth in our bank card, clearing and settlement, investment banking, electronic bankingand custody service businesses contributed particularly strongly to our total fee and commissionincome increase. From 2003 to 2005, fee and commission income from our bank card businessincreased from RMB1,001 million to RMB2,346 million, representing a compound annual growth rateof 53.1%; for the same period, income from our RMB settlement and clearing, investment banking,electronic banking and custody registered a compound annual growth rate of 28.2%, 59.2%, 92.2% and74.9%, respectively.

We believe that as we plan to focus on and expand our leadership in non-interest basedbusinesses, we will be able to further increase our fee and commission income.

Comprehensive Risk Management and Internal Controls

We have a risk management framework covering credit, liquidity, market and operational risks.This framework, which is supported by our advanced risk management information technology,enables us to better manage our risks and has contributed to the improvement of our asset quality.

We maintain independent checks and balances in the credit extension process by separating ourloan application investigation, credit approval and monitoring functions. In addition, we were the firstBig Four commercial bank to commence the implementation of an Internal Ratings-Based approachrecommended by the New Basel Capital Accord in 2004. We also adopted a 12-grade corporate loanclassification system in 2005. We believe these improvements in our risk management contributed tothe lowering of the non-performing loan ratios on the portfolio of our domestic loans made orrefinanced after January 1, 1999. See “Assets and Liabilities—Assets—Asset Quality of Our LoanPortfolio—Changes in the Asset Quality of Our Domestic Loan Portfolio by Pre-exiting Loans andNew Loans.”

Our systems enable us to monitor our market and liquidity risks for trading and compliancereporting purposes. We strictly adhere to internal market and liquidity limits.

Under a set of internal control guidelines developed by us based on the COSO Internal ControlIntegrated Framework, we plan to complete a bank-wide internal control framework for our internalcontrols within three to five years. We were one of the first PRC commercial banks to launch anevaluation on internal control of our branches based on the key components identified within theCOSO Internal Controls Integrated Framework. Under our evaluation process, our head officeimplements a set of internal control standards and evaluates the internal controls of our tier-1 branches,while these tier-1 branches in turn evaluate the internal controls of the lower level branches within theirjurisdictions. Our enhanced corporate governance structure and independent internal audit functionshave allowed us to strengthen overall supervision and internal compliance with procedures, therebyreducing operational risks.

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Stable and Experienced Management Team

Our senior management team has extensive industry and leadership experience in China’scommercial banking industry. Our chairman, Mr. Jiang Jianqing, who joined ICBC in 1984, has morethan 27 years of extensive work experience in the banking industry, including serving first as presidentof our Shanghai branch and later as vice president of ICBC during the period from 1997 to 2000 andserving as president of our bank from 2000 to 2005. Prior to that, Mr. Jiang worked for the PBOC from1979 to 1984. He has also held a number of other key leadership positions in the banking industry inChina. Our president, Mr. Yang Kaisheng, who joined ICBC in 1985, has more than 21 years ofextensive work experience in the banking industry, including serving as president of our ShenzhenBranch from 1995 to 1996, and vice president of ICBC from 1996 to 1999 and from 2004 to 2005.Mr. Yang also served as president of China Huarong Asset Management Corporation from 1999 to2005, where he gained an in-depth understanding of risk management in China’s financial industry.

Our senior management team has a track record of successfully implementing innovative andindustry-leading business initiatives, including the early and significant investment in our informationtechnology, the early focus on risk management and internal controls, the reforms to our branchnetwork and business processes, and the conversion of our bank into a joint-stock limited company.We believe this successful track record demonstrates our senior management’s strategic vision,proactive approach in adapting to the changing market environment and ability to lead a moderncommercial bank of our size. We believe our senior management team will continue to provide us witha critical advantage in an increasingly competitive industry.

OUR STRATEGY

We aim to strengthen our market leadership in China’s banking industry and focus ontransforming our bank into a world-class financial institution. Our overall goal is to maximizeshareholder value and achieve sustainable growth. We believe we have distinguished ourselves throughour innovative business approach and market leading initiatives. We led the market in investing incentralized information technology, introducing new products and services, establishingcomprehensive risk management systems and developing electronic banking networks. We intend tocontinue this innovative approach and differentiate ourselves through the following strategies:

Diversify Our Revenue and Asset Mix by Expanding into Higher Growth Non-CreditBusinesses

We plan to diversify our revenue sources by continuing to develop our non-credit businesses.We believe that many fee- and commission-based products and services will experience strong growthover the next few years as China’s economy continues to grow, the financial services sector in Chinafurther liberalizes and our customers’ banking needs become more sophisticated:

Š in corporate banking, we aim to strengthen our leadership position in the clearing andsettlement, corporate cash management and asset custody businesses by leveraging ourextensive corporate customer base. We intend to expand the range of our product andservice offerings. We will also continue to improve the synergies between our corporatebanking and investment banking businesses;

Š in personal banking, by transitioning client deposits into personal wealth management andother investment products, we will seek to improve our overall returns and enhance ourasset and liability mix. We intend to focus on developing our personal wealth management

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products and services and our bank card business. In addition, we intend to provideproducts and services tailored to specific markets and customer segments; and

Š in our treasury business, we plan to enhance our investment and trading capabilities,upgrade our trading systems, improve the skills of investment and trading personnel,develop new products and services, strengthen our liquidity management and increase thereturn on our non-credit assets.

We believe that by offering a broader range of non-credit products and services, we will notonly improve customer satisfaction and attract new customers, but also create attractive new revenuesources and improve our overall profitability.

Prudently Grow Our Credit Businesses and Actively Enhance Our Credit Portfolio

We seek to leverage our market leadership in corporate and personal lending to prudently growour credit businesses and improve our risk-adjusted return by actively managing the sector,geographical, customer and product composition of our credit portfolio. We plan to:

Š increase lending to selected industries that we believe to be of higher credit quality andwhich offer strong market potential. Currently, our targeted industries, with high growthpotential, primarily include energy, transportation and telecommunications. We willcontinue to adjust our industry lending policies as markets evolve;

Š increase lending in the economically developed Yangtze River Delta, Pearl River Deltaand Bohai Rim regions, and resource-rich areas in central and western China;

Š develop lending relationships with high growth potential customer segments, includingsmall- and medium-sized enterprise customers;

Š enhance the credit quality of our loan portfolio by increasing our lending to corporationswith stronger credit ratings while increasing our collateral requirements for those withlower credit ratings;

Š continue to strengthen our market leading position in syndicated lending; and

Š focus on personal lending and expand our market share in personal finance products thatgenerate attractive returns, such as personal property mortgages and credit cards.

Continue to Improve Our Customer Mix and Profitability through Increased CustomerSegmentation, Targeted Marketing and Enhanced Customer Service

We will continue to leverage our extensive customer base and database to identify and retainprofitable customers in both our corporate banking and personal banking businesses. Our customerrelationship management systems, CCRM and PCRM, enable us to collect and analyze informationrelating to our corporate and personal banking customers on an individual and group basis. By betterunderstanding the characteristics, needs and preferences of our customers, we can design newproducts, attract more customers and actively cross-sell our financial products and services.

In corporate banking, we have a large team of customer relationship managers that is organizedby customer size. The relationships with our most important customers, especially multi-regionalconglomerates, are centrally managed by customer relationship management teams at our headquarterswith the support of regional customer relationship teams at our branches. In addition, our regional

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customer relationship teams at our branches also focus on the important customers in their respectivegeographic regions. We will continue to enhance our customer service through the training of ourcustomer relationship teams and the implementation of performance-based incentive programs.

In personal banking, we are in the process of developing standardized services and distributionmethods bank-wide to provide different services to various customer segments with a special focus onwealthy customers and customer groups with high growth potential. Our personal customerrelationship management system enables us to provide tailored services and products. We will continueto streamline the operations of our branches and outlets and strengthen our personal banking salesforce and customer service.

To grow our overall customer base, we will continue to develop new products targeted atattractive customer groups. For example, we have launched our Elite Club Account services to servewealthy clients and plan to introduce product and service packages targeted at small- and medium-sized enterprises.

Strategically Expand Our Traditional Branch Network and Enhance Our Sales andMarketing Capabilities through Strengthening Our Electronic Banking Operations

To further enhance the marketing of our products and services and achieve greater operationalefficiencies, we intend to fully leverage our advanced information technology platform and customerrelationship management systems. In order to provide our customers with convenient access to ourproducts and services, we also intend to expand our electronic banking operations and improve theproductivity of our traditional branch network through streamlining the operations of our branchnetwork. We are in the process of consolidating our traditional branch network and other operationalresources while strengthening our wealth management centers in selected large- and medium-sizedcities. Building on our extensive distribution network, we are selectively expanding our branchnetwork in three economically developed regions, the Yangtze River Delta, Pearl River Delta andBohai Rim regions. In addition, to take advantage of the rapid growth in foreign trade and better serveour multinational clients, we intend to further expand our network by establishing additional overseasbranches and outlets. We aim to leverage our existing relationships with multinational companies andlarge PRC enterprises with established overseas operations to expand our market presence outsideChina and gain new business from overseas companies seeking to expand into China.

We seek to leverage our leading electronic banking operations by further promoting customeruse of our electronic banking platform, which enables us to achieve greater operational efficiency. Inaddition, we believe that our electronic banking platform provides greater convenience to ourcustomers, which promotes customer satisfaction and loyalty and increases customer retention. Weplan to expand our electronic banking operations through the installation of additional ATMs andupgrading of our technology platforms for telephone and online banking services to deliver moreproducts and services to our customers in a timely, reliable and convenient manner and to furtherincrease revenue derived through our electronic banking platform.

Continue to Strengthen Our Risk Management and Internal Control Capabilities

We plan to continue to align our risk management and internal control capabilities withinternational best practices. To this end, we intend to:

Š continue to develop our risk management culture;

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Š further strengthen the independence of the internal control functions and improve ourbank-wide internal control systems;

Š continue the rollout of the Internal Ratings-Based approach in our risk managementsystems and improve our capabilities of identifying and quantifying risks;

Š introduce risk-based pricing into our credit risk management process;

Š further improve our risk warning and early identification and prevention capabilities; and

Š enhance asset and liability management capabilities and further centralize our riskmanagement.

Leverage Our Partnerships with Strategic Investors

We are cooperating with our overseas strategic investors to improve our corporate governance,strengthen our new product development capabilities and diversify our product and service offerings:

Š we are working with Goldman Sachs to strengthen our corporate governance practices,particularly in risk management and internal controls, and enhance our treasury operations,asset management, corporate banking and investment banking operations as well as ournon-performing loans disposal capabilities;

Š we are collaborating with Allianz to develop and provide a broader range of bancassuranceproducts and services to our customers; and

Š we intend to further expand our cooperation with American Express, which began in 2004,to improve our bank card business, particularly in the areas of product development, salesand marketing, risk management and customer service.

Enhance Employee Performance through Performance-linked Incentive Schemes andContinuous Training and Development

We will continue to develop our human resources through various initiatives in order to supportour business strategies. We have introduced four career tracks into our human resource system,namely, “managerial,” “professional,” “sales and marketing” and “operational,” in order to facilitateemployee career development and enhance performance appraisal and remuneration measures. Weintend to continue to provide training and development programs (including those arranged with ouroverseas strategic investors) for our employees, to enhance their skills and professional development.We also intend to further improve our management and employee incentive system, including adoptingan economic value-added (EVA)-based incentive scheme, such that employee income is tied to ouremployees’ personal performance and the contribution made by their respective work units. We believethat through these initiatives we can attract, retain, motivate and develop a high quality workforce.

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OUR PRINCIPAL BUSINESS ACTIVITIES

Our principal business segments are corporate banking, personal banking, treasury operationsand other operations. The following table sets forth, for the periods indicated, our total operatingincome by segment.

For the year ended December 31, For the six months ended June 30,

2003 2004 2005 2005 (unaudited) 2006

Amount % of total Amount % of total Amount % of total Amount % of total Amount % of total

(in millions of RMB, except percentages)

Corporate banking . . . 76,893 57.9% 81,019 54.8% 87,482 51.0% 40,014 49.3% 43,617 50.9%Personal banking . . . . 32,655 24.6 40,269 27.2 53,681 31.3 26,417 32.6 29,679 34.6Treasury

operations . . . . . . . 20,566 15.5 24,313 16.4 28,296 16.5 14,081 17.4 11,905 13.9Others(1) . . . . . . . . . . . 2,670 2.0 2,358 1.6 2,161 1.2 580 0.7 549 0.6

Total operatingincome . . . . . . . . . . 132,784 100.0% 147,959 100.0% 171,620 100.0% 81,092 100.0% 85,750 100.0%

(1) Includes equity investments and income and expenses that are not directly attributable to a segment or cannot be allocated on areasonable basis.

The following table sets forth, at the dates indicated, our loans to customers by business line.


2003 2004 2005 2006

Amount% oftotal Amount

% oftotal Amount(1)

% oftotal Amount

% oftotal


Corporate loans . . . . . . . . . . . . . . . . . . . . 2,761,699 81.2% 2,811,490 75.8% 2,277,396 69.2% 2,400,230 69.4%Discounted bills . . . . . . . . . . . . . . . . . . . 156,489 4.6 310,148 8.4 392,717 11.9 416,336 12.0Personal loans . . . . . . . . . . . . . . . . . . . . . 407,672 12.0 486,867 13.1 515,042 15.7 533,087 15.4Overseas operations . . . . . . . . . . . . . . . . 76,417 2.2 99,243 2.7 104,398 3.2 111,427 3.2

Total loans to customers . . . . . . . . . . . . 3,402,277 100.0% 3,707,748 100.0% 3,289,553 100.0% 3,461,080 100.0%

(1) The amounts at December 31, 2005 reflect our restructuring-related disposal.

Corporate Banking

Overview

We believe that we have the largest corporate banking customer base in China, with more than2.5 million customers at June 30, 2006. We offer a broad range of corporate banking products andservices to corporations and other entities, including state-owned enterprises, private enterprises,foreign-invested enterprises and government agencies, which we refer to collectively as our corporatebanking customers. Our corporate banking products and services include loans, discounted bills,deposit-taking, and fee- and commission-based services such as clearing and settlement, cashmanagement, agency services, foreign exchange, guarantee services, custody and investment banking.

Corporate Loans

Corporate loans have historically constituted the largest component of our loan portfolio. Ourcorporate loans consist of short-term loans and medium- and long-term loans. At June 30, 2006, we

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had RMB2,400.2 billion of domestic corporate loans outstanding, representing 69.4% of our total loanportfolio, among which Renminbi-denominated domestic corporate loans amounted to RMB2,284.1billion, or 95.2% of our total domestic corporate loans outstanding.

The following table sets forth, at the dates indicated, the outstanding balance of our domesticcorporate loan portfolio by loan type:


2003 2004 2005 2006


% oftotal Amount(1)

% oftotal Amount

% oftotal


Short-term loans . . . . . . . . . . . . . . . . 1,652,999 59.9% 1,536,922 54.7% 938,909 41.2% 953,228 39.7%Medium- and long-term loans:

Project loans and other loans . . . 942,965 34.1 1,059,224 37.7 1,091,937 47.9 1,159,841 48.4Property development loans . . . 138,702 5.0 161,414 5.7 174,267 7.7 204,641 8.5Syndicated loans . . . . . . . . . . . . 27,033 1.0 53,930 1.9 72,283 3.2 82,520 3.4

Subtotal . . . . . . . . . . . . . . . . . . . . . 1,108,700 40.1 1,274,568 45.3 1,338,487 58.8 1,447,002 60.3

Total . . . . . . . . . . . . . . . . . . . . . . . . . 2,761,699 100.0%2,811,490 100.0%2,277,396 100.0%2,400,230 100.0%


Short-Term Corporate Loans

We provide short-term loans with maturities of up to one year to our corporate bankingcustomers. A substantial majority of our short-term loans are working capital loans. In addition, weprovide our corporate banking customers with bill advances and purchasing, factoring and forfaitingand trade finance loans.

Medium- and Long-Term Corporate Loans

Our medium- and long-term corporate loans, which generally have maturities ranging from oneto ten years, primarily include project loans, property development loans and syndicated loans.

Project Loans and Other Loans. We provide medium- and long-term project loans to ourcorporate customers primarily to meet their funding needs for the construction, expansion, renovationor acquisition of fixed assets. Our policy is to require that the underlying projects comply with theindustry-based governmental policies as well as our internal credit policies. Our project loans generallyhave terms of up to 10 years, which may be extended, and have a floating interest rate. At June 30,2006, approximately 66.0% of our project loans were secured by collateral or guaranteed by a thirdparty. The proceeds of our project loans can only be used to fund the project for which the loans arespecifically granted, and the loan proceeds are generally disbursed in phases according to the specifiedtargets or milestones of the underlying project.

Property Development Loans. We provide medium- and long-term property development loansto our corporate customers primarily to finance the construction of their property development projects.Our residential property development loans typically have maturities of no longer than three years andaccounted for 78.5% of our property development loans at June 30, 2006. These property developmentloans generally have a floating interest rate and are generally secured by collateral. We only grant

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property development loans for projects that have been approved by relevant government authoritiesand we require that the loan proceeds be used for designated projects.

Syndicated Loans. We provide syndicated loans, typically in connection with large-scaleexpansion and other development projects. We believe that as the syndicated loan market in Chinafurther develops, we should be able to diversify our corporate loan portfolio exposure and enhance ourability to service our clients’ large-scale financing needs.

Discounted Bills

Commercial bills are issued by Chinese enterprises to entrust an accepting party to make anunconditional payment to the payee or bearer of the bill on a pre-determined date. These bills aregenerally used for post-delivery or delayed payment purposes in connection with sales of goods. Bankacceptance bills are commercial bills accepted by banks. Trade acceptance bills are commercial billsaccepted by non-banking enterprises or institutions. The payee or bearer of a commercial bill maypresent it to us for immediate payment prior to the pre-determined payment date at a discount to theface amount of the bill. The discount represents the financing cost to such payee or bearer. As a sourceof short-term financing for our corporate banking customers, we purchase bank acceptance bills thathave a remaining maturity of less than six months at a discount. We may re-sell these bills to thePBOC or other financial institutions to increase our liquidity. In addition to bank acceptance bills, wealso purchase trade acceptance bills issued by a limited number of pre-approved major corporations.Discounted bank acceptance bills outstanding amounted to RMB381.6 billion, representing 91.7% ofour total discounted bills outstanding at June 30, 2006. Discounted trade acceptance bills outstandingamounted to RMB34.7 billion at June 30, 2006. We ranked first among all PRC commercial banks interms of the total balance of discounted bills outstanding at June 30, 2006, with a market share of21.4%. We were the first PRC commercial bank to centralize the management of discounted billbusiness. In 2000, we established China’s first bill center in Shanghai to centrally manage ourdiscounted bill business.

Fee- and Commission-Based Products and Services

We offer our corporate banking customers a wide range of fee- and commission-based productsand services, including clearing and settlement, cash management, agency services, foreign exchange,guarantee services, custody and investment banking. We have become increasingly focused ondeveloping and offering fee- and commission-based corporate banking products and services in recentyears. We believe that such corporate banking products and services not only provide us withadditional sources of income, but also foster long-term relationships with our customers by offeringthem more choice and flexibility.

Clearing and Settlement and Cash Management Services

We provide our corporate banking customers with domestic clearing and settlement services,including bank drafts, promissory notes, checks, foreign currency exchange, letters of credit,remittances and collections.

We provide integrated cash management services to large corporate banking customers to assistthem in managing their cash flow. Our cash management services include cash collection,disbursement, account management and liquidity management. We also provide the affiliates of our

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corporate banking customers with group-wide fund pooling, transfer and other fund managementservices. Through our Internet banking platform, our corporate banking customers operating throughgroup entities in multiple locations are able to monitor and transfer funds between group accounts on areal-time basis. We expect demand for our cash management services to continue to grow as ourcustomer base expands and the cash management needs of our corporate banking customers becomemore sophisticated. We had 24,723 cash management customers at June 30, 2006.

Agency Services

We provide agency services to our corporate banking customers and financial institutions. Ouragency services primarily include entrusted lending services for corporations, entrusted housing-relatedlending services, monitoring services for loans, collection of principal and interests and settlementagency services.

Foreign Exchange

We provide a broad range of foreign exchange services to our corporate banking customers.

Guarantee Services

Our guarantee services to corporate customers primarily include bid bonds, performance bonds,pre-payment guarantees, operating lease guarantees, financial lease guarantees, credit guarantees andvarious stand-by letters of credit.

Custody Services

We provide a range of custody services, including fund settlement, accounting, asset valuation,performance evaluation, and investment monitoring services to open-end funds, corporate annuityfunds, social security funds, insurance companies, qualified foreign institutional investors and otherbanking customers. In 1998, we became the first PRC commercial bank to offer custody services.According to the CSRC, we ranked first among all PRC commercial banks, from 1998 through 2005,in terms of the total assets under custody. At June 30, 2006, we had approximately RMB282.9 billionof assets under custody, which represented a 34.1% market share in China. We have been named “BestCustodian Bank in China” by Asset in 2005, “Best Custodian Bank in China” by the Global Custodianin 2004 and 2005, and “Best Sub-Custodian in China” by Asiamoney in 2004.

Investment Banking

We provide a broad range of investment banking services through our investment bankingdepartment at our head office and dedicated investment banking business units at 25 of our tier-1branches. We engage in long-term financial advisory services, investment and financing advisoryservices, restructuring and acquisition advisory services, syndicated loan arrangement services, debtissuance advisory services, commercial paper underwriting services, corporate information servicesand asset securitization advisory services.

An important aspect of our investment banking business is providing long-term financialadvisory services to corporate and institutional clients, which include advice on project investment andfinancing, business plan development, and in-depth analysis of specific industries and financialmarkets. For the six months ended June 30, 2006, our revenue from financial advisory services

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increased by 38.9% to RMB654.0 million as compared to the corresponding period in 2005. We wereone of the first PRC commercial banks to be approved by the PRC bank regulators to underwrite short-term commercial paper issued by qualified PRC corporations in China’s inter-bank market. We havebeen increasing our underwriting of issuances of short-term commercial paper by our corporatebanking customers. According to China Government Securities Depositary Trust & Clearing Co., Ltd.,for the three months ended March 31, 2006, we ranked first among all PRC commercial banks in termsof the number of short-term commercial paper transactions underwritten. We sponsored the non-performing asset securitization of our Ningbo branch, which was the first issue of a securitizationproduct without any guarantee or repurchase commitment in China, and was named the “BestTransaction of the Year 2004” by CFO Asia. We advised Zhangyu Pioneer Wine Company Limited asits financial advisor on its equity transfer project, which was selected as one of the “Top Ten 2005Merger Transactions” by, among others, the China Merger & Acquisition Association.

Corporate Deposits

We offer our corporate banking customers a range of interest-bearing time and demand deposit-taking services in Renminbi and major foreign currencies. The maximum interest rates we arepermitted to pay on regular time deposits and demand deposits are set by the PBOC. We are permittedto negotiate interest rates for deposits from certain financial institutions, such as insurance companies,the SSF, provincial employee pension funds and postal deposit institutions. In addition, we offer noticedeposits with a minimum balance requirement of RMB500,000, which allow our customers towithdraw their balance upon one or seven days advance notice. We believe that our corporate depositbase provides us with a significant source of low cost, stable funding. At June 30, 2006, our domesticcorporate deposits represented 44.8% of our total domestic deposits and our domestic corporatedemand deposits represented 62.7% of our domestic demand deposits.

At June 30, 2006, our total domestic corporate deposits amounted to RMB2,699.7 billion, ofwhich 97.3% were denominated in Renminbi and 2.7% were denominated in foreign currencies. OurRenminbi-denominated domestic corporate deposits amounted to RMB2,626.1 billion at June 30,2006. Our Reminbi-denominated domestic corporate deposits increased 12.1% to RMB2,410.2 billionat December 31, 2005 from RMB2,150.0 billion at December 31, 2004, which increased by 11.3%from RMB1,930.9 billion at December 31, 2003. According to the PBOC, at December 31, 2005, wehad the largest outstanding balance of corporate deposits among all PRC commercial banks, with amarket share of 17.4%.

Marketing

Our head office is responsible for formulating our overall corporate banking businessdevelopment plans. Our branches and sub-branches develop and implement detailed corporate bankingmarketing plans tailored to local needs based on our overall business plan and corporate bankingmarketing strategies.

Our corporate banking marketing efforts are primarily conducted by our corporate bankingrelationship managers. At June 30, 2006, we had more than 25,000 corporate banking relationshipmanagers who work closely with other specialized staff to cross-sell our products and services. Forcorporate banking customers with operations in different locations, our corporate banking relationshipmanagers at our headquarters and different branches work together as a team in order to effectivelymanage the overall customer relationship.

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We have developed a customer relationship management system which helps us formulateeffective marketing strategies. We are also developing a set of marketing initiatives targeting small-and medium-sized enterprises.

Personal Banking

Overview

We believe that we have the largest personal banking customer base in China, with more than150 million personal banking customers. Our personal banking products and services include personalloans, bank cards, personal deposits and a broad range of fee- and commission-based personal bankingproducts and services. The income contributed by our personal banking segment accounted for 34.6%of our total operating income for the six months ended June 30, 2006, as compared to 32.6% for thecorresponding period in 2005. According to the PBOC, at December 31, 2005, we ranked first amongPRC commercial banks in terms of our outstanding balances of personal loans and deposits, with amarket share of 24.0% and 20.9%, respectively.

Personal Loans

We provide personal property mortgage loans and other types of personal loans to our personalbanking customers. At June 30, 2006, our outstanding domestic personal loans amounted to RMB533.1billion, representing 15.4% of our total loan portfolio.

Personal Property Mortgage Loans

According to the PBOC, at December 31, 2005, we had the largest portfolio of domesticpersonal property mortgage loans in China with an aggregate outstanding balance of RMB447.3billion. At June 30, 2006, the aggregate outstanding balance of our domestic personal propertymortgage loans was RMB459.7 billion. We provide personal property mortgage loans to our personalbanking customers to finance the purchase of residential and commercial properties. Our personalproperty mortgage loans are secured by the underlying property being purchased. We may lend up to80% of the appraised value of the property depending on our evaluation of the creditworthiness of theborrower. The terms of our personal property mortgage loans are up to 30 years. Effective June 1,2006, the down payment requirement of personal property mortgage loans has been adjusted by therelevant regulatory entities. Our domestic personal property mortgage loans constitute the majority ofour personal loan portfolio, accounting for 86.3% of our total outstanding domestic personal loans atJune 30, 2006.

Personal Consumption Loans and Other Personal Loans

We provide a variety of personal consumption loans and other personal loans. Our personalconsumption loans include general personal consumption loans, automobile loans, education loans,pledge loans and personal credit. At June 30, 2006, we had RMB73.4 billion of domestic personalconsumption loans and other personal loans outstanding, representing 13.7% of our total domesticpersonal loans outstanding.

Our general personal consumption loans are typically granted for home improvement or thepurchase of personal goods. We usually require collateral or third-party guarantees for general personalconsumption loans.

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Our personal automobile loans are granted for up to 80% of the purchase price of theautomobile and usually require collateral or third-party guarantees. Our automobile loans generallyhave a term of three years.

Our education loans consist of state-subsidized student loans and non-subsidized student loans.The interest to be paid on state-subsidized student loans is partially subsidized by the government. Ournon-subsidized student loans are offered to students or their guardians to help finance the students’non-compulsory education and may be used for overseas study.

Our personal pledge loans are generally secured by time deposits, treasury bonds or guarantees.We extend personal credit to borrowers with good credit history.

We also offer other types of personal loans to our customers, a substantial majority of whichare personal business loans to our personal banking customers to fund the cash flow requirements oftheir business operations. We generally require collateral or a third-party guarantee for these businessloans. In addition, our personal loans also include bank card overdrafts. See “Assets and Liabilities—Assets—Loans to Customers—Personal Loans.”

Card Business

We offer a broad range of card products and services to our personal banking customers,including single and dual-currency credit cards, quasi-credit cards and single and dual-currency debitcards. Our brand name “Peony” for our card products was the first bank card trademark registered inChina and is one of the most recognized bank card brands in China. According to the PBOC, weranked first among bank card issuers in China in terms of total transaction volume in 2005, with amarket share of 36.8%. Total income from our card business amounted to RMB1.4 billion for the sixmonths ended June 30, 2006. Total income from our bank card business increased by 45.2% toRMB2.3 billion for the year ended December 31, 2005 from RMB1.6 billion for the year endedDecember 31, 2004, which increased by 61.4% from RMB1.00 billion for the year endedDecember 31, 2003.

Our bank cards are accepted through our own network in China as well as the China Unionpaynetwork in China and many other countries. We are one of the founding members of China Unionpay,a bankcard network organization headquartered in China, in which we hold a 5.45% equity interest.Our dual-currency credit cards and dual-currency debit cards are also accepted outside of Chinathrough our association with the American Express, MasterCard and Visa networks. Our card businessis supported by our extensive proprietary service network, including our 24-hour call centers, branchoutlets, electronic banking network and mobile phone banking services.

In 2004, we entered into a credit card partnership agreement with American Express, pursuantto which we and American Express agreed to jointly issue credit cards in China and cooperate in theareas of sales and marketing, customer service, product research and development and riskmanagement of our credit card business.

Credit Cards and Quasi-Credit Cards

We issue Renminbi-denominated credit cards and dual-currency credit cards denominated inRenminbi and either U.S. dollars, Euros or H.K. dollars in China. In December 2005, we became thefirst PRC commercial bank to issue credit cards compliant with the Europay Mastercard Visa (EMV)

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standard. In addition, we issue Renminbi-denominated quasi-credit cards to our personal bankingcustomers, which provide the cardholder with an interest-bearing overdraft line that can be used for upto 60 days. At June 30, 2006, we had approximately 8.2 million credit card and quasi-credit cardaccounts in China.

We established a Peony Card Center in Beijing in 2002 to centrally manage the credit cards andquasi-credit cards we issue in China. This credit card center maintains independent accounting andmanagement systems and coordinates with our branches to facilitate credit card- and quasi-credit card-related marketing, application, approval, card distribution, account management and customer servicefunctions.

Our income on credit cards and quasi-credit cards consists primarily of commissions we collectfrom merchants accepting our cards, annual fees, interest, settlement fees and late payment penaltiesthat we collect from our cardholders. As credit cards become an increasingly accepted paymentalternative in China, we expect our credit card business to continue to experience significant growth.

Debit Cards

We offer Renminbi-denominated debit cards and Renminbi- and U.S. dollar-denominated dual-currency debit cards to our customers. Our multi-function debit card provides our customers withaccess to various financial services, including cash deposit and withdrawal, bill payment and fundtransfer. At June 30, 2006, we had 146.3 million Renminbi-denominated debit cards outstanding inChina. Our income on debit cards primarily consists of commissions we collect from merchantsaccepting our cards and annual fees and other service fees we collect from cardholders. The totaltransaction volume for our Renminbi-denominated debit cards issued in China was RMB105.3 billionfor the six months ended June 30, 2006.

Fee- and Commission-Based Products and Services

We offer our personal banking customers a broad range of fee- and commission-based personalbanking products and services such as personal wealth management, remittance and settlement,collection and disbursement and card-related services.

Personal Wealth Management Services

We offer a broad range of personal wealth management products and services, includingfinancial advisory services, investment management products, bancassurance and agency services.These products and services include “Wendeli” ( ), a low-risk Renminbi investment productguaranteed by the investment income of high credit-quality Renminbi bonds (including treasury bonds,commercial paper, PBOC bills and other bonds); “Huicaitong” ( ), a foreign currency productlinked to interest rates, exchange rates, commodity indices and credit indices; and “Zhulianbihe”( ), a Renminbi structured investment product linked to foreign currency derivatives. Inaddition, we provide a foreign currency trading product, known as “Huishitong” ( ), and a goldtrading product, known as “Jinhangjia” ( ).

Through our Elite Club Account ( ) services, our wealthy customers have access toexperienced client relationship managers and enjoy personalized services. At June 30, 2006, we hadapproximately 2.3 million Elite Club Account customers.

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We became the first PRC commercial bank to launch an overseas investment service, offeringoverseas investment products to domestic residents. PRC commercial banks have only recently beenpermitted to engage in such business pursuant to the Provisional Measures for Commercial Banks’Overseas Investment Business jointly issued by the PBOC, CBRC and SAFE in early 2006.

We market a variety of third-party financial products to our personal banking customers.Depending on the product type, we derive fees and commissions either from the third-party institutionsoffering the products or from our customers. The third-party financial products and agency servicesthat we offer include:

Š Securities. We act as an agent for the issuance and trading of government bonds and open-end fund products and provide fund transfer services between the government, securitiescompanies, and fund management companies and customers who maintain tradingaccounts with us. According to the MOF, we were the largest distributor of bearer formtreasury bonds in China in terms of distribution volume in 2005, with a market share of31.2%. We were also the largest distributor of open-end funds in China in terms of thetotal volume of funds distributed in 2005. The total volume of open-end funds wedistributed for the six months ended June 30, 2006 and the year ended December 31, 2005amounted to RMB89.6 billion and RMB70.7 billion, respectively.

Š Bancassurance. We distribute products and services as an agent on behalf of insurancecompanies. According to the CIRC, we were one of the market leaders among PRCcommercial banks with RMB24.8 billion and RMB32.2 billion bancassurance premiumssold for the six months ended June 30, 2006 and the year ended December 31, 2005,representing a market share of 35.1% and 34.9%, respectively.

Remittance and Settlement Services

We provide Renminbi- and foreign currency-denominated money transfer and remittanceservices. Utilizing our extensive branch network and advanced electronic banking platform, we offerour electronic money transfer services to our personal banking customers under the trade name“Remittance Express” ( ).

Collection and Disbursement Services

We provide various collection and disbursement services to our customers, including salarypayment, utility bill payment, telecommunication bill payment and lottery agency services.

Bank Card-Related Services

We provide settlement services to merchants by processing payments made using credit cards,quasi-credit cards and debit cards. We charge merchants fees based on a percentage of the amount ofthe transactions we process for them. We have an extensive merchant network in China, withapproximately 168,000 participants at June 30, 2006.

Personal Deposits

We offer personal demand deposits and time deposits in Renminbi and foreign currencies.Interest rates on deposits are subject to maximum rates set by the PBOC, below which we have thediscretion to set our own interest rates. See “Regulation and Supervision—PRC Regulation and

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Supervision—Pricing of Products and Services.” We currently offer time deposit-taking services withterms ranging from three months to five years for Renminbi-denominated deposits, and from onemonth to two years for foreign currency-denominated deposits.

At June 30, 2006, our outstanding domestic personal deposits amounted to RMB3,278.7 billion,which provided 54.4% of our total domestic deposit funding base. Our outstanding domestic personaldeposits increased by 10.5% to RMB3,106.3 billion at December 31, 2005 from RMB2,810.2 billion atDecember 31, 2004, which increased by 8.9% from RMB2,580.9 billion at December 31, 2003.According to the PBOC, we ranked first among all PRC commercial banks in terms of totaloutstanding domestic personal deposits at December 31, 2005.

Marketing

Our head office formulates overall marketing strategies and initiatives for our personal bankingproducts and services and coordinates with all the branches to promote our products through varioussales and marketing methods. Our tier-1 branches formulate specific plans tailored to local marketconditions and oversee tier-2 branches in implementing these plans.

We are in the process of developing standardized services and distribution methods bank-wideto provide different services to various customer segments with a special focus on wealthy customersand customer groups with high growth potential. For example, we have designed an “E-generation”Peony debit card ( ) to attract college students.

To strengthen our leadership position in personal banking, we are adopting a variety ofinitiatives to enhance our sales and distribution network and customer relationship management. Forexample, we encourage our customers to use our convenient electronic banking network and are in theprocess of consolidating our traditional branch network and further expanding our wealth managementcenters.

We provide our personal wealth management services primarily through dedicated personalwealth management advisors and over 3,000 wealth management centers supplemented by ourelectronic banking network. We focus our business development efforts particularly on wealthycustomers that maintain an annual average financial asset balance of at least RMB50,000 with us. AtJune 30, 2006, out of our 10,000 personal banking customer managers, 1,418 were associate financialplanners (AFPs), which we believe ranks us first among PRC commercial banks.

We periodically conduct market surveys in major cities in China to gather data to enable us tobetter understand our targeted customers’ spending habits and satisfaction with specific products. Wehost wealth management lectures and information seminars to introduce our products and services topotential customers. In addition, we use a variety of mass media and other marketing channels toattract different customer segments. We believe our market surveys and advertising promotions enableus to effectively target our core customers with tailored personal banking products and services.

Our personal customer relationship management system collects, consolidates and analyzescustomer-related data, enabling our customer relationship managers to provide tailored services andproducts based on our customers’ financial needs. In addition, we are in the process of building a bank-wide customer information system, which consolidates customer information in different geographicareas. This system will enable us to provide our customers with a single statement containingintegrated account information.

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We have increased our efforts in cross-selling personal banking products. For example, weoffer personal wealth management services to customers that maintain deposits above a certain amountwith us. We also cross-sell our personal banking products and services to different customer groupsthrough coordinated marketing by our personal and corporate banking businesses. For example, byproviding salary payment services to our corporate customers, we have the opportunity to market ourpersonal banking products and services to these customers’ employees.

Treasury Operations

Our treasury operations primarily consist of our money market activities, the management ofour investment portfolio, and treasury transactions conducted on behalf of our customers. For the sixmonths ended June 30, 2006, the operating income of our treasury operations was RMB11.9 billion,accounting for 13.9% of our total operating income.

Money Market Activities

Our money market activities primarily consist of (i) short-term borrowings from and loans toother domestic and foreign financial institutions, also known as our inter-bank money market activities;and (ii) repurchase and reverse repurchase transactions. The securities underlying our repurchase andreverse repurchase transactions are predominantly Renminbi-denominated PRC government and policybank bonds and PBOC bills, with a small portion of foreign currency-denominated bonds primarilyissued by foreign government and government agencies.

Investment Portfolio

Our investment portfolio consists primarily of debt securities. We classify our investmentportfolio into: (i) debt securities at fair value through profit or loss (primarily consisting of debtsecurities held for trading purposes); (ii) receivables (financial assets, other than derivatives, with fixedor determinable payments that are not quoted in an active market or are not actively traded, and areneither classified as held-to-maturity nor available-for-sale); (iii) held-to-maturity securities; and(iv) available-for-sale securities. Receivables, held-to-maturity securities and available-for-salesecurities are held primarily for investment purposes.

Proprietary Treasury Operations

Our proprietary treasury operations are primarily conducted at our head office and primarilyinclude trading bonds and notes issued by the PRC government, the PBOC and foreign governments,as well as foreign currency trading. We are a market maker in China’s inter-bank market. In addition,we hedge investment risks through derivative transactions.

Investment Activities

We set the target return for our investment portfolio principally through our assessment of theinterest rate, exchange rate, credit and other risks associated with the investment. We also considersovereign credit risks in evaluating securities denominated in foreign currencies for inclusion in ourinvestment portfolio. Our investment portfolio currently consists of Renminbi-denominated debtsecurities issued by the PRC government, the PBOC, policy banks and, to a lesser extent, otherfinancial institutions in China. We also hold commercial paper issued by domestic enterprises. In the

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international market, we invest in investment-grade foreign currency debt securities issued by foreigngovernments, financial institutions, corporations and international organizations.

Treasury Transactions on Behalf of Customers

We provide a broad range of treasury services to our corporate and personal banking customers.We were one of the first PRC commercial banks approved to provide forward foreign exchange tradingservices and financial derivatives products. We provide spot and forward foreign exchange tradingservices and swap transaction services for Renminbi and foreign currencies. We act as an agent forforeign exchange trading on behalf of our clients 24 hours a day. We also trade forward foreigncurrency contracts, interest rate swaps, currency swaps, options and other financial derivatives onbehalf of our customers. According to the SAFE, for the six months ended June 30, 2006, we rankedsecond among PRC commercial banks with foreign currency-Renminbi trading of US$66.2 billion,representing 12.3% of the total amount of foreign currency-Renminbi trading by PRC commercialbanks.

We are a member of the Shanghai Gold Exchange. According to the Shanghai Gold Exchange,at December 31, 2005, we ranked first among PRC commercial banks in terms of settlement amount ofphysical gold bullion trading, with a market share of 57.0% and a total settlement value of RMB54.2billion. We provide physical gold, paper gold and gold derivatives products and services. In order tomanage positions resulting from the transactions undertaken on behalf of our customers, we generallyenter into hedging and other derivative transactions.

Overseas Operations

We have established a presence in most of the world’s major financial centers. Our overseasoperations are conducted by our branches in Hong Kong, Macau, Singapore, Tokyo, Seoul, Busan,Frankfurt and Luxembourg, our subsidiaries in Hong Kong, London and Almaty, and ourrepresentative offices in New York, Moscow and Sydney. At June 30, 2006, we had 98 overseasbranches, subsidiaries, representative offices and outlets, and correspondent relationships with 1,250foreign banks in 117 countries and regions.

Our overseas operations provide commercial banking, investment banking and brokerageservices. We seek to leverage our large customer base and extensive distribution network in China toprovide comprehensive financial services for our domestic and overseas customers.

At June 30, 2006, our overseas branches, subsidiaries and controlled entities had total assets ofRMB192.5 billion, an increase of 6.6% from RMB180.5 billion at December 31, 2005, whichincreased by 10.5% from RMB163.4 billion at December 31, 2004. Profit before tax from our overseasoperations amounted to RMB1.5 billion for the six months ended June 30, 2006. Profit before tax fromour overseas operations increased by 28.3% to RMB2.2 billion for the year ended December 31, 2005from RMB1.7 billion for the year ended December 31, 2004, which increased by 34.7% from RMB1.3billion for the year ended December 31, 2003.

We were the first PRC commercial bank to acquire an overseas public bank. Our largestoverseas business is ICBC (Asia). In 2000, we acquired the Union Bank of Hong Kong, which wasestablished in Hong Kong in 1964 and was listed on the Hong Kong Stock Exchange in 1973, andsubsequently renamed it ICBC (Asia). In 2001, we merged the main business of our Hong Kong

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branch with ICBC (Asia). In 2004, ICBC (Asia) acquired the Hong Kong retail and commercialbanking operations of Fortis Bank Asia HK. In 2005, ICBC (Asia) acquired the Shenzhen-basedChinese Mercantile Bank to enhance its competitiveness in the Hong Kong banking market byproviding integrated PRC-related banking products and services to its Hong Kong customers.

ICBC (Asia) provides a broad range of personal banking and wealth management services andproducts, including credit card, personal loan, securities trading and insurance. In addition, ICBC(Asia) provides comprehensive corporate banking services and products and holds leading positions insyndicated loans and structured loans in Hong Kong. ICBC (Asia) markets its banking products andservices primarily through its branch network and distribution channels in Hong Kong, which include42 branches, one investment service center, as well as Internet and telephone banking systems. At June30, 2006, the total assets of ICBC (Asia) amounted to HK$126.6 billion. At December 31, 2005, ICBC(Asia) was the sixth largest Hong Kong-incorporated bank listed, or controlled by a company that islisted, on the Hong Kong Stock Exchange in terms of total assets. At December 31, 2005, ICBC (Asia)had over 22,000 corporate banking customers and over 144,000 personal banking customers. AtJune 30, 2006, the ratio of non-performing loans to the total loan portfolio of ICBC (Asia) was 0.8%,compared to 0.9% at December 31, 2005, 1.3% at December 31, 2004 and 1.7% at December 31, 2003.

Through ICEA we conduct a range of investment banking and brokerage businesses primarilyin mainland China and Hong Kong. At the Latest Practicable Date, we own 75% of ICEA and TheBank of East Asia, Limited owns the remaining 25%. ICEA’s investment banking and brokeragebusiness primarily includes underwriting and financial advisory services, sales and trading ofsecurities, brokerage and investment research services. ICEA’s principal place of business is located inHong Kong with representative offices in Beijing, Shanghai and Guangzhou. ICEA’s main customerbase covers domestic and international companies, government agencies, institutional investors andretail investors.

PRODUCT PRICING

Our asset and liability management committee is ultimately responsible for determining ourpricing policies.

We may set interest rates for our Renminbi-denominated loans at our discretion, subject to aminimum of 90% of the relevant benchmark rates set by the PBOC. Interest rates for our time anddemand deposits are determined at our discretion, subject to the relevant maximum PBOC benchmarkrates. Certain fee- and commission-based products and services, including basic Renminbi settlementservices specified by the CBRC and the NDRC, are subject to government price guidance. We are ableto set fees for other fee- and commission-based products and services based on market conditions andour own cost of capital. See “Banking Industry in China—Industry Trends—Strengthened Regulationand Other Banking Sector Reforms” and “Regulation and Supervision—PRC Regulation andSupervision—Pricing of Products and Services.”

We have also adopted and implemented an internal fund transfer pricing system. Subject to theapproval of our asset and liability management committee, our asset and liability managementdepartment determines our internal fund transfer pricing benchmarks based on a number of factors,including prevailing interest rate trends in the capital markets in China, the interest rate structure of ourdeposits and loans, and the strategies and objectives set by our asset and liability managementcommittee.

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Subject to applicable rules, regulations and guidelines, we set our prices based upon assessmentof related risk-adjusted returns. When determining our pricing, we consider factors including, amongothers, the risk profile of our assets, an individual customer’s contribution to our business, our costs,the expected risk- and- cost-adjusted returns and our internal fund pricing benchmarks. In addition, weconsider general market conditions and prices for similar products and services offered by ourcompetitors.

DISTRIBUTION CHANNELS

We deliver our products and services through a variety of distribution channels. We believe weare the largest provider of electronic banking services (including ATMs, self-service banking centers,Internet banking, telephone banking and mobile phone banking) among PRC commercial banks interms of total transaction volume. We have integrated our electronic banking network with ourtraditional branch operations.

Branch Network

At June 30, 2006, our traditional branch network consisted of 18,038 domestic branches, outletsand other establishments, including our head office in Beijing, 35 tier-1 branches, 412 tier-2 branches,and 17,506 sub-branches and outlets and 84 other establishments. Our outlets include over 3,000wealth management centers. Most of our branches are located in urban areas. We also had 98 overseasbranches, subsidiaries, representative offices and outlets at June 30, 2006. See “—Our PrincipalBusiness Activities—Overseas Operations.”

We have a strong presence in the Yangtze River Delta, the Pearl River Delta and the Bohai Rimregions with 7,738 branches and outlets at June 30, 2006 located in those regions.

The following table sets forth, at the dates indicated, the number of domestic branches, outletsand other establishments by geographical region.


2003 2004 2005 2006

Branches,outlets and

otherestablishments

% oftotal


otherestablishments

% oftotal


otherestablishments

% oftotal


otherestablishments

% oftotal

Head Office . . . . . . . . . . . . . . . . . 1 — 1 — 1 — 1 —Domestic institutions directly

under head office and theirsub-institutions . . . . . . . . . . . . 19 0.1% 19 0.1% 19 0.1% 19 0.1%

Yangtze River Delta . . . . . . . . . . 3,116 12.9 2,885 13.6 2,707 14.4 2,525 14.0Pearl River Delta . . . . . . . . . . . . . 2,629 10.9 2,400 11.3 2,199 11.7 2,138 11.9Bohai Rim . . . . . . . . . . . . . . . . . . 3,965 16.4 3,454 16.3 3,202 17.1 3,075 17.0Central China . . . . . . . . . . . . . . . 5,367 22.3 4,711 22.2 4,147 22.1 3,971 22.0Northeastern China . . . . . . . . . . . 2,778 11.5 2,418 11.4 2,025 10.8 1,985 11.0Western China . . . . . . . . . . . . . . 6,254 25.9 5,335 25.1 4,464 23.8 4,324 24.0

Total domestic branches,outlets and otherestablishments . . . . . . . . 24,129 100.0% 21,223 100.0% 18,764 100.0% 18,038 100.0%

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We have been implementing a branch rationalization program in stages since 1997 to improveour operational efficiency and profitability. Through this program, we have closed or merged asignificant number of our less profitable branches. As a result of our efforts, we reduced the number ofour domestic branches and outlets from 41,990 at December 31, 1997 to 18,038 at June 30, 2006.

Electronic Banking

We provide electronic banking services that allow our customers to access their accounts andconduct certain transactions 24 hours a day, 365 days a year, over the Internet, telephone or mobilephone, and at ATMs and self-service banking centers at our branch locations. Utilizing a combinationof Internet, telephone, mobile phone, and short message service, or SMS, we provide our corporate andpersonal banking customers with an extensive range of electronic banking services. The transactionamount of our electronic banking services was RMB23,854.1 billion for the six months ended June 30,2006. The transaction amount of our electronic banking services increased by 21.7% to RMB46,769.9billion for the year ended December 31, 2005 from RMB38,442.4 billion for the year endedDecember 31, 2004, which increased by 72.3% from RMB22,316.4 billion for the year endedDecember 31, 2003.

We generate income from our electronic banking services by charging annual fees, agency fees,settlement fees and transaction fees. We believe a number of our electronic banking brands arenationally recognized, including “Financial e-Channel” ( ), the primary brand for ourelectronic banking services, “Banking@Home” ( ) for personal Internet banking services, “ICBCe-Fortune Link” ( ) for corporate Internet banking services and “95588” for telephone bankingservices.

Self-Service Banking Centers and ATMs

At June 30, 2006, we had 1,610 self-service banking centers and 19,026 ATMs, representingincreases of 9.3% and 4.1%, respectively, compared to 1,473 self-service banking centers and 18,270ATMs, respectively, at December 31, 2005, which increased by 31.8% and 12.9% from 1,118 self-service banking centers and 16,189 ATMs, respectively, at December 31, 2004. Self-service bankingcenters and ATMs provide a cost-efficient alternative to our branches and sub-branches, and we intendto continue to expand this distribution channel.

Internet Banking

We provide Internet banking services through our website, www.icbc.com.cn.

Our corporate Internet banking products and services include our corporate cash managementservices, collection and disbursement services, structured term deposit, notice deposit, payment andsettlement services, securities investment fund and PRC government bond trading. In addition, throughour “Bank-Enterprise Link” ( ), we offer our large corporate, government and financialinstitution customers individualized products and services by allowing them to directly access ourdedicated Internet banking system to check and download account information, make money transfers,collect payments and conduct centralized cash management through their own accounting systems andpay settlement service fees and other fees.

Our personal Internet banking products and services include personal account management,money transfer, bill payment, our “Internet foreign exchange market” service, our “Internet securities”

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service, our “Internet insurance” service and on-line shopping services. In 2005, we were awarded theFirst Prize of “China Internet Industry Survey Report for Internet Banking” by the Internet Society ofChina and the title of “Best Finance, Economics and Securities Website in China” by Securities Timesin 2005.

Telephone Banking

Our telephone banking system enables customers to access account information and conductvarious banking transactions, including account inquiry, money transfer, bill payment, and securitiesand foreign currency trading. We offer telephone banking services 24 hours a day, 365 days a yearthrough the “95588” access number, which can be accessed locally throughout China, and the“21895588” access number in Hong Kong. In 2005, we were awarded the “Gold Award for CustomerCare and Public Service in China” issued by the Ministry of Information Industry.

Mobile Phone Banking

Our mobile phone banking system enables our customers to use short messaging services(SMS) through their mobile phones to conduct various banking transactions, including account inquiry,money transfer and bill payment. We also provide notification, reminder and other services to ourcustomers through SMS.

INFORMATION TECHNOLOGY

Centralized Facilities

Our Shanghai Data Center processes operating and other data for our domestic branches, ourhead office bills department and our Peony Card Center. In order to protect our information system, wehave established a remote backup and testing facility in Beijing. Our Shenzhen Data Center processesoperating and other data for our six overseas branches in Asia and ICBC (Asia). In addition, we haveestablished a centralized administrative platform to enhance the utility and security of our operatingsystems and enable our senior management to better monitor our overall performance.

Research and Development Capabilities

Our technology development center in Zhuhai is responsible for most of our in-housedevelopment efforts. Our data consolidation project was awarded the “Best Banking TechnologyDevelopment Award” by the PBOC in 2004. We plan to continue to make significant investments inresearch and development in order to maintain and enhance our competitiveness in the future.

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NOVA—Core Banking System

In November 2003, we completed our proprietary multifunctional banking system, NOVA,which is designed to enable bank-wide real-time data sharing, real-time remote transaction processingand upgraded Internet functions. We have developed the following business management andprocessing systems under NOVA to control risk, lower bank-wide operational costs, utilize customerinformation, improve our customer service and provide enhanced management tools:

CM2002— credit management system that enables us to manage our corporate creditbusiness and risk management operations through a centralized nation-widedatabase, incorporating customer credit rating, credit line approval,evaluation, credit approval, fund disbursement and post-disbursementmanagement.

PCM2003— personal credit management system implemented in May 2006 that enablesus to unify the operations of different personal credit businesses andmonitor these operations through centralized bank-wide data management.

PVMS— performance valuation management system that supports our seniormanagement’s decision-making with respect to risk control, resourceallocation and business development by providing timely information onproduct, department and branch performance.

CCRM/PCRM— corporate and personal customer relationship management systems thatcollect data on assets, liabilities, discounted bills and enable us to performanalysis of individual corporate or personal banking customer data. We arecurrently in the process of developing applications that will capturepersonal customers’ consumption patterns, habits and preferences. Weintend to use this data in the future to develop tailored products and servicesto tap the potential of specific client segments.

CS2002— comprehensive statistics system that provides operational and managementdata from our various business lines, classifies such operational data basedon pre-determined criteria and produces statistical reports on a “T+1” basis.

CIIS— client information integration solution system that collects our data and thedata provided by PRC regulatory authorities and screens out potentialcorporate banking and personal banking customers with poor credit history.

COMPETITION

We face significant competition in our principal areas of business from commercial banks andother financial institutions in China. We currently compete primarily with the other Big Fourcommercial banks and other national commercial banks. We are also facing increasing competitionfrom a number of additional sources, including city commercial banks and foreign-invested banksoperating in China. In addition, we compete for business with other non-banking financial institutionsin China, including postal savings bureaux, credit cooperatives, securities firms and insurancecompanies. See “Risk Factors—Risks Relating to the Banking Industry in China—Competition in thebanking industry in China is increasing.”

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Our competition with foreign financial institutions will likely intensify significantly in thefuture. In the accession agreement relating to China’s entry to the WTO, the PRC government hasundertaken to eliminate all existing measures restricting the geographic presence, customer base andoperational licenses of foreign-invested banks operating in China by the end of 2006. In addition,China’s CEPA arrangements with Hong Kong and Macau allow smaller banks from those jurisdictionsto operate in the PRC, which has also increased competition in the PRC banking industry. See“Banking Industry In China—Industry Trends—Greater Participation by Foreign-Invested Banks.”

We compete with other commercial banks and financial institutions in China, particularly withrespect to the range, price and quality of products and services, the convenience of banking facilities,brand recognition and information technology capabilities. As the largest commercial bank in China,we believe that we are well-positioned to compete with our existing and future competitors.

See “Financial Information—General Factors Affecting Our Results of Operations—Competition.”

EMPLOYEES

We had 355,312 domestic employees with medium- and long-term employment contracts atJune 30, 2006, 361,623 at December 31, 2005, 375,781 at December 31, 2004 and 389,045 atDecember 31, 2003. The following table sets forth the total number of our domestic employees byfunction at the dates indicated.

At December 31, 2005 At June 30, 2006

Number ofemployees % of total


Corporate banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,501 8.7% 31,185 8.8%Personal banking(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,224 33.2 117,796 33.1Treasury operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,086 1.4 4,902 1.4Finance and accounting(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,391 25.0 90,570 25.5Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,911 3.6 13,000 3.7Risk management, internal audit, and legal and compliance(2) . . . . . 29,641 8.2 28,588 8.0Information technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,869 3.9 13,913 3.9Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,000 16.0 55,358 15.6

Total(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361,623 100.0% 355,312 100.0%

(1) Includes counter personnel of our branch offices.(2) Includes 6,124 internal audit and internal control employees, representing 1.7% of our total employees at December 31, 2005 and 6,065

internal audit and internal control employees, representing 1.7% of our total employees at June 30, 2006.(3) Excludes 63,601 employees with short-term contracts at December 31, 2005 and 62,294 employees with short-term contracts at June 30,

2006.

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The following table sets forth the total number of our domestic employees by age at June 30,2006.

At June 30, 2006


Under 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,625 11.2%31 to 40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,097 45.341 to 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,085 40.8over 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,505 2.7

Total(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,312 100.0%

(1) Excludes 62,294 employees with short-term contracts.

The following table sets forth the total number of our domestic employees by education atJune 30, 2006.

At June 30, 2006


Graduate degree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,193 1.2%Undergraduate degree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,619 30.6Associate degree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,520 42.1Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,980 26.2

Total(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,312 100.0%

(1) Excludes 62,294 short-term employees.

Since 1997, we have substantially reduced our number of employees by enhancing theefficiency of our distribution channels and streamlining our organizational structure and businessprocesses.

We contribute to our employees’ social insurance, provident housing fund and certain otheremployee benefits in accordance with PRC laws and regulations.

We have established a performance-based compensation system whereby an employee’scompensation is determined based upon his position and performance review. In addition, we plan tofurther improve our employee compensation system by applying economic value added (EVA)measures to determine branch and employee compensation. Certain key positions are also eligible forshare appreciation rights. See “Directors, Supervisors and Senior Management—Share AppreciationRights Policy.”

We provide training programs for our employees to improve their professional competence andskills. We have also been developing our job qualification system whereby we will define the requiredqualifications for each position throughout our operational processes. A labor union represents theinterests of the employees and works closely with our management on labor-related issues. We havenot experienced any strikes or other material labor disturbances that have interfered with ouroperations, and we believe that the relationship between our management and the labor union has beengood.

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INTELLECTUAL PROPERTY

We have nine domestic patents and 36 patent applications pending in China, which are allrelated to our IT systems. We own various trademarks, including our logo “ ,” our Chinese name“ ,” our English name “Industrial and Commercial Bank of China,” its acronym “ICBC”and any style of their combination. See “Appendix IX—Statutory and General Information—2. FurtherInformation about Our Business—B. Intellectual Property.”

PROPERTIES

We are headquartered at No. 55 Fuxingmennei Avenue, Xicheng District, Beijing, PRC.

At August 31, 2006, we held 25,424 properties and leased 7,677 properties in the PRC, HongKong, Macau and overseas.

Owned Properties

At August 31, 2006, we owned 25,393 properties with an aggregate gross floor area ofapproximately 25,249,839 square meters in the PRC, of which 22,731 properties are commercialproperties with an aggregate gross floor area of approximately 24,192,483 square meters and 2,662properties are residential and ancillary properties with an aggregate gross floor area of approximately1,057,356 square meters.

Among the 25,393 total properties, we do not have the relevant title certificates for 1,801properties with a total gross floor area of approximately 1,546,180 square meters due to various titledefects or for other reasons. Among the remaining 23,592 properties, there are 464 properties withbuilding ownership certificates and allocated land use rights certificates.

In addition, at August 31, 2006, we owned 31 properties outside the PRC with an aggregategross floor area of approximately 14,333 square meters. Our owned properties are primarily used asoffices, branches and sub-branches and staff quarters.

Properties Under Construction

At August 31, 2006, we had 76 properties under construction, which we estimate will have atotal gross floor area of approximately 686,953 square meters upon completion. We have not obtainedthe relevant land use rights certificates and the relevant construction permits for 20 of these propertieswith an estimated total gross floor area upon completion of approximately 55,144 square meters. AtAugust 31, 2006, no commercial value has been attributed to these 20 properties.

Properties to Be Acquired

At August 31, 2006, we have entered into contracts to purchase 58 commercial and residentialproperties with an aggregate gross floor area of approximately 118,938 square meters. At August 31,2006, these properties had not been assigned to us and thus the titles for these properties were notvested in us. No commercial value has been attributed to these properties in our property valuationreport.

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Leased Properties

At August 31, 2006, we leased and sub-leased from various independent third parties 7,616properties in the PRC with an aggregate gross floor area of approximately 2,052,642 square meters and61 properties outside the PRC with an aggregate gross floor area of approximately 34,620 squaremeters.

For the 7,616 leased properties in the PRC, according to the opinion given by our PRC legaladvisor, the relevant lessors or landlords have provided the relevant title certificates or consent fromthe owners to sublet for 2,387 properties representing a total gross floor area of approximately 732,973square meters. For the remaining 5,229 leased properties, we have not been provided with the relevanttitle ownership certificates or consent from the owners to sublet. Of these 5,229 leased properties, thelessors or landlords of 2,342 properties with a total floor area of approximately 494,079 square metershave provided confirmation letters which undertake to compensate for all of our losses arising fromtheir defective legal title.

Property Titles

For the 22,731 commercial properties held and occupied by us in the PRC, we have obtainedthe relevant title certificates for 21,094 of them, representing a total gross floor area of approximately22,785,369 square meters. For the remaining 1,637 commercial properties with a total gross floor areaof approximately 1,407,114 square meters, we have not obtained relevant title certificates. We believethat most of these properties can, if necessary, be replaced by other comparable alternative premiseswithout any material adverse effect to our business operations.

For the 2,662 residential and other ancillary properties held and occupied by us in the PRC, wehave obtained relevant title certificates for 2,498 of them, representing a total gross floor area ofapproximately 918,290 square meters. For the remaining 164 residential and other ancillary propertiesrepresenting a total gross floor area of approximately 139,066 square meters, we have not obtainedrelevant title certificates. These premises are currently occupied by our employees as staff quarters orused for ancillary purposes such as storage and canteens, which are not material to our businessoperations.

For the 7,616 leased properties in the PRC, the relevant lessors or landlords have not obtainedvalid title certificates or consent to sublet for 5,229 properties representing an aggregate gross floorarea of approximately 1,319,669 square meters, and the lessors or landlords of 2,887 leased propertieswith an aggregate gross floor area of approximately 825,590 square meters have not providedconfirmation letters to undertake to compensate us for losses arising from their defective legal title. Weare of the view that most of these leased properties occupied by us can, if necessary, be replaced byother comparable alternative premises without any material adverse effect to our operations.

Due to various title defects or for other reasons, we cannot obtain the relevant title certificatesfor some of these properties. For the title defects that we cannot cure, we are of the view that the lackof such title certificates and/or the existence of such title defects will not have a material adverse effecton our business, financial condition and results of operations, as the relevant properties represent aminor portion of the total value of our properties. See “Risk Factors—Risks Relating to OurBusiness—We do not, and some of our lessors may not, possess the relevant title certificates or haveconsent from the owners to sublet for some of the properties occupied by us.”

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Property Valuation

Sallmanns (Far East) Limited, an independent property valuer, has valued our owned propertyinterests with valid title certificates at August 31, 2006 at RMB91,053,314,000. The text of thevaluation letter, a summary of values and the valuation certificates issued by Sallmanns (Far East)Limited for this prospectus are set out in Appendix V.

No commercial value is attributed to any leased properties or owned properties without propertitle certificates.

Waiver

Regarding the format and content of the valuation report, owing to the substantial number ofproperties we own (25,433 in total) and lease (7,677 in total), we have applied for and obtained awaiver from the Hong Kong Stock Exchange from strict compliance with Rule 5.01, Rule 5.06, Rule19A.27(4) and Paragraph 3(a) of Practice Note 16 of the Hong Kong Listing Rules and an exemptionfrom the SFC from strict compliance with Paragraph 34(2) of Part II of the Third Schedule to theCompanies Ordinance on the grounds that it would be unduly burdensome to include the full valuationreport in this prospectus and that taking into account the financial services nature of the Company’sbusiness, it would be of little relevance and assistance to potential investors to include excessive detailson each property in this prospectus. The exemptions are granted on the conditions that (1) the fullvaluation report complying with all the requirements of Paragraph 34 of Part II of the Third Scheduleto the Companies Ordinance, which will be prepared in the Chinese language only, will be madeavailable for public inspection; and (2) a summary valuation report of all of our property interestsprepared on the basis of the full valuation report is included in Appendix V to this prospectus. See theparagraph headed “Documents Available for Inspection” in Appendix X for the time and place that thefull valuation report will be available for public inspection.

LEGAL AND REGULATORY

Licensing Requirements

As of June 30, 2006, we had obtained the financial operating licenses required for conductingour current businesses.

Legal Proceedings

We are involved in certain legal proceedings in the ordinary course of our business. Most ofthese proceedings involve enforcement claims initiated by us to recover payment on our non-performing loans. The legal proceedings against us include actions relating to customer disputes andclaims brought by our counterparties to contracts unrelated to our banking operations, such asproperty-related disputes. At June 30, 2006, the aggregate amount of material claims of which we and/or any of our subsidiaries were defendants was RMB3,347 million; and the allowance for whichamounted to RMB858 million. We believe that adequate provision has been made with respect tocurrent and pending proceedings against us. See “Appendix I—Accountants’ Report.” We do notexpect any of our current and pending legal and arbitration proceedings to have, individually or in theaggregate, a material adverse effect on our business, financial condition or results of operations, even ifthey are adversely determined against us.

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Regulatory Reviews and Proceedings

We are subject to reviews by various PRC regulatory authorities, including the PBOC, theCBRC, the MOF, the CSRC, the CIRC, the SAT, the SAIC, the SAFE and the NAO, and theirrespective local offices. We have been subject to penalties for our deficiencies discovered by theseinspections, examinations and audits. Although neither these investigation findings, nor the penaltiesimposed on us, have resulted in any material adverse effect on our business, financial condition orresults of operations, we have taken actions to remedy the discovered deficiencies. Our overseasbranches, representative offices and subsidiaries are subject to local laws and regulations in theirrespective jurisdictions, as well as regulatory inspections and examinations by relevant authorities intheir local jurisdictions.

The following is a summary of the principal regulatory inspections and proceedings in whichwe have been involved since January 1, 2003:

Š The CBRC conducts annual examinations, including on-site inspections of our bank at thehead office and branch levels. Based on these examinations, the CBRC issues a reporteach year on our bank which sets out its findings and makes recommendations forremedial action. The CBRC has reported findings of concentration of credit risk exposure,high non-performing loan ratios prior to our 2005 financial restructuring, and incidents ofincorrect loan classification, loan extension for unauthorized projects and improperlyauthorized personal consumption loans, at certain entities within our company. In its 2005inspection report, the CBRC noted that we had made significant progress in improving ourinternal control, risk management and business operations compared with 2003 and 2004,and made improvement recommendations with regard to our deficiencies, which we havefully adopted.

Š The NAO conducts audits of certain state-owned companies in China from time to time.Our most recent NAO audit was with respect to the year ended December 31, 2002. In thecourse of that audit, the NAO noted our progress in the areas of financial management andcost control, but at the same time also discovered incidents of improper lending practices,accounting irregularities such as retaining out-of-account funds, employees’ fraud andmisconduct and other deficiencies at certain entities within our company. None of ourmanagement at the level of tier-1 branch manager or above was involved in theseincidents. We informed the NAO of the improvement measures we have taken in respectof the issues raised in its investigation. The NAO has acknowledged the results of ourimprovement measures.

Š We have also been subject to fines imposed by other regulatory authorities such as thePBOC and SAT for non-compliance such as failure to file certain mandatory transactionreports or tax delinquencies at certain branches.

None of the findings described above has resulted in a material adverse effect on our financialcondition or results of operations. Nevertheless, we have undertaken a number of remedial measuresdesigned to prevent future violations of laws and to correct the deficiencies identified by the relevantPRC regulatory authorities. For example, in response to the findings by the CBRC and NAO, weimposed penalties on the personnel who were responsible for the non-compliance or violations,implemented more rigorous rules and procedures in areas identified by the CBRC and NAO, such asloan classification and lending process, strengthened accounting management by eliminating out-of-account funds, and developed more advanced information technology systems. In particular, we have

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implemented certain operational reforms, including a series of risk management and internal controlsinitiatives, to enhance our internal controls and reduce deficiencies. See “Our Restructuring andOperational Reform” and “Risk Management.” In developing and implementing these reforminitiatives, we considered relevant government policies as well as actual and anticipated regulatorydevelopments and, to the extent feasible, worked in consultation with relevant regulatory authorities.

Special Events

We have, from time to time, detected incidents of fraud and other misconduct committed by ouremployees, customers and other third parties. These incidents of fraud and misconduct have includedcorruption, bribery, embezzlement of funds, forgery of loan documentation, and violations of ourinternal procedures and guidelines. The most significant incidents that we have uncovered since 2003in terms of the amount of money or the seniority of staff involved are discussed below. In each of thesecases, we have disciplined the perpetrators and adopted tailored corrective measures to address anyoperational or internal control-related weaknesses exposed by their misconduct. We believe that thefinancial losses and other adverse consequences of these incidents have not had, individually or in theaggregate, a material adverse effect on our business, financial condition or results of operations. Wewill continue to focus on improving and strengthening our internal controls and risk managementfunctions with the goal of successfully preventing similar incidents from recurring in the future. Forinformation regarding our operational reforms and a series of risk management and internal controlsinitiatives, see “Our Restructuring and Operational Reform” and “Risk Management.”

Huaguang Incident

Between 1996 and 2003, we were exposed to an RMB1.9 billion credit risk as a result of loansillegally extended by our Guangdong Nanhai Sub-branch to Nanhai Huaguang Group. After theincident was discovered, 26 persons were identified as having taken part in bribery or extending loansin violation of lending procedures. We dismissed eleven employees, ten of whom were investigated bythe judicial system, and we instituted several corrective measures in an attempt to strengthen our creditrisk management, including separation of account management, review of branch risk managementperformance, creation of different levels of authorization and centralization of management. We havedisposed of or written off all of the outstanding loans extended to Nanhai Huaguang Group.

Wang Jinxian Incident

Our former Hunan branch manager, Mr. Wang Jinxian was convicted of receivingapproximately RMB1.69 million in bribes and approximately RMB1.92 million of unaccounted forassets between 1999 and 2002. In February 2005, Mr. Wang was sentenced to 19 years imprisonmentby the Changsha Intermediate People’s Court. After the incident, we reorganized the management ofour Hunan branch.

Ye Jiasheng Incident

Our former Guangdong assistant branch manager, Mr. Ye Jiasheng, was convicted of receivingRMB1.19 million in bribes and assisting certain companies to improperly obtain loans between 1996and 2003. In April 2005, he was sentenced to 12 years imprisonment by the Guangzhou IntermediatePeople’s Court.

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Henan Huaxin Incident

In 2003, the sub-branch manager of another Big Four bank, colluding with other third parties,defrauded our Henan Huaxin Sub-branch by selling them counterfeit trade acceptance bills in anamount of RMB130 million. Our Huaxin Sub-branch recovered approximately RMB61.7 million anddisposed the remaining RMB68.3 million in June 2005. As a result of this incident, 17 of ouremployees were dismissed and three employees were criminally prosecuted. After the incident, wehave further improved the monitoring system for our discounted bill business.

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OVERVIEW

Prior to 1994, we were a state-owned specialized bank and our risk management capabilitieswere limited. With the promulgation of the PRC Commercial Banking Law in 1995, we began tooperate on a more commercial basis and started to more proactively manage our risks. We haveaccelerated the development of our risk management capabilities since the late 1990s.

We have undertaken the following initiatives to enhance our risk management capabilitiesbased on applicable PRC regulatory requirements and the specific needs of our bank:

(1) establishing a bank-wide risk management framework and related systems to improve ourrisk assessment, monitoring and management capabilities and develop a risk managementculture within our bank:

Š in 1999, we established our asset and liability management committee;

Š in 2001, we established a risk management committee and a credit policy committeeat our head office and introduced a bank-wide risk management reporting structure,providing monthly asset quality analyses and reports;

Š in 2001, we began to establish a tiered liquidity reserve and to centrally manageliquidity risk;

Š in 2002, we engaged Ernst & Young to perform independent audits on our Shanghaiand Zhejiang branches, making us the first Big Four commercial bank to have aninternationally recognized accounting firm audit its domestic branches;

Š in 2003, we refined our corporate customer credit rating system into a 12-gradesystem;

Š in 2004, we began to establish a comprehensive risk management framework andre-organized the structure of our risk management committee with reference to theEnterprise Risk Management Framework of the Committee of SponsoringOrganizations of the Treadway Commission, or the COSO ERM Framework, andestablished four risk management sub-committees focusing on credit risk, liquidityrisk, market risk and operational risk;

Š in 2004, in collaboration with PricewaterhouseCoopers, we launched a project toincorporate the Internal Ratings-Based (IRB) approach recommended by the NewBasel Capital Accord in our risk management systems, which is designed to enable afinancial institution to use internal assessment of key drivers to determine riskweightings of its assets;

Š in 2005, we adopted an internal 12-grade corporate loan classification system, whichsupplements our existing five-category loan classification methodology;

Š in 2005, we started to classify our non-credit assets into five categories based on therelevant obligors’ ability to repay and perform their other obligations;

Š in 2005, we introduced economic capital management tools, including the economicvalue-added (EVA) methodology, to manage our risks through the quantification andallocation of our economic capital and the evaluation of the EVA of each businessactivity;

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Š in January 2006, we began to implement a comprehensive risk provisioning system tobetter assess allowances for our impairment losses; and

Š in July 2006, we established the position of chief risk officer, or CRO, in an effort tofurther strengthen our risk management;

(2) enhancing our corporate governance and strengthening the independence of our internalaudit functions:

Š in 2004, we established a centrally managed and independent internal audit functionwhich, since our incorporation as a joint-stock limited company, reports directly toour board of directors; and

Š in 2005, we established a risk management committee (with a related-partytransactions control sub-committee under it) and an audit committee under our boardof directors;

(3) developing enhanced risk management information systems:

Š in 2003, our CM2002 system became fully operational, enabling us to better managecredit risks associated with our corporate banking business;

Š in 2004, we introduced our CIIS system which provides access to the data ofcustomers on our internal watchlist, assisting us in avoiding potential credit risks; and

Š in May 2006, our PCM2003 system became fully operational, which significantlyenhanced our ability to monitor and manage credit risks associated with our personalbanking business; and

(4) increasing our employees’ accountability for their own performance and compliance withour policies and procedures:

Š in 2002, to ensure our employees’ and managers’ compliance with our policies andprocedures, we amended the code of conduct for our employees to strengthen oursystem of accountability; and

Š in consultation with an internationally recognized consultant, we implemented aperformance-based compensation system for employees in selected branches in 2003,and began to implement this system in stages throughout our bank in 2004.

The risk management initiatives described above have enabled us to achieve a significantdegree of separation between our loan origination and credit approval and post disbursementmonitoring functions, and significantly enhanced our risk management capabilities. We believe that theimplementation of these initiatives has contributed to the improvement of our asset quality in recentyears. Moreover, the establishment of our market, liquidity and operational risk managementframeworks has improved our overall risk control environment. For a more detailed analysis of thechanges in our asset quality, see “Assets and Liabilities—Assets—Asset Quality of Our LoanPortfolio—Changes in the Asset Quality of Our Domestic Loan Portfolio by Pre-existing Loans andNew Loans.” Some of the risk management initiatives described above were implemented recently andtheir effectiveness has not been fully tested. For a description of certain risks relating to our riskmanagement policies and procedures, see “Risk Factors—Risks Relating to Our Business—We cannotassure you that our risk management and internal control policies and procedures can adequatelycontrol or protect us against all credit and other risks.”

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We will continue to enhance our risk management system with a view to aligning our policiesand procedure with international best practices. We currently intend to implement the followinginitiatives in the next 12 to 18 months:

Š we aim to meet the Foundation IRB Approach recommended by the New Basel CapitalAccord guidelines for credit risk management by the end of 2007;

Š we are in the process of strengthening our liquidity risk and market risk managementthrough further centralizing our fund management, treasury operations and data collection;

Š utilizing our NOVA system’s centralized database, we are in the process of establishing abank-wide information system that is designed to enable us to monitor our interest rate riskexposure on a real-time basis; and

Š we seek to further enhance our internal control system based on five key componentsidentified within the COSO Internal Control Integrated Framework: (i) controlenvironment, (ii) risk assessment, (iii) control activities, (iv) information andcommunication, and (v) monitoring and rectification.

In addition, we will continue to enhance our risk management capabilities, establish acomprehensive and independent risk management framework, promote accountability and streamlineour internal reporting process.

RISK MANAGEMENT STRUCTURE

The chart below illustrates the risk management structure of our bank:

Board Level

Head Office Level

Branch Level

Board of Directors(1)

Risk ManagementCommittee of the Board

Risk ManagementCommittee

Asset and LiabilityManagement Committee

President

CRO

RiskManagementDepartment

VicePresidents

Branch Management

Branch-level Risk ManagementDepartments(2)

• Internal Control and ComplianceDepartment

• Credit Management Department• Credit Approval Department• Credit Authorization Department

• Asset-Liability ManagementDepartment

OperationalRisk

Credit Risk

Market/Liquidity Risk

(1) Our internal audit department reports directly to our board of directors. See “—Internal Audit.”(2) The risk management departments of our branches report to both corresponding risk management departments at our head office and the

management of the relevant branches.

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Board of Directors and Board Committees

Our board of directors has ultimate responsibility for our risk management and oversees ourrisk management functions through its risk management and audit committees. Our board of directorshas final authority over our risk management strategies and policies.

Our risk management committee of the board is primarily responsible for:

Š reviewing and finalizing the proposals for the risk management strategies and policies andinternal control processes in line with our overall business strategies, presenting theseproposals to our board of directors for approval, and monitoring and evaluating theimplementation and effectiveness of these strategies, policies, procedures and processes;

Š monitoring and evaluating the structure, working procedures and effectiveness of ourinternal risk management organizations, and making proposals to our board of directorsregarding the related improvements;

Š monitoring and evaluating the performance of our senior management in the control of ourcredit, market, operational and other risks;

Š advising our board of directors on matters relating to our risk management and internalcontrol;

Š assessing our overall risk exposures on a regular basis and making related proposals to ourboard of directors; and

Š pursuant to the authorization of our board of directors, reviewing and approving anysignificant risk management issue or transaction which is beyond the authorization limit ofour president and submitted to this committee for its review and approval by our president.

This committee currently consists of nine directors and is chaired by Mr. LEUNG Kam Chung,Antony, one of our independent non-executive directors.

We have also established a related-party transactions control sub-committee under our riskmanagement committee of the board in accordance with relevant PRC regulations. This committee isprimarily responsible for identifying our related parties, preliminary review of our related-partytransactions, and approving related-party transactions within its scope of authority granted by ourboard. This committee currently consists of three directors and is also chaired by Mr. LEUNG KamChung, Antony.

Our audit committee of the board is primarily responsible for supervising our internal controls,monitoring our financial information disclosure and supervising our internal audit operations andexternal audits. This committee currently consists of five directors and is also chaired by Mr. LEUNGKam Chung, Antony.

President

Our president oversees our risk management and, on risk management-related matters, reportsdirectly to our board and its risk management committee. He chairs both the risk managementcommittee and the asset and liability management committee at our head office level. These twocommittees formulate and make recommendations regarding our risk management strategies andpolicies through our president to our board’s risk management committee. In addition, our president

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has the power to veto any individual transaction or credit line approved by the credit approvalcommittee at our head office. However, he cannot approve any proposal or recommendation that hasbeen rejected by this committee.

Our current president, Mr. YANG Kaisheng, has extensive risk management experience withover 21 years of experience in the banking industry and five years of experience acting as the presidentof China Huarong Asset Management Corporation. See “Directors, Supervisors and SeniorManagement—Directors, Supervisors and Senior Management—Directors.”

Risk Management Committee at the Head Office Level

This committee formulates and makes recommendations through our president to our board’srisk management committee regarding our strategies and policies in credit risk, market risk andoperational risk management. It consists of our president, vice presidents, our CRO and the heads ofvarious business and risk management departments. This committee meets at least once every quarter.We have established a credit risk management sub-committee, a market risk managementsub-committee and an operational risk management sub-committee under this committee. These sub-committees assist the risk management committee in their respective areas of focus and formulate rulesand procedures for the implementation of our risk management strategies and policies.

Asset and Liability Management Committee

This committee formulates, and makes recommendations through our president to our board ofdirectors on, strategies and policies for the management of our assets, liabilities and capital, plansregarding the total amounts and structure of our assets and liabilities, and our liquidity riskmanagement strategies and policies. It consists of our president, vice presidents and the heads ofvarious business and risk management departments. Our asset and liability management committeemeets at least once every quarter.

Chief Risk Officer

We established the CRO position in July 2006 in an effort to further strengthen our riskmanagement. Our CRO assists our president in overseeing our risk management and making relateddecisions. Our CRO is responsible for (i) analyzing and evaluating our risk management strategies andpolicies; (ii) making recommendations to our president and the risk management committee of ourboard on risk management-related matters; (iii) supervising the implementation of our riskmanagement initiatives as well as the changes in risk management organizational structure; and (iv)promoting a risk culture throughout our bank. Our CRO acts as deputy chairman of our riskmanagement committee at the head office level. Together with our vice president in charge of ourcredit risk management, our CRO reviews and approves the credit line, individual loan or other credit-related transactions recommended for approval by the credit approval committee at our head office.Our current CRO is Mr. WEI Guoxiong.

Internal Audit Department

Our internal audit department examines and independently evaluates the effectiveness of ourrisk management, internal controls, and corporate governance. Our internal audit department reportsdirectly to our board of directors on a quarterly basis and is independent from management at our headoffice and branch levels. The appointment of the head of our internal audit department must be

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approved by either our board of directors or the audit committee as authorized by the board ofdirectors. Our ten regional internal audit offices report directly to our head office’s internal auditdepartment.

Risk Management Department

Our risk management department at the head office is primarily responsible for coordinatingour efforts in establishing our comprehensive risk management framework, preparing consolidatedreports on our credit risk, market risk and operational risk, developing methodologies and approachesfor the quantification of credit risk, developing and implementing our IRB project and monitoring andmanaging our non-performing loans. In addition, our risk management department at the head officeprovides administrative support to our risk management committee at the head office level. Our riskmanagement department at the head office reports directly to our CRO.

Risk Management Coordination Between Our Head Office and Branches

Our tier-1 branches are subject to general supervision by our head office and are in turnresponsible for supervising our tier-2 and lower tier branches within their designated jurisdictions.Such supervision is conducted in ordinary course by periodic on-site and off-site inspections inaccordance with the internal procedures set by our head office.

We maintain a dual-reporting line structure at our branch level for risk management purposes.Under this structure, the risk management departments of our branches report to both thecorresponding risk management departments at our head office and the management of the relevantbranches. We believe that this approach has enhanced the independence and effectiveness of our riskmanagement functions.

Credit Risk Management

Our head office determines the authorization limits of each of our tier-1 branches to grantcustomer credit ratings, credit line and individual loan approvals on an annual basis based on ouroverall credit strategies and policies as well as particular characteristics of the branch, including itsasset quality, profitability, customer base, track record in risk management and location. The creditauthorization limits of our tier-1 branches also vary depending on the loan type, relevant customercredit ratings, the relevant loan term, the collateral or guarantee, and the industry of the customer. Forexample, in 2005, the credit authorization limits of our tier-1 branches for infrastructure project loansranged from RMB100 million to RMB1.0 billion.

Our branches are only permitted to grant customer credit ratings and credit line approvalswithin their specific authorization limits. Credit applications received by a branch which exceeds itsauthorization limits must be submitted to a higher tier branch with the requisite authorization or, asrequired, our head office for approval. Most of the credit lines granted to our corporate bankingcustomers are approved either by our head office or a tier-1 branch. A tier-1 branch may delegate alimited portion of its credit authorization limit to the tier-2 and lower tier branches within itsjurisdiction based on their asset quality, branch size and management capabilities.

In addition, we have also established a credit approval committee at the head office level to beresponsible for reviewing large credit lines and individual loans, which currently include (i) anyprincipal amount exceeding RMB1.0 billion for non-infrastructure project loans, (ii) any principal

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amount exceeding RMB1.5 billion for infrastructure project loans, (iii) any credit line exceedingRMB5.0 billion in aggregate for a single company, and (iv) any credit line exceeding RMB10.0 billionin aggregate for a group of affiliated companies. The credit approval committee at our head officeconsists of our vice president in charge of credit risk management, our vice presidents in charge ofother related businesses, our CRO and the heads of relevant departments. The chairperson or vicechairperson convenes the meetings of the committee based on the circumstances relating to the mattersrequired to be reviewed by the committee. Our branches also have their credit approval relatedcommittees with their respective authorization limits.

The credit management departments of our head office and branches are responsible for post-disbursement monitoring of our loans. Post-disbursement monitoring and non-performing loanmanagement are generally conducted by the branches that were involved in granting the relevant loansand the credit management department of our head office supervises our branch post-disbursementloan management.

Market and Liquidity Risk Management

Our market and liquidity risk management operations are conducted primarily at the head officelevel by our asset and liability management department, with support from other relevant departments.Our asset and liability management department (i) monitors and assesses our overall liquidity positionand market risk exposure and (ii) develops and implements measures based on approved strategies andpolicies. To manage our overall asset and liability structure in line with our market and liquidity riskmanagement plans, our head office sets loan plans and guidelines, which our branches are required toobserve. In addition, we pool the funds of our tier-2 and lower tier branches at our tier-1 branch leveland allocate the pooled funds by using our internal fund transfer pricing mechanism on a bank-widebasis.

Operational Risk Management

Our internal control and compliance department at the head office is responsible for (i) theoversight of our compliance with applicable laws and regulations as well as our internal rules andprocedures and (ii) the monitoring, assessment, analysis and reporting of our operational risk. Thisdepartment is also responsible for developing and managing our internal control framework andconducting internal compliance audit. Each of our business departments at the head office and branchlevel is responsible for ensuring the suitability and effectiveness of the relevant operational riskmanagement systems and procedures and is required to identify, monitor and control operational risksin their respective business areas. These business departments are required to report their operationalrisks and related compliance issues to the relevant internal control and compliance departments at thebranch level and head office on a regular basis. The internal control and compliance departments andthe business departments at our branches also report periodically to the corresponding departments atour head office. Our internal control and compliance department at the head office reports to theoperational risk management sub-committee.

CREDIT RISK MANAGEMENT

Overview

Credit risk is the risk of loss arising from a borrower’s or counterparty’s inability to meet itsobligations. Credit risk can also arise from operational failures that result in an unauthorized or

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inappropriate advance, commitment or investment of funds. We are exposed to credit risk primarilythrough our loans, guarantees and other payment commitments.

The principal features of our credit risk management function are: (i) standardized creditmanagement procedures on a bank-wide basis; (ii) risk management rules and procedures that focus onrisk control throughout our entire credit business process, including customer investigation and creditrating, loan evaluation, loan review and approval and post-disbursement loan monitoring; (iii) astringent qualification system for our loan approval officers; and (iv) utilization of a series ofinformation management systems designed to enable us to monitor risks on a real-time basis. Toenhance our credit risk management practices, we conduct continuing training programs for our creditofficers at different levels.

Credit Risk Management Departments

The credit risk management departments at our head office are as follows:

Š our credit management department, which is responsible for overseeing the managementof credit risk throughout our bank, monitoring our credit business and performingindustry- and region-based credit analysis;

Š our credit authorization department, which is responsible for assigning customer creditratings, customer credit line approval, project evaluation and the appraisal of collateral;and

Š our credit approval department, which is responsible for the review and approval of loans,guarantees and other credit applications.

Our branches have corresponding departments that perform similar functions at their levels,subject to standardized credit extension procedures and their authorization limits, including: (i) thecredit rating it can assign to a customer; (ii) the maximum total credit line to any single borrower; and(iii) maximum loan amount of a single loan for each type of loans.

Credit Risk Management for Corporate Loans

The following chart illustrates the credit risk management process for our corporate bankingbusiness:

Customer credit rating

Customer credit line approval

Individual loan approval and management

Initial loanevaluation

Loan review and approval

Funddisbursement

Post-disbursementmanagement

A customer must have a credit line with us to be eligible for an individual loan application.Each new corporate loan customer must first be assigned with a credit rating before being consideredfor a total credit line. Our corporate relationship managers conduct an initial investigation andevaluation of each new customer, which is primarily focused on the customer’s financial condition andcredit history. As part of their investigation, our corporate relationship managers rely on our CIISsystem to screen out applicants with bad credit history. For new customers, the credit rating and credit

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line applications are processed at the same time as the individual loan applications, and the initialinvestigations conducted by our customer relationship managers form the basis for our evaluation ofthese applications.

Customer Credit Rating

We assign credit ratings to our customers based on detailed quantitative and qualitativeindicators, which include a broad range of factors, such as the customer’s ability and willingness torepay, the industry sector of the customer and geographic region where the customer operates. Wemaintain 12-grade internal ratings for our corporate customers ranging from AAA to B. Each newcustomer will be assigned a credit rating, and we re-assess the credit rating of each of our corporatecustomers each year based on an annual review. Customers must have a credit rating of AA- or aboveto be eligible for unsecured loans. Loans to customers with credit ratings below AA- are required to besecured by collateral or third-party guarantees. Our entire credit rating process is supported byproprietary information systems that we have developed in-house. We plan to further enhance ourcredit rating systems in the phase two deployment of our IRB project.

Customer Credit Line Approval

The total credit line that we grant to a customer is determined by taking into account its creditrating and conducting a comprehensive analysis and evaluation of the customer’s credit history andfinancing needs. Our tier-1 and tier-2 branches may approve credit line applications within theirspecific authorization limits. When a credit line application report is received from our loan originationpersonnel, a primary reviewer is appointed to assess the application in accordance with our internalpolicies and procedures. If the credit line is within the authorization limits of the originating branch,the primary reviewer then presents his findings and recommendations to the credit approval committeeof that branch for further review. Credit line applications that exceed the authorization limits of theoriginating branch must be submitted to a higher tier branch with requisite authorizations or, asrequired, to our head office. In addition, the preliminary decision by relevant committee at our headoffice or branches must be further approved by an authorized loan approval officer who is typically asenior manager at our head office or branches.

Individual Loan Approval and Management

Initial Loan Evaluation

When a customer applies for a new loan, our initial evaluation generally consists of(i) assessing recent developments relating to the customer’s financial condition and credit history,(ii) reviewing the planned use of proceeds, (iii) evaluating the collateral or reviewing the financialconditions of the guarantor, if any, and (iv) assessing the overall credit risk and potential financialreturns associated with that loan.

Loan Review and Approval

Individual Loan Approval

When a corporate relationship manager recommends a loan for approval, he will submit theloan application package, which includes his evaluation report, to a primary reviewer in the relevantcredit approval department for review. If the loan will be collateralized or used to fund a project, ourcredit authorization department will conduct a separate evaluation of the underlying collateral or

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project. Based on his examination of the loan application package, the primary reviewer will prepare areport that includes his findings and recommendation to that branch’s credit approval committee, or therelevant committee at a higher branch or our head office, as the case may be, for its review. Similar tothe credit line approval process, the committee’s recommendation decision must be further approvedby an authorized loan approval officer, such as senior managers at our head office and senior branchofficers. Certain small amount and low risk loans do not require the approval of any committee.However, in such instances, the primary reviewer will submit his report to an authorized loan approvalofficer with the requisite authority for review and approval.

Project Evaluation

In reviewing applications for medium- or long-term loans to fund major projects, such asacquisitions of fixed assets, expansion of production capacity, infrastructure development and propertydevelopment, the relevant branch will form a team to evaluate the underlying project. The creditauthorization departments at our head office or branches are responsible for conducting these projectevaluations, depending on the loan size. In conducting these project evaluations, we assess theborrowers, the co-investors in the underlying projects and the underlying projects themselves, takinginto account factors such as the anticipated cash flows of the projects, the perceived repayment abilityof the borrowers and other credit risks related to the relevant loans. We may seek professional advicefrom external parties in the course of conducting such project evaluations.

Collateral Appraisal

In general, the value of collateral is determined by an independent appraiser prior to theorigination of new loans and must be confirmed by our bank. The credit authorization department ofthe relevant branch or, as applicable, our head office is responsible for arranging the collateralappraisal process. We require three internal collateral evaluators to review and verify the collateralappraisals prepared by the independent appraiser. Loans that are secured by collateral are generallysubject to the following loan-to-value ratio limits, depending on the type of collateral:

Type of Collateral Maximum Loan-to-Value Ratio

PropertiesReal estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70%Land use rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70%Movable assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60%

Monetary assetsCash deposits with us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90%Government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% (based on the lower of book value or market value)Bonds issued by financial institutions . . . . . . . . . . . . . . . . . . 80% (based on the lower of book value or market value)Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50% (based on the lower of book value or market value)Non-publicly traded equity securities . . . . . . . . . . . . . . . . . . 50% (based on net asset value)Publicly traded stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60% (based on market value)

We require all the collateral to be re-appraised on a regular basis. In January 2006, we launchedour collateral appraisal management information system, which allows us to maintain electronicrecords of titles, external appraisals, physical status and other factors that may affect the value of ourcollateral.

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In respect of third-party guarantees, we evaluate the guarantor’s financial condition, credithistory and ability to meet its obligations according to the same procedures and criteria used for theprimary obligor.

Fund Disbursement

When a loan application is conditionally approved, the relevant corporate relationship managermust ensure that all the conditions are satisfied before the loan is extended. Such conditions caninclude, as appropriate, obtaining a guarantee, securing funding of a portion of capital requirements forthe project, obtaining government approval for the underlying project, or inclusion of additionalprovisions in the loan document, such as financial ratios requirements and restrictions on theborrower’s ability to make dividend distributions. Upon satisfaction of all conditions, an authorizedloan officer will execute credit documents with the borrower, and funds are disbursed. Our loandocuments are generally based on standard forms and are reviewed by our legal personnel.

Post-disbursement Management

Post-disbursement Monitoring

The credit management departments at our head office and branches are responsible for post-disbursement monitoring of our loans. We conduct ongoing post-disbursement monitoring, includingperiodic customer assessments, in order to identify potential non-payment or other risks in a timelymanner, implement preventive measures to reduce default risk and take remedial action to minimizepotential losses. The frequency of our assessments varies for different customers depending on theircredit ratings and other facts or circumstances that could potentially affect the customers’ ability torepay our loans.

The credit management departments at our branches are responsible for supervising the creditbusiness within their respective jurisdictions. Our post-disbursement monitoring personnel generallyrely on documents obtained from our front office, customer files and internal database. Our postdisbursement monitoring of lower tier branches focuses on compliance with our policies andprocedures, credit risk assessment and the validity and enforceability of any collateral. Our post-disbursement monitoring personnel also conduct periodic analyses of customer credit risks andformulate specific risk prevention and control measures based on their findings.

Loan Classification

All PRC commercial banks are required to classify their outstanding loans based on a five-category loan classification system. See “Regulation and Supervision—PRC Regulation andSupervision—Loan Classification, Provisioning and Write-offs—Loan Classification.” In October2005, we adopted an internal 12-grade loan classification system, which refined the five-category loanclassification, to classify our corporate loans. We continue to use the five-category loan classificationsystem to classify our discounted bills and off-balance sheet commitments, such as guarantees, forinternal purposes.

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The following table illustrates our 12-grade loan classification system:

Normal Special Mention Substandard Doubtful Loss

NormalOne

NormalTwo

NormalThree

NormalFour

SpecialMention

One

SpecialMention

Two

SpecialMention

Three

SubstandardOne

SubstandardTwo

DoubtfulOne

DoubtfulTwo

Loss

This loan classification system takes into account both quantitative and qualitative factors,including the credit rating of the relevant borrower, the existence of a guarantee and the outstandingperiod of any overdue payments. The system utilizes a quantified scoring model and preliminary scoresare automatically generated by our CM2002 system. Subject to specified authorization limits andinternal approval, the relevant corporate relationship manager and our credit management departmenthave the discretion to adjust the preliminary score based on their assessment of relevant facts andcircumstances and to determine the classification of the relevant loan. We review our loanclassification on a monthly basis.

Our internal 12-grade loan classification system is designed to enable us to better monitorchanges in our asset quality, detect potential credit risks and more effectively conduct post-disbursement management of our loan portfolio. We believe that this system has strengthened our loanmonitoring function and improved our overall credit management.

Management of Non-performing Loans

The risk management departments at our head office and branches are primarily responsible formanaging our non-performing loans. When a loan becomes non-performing, the management of theloan is transferred to the relevant risk management department.

In order to strengthen and enhance the management of our non-performing loans, we haverefined our internal organizational structure and tightened our procedures for non-performing loanmanagement. We continue to develop practical and effective measures and methods for recovering ordisposing of non-performing loans.

We manage our non-performing loans primarily based on the classification of such loans. Forsub-standard loans, we focus on monitoring the current assets and cash flows of the borrower, payingparticular attention to any major changes in its business. For doubtful loans, we closely monitor thebusinesses of the borrower and the related guarantor, increase our efforts to examine and preserve theassets of the borrower and actively engage in collecting and recovering these loans. For loss loans, wewrite off these loans in accordance with the relevant regulatory requirements, but continue to seekrecovery of the relevant amounts.

To recover non-performing loans, we generally take, to the extent necessary, the followingactions: (i) notification of collection; (ii) cash collection; (iii) restructuring of non-performing loans;(iv) disposal of collateral or collection on guarantees; (v) collection through legal or arbitrationproceedings; and (vi) write-offs, once all other collection actions have failed.

To better manage our restructured loans, we implemented a set of guidelines in April 2006,which set forth the definitions pertinent to, provisions applicable to and allocation of responsibilitiesregarding the investigation, approval and post-restructuring management of the restructured loans.Under these guidelines, upon its restructuring, a restructured loan may not be initially classified to a

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category higher than substandard. A restructured loan may not be classified to a category higher thandoubtful if, after its restructuring, the restructured loan remains overdue or the borrower remainsincapable of repaying the loan. Within the six-month observation period immediately following itsrestructuring, a restructured loan may not be reclassified to a category higher than the one to which itwas initially assigned.

Credit Risk Management for Personal Loans

In an effort to prevent potential credit risks and improve the efficiency of our personal loanapproval, in 2005, we established personal loan approval centers at our tier-2 branches and higherlevels to be responsible for reviewing and approving personal loans within their respectivejurisdictions. Each step of our personal credit business process is operated through our PCM2003information system.

Credit Origination and Evaluation

Once a personal loan application is received by the originating branch, two personal loanofficers will conduct due diligence on the loan applicant, using our CIIS and other related informationsystems, such as the personal credit information system of the PBOC. Based on their due diligence, thepersonal loan officers assign a credit score to the loan applicant and make a recommendation to areviewer. The reviewer examines the application and verifies the findings of the personal loan officers.If the reviewer confirms the personal loan officers’ recommendation, the application materials aresubmitted to our personal loan approval center of the relevant branch.

Credit Approval

Upon receiving loan application materials, the relevant personal loan approval center assigns anofficer to conduct further due diligence to verify the information contained in the loan applicationmaterials. If this officer recommends approval of the loan application, the application will be submittedto a loan approval officer in the personal loan approval center for final approval. If the amount of theloan exceeds the credit authorization limit of the originating branch, the application will be forwardedto the next higher tier branch with the requisite authority.

Loan Disbursement

After a loan application is approved, the designated personnel of the originating branch areresponsible for further ensuring that the required guarantee, if any, is provided and that otherpre-conditions required for loan disbursement are fulfilled, executing the loan agreement and otherdocumentation and disbursing the funds.

Post-disbursement Management

Post-disbursement Monitoring

The credit management departments at our head office and branches are primarily responsiblefor managing our personal loans after the disbursement of the loan proceeds.

We conduct post-disbursement monitoring of our personal loans to have early warning ofpotential non-payment or other risks and enable us to implement preventive measures to reduce defaultrisk and take remedial action to minimize potential losses.

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Our post-disbursement inspection staff also utilize our personal credit management system,PCM2003, to conduct off-site inspections on the asset quality of our personal credit portfolio andmonitor the asset quality of the branches and sub-branches within their jurisdictions. Our creditmanagement departments review the inspection results on a regular basis.

Loan Classification

We use the five-category loan classification system to classify our personal loans. Our tier-1and tier-2 branches are permitted to classify our personal loans subject to relevant authorization limits.Our PCM2003 system automatically classifies our personal loans based on quantative criteria, such asthe duration for which the principal or interest is overdue. Subject to the approval of the relevantbranch authority, our credit management departments may adjust the automatic loan classificationbased on an assessment of various qualitative factors, including the financial condition of the borrower,the status of related collateral and guarantee, in order to adequately reflect the relevant risks.

Collection of Non-performing Loans

Our non-performing personal loans are managed primarily by the risk management departmentsat our head office and branches. As part of our efforts to enhance the post-disbursement managementof our personal loans, in 2001, we implemented standardized rules and procedures for the maintenanceand use of our personal credit files and related records.

We have implemented standardized collection procedures bank-wide for our non-performingpersonal loans. When necessary, we initiate legal proceedings to recover non-performing loans andseek the enforcement of relevant guarantee or insurance obligations.

Credit Risk Management for Credit Cards

We have adopted an applicant scoring mechanism for evaluating and approving our credit cardapplications. With respect to our Renminbi-denominated credit cards and quasi-credit cards, our headoffice provides the scoring model and each tier-1 branch applies specific scoring standards to reflectthe level of economic development, demographics and consumer spending in the region in which thebranch operates. With respect to our dual-currency credit cards, our head office provides the scoringmodel and standards to be applied throughout our bank. In evaluating credit card applications, we relyon our internal CIIS management system as well as the credit data provided by the PBOC and thosemade available by China Unionpay.

Our head office oversees all credit card-related transactions on a bank-wide basis. Wecontinuously monitor and analyze unusual credit card transactions to reduce the rate of fraud andintentional default.

Credit Risk Management for Treasury Operations

Our treasury operations are subject to credit risk as a result of our investment activities andinter-bank lending activities. Our Renminbi-denominated investment portfolio primarily consists ofdebt securities issued by the PRC government and other domestic issuers. The amount of the debtsecurities of any domestic or foreign entity (except the PRC government) that we purchase or our inter-bank lending to any domestic or foreign entity is limited to the total credit lines that we have approved

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for that entity. Our foreign currency-denominated investment portfolio primarily consists ofinvestment-grade bonds.

Credit Management Information Systems

We utilize our credit management information systems to monitor and manage our creditbusiness and risk management operations. These systems support each step of our credit riskmanagement process. Our key credit systems include our credit management system (CM2002), clientinformation integration solution system (CIIS) and personal credit management system (PCM2003).See “Business—Information Technology.”

LIQUIDITY RISK MANAGEMENT

Liquidity risk is the risk of being unable to liquidate a position in a timely manner at areasonable price to fund our obligations. We are exposed to liquidity risk primarily in the funding ofour lending, trading and investment activities, as well as in the management of our liquidity positions.The primary objective of our liquidity risk management is to ensure that we are able to meet ourpayment obligations and fund our lending and investment operations on a timely basis.

Our asset and liability management department manages our day-to-day liquidity risk on a real-time basis under the supervision of our asset and liability management committee. It formulates ourannual liquidity plan for approval by our asset and liability management committee, monitors itsimplementation and makes adjustments as required on a quarterly basis.

We fund our operations primarily through our customer deposits. In addition, we may borrowin the inter-bank money markets or open markets to meet our short-term liquidity needs. As a keyelement of our centralized liquidity management, we pool the funds of our tier-2 and lower tierbranches at our tier-1 branch level. We allocate the pooled funds by utilizing an internal fund transferpricing mechanism, which determines the appropriate internal benchmark prices on a bank-wide basis.We believe the consolidation and centralized pricing of our internal capital resources have enhancedour liquidity risk management.

We have taken a series of measures to actively manage our liquidity, including: (i) using aseries of liquidity indicators to assess and monitor our liquidity position on a daily basis, and reportingthe results of such assessment and monitoring to our asset and liability management committee on aquarterly basis; (ii) monitoring and adjusting the amount and structure of our cash, cash deposited withthe PBOC and other banks and other interest-earning assets on an ongoing basis in an effort to ensurethat our future liquidity needs will be met while seeking appropriate financial returns; (iii) monitoringliquidity ratios in compliance with regulatory and internal requirements and utilizing sensitivityanalysis to evaluate our liquidity needs; and (iv) establishing an early-warning system for liquidityrisks and formulating a liquidity emergency plan.

MARKET RISK MANAGEMENT

Market risk arises from movements in market variables such as interest rates, exchange rates,equity prices and commodity prices, and other market changes that affect market risk-sensitiveinstruments. We are exposed to market risk primarily through the assets and liabilities on our balancesheet, as well as our off-balance sheet commitments and guarantees. The principal types of market risk

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affecting our business are interest rate risk and exchange rate risk. We have imposed a set of exposurelimits for our investment and trading activities to effectively control potential market losses withinacceptable limits.

Historically, we were not exposed to significant market risk as Renminbi interest rates andexchange rates were set and controlled by the PRC government. See “Regulation and Supervision—PRC Regulation and Supervision—Pricing of Products and Services.” As the government continues toimplement market-based reforms on Renminbi interest rates and exchange rates and the financialservices sector becomes more competitive, we are increasingly subject to market risk.

Our middle office function of monitoring our market risk exposure and control is independentfrom the front-office trading function for our treasury operations. Our asset and liability managementdepartment is primarily responsible for overseeing the management of our market risk under thesupervision of the market risk management sub-committee at the head office level. Our financialmarkets department, which handles our front-office trading operations according to the guidelines andlimits set by our asset and liability management department, has a division that focuses on day-to-dayrisk monitoring and management with respect to our trading operations. This division is separate fromthe trading divisions. In addition, we classify our assets in accordance with International AccountingStandards, set market risk limits for our trading book in accordance with approved policies and monitorthe market value of our trading securities on a daily basis. We utilize different methods, includingduration, convexity and basis point value analyses, to assess the risk associated with our trading book.

Interest Rate Risk Management

Interest rate risk represents exposure of a bank’s financial condition to adverse movements ininterest rates. Our primary source of interest rate risk is mismatches in the maturity or repricing periodsof our interest rate-sensitive assets and liabilities. Maturity mismatches may cause net interest incometo be affected by changes in the prevailing level of interest rates.

We have adopted a series of core indicators for interest rate risk management, standards forinterest rate sensitivity gap analysis and guidelines for our interest rate risk management. The analysisof our interest rate risk includes an assessment of the incremental gaps between our interest-sensitiveassets and liabilities and the results of sensitivity analysis to measure the potential exposures in ourloan portfolio and total deposits as a result of an interest rate change.

We currently manage our interest rate risk primarily through managing the composition ofassets and liabilities. We manage our interest rate risk exposure by adjusting the structure of our assetsand liabilities based on our assessment of potential changes in interest rates utilizing gap analysis,which provides a static measure of the repricing characteristics of our assets and liabilities. As thePBOC continues to carry out reform initiatives to liberalize interest rates, we are enhancing our abilityto analyze interest rate changes in financial markets and developing our interest rate risk managementsystem.

Exchange Rate Risk Management

Exchange rate risk primarily results from mismatches in the currency denomination of ourassets and liabilities and from foreign currency transactions.

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We conduct sensitivity analysis to measure our exchange rate risk on a quarterly basis. Wemonitor our exposure to exchange rate risks on a daily basis. We prepare a report for our exchange raterisk exposure to the risk management committee at the head office level each quarter. We are alsorequired to report our exchange rate risk exposures in both our trading book and banking book to theCBRC on a quarterly basis. We manage our exchange rate risk through derivative transactions and byestablishing exposure and stop-loss limits.

In addition, through our foreign exchange transaction-related information technology systems,we are able to obtain foreign exchange pricing information on a real-time basis and monitor ourexposure to foreign exchange risk.

OPERATIONAL RISK MANAGEMENT

Operational risk is the risk of loss resulting from inadequate or failed internal controlprocedures, from human- or system-related factors, or from external events. The operational risks thatwe are primarily subject to include, among others, internal fraud, external fraud, business disruption orsystem failure, unreliability of operational processes, risks of human errors and other failures related totransaction execution and data input in our business.

Our operational risk management sub-committee is primarily responsible for overseeing ouroverall operational risk management. Each of our business departments at the head office and branchlevel is responsible for managing the operational risks in their respective business areas. Our internalcontrol and compliance departments at the head office and branches are primarily responsible formonitoring our operational risks and our compliance with applicable laws and regulations as well asinternal rules and procedures.

Based on the principles of the COSO Internal Control Integrated Framework, we havedeveloped a set of internal control guidelines and are in the process of enhancing our internal controlsystem. We believe our efforts in developing our internal control system have enhanced ouroperational risk management.

In 2002, we began to implement a system under which all tier-1 branches evaluate the internalcontrols, including the operational risk management, of lower tier branches within their jurisdictions.By 2005, we had expanded this system so that our head office evaluates all of our tier-1 branches,including the adequacy and effectiveness of the internal controls and operational risk management atall departmental levels within these branches. We will continue to develop and enhance our internalcontrol systems and management processes for each of our business lines through developing andimplementing measures in line with our internal control guidelines and international best practices.

Other initiatives we have adopted to manage operational risk include the following:

Š The internal control and compliance department at our head office has developed acomprehensive set of operational risk management manuals which identify key risk areasfor our different business lines, required risk control procedures and related documentationrequirements.

Š We have implemented a series of measures to further centralize the management of ouroperational risks. For example, we have established the monitoring centers at our tier-2branches to centralize the ongoing monitoring of our front-office operations. In addition,

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we have reduced the number of reporting levels within our finance and accountingstructure, and our head office is responsible for setting and reviewing our recruitmentpractice standards and for approving important personnel decisions.

Š We have also established independent checks within our organizational structure byincreasingly separating the front-, middle- and back-office functions of our businessdepartments, particularly positions that involve potential conflicts of interest. We requireperiodic rotation of personnel holding senior positions, such as our branch managers.

Š We have established a remote backup facility for our operational data, significantlyreducing the operational risks associated with failures of our information technologysystems.

Š We have adopted a series of operational risk indicators and utilized our informationsystems, including databases and data monitoring and reporting functions within ouraccounting and business technology systems, to support our operational risk monitoringand management activities.

Reporting and Monitoring of Non-compliance

We have established internal reporting procedures for employee misconduct to ensure that allincidents of employee misconduct are reported to our head office in a timely manner. In addition, weare required to report to the CBRC significant cases of employee misconduct.

We believe that the number of incidents of reportable employee misconduct at our bank hasbeen relatively low in recent years primarily due to our efforts to enhance our internal controls,promote employees’ accountability, and implement routine and ad hoc inspections bank-wide. In 2003,2004, 2005 and the first six months of 2006, there were 61, 66, 50 and 12 reported incidents, involvingthe total amounts of RMB70 million, RMB54 million, RMB56 million and RMB13 million,respectively.

Anti-money Laundering

We established an anti-money laundering working committee in 2002. This committee isresponsible for formulating our anti-money laundering policies and procedures, monitoring thecompliance with anti-money laundering laws and regulations, and cooperating with overseasorganizations on anti-money laundering. Two of our vice presidents serve as chairperson and vicechairperson and other members include the heads of relevant departments. We have established anadministrative office under the anti-money laundering working committee. The administrative officesof the anti-money laundering working committees at our head office and branches are primarilyresponsible for carrying out anti-money laundering management functions within our bank.

Based on the PBOC’s anti-money laundering rules and requirements, we have implemented aseries of internal rules and procedures relating to “know your customer,” record keeping, suspicioustransaction and large transaction reporting.

In 2005, we further upgraded our anti-money laundering information management system thatis designed to enhance our ability to detect and monitor money laundering activities and report large orsuspicious transactions to the regulators.

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We regularly provide training to our employees to enhance their understanding of our anti-money laundering procedures and other requirements.

In addition, we have also adopted and implemented internal anti-money laundering guidelinesand reporting procedures for our overseas operations in accordance with the anti-money launderinglaws and regulations of the relevant jurisdictions.

INTERNAL AUDIT

We have established an independent internal audit system which comprises our internal auditdepartment at the head office level and the ten regional internal audit offices throughout China. Ourinternal audit department reports directly to our board of directors.

The following chart illustrates the internal audit management and reporting structure:

In carrying out the internal audit of our bank, our internal audit department mainly focuses onthe inspection and evaluation of:

Š our compliance with laws and regulations, governmental policies and regulatoryrequirements as well as our internal rules and procedures;

Š the integrity and effectiveness of our internal control system;

Š the effectiveness of our risk management procedures and risk assessment methodologies;

Š the security of our information system and the adequacy and effectiveness of the control ofour information technologies and their applications;

Š our operational performance, including efficiency in using our various resources and theprotection of these resources;

Š auditing the performance of primary managerial personnel at our head office, tier-1branches and overseas subsidiaries, branches or offices and other managerial personnel;

Š the accuracy and reliability of our accounting records and financial statements; and

Š other matters as requested by our board of directors.

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In an effort to enhance our internal audit function, we have adopted a set of principles andpractices, including:

Š Independence of audit work. Our internal audit department is not involved in any of ourbusiness activities and does not participate in formulating or implementing any businessdecision. Each of our regional internal audit offices performs audits only on branches thatare located outside of the region where the regional internal audit office is located.

Š Risk-oriented audit. Our internal audit work plans are driven by risk exposure, targetingand seeking to address any potential deficiency in the overall risk management system.Our 2006 internal audit plan has been formulated with a specific focus on our creditbusiness, information systems and risks associated with our new businesses.

Š Allocation of audit resources to enhance their efficiency. Based on an assessment of assetquality, profitability, internal control and liquidity, branches with lower performancerankings are allocated more audit resources to help to improve their risk management andinternal control capabilities.

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RELATIONSHIP WITH OUR PROMOTERS AND CONNECTED TRANSACTIONS

Overview

As part of our restructuring, we were converted from a state-owned commercial bank into ajoint stock limited company on October 28, 2005, with the MOF and Huijin as our promoters. At theLatest Practicable Date, each of the MOF and Huijin owns approximately 43.28% of our total issuedshares. Immediately following the Global Offering and the A Share Offering, assuming that neither ofthe over-allotment options for the Global Offering and the A Share Offering is exercised, each of theMOF and Huijin will own approximately 36.24% of our total issued shares.

Relationship with the MOF

The MOF, one of our two promoters and a holder of approximately 43.28% of total issuedshares as at the Latest Practicable Date, is a ministry under the State Council, which is amacroeconomic management ministry primarily responsible for, among others, state fiscal revenuesand expenditures, and taxation policies.

Relationship with Huijin

Huijin is a wholly state-owned limited liability company incorporated on December 16, 2003 inaccordance with PRC laws. Huijin represents the PRC government in exercising its investor rights andobligations in certain financial institutions, including us, China Construction Bank Corporation, Bankof China Limited and Bank of Communications Co., Ltd., and implements and executes PRCgovernment policy arrangements in relation to the reform of state-owned financial institutions. It doesnot engage in any commercial activities.

Other than its investment in the above banks, Huijin has also made investments in ChinaJianyin Investment Limited, China Galaxy Securities Co., Ltd., Shenyin & Wanguo Securities Co.,Ltd., and Guotai Junan Securities Company, Ltd.

Huijin has undertaken to us that, so long as Huijin continues to hold any of our shares or isdeemed to be a controlling shareholder or a connected person of a controlling shareholder inaccordance with the laws or listing rules of China or of the place where our shares are listed, it will notengage or participate in any competing commercial banking activities, including but not limited toextending loans, taking deposits and providing settlement, fund custodian, bank card and currencyexchange services. However, Huijin may, through its investments in other commercial banks,undertake or participate in certain competing businesses. In that connection, Huijin has undertaken thatit will: (i) treat its investments in commercial banks on an equal footing and will not take advantage ofits status as a holder of our shares or take advantage of the information obtained by virtue of suchstatus to make decisions or judgments against us or in favour of other commercial banks; and (ii)exercise its shareholder’s rights in our best interests.

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CONNECTED TRANSACTIONS

Upon the listing of our H shares on the Hong Kong Stock Exchange, certain transactionsbetween us and our connected persons will constitute connected transactions for us under Chapter 14Aof the Hong Kong Listing Rules. Details of these transactions are set out below.

Connected transactions with The Bank of East Asia, Limited

The Bank of East Asia, Limited (“BEA” and, together with its associates (as defined in theHong Kong Listing Rules), the “BEA Group”) holds a 25% equity interest in our non-wholly ownedsubsidiary, ICEA Finance Holdings Limited. According to the Hong Kong Listing Rules, BEA is asubstantial shareholder (as defined in the Hong Kong Listing Rules) in one of our subsidiaries, and,therefore, it and its associates as defined in the Hong Kong Listing Rules are our connected persons.

We have regularly engaged in various transactions (both one-off transactions and continuingtransactions) in the normal course of our business with the BEA Group. Each of these transactions willconstitute connected transactions under Rule 14A.13(1) or continuing connected transactions underRule 14A.14 of the Hong Kong Listing Rules, as the case may be, if entered into or continuingfollowing listing of our H shares.

Exempt continuing connected transactions with the BEA Group

Inter-bank and commercial loans and borrowing transactions

From time to time, we have entered into various inter-bank and commercial loans andborrowing transactions with BEA Group entities under which either we or a BEA Group entity acts asborrower and for which security is not provided by the borrower. These transactions have been enteredinto in the ordinary course of our business and on normal commercial terms. We expect to continue toenter into these transactions with the BEA Group following listing of our H shares and will continue todo so on normal commercial terms.

The inter-bank loans and borrowing transactions between us and BEA Group entities are, andwill continue to be, conducted in accordance with common standards to manage our exposure and atrates prescribed by us in accordance with the relevant market conditions. These standards and rates areapplied equally to all third-party banking groups that enter into such transactions with us. Whenentering into these transactions, we apply standard procedures for deal brokerage, capturing of data andscreening of potential exposure to counterparts. The commercial loans and borrowing transactions willbe conducted with reference to prevailing market rates and on terms comparable to those entered intowith third-party commercial borrowers.

Accordingly, these transactions have been entered into on normal commercial terms and will beexempt from complying with the reporting, announcement and independent shareholders’ approvalrequirements under the Hong Kong Listing Rules on the following basis:

(i) Rule 14A.65(1) of the Hong Kong Listing Rules (namely financial assistance provided bya listed issuer in its ordinary and usual course of business for the benefit of a connectedperson on normal commercial terms); or

(ii) Rule 14A.65(4) of the Hong Kong Listing Rules (namely financial assistance provided bya connected person for the benefit of a listed issuer on normal commercial terms (or better

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to the listed issuer) where no security over the assets of the listed issuer is granted inrespect of the financial assistance),

as the case may be.

Deposits

We place with and accept from the BEA Group various deposits in the ordinary course ofbusiness of the respective banking group on an unsecured basis and on normal commercial terms. Weexpect to continue to enter into the above deposit transactions after listing of our H shares. The abovedeposit transactions will, after listing of our H shares, be exempt from the reporting, announcement andindependent shareholders’ approval requirements under Rule 14A.65(1) or 14A.65(4) of the HongKong Listing Rules.

Correspondent banking services

We have correspondent banking arrangements with various BEA Group entities in relation tothe processing of remittance, collection arrangements or letters of credit issued by us or members ofthe BEA Group at the request of the respective clients of the two groups. We expect to continue toenter into these correspondent banking services after listing of our H shares. Depending on the role inthe particular transactions, we and the BEA Group may act as issuing bank, advising bank, negotiatingbank, collecting bank or remitting bank in accordance with the Uniform Customs and Practice forDocumentary Credits or the Uniform Rules for Collections. No fees and expenses are payable betweenus and the BEA Group under these transactions. Accordingly, these correspondent banking servicestransactions will, after listing of our H shares, be exempt from the reporting, announcement andindependent shareholders’ approval requirements under Rule 14A.33(3) of the Hong Kong ListingRules.

Guarantee of third-party loans

We and the BEA Group have provided and we expect to continue to provide loans to third-party borrowers secured by guarantees from each other. These guarantees will be entered into onnormal commercial terms and in the ordinary course of our business. Neither party will provide anysecurity over its assets in respect of guarantees provided by the other party. Accordingly thesetransactions will be exempt from complying with the reporting, announcement and independentshareholders’ approval requirements under Rule 14A.65(1) or 14A.65(4) of the Hong Kong ListingRules.

Non-exempt continuing connected transactions with the BEA Group

We have also engaged in other transactions or expect to enter into other transactions in thenormal course of our business and on normal commercial terms with the BEA Group following thelisting of our H shares, including fixed-income securities transactions, foreign exchange transactions,derivatives transactions, money market instruments transactions and forfaiting transactions.

We, with the BEA Group, expect to continue to enter into the above transactions followinglisting of our H shares. Each of these transactions between the two groups will constitute a connectedtransaction of our company requiring compliance with the reporting, announcement and/or independentshareholders’ approval requirements, depending on the amount involved for each transaction, unless

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the transactions are otherwise exempt under Rule 14A.31 or Rule 14A.33 of the Hong Kong ListingRules.

To document the relationship between the BEA Group and us in relation to these ongoingtransactions, we entered into an inter-bank transactions master agreement with the BEA Group onSeptember 26, 2006 (the “Inter-bank Transactions Master Agreement”) which will become effectiveupon the listing of our H shares, pursuant to which the BEA Group and we agreed to conduct thesetransactions in accordance with applicable normal market practices and on normal commercial terms.These transactions will be conducted in the ordinary course of our business. The Inter-bankTransactions Master Agreement is valid for a period of three years subject to renewal for a furtherthree-year term with the consent of the parties. We will comply with the applicable provisions of theHong Kong Listing Rules in respect of any renewal of the agreement. A brief description of thematerial transactions that are covered under the Inter-bank Transactions Master Agreement is set outbelow.

Fixed-income securities transactions

We have transacted and we expect to continue to transact with the BEA Group in RMB- andnon-RMB-denominated fixed-income securities transactions. Such transactions will be subject toapplicable regulations.

Foreign exchange transactions

The BEA Group and we have entered and we expect to enter into spot and forward transactionswith the BEA Group in foreign currencies in the future on the standard terms of the foreign exchangemarket subject to applicable regulations.

Derivatives transactions

The BEA Group and we have entered and we expect to continue to enter into various swaptransactions, option transactions and other derivatives transactions in the future.

Money market instruments transactions

The BEA Group and we, in accordance with the normal practice of the relevant markets, havepurchased from and sold to each other certain money market instruments, which included transactionsin relation to repurchase and reverse-repurchase of RMB- and non-RMB-denominated bonds and otherfixed-income securities. We expect to continue to engage in such transactions in the future with theBEA Group.

Forfaiting Transactions

We have entered and expect to continue to enter into forfaiting transactions with the BEAGroup to buy and sell interests in certain trade finance products. All of the transactions will be enteredinto with reference to the prevailing market rates or in accordance with the practice commonly adoptedin the market and only in relation to bills of exchange secured under letters of credit.

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Connected transactions with Credit Suisse

Credit Suisse (“Credit Suisse” and, together with its associates (as defined in the Hong KongListing Rules), the “Credit Suisse Group”) holds a 25% equity interest in our non-wholly ownedsubsidiary, ICBC Credit Suisse Asset Management Co., Ltd. (“ICBC Credit Suisse AssetManagement”). According to the Hong Kong Listing Rules, Credit Suisse is a substantial shareholder(as defined in the Hong Kong Listing Rules) in one of our subsidiaries and, therefore, it and itsassociates, as defined in the Hong Kong Listing Rules, are our connected persons.

We have engaged or will engage in various banking services transactions (both one-offtransactions and continuing transactions) in the normal course of our banking business as well ascertain other non-banking transactions, with the Credit Suisse Group. A description of thesetransactions is set out below.

Exempt continuing connected transactions with the Credit Suisse Group

Inter-bank and commercial loans and borrowing transactions

From time to time, we have entered into various inter-bank and commercial loans andborrowing transactions with Credit Suisse Group entities under which either we or a Credit SuisseGroup entity acts as borrower and for which security is not provided by the borrower. Thesetransactions, while limited in occurrence, have been entered into in the ordinary course of our businessand on normal commercial terms. We expect to continue to enter into these transactions with therelevant Credit Suisse Group entities following listing of our H shares and will continue to do so onnormal commercial terms.

The inter-bank loans and borrowing transactions between Credit Suisse Group entities and usare, and will continue to be, conducted in accordance with common standards to manage our exposureand at rates prescribed by us in accordance with the relevant market conditions. The commercial loansand borrowing transactions will be conducted with reference to prevailing market rates and on termscomparable to those entered into with third party commercial borrowers. See “—Connectedtransactions with The Bank of East Asia, Limited—Exempt continuing connected transactions with theBEA Group—Inter-bank and commercial loans and borrowing transactions” above for an explanationof the basis on which the inter-bank and commercial loans and borrowing transactions are conducted,and these transactions are exempt from reporting, announcement and independent shareholders’approval requirements under the Hong Kong Listing Rules.

Deposits

We place with and accept from Credit Suisse Group entities various deposits in the ordinarycourse of business of the respective banking group on an unsecured basis and on normal commercialterms. We expect to continue to enter into the above deposit transactions after listing of our H shares.The above deposit transactions will, after the listing of our H shares, be exempt from the reporting,announcement and independent shareholders’ approval requirements under the Hong Kong ListingRules. See “—Connected transactions with The Bank of East Asia, Limited—Exempt continuingconnected transactions with the BEA Group—Deposits” above for an explanation on the basis onwhich the transactions are exempt from reporting, announcement and independent shareholders’approval requirements under the Hong Kong Listing Rules.

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Correspondent banking services

We have correspondent banking arrangements with Credit Suisse Group entities in relation tothe processing of remittance, collection arrangements and letters of credit issued by us or members ofthe Credit Suisse Group at the request of their respective clients. We expect to continue to enter intothese correspondent banking services after listing of our H shares. Depending on the role in theparticular transactions, we and the relevant Credit Suisse Group entities may act as issuing bank,advising bank, negotiating bank, collecting bank or remitting bank in accordance with the UniformCustoms and Practice for Documentary Credits or the Uniform Rules for Collections. No fees andexpenses are payable between us and the relevant Credit Suisse Group entities under these transactions.Accordingly, these correspondent banking services transactions will, after listing of our H shares, beexempt from the reporting, announcement and independent shareholders’ approval requirements underRule 14A.33(3) of the Hong Kong Listing Rules.

Technical cooperation and personnel training for ICBC Credit Suisse Asset Management

In connection with the establishment and operation of our subsidiary, ICBC Credit Suisse AssetManagement, we and Credit Suisse have entered into a cooperation agreement pursuant to whichCredit Suisse has agreed to provide to ICBC Credit Suisse Asset Management general strategicsupport, personnel training, management system consultation, product design advice, softwarelicensing and other technical cooperation. Credit Suisse will not generally charge for the provision ofsuch services to us and, even if a fee is payable by us thereunder, it is expected that the annual amountof such fee will be less than 0.1 percent of the applicable size tests under the Hong Kong Listing Rules.Any expenses incurred in connection with the provision of such services will be borne by ICBC CreditSuisse Asset Management. The receipt of such services is exempt from the reporting, announcementand independent shareholders’ approval requirements under Rule 14A.33(3) of the Hong Kong ListingRules.

Guarantee of third-party loans

We and the Credit Suisse Group will provide loans to third-party borrowers secured byguarantees from each other. These guarantees will be entered into on normal commercial terms and inthe ordinary course of our business. Neither party will provide any security over its assets in respect ofguarantees provided by the other party. See “—Connected transactions with The Bank of East Asia,Limited—Exempt continuing connected transactions with the BEA Group—Guarantee of third-partyloans” above for an explanation on the basis on which the transactions are exempt from reporting,announcement and independent shareholders’ approval requirements under the Hong Kong ListingRules.

Non-exempt continuing connected transactions with the Credit Suisse Group

We will enter into other transactions, such as fixed-income securities transactions, foreignexchange transactions, money market instruments transactions, equity shares and equity linkedsecurities transactions, listed or over-the-counter derivatives transactions, custody services andinvestment banking services transactions with Credit Suisse Group entities following listing of our Hshares. In some cases, this will be a continuation of existing business, and, in others, this will be newbusiness between us and the Credit Suisse Group. Each of these transactions between the two groupswill constitute a connected transaction for us requiring compliance with the reporting, announcementand/or independent shareholders’ approval requirements, depending on the amount involved for each

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transaction, unless such transactions are otherwise exempt under Rule 14A.31 or Rule 14A.33 of theHong Kong Listing Rules or a waiver from compliance with such requirements is granted by the HongKong Stock Exchange. Such transactions will be on normal commercial terms and will be subject toapplicable regulations.

To document the relationship between us and the Credit Suisse Group in relation to these on-going transactions, we entered into a master services agreement with Credit Suisse on September 26,2006 (the “Credit Suisse Master Services Agreement”) which will become effective on listing of our Hshares, pursuant to which we and the Credit Suisse Group have agreed to conduct such transactions inaccordance with applicable normal market practices and on normal commercial terms. Thesetransactions will be conducted in the ordinary course of our business. The Credit Suisse MasterServices Agreement is valid for a period of three years subject to renewal for a further three-year termwith the consent of the parties. We will comply with the applicable provisions of the Hong KongListing Rules in respect of any renewal of the agreement. A brief description of the materialtransactions that are to be covered under the Credit Suisse Master Services Agreement is set out below.

Fixed-income securities transactions

We have transacted and expect to continue to transact with the Credit Suisse Group RMB- andnon-RMB-denominated bonds and other fixed-income securities transactions.

Foreign exchange transactions

We have entered and expect to enter into spot and forward transactions with Credit SuisseGroup entities in foreign currencies in the future on the standard terms of the foreign exchange market.

Money market instruments transactions

The Credit Suisse Group and we, in accordance with the normal practice of the relevantmarkets, have in the past purchased from and sold to each other certain money market instruments,including transactions relating to the repurchase and reverse repurchase of RMB- and non-RMB-denominated bonds and other fixed-income securities. We expect to continue to engage in suchtransactions with Credit Suisse Group entities.

Equity shares and equity-linked securities transactions

We have engaged in and expect to continue to engage in equity shares and equity-linkedsecurities transactions with Credit Suisse Group entities.

Listed or over-the-counter derivatives transactions

We expect to purchase from or sell to Credit Suisse Group entities swaps, structured notes,contracts for differences futures, options and other derivatives traded over-the-counter or listed ortraded on a stock, derivatives or commodities exchange or other market, in the PRC or elsewhere,which are linked to underlying assets, and expect to enter into stock lending and borrowingtransactions with Credit Suisse Group entities.

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Custody Services

Pursuant to a custody agreement dated April 5, 2004 entered into between Credit Suisse (HongKong) Limited, a member of the Credit Suisse Group, and us, we agreed to provide custody services toa qualified foreign institutional investor which is a member of the Credit Suisse Group and will chargea management fee based on market rates.

Investment Banking

The Credit Suisse Group may provide corporate finance, structuring, syndication financing,mergers and acquisitions advice and services to us.

Other Exempt Continuing Connected Transactions

Commercial Banking Services and Products Provided by Us in the Ordinary and Usual Courseof Business

We provide commercial banking services and products to customers in the ordinary course ofour business. Such services and products include the taking of deposits.

Customers who place deposits with us include substantial shareholders, directors, supervisors,presidents and chief executive officers of us and our subsidiaries, and ex-directors of us and oursubsidiaries who were directors within 12 months preceding the date of listing of our H shares andtheir respective associates. Each of the above persons is our connected person under Chapter 14A ofthe Hong Kong Listing Rules. We expect that our connected persons will continue to place depositswith us following listing of our H shares, which will constitute continuing connected transactions forus under Chapter 14A of the Hong Kong Listing Rules.

The deposits placed by our connected persons who are not our employees are on normalcommercial terms with reference to prevailing market rates. The interest on deposits placed by ourconnected persons who are employees, depending on the circumstances, are provided at staff rates ormarket rates, but such deposits are nevertheless on normal commercial terms as such terms are no morefavorable than the staff rates applicable to our employees who are not our connected persons. Atpresent, only some of our overseas subsidiaries and branches offer staff rates to their employees.

The provision of commercial banking services and products by us to our connected persons inthe ordinary course of our business and on normal commercial terms that are comparable or no morefavorable than those offered to independent third parties (including other comparable employees ofours who are not connected persons) will be exempt continuing connected transactions under Rule14A.65(4) of the Hong Kong Listing Rules, namely financial assistance provided by a connectedperson in the form of deposits placed with a listed issuer for the benefit of a listed issuer on normalcommercial terms (or better to the listed issuer) where no security over the assets of the listed issuer isgranted in respect of the financial assistance, and thus will be exempt from the reporting,announcement and independent shareholders’ approval requirements contained in Rules 14A.35 and14A.45 to 14A.48 of the Hong Kong Listing Rules.

Loans and Credit Facilities Granted by Us to Connected Persons

We extend loans and credit facilities (including the provision of long-term loans, short-termloans, consumer loans, credit card overdrafts, mortgages, guarantees, guarantees of third-party loans,

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comfort letters and bill discounting facilities) to our customers in the ordinary and usual course of ourbusiness and on normal commercial terms with reference to prevailing market rates. Customers whoutilize the above banking products and services may include the substantial shareholders, directors,supervisors, presidents and chief executive officers of us and our subsidiaries, and ex-directors of usand our subsidiaries who were directors within 12 months preceding the date of listing of our H sharesand their respective associates. Each of the above persons is our connected person under Chapter 14Aof the Hong Kong Listing Rules. We expect that we will continue to provide the above bankingproducts and services to our connected persons following the Global Offering, which will constitutecontinuing connected transactions for us under Chapter 14A of the Hong Kong Listing Rules.

The above banking products and services provided to our connected persons who are not ouremployees are on normal commercial terms with reference to prevailing market rates. The abovebanking products and services provided to our connected persons who are employees, depending onthe circumstances, are provided at staff rates or market rates, but such banking products and servicesare nevertheless on normal commercial terms as such terms are no more favorable than the staff ratesapplicable to our employees who are not our connected persons. At present, only some of our overseassubsidiaries and branches offer staff rates to its employees.

The provision of the above banking products and services by us to our connected persons in theordinary and usual course of our business and on normal commercial terms that are comparable or nomore favorable than those offered to independent third parties (including other comparable employeesof ours who are not connected persons) will be exempt continuing connected transactions under Rule14A.65(1) of the Hong Kong Listing Rules, namely financial assistance provided by a listed issuer inits ordinary and usual course of business for the benefit of a connected person on normal commercialterms, and thus will be exempt from all reporting, announcement and independent shareholders’approval requirements contained in Rules 14A.35 and 14A.45 to 14A.48 of the Hong Kong ListingRules.

Application for Waivers

Upon listing, it is expected that we will continue or will enter into the non-exempt connectedtransactions and continuing connected transactions with the BEA Group and the Credit Suisse Groupas described above in the normal course of our business, which are referred to in the “Non-exemptcontinuing connected transactions with the BEA Group” and “Non-exempt continuing connectedtransactions with the Credit Suisse Group” in this section. In the opinion of the Directors, including ourindependent non-executive Directors, the non-exempt connected transactions have been entered into inour ordinary course of business, on normal commercial terms and are fair and reasonable and in theinterests of our shareholders as a whole.

It is expected that each of the non-exempt connected transactions will constitute connectedtransactions pursuant to Rule 14A.13 or continuing connected transactions pursuant to Rule 14A.14,and, accordingly, such transactions will be subject to the reporting and announcement requirements setout in Rules 14A.45 to 14A.47 of the Hong Kong Listing Rules and the independent shareholders’approval requirements set out in Rule 14A.48 of the Hong Kong Listing Rules, depending on theamount involved on each occasion the relevant connected transaction arises, unless exemptionsprovided for in the Hong Kong Listing Rules are available.

As we believe prior approval from independent shareholders of the Non-exempt ConnectedTransactions in full compliance with the Hong Kong Listing Rules would be unduly burdensome,

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impracticable and add administrative costs for us, we have applied to the Hong Kong Stock Exchangefor, and the Hong Kong Stock Exchange has granted, a waiver under Rule 14A.42(3) of the HongKong Listing Rules:

(a) from strict compliance with the announcement (but not reporting) and independentshareholders’ approval requirements of the Hong Kong Listing Rules (to the extentapplicable) in respect of the non-exempt connected transactions; and

(b) from strict compliance with the requirement to set a maximum aggregate annual value inrespect of the Non-exempt Connected Transactions.

We will, however, comply with the applicable provisions under Rules 14A.35(1), 14A.36(2),14A.37, 14A.38, 14A.39, 14A.40, 14A.45 and 14A.46 of the Hong Kong Listing Rules.

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We set out below a summary of the non-exempt connected transactions as well as the waiversfrom strict compliance with the relevant requirements of the Hong Kong Listing Rules that we haveapplied for.

Parties Nature of Transaction Expiry dateApplicable Hong Kong

Listing Rules Waivers sought

(1) Our Bank

(2) BEA Group

Regulartransactions (bothone-off transactionsand continuingtransactions) in thenormal course ofbanking business,such as fixed-income securitiestransactions,foreign exchangetransactions,derivativestransactions, moneymarket instrumentstransactions andforfaitingtransactions.

September 25, 2009 14A.13, 14A.14,14A.35(1),14A.35(2), 14A.45,14A.46, 14A.47,14A.48

Requirements to seta maximumaggregate annualvalue, announcementand independentshareholders’approvalrequirements

(1) Our Bank

(2) Credit SuisseGroup

Regulartransactions (bothone-off transactionsand continuingtransactions) in thenormal course ofbusiness, such asfixed-incomesecuritiestransactions,foreign exchangetransactions, moneymarket instrumentstransactions, equityshares and equitylinked securitiestransactions, listedor over-the-countertraded derivativestransactions,custody servicesand investmentbanking servicestransactions.

September 25, 2009 14A.13, 14A.14,14A.35(1),14A.35(2), 14A.45,14A.46, 14A.47,14A.48

Requirements to seta maximumaggregate annualvalue, announcementand independentshareholders’approvalrequirements

Confirmation of Joint Sponsors

The Joint Sponsors are of the view that the non-exempt connected transactions and continuingconnected transactions with the BEA Group and the Credit Suisse Group conducted in the normal

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course of banking business described above are entered into in the ordinary and usual course of ourbusiness, on normal commercial terms and on terms that are fair and reasonable as far as ourshareholders as a whole are concerned.

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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

OVERVIEW

Our articles of association provide that our board of directors consists of five to 17 members.There are currently 14 directors appointed to sit on our board. Our articles of association provide thatexecutive directors shall not exceed one-third of the total number of the board members and at leastthree directors meet the independence requirements under relevant PRC laws and regulations. Ourdirectors are elected by an ordinary resolution at a shareholders’ general meeting for a term of threeyears, renewable upon re-election. The chairman and the vice chairman of the board of directors areelected by a majority vote of the entire board.

The powers of the board include, among others:

Š convening shareholders’ general meetings and reporting to the shareholders’ generalmeeting;

Š implementing resolutions passed by the shareholders’ general meeting;

Š deciding on business plans, investment plans and development strategies;

Š formulating annual financial budgets and final accounts;

Š formulating plans for profit distribution and coverage of loss;

Š formulating plans for the increase or decrease of registered capital;

Š formulating fundamental management rules and deciding on the appointment of seniormanagement; and

Š exercising other powers authorized by the shareholders’ general meeting or the articles ofassociation.

According to our articles of association, our board of directors is required to convene at leastfour regular meetings a year. As at the Latest Practicable Date, our board of directors has held 14meetings since the establishment of our board of directors.

The PRC Company Law requires a joint stock company to establish a board of supervisors thatis responsible for supervising the performance of the board of directors and senior management andmonitoring financial matters. Our articles of association provide that our board of supervisors consistsof five to seven supervisors. Currently we have five supervisors: two supervisors representingshareholders, two external supervisors and one supervisor representing employees. Members of theboard of directors and senior management may not serve as our supervisors. Our supervisorsrepresenting shareholders are nominated by the board of supervisors or shareholders holding alone orjointly 5% or more of our voting shares. Our external supervisors are nominated by shareholdersholding alone or jointly 1% or more of our shares. Both our supervisors representing shareholders andour external supervisors are elected at the shareholders’ general meeting. Our supervisors representingemployees are elected by our employees. A supervisor’s term is three years and renewable uponre-election.

The powers of the board of supervisors include, among others:

Š supervising the performance by directors and senior management members of their dutiesand the fulfillment of their responsibilities, and making inquiries with directors and seniormanagement members;

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Š supervising the performance of the board of directors and senior management;

Š requesting directors and senior management members to rectify any actions damaging ourinterests;

Š proposing removal of or initiating legal proceedings against directors or seniormanagement members who have violated laws, administrative regulations and rules, thearticles of association or resolutions of shareholders’ general meetings;

Š examining and supervising our financial matters;

Š examining and supervising business decisions, risk management and internal control whennecessary and providing guidance to our internal audit departments; and

Š raising proposals to the shareholders’ general meeting.

The Guidelines on Corporate Governance and Other Regulatory Issues Regarding State-ownedCommercial Banks provide that shareholders’ general meetings are the governing bodies of state-owned commercial banks and shareholders of state-owned commercial banks shall exercise their rightsthrough shareholders’ general meetings and comply with laws, regulations and their own articles ofassociation. Our largest shareholders, the MOF and Huijin, will each own approximately 36.24% ofour outstanding shares immediately following the completion of the Global Offering and A ShareOffering, assuming that neither of the over-allotment options for the Global Offering and the A ShareOffering is exercised. In accordance with our articles of association and applicable laws andregulations, the MOF and Huijin will have the ability to exercise a controlling influence over ourbusiness. See “Risk Factors—Risks Relating to Our Business—Our largest shareholders have theability to exercise significant influence over us.” However, according to our articles of association, theMOF and Huijin, as well as any other controlling shareholders we may have in the future, owe afiduciary duty to us and other shareholders. Such controlling shareholders shall strictly comply withlaws, administrative regulations and rules, and our articles of association when exercising theirshareholder rights, and shall not abuse their power to gain improper benefit or cause detriment to thelegitimate rights and interests of our bank or our other shareholders. Our controlling shareholders maynot impair the interests of any other shareholders when they exercise their shareholder rights, includingtheir voting rights, over the following issues: (i) exempting the duty of directors and supervisors to actin good faith for the maximum benefit of our bank; (ii) authorizing directors or supervisors to disposeof the property of our bank (including but not limited to the opportunities that are favorable to ourbank) in any form for their own benefit or for the benefit of any third parties; and (iii) authorizingdirectors and supervisors to deprive the rights or interests of other shareholders for the benefits of anythird parties or such directors or supervisors. For the definition of controlling shareholder and otherrelevant information, see “Appendix VIII—Summary of Articles of Association—Rights of MinorityShareholders in Relation to Fraud or Oppression.”

The MOF, Huijin, the SSF and our overseas strategic investors have indicated that they intendto manage their shareholding and exercise their shareholders’ rights in accordance with applicable lawsand regulations, rules of the relevant stock exchanges and our articles of association. In addition, theyhave indicated their support for the following overall objectives of our bank: implementing customer-and market-oriented policies, carrying out operational activities in compliance with relevant laws andregulations, strengthening internal controls, improving corporate governance, providing excellentcustomer service, maximizing returns for shareholders, improving operational performance andenterprise value and facilitating economic development and social progress.

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The following chart sets forth our current corporate governance structure:

For a discussion of our recent improvement in corporate governance, see “Risk Management—Overview.” For a discussion of our strategic cooperation with our overseas strategic investors toimprove our corporate governance, see “Our Strategic Investors and Other Investors—StrategicCooperation with Our Overseas Strategic Investors.”

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Directors

The following table sets forth information regarding our directors. The business address of ourdirectors is c/o Industrial and Commercial Bank of China Limited, No. 55 Fuxingmennei Avenue,Xicheng District, Beijing 100032, China. All of our directors meet the qualification requirements underthe relevant PRC laws and regulations for their respective positions. The CSRC requires thatindependent directors of a domestically listed company constitute at least one-third of its board ofdirectors and has requested that we comply with this rule within a certain period following thecompletion of the A Share Offering. We plan to appoint additional independent directors at either anextraordinary general meeting or an annual general meeting of our shareholders within six monthsfollowing the completion of the A Share Offering. The CSRC gave its written approval on September19, 2006 for the Global Offering and our application to list the H shares on the Hong Kong StockExchange and on September 26, 2006 for the A Share Offering. Our directors must possess thequalifications required under our articles of association and the Hong Kong Listing Rules, includingthose relating to experience, fitness and properness. In addition, our independent non-executivedirectors are subject to the independence requirements laid down in our articles of association and theHong Kong Listing Rules. Factors which may affect independence include shareholding percentage inus over a certain level. Our board of directors, board of supervisors or any shareholders whoindividually or in aggregate hold more than one percent of our shares may nominate candidates forindependent directors, who may be elected by an ordinary resolution of our shareholders’ generalmeeting. In addition, the qualification of an independent director is subject to review by the CBRC. Forfurther information, see “Appendix VIII—Summary of Articles of Association—Independence ofIndependent Directors and External Supervisors.” and “Appendix VIII—Summary of Articles ofAssociation—Nomination and Election of Directors.”

Name Age Position

Mr. JIANG Jianqing . . . . . . . . . . . . . . . . . . 53 Chairman of the board of directors and executive directorMr. YANG Kaisheng . . . . . . . . . . . . . . . . . 56 Vice chairman, executive director and presidentMr. ZHANG Furong . . . . . . . . . . . . . . . . . . 53 Executive director and vice presidentMr. NIU Ximing . . . . . . . . . . . . . . . . . . . . . 50 Executive director and vice presidentMr. FU Zhongjun . . . . . . . . . . . . . . . . . . . . 48 Non-executive directorMr. KANG Xuejun . . . . . . . . . . . . . . . . . . . 55 Non-executive directorMr. SONG Zhigang . . . . . . . . . . . . . . . . . . 55 Non-executive directorMr. WANG Wenyan . . . . . . . . . . . . . . . . . . 58 Non-executive directorMs. ZHAO Haiying . . . . . . . . . . . . . . . . . . 41 Non-executive directorMr. ZHONG Jian’an . . . . . . . . . . . . . . . . . . 47 Non-executive directorMr. Christopher A. COLE . . . . . . . . . . . . . 47 Non-executive directorMr. LEUNG Kam Chung, Antony . . . . . . . 54 Independent non-executive directorMr. John L. THORNTON . . . . . . . . . . . . . . 52 Independent non-executive directorMr. QIAN Yingyi . . . . . . . . . . . . . . . . . . . . 50 Independent non-executive director

Mr. JIANG Jianqing, chairman of our board of directors and an executive director, isresponsible for our business strategy and overall development. Mr. YANG Kaisheng, vice chairman ofour board of directors, an executive director and president, is responsible for overseeing themanagement of our business and operations. Our non-executive directors, including our independentnon-executive directors, perform their duties through board activities and do not participate in theday-to-day management of our business and operations.

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Mr. FU Zhongjun, Mr. KANG Xuejun and Mr. SONG Zhigang are nominated by the MOF toserve as our non-executive directors. Mr. WANG Wenyan, Ms. ZHAO Haiying and Mr. ZHONGJian’an are nominated by Huijin to serve as our non-executive directors.

Mr. JIANG Jianqing, 53, is chairman of our board of directors and an executive director. Hehas more than 27 years of work experience in the banking industry and has served as chairman of ourboard of directors and an executive director since October 2005. Mr. Jiang served as our president fromFebruary 2000 to October 2005, our vice president from June 1999 to February 2000, president of ourShanghai Branch from June 1997 to June 1999, president of Shanghai Urban Cooperation CommercialBank (now known as the Bank of Shanghai) from December 1995 to June 1997, vice president of ourShanghai Branch and concurrently president of our Pudong Branch from January 1993 to December1995. Mr. Jiang worked with the PBOC since 1979 before joining our bank in 1984. Mr. Jiang is alsochairman of the board of directors of ICBC (Asia) since June 2000. Mr. Jiang graduated from ShanghaiUniversity of Finance and Economics in 1984, and received a Master’s degree in engineering in 1990and a Doctorate degree in management in 1999, respectively after finishing postgraduate and doctoratecourses at Shanghai Jiaotong University. Mr. Jiang is currently a supervisor for doctorate students atShanghai Jiaotong University, chairman of the board of supervisors of the China Banking Associationand vice president of the China Finance Society.

Mr. YANG Kaisheng, 56, is vice chairman of our board of directors, an executive director, andpresident of our bank, and has served as a director and president of our bank since October 2005. Asour president, Mr. Yang is in charge of the day-to-day management of our overall business andoperations. Mr. Yang served as vice president of our bank from September 2004 to October 2005,president of Huarong from September 1999 to November 2005, vice president of our bank fromSeptember 1996 to September 1999, president of our Shenzhen Branch from July 1995 to September1996, director of our Planning and Information Department from December 1993 to July 1995, deputydirector in charge of our Planning and Information Department from February 1993 to December 1993,and vice director of our Discipline Enforcement Office from April 1991 to February 1993. Mr. Yangworked in the areas of industrial production technology and cost budget management for ten yearsprior to joining our bank in October 1985. Mr. Yang graduated from Beijing College of ChemicalTechnology and graduated from Wuhan University with a Doctorate degree in economics in 2000.Mr. Yang is also currently chairman of the board of directors of ICBC Credit Suisse AssetManagement Co., Ltd. Mr. Yang is an adjunct professor at Wuhan University and serves as a deputydirector of the 16th Committee of the China International Economic and Trade ArbitrationCommission.

Mr. ZHANG Furong, 53, is an executive director and vice president of our bank, and has servedas a director since October 2005 and vice president of our bank since November 2000. Mr. Zhang isprimarily in charge of matters relating to assets custody, accounting and settlement and personalbanking. Before Mr. Zhang served as an assistant to our president and general manager of the HumanResources Department from July 1997 to November 2000, vice president of our Liaoning Branch andpresident of our Dalian Branch from November 1994 to July 1997 and vice president of our LiaoningBranch from December 1991 to November 1994, he served as chief of Financial Accounting Divisionof our Liaoning Branch and then assistant to the president of our Liaoning Branch. Prior to joining ourbank in November 1984, Mr. Zhang worked at the PBOC from February 1971 to November 1984.Mr. Zhang graduated from Liaoning Finance and Economics College in 1976 with a Bachelor’s degreein finance, and received both a Master’s degree in economics in 1997 and a Doctorate degree infinance in 2001, from Dongbei University of Finance and Economics. He is vice president of the

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Banking Accounting Society of China and deputy director of the Financial Planning Standards Councilof China.

Mr. NIU Ximing, 50, is an executive director and vice president of our bank, and has served asa director since October 2005 and vice president of our bank since November 2002. Mr. Niu isprimarily in charge of matters relating to our management information and credit management.Mr. Niu concurrently was an assistant to our president and president of our Beijing Branch fromJanuary 2002 to November 2002, president of our Beijing Branch from November 2000 to January2002, general manager of our Industrial and Commercial Credit Department from April 1998 toNovember 2000, director of our Industrial and Traffic Credit Department from August 1995 to April1998, and deputy director of our Industrial and Traffic Credit Department from February 1993 toAugust 1995. Prior to joining us in July 1986, Mr. Niu worked at the PBOC from September 1983 toJuly 1986. Mr. Niu graduated from the Central Institute of Finance and Banking with a Bachelor’sdegree in finance in 1983 and graduated from Harbin Institute of Technology with a Master’s degree intechnology economics in 1997.

Mr. FU Zhongjun, 48, is a non-executive director of our bank and has served as a director sinceOctober 2005. Prior to joining our bank, Mr. Fu worked at the MOF and was vice ombudsman of itsAnhui Finance Ombudsman Office from April 2002 to October 2005, vice ombudsman of its ShanghaiFinance Ombudsman Office from October 2000 to April 2002, chief of Inspection Division Two of itsInspection and Supervision Bureau from June 2000 to October 2000, chief of Inspection Division Twoof its Finance Supervision Department from July 1998 to June 2000, chief of Central Division Two ofthe Finance Supervision Department from November 1997 to July 1998, chief of Division One of theDispatch Institution Management of Finance Supervision Department from November 1994 toNovember 1997, deputy chief of Domestic Enterprises Division of the Finance SupervisionDepartment from June 1994 to November 1994, and deputy chief of Domestic Enterprises Division ofthe Department of Business, Trade, Finance and Accounting from August 1990 to June 1994. Mr. Fugraduated from Sichuan University with a Bachelor’s degree in philosophy in 1983.

Mr. KANG Xuejun, 55, is a non-executive director of our bank and has served as a directorsince October 2005. Prior to that position, Mr. Kang worked at the MOF from August 1977 and held aseries of positions, including director of the Investment Review Center from October 2001 to October2005, vice director-general of the Comprehensive Department from July 1996 to October 2001, chiefof Statistics and Analysis Division of the Comprehensive and Reform Department from December1991 to July 1996, and vice-chief of Statistics and Research Division of the Comprehensive PlanningDepartment from July 1984 to December 1991. Mr. Kang graduated from Tianjin College of Financeand Economics in industrial management in 1977.

Mr. SONG Zhigang, 55, is a non-executive director of our bank and has served as a directorsince October 2005. Prior to that position, Mr. Song was deputy director of the State AgriculturalComprehensive Development Office of the MOF from July 1998 to October 2005, assistant inspectorof the State Agricultural Comprehensive Development Office of the MOF from July 1997 to July 1998,chief of the State Agricultural Comprehensive Development Office of the MOF from December 1991to July 1997, deputy chief of the State Agricultural Comprehensive Development Office of the MOFfrom November 1988 to December 1991, and deputy director of “China Tax” in China State FinanceEditorial Agency from May 1987 to November 1988. Mr. Song joined the MOF in September 1978.Mr. Song graduated from Nankai University in political economics in 1978.

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Mr. WANG Wenyan, 58, is a non-executive director of our bank and has served as a directorsince October 2005. Prior to that position, Mr. Wang served as director-general of the CollectionManagement Department of State Administration of Taxation from August 2000 to October 2005,deputy director of Beijing Local Taxation Bureau from August 1994 to August 2000, deputy directorof Beijing Taxation Bureau from January 1993 to August 1994, director assistant and office director ofBeijing Taxation Bureau from May 1989 to January 1993, chief of the Collection ManagementDivision and then general office director of Beijing Taxation Bureau from June 1987 to May 1989, anddeputy director of Beijing Xicheng District Taxation Bureau from August 1984 to June 1987. Hejoined Beijing Finance and Taxation Bureau in November 1980. Mr. Wang graduated from the CentralInstitute of Finance and Banking in financial accounting in 1985 and studied in China Central PartySchool from September 2003 to January 2004. He is currently an adjunct professor and supervisor ofmaster candidates in the Central University of Finance and Economics (formerly, the Central Instituteof Finance and Banking).

Ms. ZHAO Haiying, 41, is a non-executive director of our bank and has served as a directorsince October 2005. Prior to that position, Ms. Zhao worked in the area of securities supervision at theCSRC as a deputy director of the Issuing Supervision Department from 2002 to 2005 and a member ofStrategy Planning Committee from 2001 to 2002. Ms. Zhao taught at the Economics and FinanceSchool of the University of Hong Kong from 1995 to 2001, and concurrently served as a consultant ofAsian Development Bank from 1995 to 1997. Ms. Zhao taught at the Business School of Hong KongUniversity of Science and Technology from 1992 to 1995. She conducted research at the BrookingsInstitution from 1990 to 1992, where she was awarded the Brookings doctorate dissertationscholarship. She was also a researcher in the Trade Policy Department of the World Bank from 1988 to1989. Ms. Zhao graduated from Tianjin University with a Bachelor’s degree in precision instruments in1984 and graduated from the University of Maryland with a Doctorate degree in economics in 1992.

Mr. ZHONG Jian’an, 47, is a non-executive director of our bank and has served as a directorsince October 2005. Prior to that position, Mr. Zhong was an assistant inspector and then inspector ofthe Secretariat to Central Finance and Economy Leadership Team Office from December 1999 toOctober 2005. Mr. Zhong joined Central Finance and Economy Leadership Team Office in February1993. From April 1989 to January 1993, he worked in the areas of enterprise reform and humanresources at the Ministry of Machine and Electronic Industry. Mr. Zhong is a senior economist. Hegraduated from Central South Industrial University with a Master’s degree in management engineeringin 1997. He also studied in a senior management program in American Thunderbird InternationalGraduate School of International Management from August 2002 to February 2003.

Mr. Christopher A. COLE, 47, is a non-executive director of our bank and has served as adirector since June 2006. Mr. Cole currently is chairman of the Investment Banking Division atGoldman Sachs, and serves on Goldman Sachs’ Management Committee, Capital Committee andFinance Committee. Previously, he was co-head of Investment Banking Division at Goldman Sachsfrom 2001 to 2004, and head of the Financial Institutions Group at Goldman Sachs from 1999 to 2001.Mr. Cole also serves on the board of directors of the Princeton University Investment Company.Mr. Cole graduated from Princeton University with a Bachelor’s degree in history in 1981 and fromHarvard University with an MBA degree in 1985.

Mr. LEUNG Kam Chung, Antony, 54, is an independent non-executive director of our bank andhas served as a director since October 2005. Mr. Leung was Financial Secretary of Hong Kong fromMay 2001 to July 2003. He worked with JPMorgan Chase Bank from 1996 to 2001 before leaving as

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chairman of the Asia Pacific Region of JPMorgan Chase Bank. He held various positions during hiswork at Citicorp from 1973 to 1996, including regional chief of the treasury, corporate banking,investment banking and private banking departments in Hong Kong, Singapore, Manila and New York.Mr. Leung graduated from University of Hong Kong with a Bachelor’s degree in social sciences in1973. He attended the Management Development Program and the Advance Management Program atHarvard Business School in 1982 and 1999. He was awarded an Honorary Doctorate degree of law byHong Kong University of Science and Technology in 1998. Mr. Leung was an international advisor ofChina Development Bank from 1999 to 2001, chairman of Hong Kong Education Commission from1998 to 2001, an independent non-executive director of China Mobile (Hong Kong) Limited from1997 to 2002, an un-official member of the Executive Council of Hong Kong from 1997 to 2001, amember of the Preparatory Committee of Hong Kong Special Administrative Region, a member of theElection Committee of Hong Kong Special Administrative Region and concurrently Hong KongAffairs Adviser to the Chinese Government from 1996 to 1997, a member of Exchange Fund AdvisoryCommittee from 1993 to 2001, chairman of the University Grants Committee from 1993 to 1998, adirector of Hong Kong Community Chest from 1992 to 1994, a director of the Provisional Hong KongAirport Authority and Hong Kong Airport Authority from 1990 to 1999 and a director of the HongKong Futures Exchange from 1987 to 1990. Mr. Leung currently also serves as chairman of the boardof directors of Heifer International Hong Kong, an independent director of American InternationalAssurance Co. Ltd. and an international advisor of European Advisory Group in Berlin.

Mr. John L. THORNTON, 52, is an independent non-executive director of our bank and hasserved as a director since October 2005. Mr. Thornton worked with Goldman Sachs since September1980 and resigned in July 2003 as president and a member of the firm’s board of directors.Mr. Thornton is Professor and Director of the Global Leadership Program at the School of Economicsand Management of Tsinghua University in Beijing. He is also Chairman of the Brookings InstitutionBoard of Trustees, a member of the Council on Foreign Relations, and a trustee or advisory boardmember of the Asia Society, China Institute, the CSRC, the Eisenhower Fellowships, FinancialServices Volunteer Corps, The Hotchkiss School, International Advisory Committee of the ChinaReform Forum, Morehouse College, National Committee on U.S.-China Relations, Nelson MandelaLegacy Foundation (U.S.), School of Economics and Management of Tsinghua University (Beijing),and the Yale School of Management. Mr. Thornton served as a director of British Sky BroadcastingGroup P.L.C., Laura Ashley Ltd. and The DIRECTV Group, Inc. Mr. Thornton received an A.B. inhistory from Harvard College in 1976, a B.A. /M.A. in jurisprudence from Oxford University in 1978and an M.P.P.M. from the Yale School of Management in 1980. In addition to our bank, Mr. Thorntonis also a director of the Ford Motor Company, Intel, News Corporation Limited and China NetcomGroup Corporation (Hong Kong) Limited.

Mr. QIAN Yingyi, 50, is an independent non-executive director of our bank and has served as adirector since October 2005. Mr. Qian is Professor of Economics at the University of California,Berkeley and First Associate Dean of the School of Economics and Management at TsinghuaUniversity. He has been an independent non-executive director of China Netcom Group Corporation(Hong Kong) Limited since October 2004 and an independent director of Vimicro InternationalCorporation since August 2006. Before joining the Berkeley faculty in 2001, Mr. Qian taught at theDepartment of Economics at Stanford University and the University of Maryland. Mr. Qian graduatedfrom Tsinghua University in mathematics in 1981. He received a Master’s degree in statistics fromColumbia University in 1982, a Master’s degree in operational research/management science fromYale University in 1984, and a Ph.D. in economics from Harvard University in 1990.

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Supervisors

The following table sets forth information regarding our supervisors. The business address ofour supervisors is c/o Industrial and Commercial Bank of China Limited, No. 55 FuxingmenneiAvenue, Xicheng District, Beijing 100032, China. Our supervisors all meet the qualificationrequirements under the relevant PRC laws and regulations for their respective positions.

Name Age Position

Mr. WANG Weiqiang . . . . . . . . . . . . . . . . . 59 Chairman of the board of supervisorsMs. WANG Chixi . . . . . . . . . . . . . . . . . . . . 51 SupervisorMr. WANG Daocheng . . . . . . . . . . . . . . . . 66 External supervisorMr. MIAO Gengshu . . . . . . . . . . . . . . . . . . 65 External supervisorMr. ZHANG Wei . . . . . . . . . . . . . . . . . . . . 44 Supervisor

Mr. WANG Weiqiang, 59, has served as chairman of our board of supervisors since October2005. As chairman of our board of supervisors, Mr. Wang is responsible for the supervision of ourbank. Mr. Wang was appointed by the State Council as chairman of the board of supervisors of ourbank from August 2003 to October 2005. Prior to that position, he was appointed by the State Councilas chairman of the board of supervisors of the Agricultural Bank of China from June 2000 to August2003, president of Chengdu Branch of the PBOC (regional branch covering several provincialbranches) from November 1998 to June 2000 and general secretary of People’s Government ofShaanxi Province from October 1997 to November 1998. He joined China Construction Bank in March1988 and held various positions including president of its Shaanxi Branch from November 1992 toOctober 1997, vice president of its Liaoning Branch from October 1989 to November 1992 andpresident of its Tieling Branch in Liaoning Province from March 1988 to October 1989. Mr. Wang wasvice section chief, section chief and vice director-general of the Economic Work Division of theChinese Communist Party Tieling Municipal Committee in Liaoning Province from March 1983 toMarch 1988. Mr. Wang graduated from Liaoning University in economics management in October1984. He currently is an adjunct professor at Northwest University and a supervisor of master’scandidates at the South Western University of Finance & Economics.

Ms. WANG Chixi, 51, has served as a supervisor of our bank since October 2005. Ms. Wangwas appointed by the State Council as a full-time supervisor of the board of supervisors at the bureaulevel and office director of our board of supervisors from August 2003 to October 2005. Prior to thesepositions, she was appointed by the State Council as a full-time supervisor of the board of supervisorsat the bureau level and office director of the board of supervisors at the Agricultural Bank of Chinafrom November 2001 to August 2003 and a full-time supervisor of the board of supervisors at the vicebureau level and office director of the board of supervisors at the Agricultural Bank of China fromJune 2000 to November 2001. She joined the NAO in November 1987 and then served in variouspositions, including deputy director of its Agricultural, Forestry and Sea Products Audit Bureau fromNovember 1999 to June 2000, vice director-general of its Financial Audit Department from February1997 to November 1999, and vice-chief and then chief of the Financial Audit Department of the NAOfrom November 1991 to February 1997. Ms. Wang graduated from Agricultural Economy Departmentin agricultural economic management at Shenyang Agricultural College with a Bachelor’s degree inagriculture in August 1984. Ms. Wang is a certified public accountant of China.

Mr. WANG Daocheng, 66, has served as an external supervisor of our bank since October 2005.He has been president of the China Institute of Internal Audit since June 2005. Mr. Wang served ashead of the NAO’s Discipline Group directly affiliated with the Central Party Discipline Committee

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from March 1999 to April 2005, director of its General Office from April 1998 to March 1999, directorof its Financial Audit Division from November 1988 to April 1998, director of its Foreign Funds andForeign Affairs Bureau from January 1988 to November 1988, deputy director of its ComprehensiveBureau from September 1985 to January 1988, and deputy director of its Policy Research Office fromMay 1985 to September 1985. Mr. Wang served as vice director of Beijing Xicheng Audit Bureaufrom August 1984 to May 1985. He was in charge of the Finance and Economy Team and AuditingScience Research and Training Center of the NAO from September 1983 to August 1984. Prior tojoining the NAO in September 1983, he worked at the MOF since September 1964, and served asgeneral office chief of the Audit Department Preparation Group of the MOF from April 1981 toSeptember 1983 and deputy chief of the Accounting System Division of the Budget Department of theMOF from April 1974 to April 1981. Mr. Wang graduated from Hebei College of Finance andEconomics in planning and statistics in August 1964.

Mr. MIAO Gengshu, 65, has served as an external supervisor of our bank since October 2005.Mr. Miao has served as an external director and chairman of the board of directors of China NationalForeign Trade Transportation (Group) Corporation since December 2005 and an external director ofChina Railway Communication Co., Ltd. since February 2005. Mr. Miao has been chairman of theChinese side of the China and Brazil Entrepreneur Committee since May 2004 and vice president ofthe China International Trade Society since June 2003. Mr. Miao has been a member of the 10thNational People’s Political Consultative Conference (NPPCC) and a member of the Foreign AffairsCommittee of the NPPCC since 2003. Mr. Miao served as chairman of the board of directors ofMinmetals Development Co., Ltd. from September 1997 to March 2005, president of China MinmetalCorporation from September 1997 to December 2004, and deputy director of the Shanghai ForeignEconomics and Trade Commission from May 1990 to September 1997. He joined Shanghai Metals &Minerals Import & Export Company in August 1966 and was vice general manager and then generalmanager from May 1983 to May 1990. Mr. Miao graduated from Tianjin Foreign Trade College inAugust 1966.

Mr. ZHANG Wei, 44, has served as a supervisor representing employees of our bank sinceAugust 2006, and has served as the general manager of our Legal Affairs Department of our bank sinceJune 2004. Mr. Zhang was vice general manager of our Legal Affairs Department from February 2000to June 2004, deputy chief of the Comprehensive Division and then chief of Comprehensive BusinessDivision of our General Administration Department from November 1996 to February 2000. Mr.Zhang joined our bank in July 1994. He is also the deputy director and arbitrator of the FinanceCommittee of the China International Economic and Trade Arbitration Commission, supervisor ofmaster candidates in the Central University of Finance and Economics, council member of the ChinaFinance Society and member of the Standing Committee and Academic Committee of the China UrbanFinance Society. From September 1979 to July 1983, Mr. Zhang enrolled in the Northeast NormalUniversity and obtained a Bachelor’s degree in law. From September 1985 to July 1988, he enrolled inthe master program in Jilin University and obtained a Master’s degree in law. From September 1991 toJuly 1994, Mr. Zhang enrolled in the Ph.D. program of Beijing University and obtained a Doctoratedegree in law.

Senior Management

The following table sets forth information regarding our senior management. The businessaddress of our senior management is c/o Industrial and Commercial Bank of China Limited, No. 55Fuxingmennei Avenue, Xicheng District, Beijing 100032, China. Our senior management all meet the

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qualification requirements under the relevant PRC laws and regulations for their respective positions.Our senior management are responsible for the day-to-day management of our business.

Name Age Position

Mr. YANG Kaisheng . . . . . . . . . . . . . . . . . 56 PresidentMr. ZHANG Furong . . . . . . . . . . . . . . . . . . 53 Vice presidentMr. NIU Ximing . . . . . . . . . . . . . . . . . . . . . 50 Vice presidentMr. ZHANG Qu . . . . . . . . . . . . . . . . . . . . . 59 Vice presidentMs. WANG Lili . . . . . . . . . . . . . . . . . . . . . 55 Vice presidentMr. LI Xiaopeng . . . . . . . . . . . . . . . . . . . . . 47 Vice presidentMr. LIU Lixian . . . . . . . . . . . . . . . . . . . . . . 52 Secretary of party discipline committeeMr. YI Huiman . . . . . . . . . . . . . . . . . . . . . . 41 Member of senior management, President of our Beijing

BranchMr. WEI Guoxiong . . . . . . . . . . . . . . . . . . . 51 Chief risk officerMr. PAN Gongsheng . . . . . . . . . . . . . . . . . 43 Secretary of the board of directors

Mr. YANG Kaisheng, 56, vice chairman of our board of directors, an executive director andpresident of our bank. See “—Directors.”

Mr. ZHANG Furong, 53, an executive director and vice president of our bank. See“—Directors.”

Mr. NIU Ximing, 50, an executive director and vice president of our bank. See “—Directors.”

Mr. ZHANG Qu, 59, has served as vice president of our bank since November 2000. He isprimarily responsible for matters relating to our bank card, risk management, information technologyand e-banking. Mr. Zhang served as president of our Guangdong Branch from July 1998 to November2000, president of our Zhejiang Branch from May 1997 to July 1998, vice president of our ZhejiangBranch and president of our Hangzhou Branch concurrently from November 1995 to May 1997,president of our Hangzhou Branch from April 1994 to November 1995, vice president of ourHangzhou Branch from July 1986 to April 1994 and deputy director of the General Office of ourZhejiang Branch from January 1985 to July 1986. Prior to joining our bank, Mr. Zhang worked at thePBOC Hangzhou Branch from July 1979 to December 1984. Mr. Zhang graduated from JinanUniversity with a Doctorate degree in economics in January 2003.

Ms. WANG Lili, 55, has served as vice president of our bank since November 2000. She isprimarily responsible for matters relating to our assets and liabilities management, corporate bankingbusiness, international business, financial market business and legal affairs. Prior to joining our bank,Ms. Wang worked with Bank of China since October 1975 and served as assistant to its president fromNovember 1998 to November 2000, general manager of its Credit Management Department from July1997 to November 1998, vice general manager of its Credit Management Department from September1996 to July 1997 and vice general manager of its Credit Department One from January 1996 toSeptember 1996. Ms. Wang graduated from Nankai University in October 1975 and received an MBAdegree from the University of Birmingham of United Kingdom in December 1995. Ms. Wang currentlyis also vice chairman of the board of directors of ICBC (Asia) and chairman of the board of directors ofICBC (London). She is also an executive director of the International Chamber of Commerce, Chineserepresentative of the APEC Business Advisory Council and a member of the APEC Women LeadersNetwork of the World.

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Mr. LI Xiaopeng, 47, has served as vice president of our bank since September 2004. He isprimarily in charge of matters relating to our investment banking, institutional banking and enterpriseannuity business. He was an assistant to the president of our bank and president of our Beijing Branchconcurrently from December 2002 to September 2004. Prior to those positions, Mr. Li was vice presidentof Huarong from October 1999 to December 2002. Mr. Li served as president of our Sichuan Branchfrom September 1998 to September 1999, general manager of our Banking Department from July 1996to September 1998 and vice president of our Henan Branch from October 1995 to July 1996. Prior tojoining our bank in November 1984, Mr. Li worked at the PBOC since September 1979. Mr. Ligraduated from Zhengzhou University with a Bachelor’s degree in finance in June 1994 and received anMBA degree from Beijing Institute of Technology in September 1997. He graduated from the Ph. D.program in finance at Wuhan University in June 2006.

Mr. LIU Lixian, 52, has served as secretary of our party discipline committee since May 2005.He is primarily responsible for matters relating to our discipline enforcement, security and labor union.Prior to that position, Mr. Liu was vice president of Huarong from September 2003 to May 2005 andSecretary of its Party Discipline Committee from August 2001 to May 2005. Mr. Liu worked at theSupreme People’s Procuratorate from February 1982 to August 2001, where he assumed variouspositions, including deputy director of its Bribery and Corruption Inspection Division, deputy directorof its General Bureau of Anti-bribery and Corruption, director of its Inspection and TechnologyBureau, and director of its Inspection Theory Research Institute. Mr. Liu graduated from JilinUniversity with a Bachelor’s degree in law in February 1982.

Mr. YI Huiman, 41, has served concurrently as a member of the senior management team of ourbank and as president of our Beijing Branch since June 2005. Prior to that position, Mr. Yi served aspresident of our Beijing Branch from March 2005, president of our Jiangsu Branch from October 2000to March 2005, vice president of our Jiangsu Branch from January 2000 to October 2000, vicepresident of our Zhejiang Branch from July 1998 to January 2000, vice president of our HangzhouBranch from April 1994 to July 1998. Mr. Yi worked with the PBOC Hangzhou Branch from August1984 to January 1985 prior to joining us in January 1985. He graduated from Hangzhou College ofElectronics in statistics in July 1988 and obtained a Bachelor’s degree in banking management fromHangzhou Financial Management Cadre School in July 1996. He studied in a graduate program ofmanagement engineering in Zhejiang University from March 1995 to February 1997. Currently, he isstudying at the Management Engineering College of Nanjing University.

Mr. WEI Guoxiong, 51, has served as our chief risk officer since July 2006. Prior to thatposition, Mr. Wei served as general manager of our credit management department since July 2001 andwas mainly responsible for our corporate credit business, general manager of our industrial andcommercial credit department from November 2000 to July 2001, vice president of our ZhejiangBranch from November 1995 to November 2000, and acting president of our Wenzhou Branch inZhejiang Province from December 1993 to November 1995. Mr. Wei joined our bank in October 1987.Mr. Wei graduated from Tianjin College of Finance and Economics in July 1984 with a Bachelor’sdegree in economics. He studied in Tianjin College of Finance and Economics from July 1984 toOctober 1987 and received a Master’s degree in economics in July 1987.

Mr. PAN Gongsheng, 43, has served as secretary of our board of directors since October 2005,as our company secretary since September 2006, as director of the General Office of our board ofdirectors since February 2006, and as director of our Restructuring Office since December 2004. FromJune 2004 to November 2005, Mr. Pan was general manager of our Financial Planning Department.

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From April 2003 to June 2004, he was vice general manager of our Financial Planning Department,and from June 2003 to June 2004, he was concurrently vice president of our Shenzhen Branch. FromFebruary 2000 to April 2003, he was concurrently vice general manager of our Human ResourcesDepartment and director of our Postdoctoral Workstation Office. Mr. Pan joined our bank in July 1993.Mr. Pan graduated from Zhejiang Metallurgy College with an associate Bachelor’s degree in financialaccounting in July 1983, and taught at the Department of Economics in this college from July 1983 toJuly 1987. He studied in Renmin University of China from September 1987 to July 1993 and receivedboth a Master’s degree in economics in July 1990 and a Doctorate degree in economics in July 1993from Renmin University of China. Mr. Pan was a postdoctoral research fellow at the University ofCambridge from October 1997 to July 1998. He also received on-the-job training at StandardChartered Bank of United Kingdom from July 1998 to March 1999.

Company Secretary

Mr. PAN Gongsheng, 43, secretary of our board of directors and company secretary. See “—Senior Management.”

Qualified Accountant

Mr. YEUNG Man Hin, 49, is a senior fellow of the Association of Chartered CertifiedAccountants of United Kingdom and a member of Hong Kong Institute of Certified Public Accountants.He has served as our qualified accountant since September 2006 and is employed by us on a full-timebasis. From October 2005, Mr. Yeung has been deputy director of the Financial ManagementDepartment, ICBC (Asia). From July 2001 to October 2005, he served as manager of the FinancialManagement Department, ICBC (Asia). From November 1995 to June 2001, he held the position ofdirector of the Accounting Department, ICBC Hong Kong Branch, and from July 1995 to November1995, he was manager of the Accounting Department, ICBC Hong Kong Representative Office. FromMarch 1993 to June 1995, Mr. Yeung worked as manager of the Accounting & InformationManagement System Department, Rabobank Hong Kong Branch. From July 1982 to March 1993, hewas manager in Accounting Department at ABN AMRO Bank, and from July 1980 to July 1982, he wasan auditor at Coopers & Lybrand. He graduated from the Chinese University of Hong Kong with aBachelor’s degree in business administration in 1980.

BOARD OF DIRECTORS COMMITTEES

Our board of directors delegates certain responsibilities to various committees. In accordancewith relevant PRC laws and regulations, we have formed strategy, audit, risk management, nominationand compensation committees and a related party transactions control sub-committee under the riskmanagement committee.

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Strategy Committee

Our strategy committee consists of 14 directors: Mr. JIANG Jianqing, Mr. YANG Kaisheng,Mr. ZHANG Furong, Mr. NIU Ximing, Mr. FU Zhongjun, Mr. KANG Xuejun, Mr. SONG Zhigang,Mr. WANG Wenyan, Ms. ZHAO Haiying, Mr. ZHONG Jian’an, Mr. Christopher A. COLE,Mr. LEUNG Kam Chung, Antony, Mr. John L. THORNTON and Mr. QIAN Yingyi. Mr. JIANGJianqing currently serves as the chairman of our strategy committee. The primary responsibilities ofour strategy committee include:

Š reviewing strategic development plans;

Š reviewing annual financial budgets and final accounts;

Š reviewing strategic capital allocation and management objectives of assets and liabilities;

Š conducting overall development planning for various financial businesses;

Š reviewing material restructuring and re-organization plans;

Š reviewing significant investment and financing projects;

Š reviewing merger and acquisition plans;

Š reviewing strategic development of domestic and overseas branches and subsidiaries;

Š reviewing human resources strategy development plans;

Š reviewing information technology development and other strategic development plans;and

Š reviewing and evaluating our corporate governance structure.

Audit Committee

Our audit committee consists of five directors: Mr. LEUNG Kam Chung, Antony, Mr. KANGXuejun, Ms. ZHAO Haiying, Mr. John L. THORNTON and Mr. QIAN Yingyi. Mr. LEUNG KamChung, Antony currently serves as the chairman of our audit committee. The primary responsibilitiesof our audit committee include:

Š supervising our internal controls, reviewing our core business and management proceduresand their implementation, and examining and evaluating the compliance and effectivenessof our principal business activities;

Š reviewing financial information and its disclosure, reviewing our significant financialpolicies and their implementation, supervising financial operations, and monitoring theauthenticity of our financial reports and the effectiveness of the management’simplementation of our financial reporting procedures;

Š examining, monitoring and assessing the performance of our internal audit functions,supervising the compliance of our internal audit policies, and evaluating the proceduresand performance of our internal audit departments;

Š proposing the appointment or replacement of our external auditors, adopting appropriatemeasures to supervise their performance, reviewing external auditors’ reports, andensuring external auditors’ ultimate responsibilities to the board of directors and auditcommittee; and

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Š facilitating communications between our internal audit departments and our externalauditors.

Risk Management Committee

Our risk management committee consists of nine directors: Mr. LEUNG Kam Chung, Antony,Mr. ZHANG Furong, Mr. NIU Ximing, Mr. KANG Xuejun, Mr. SONG Zhigang, Mr. ZHONGJian’an, Mr. Christopher A. COLE, Mr. John L. THORNTON and Mr. QIAN Yingyi. Mr. LEUNGKam Chung, Antony currently serves as the chairman of our risk management committee. For adescription of the primary responsibilities of our risk management committee, see “RiskManagement—Risk Management Structure—Board of Directors and Board Committees.”

Related Party Transactions Control Sub-Committee

We established our related party transactions control sub-committee under our riskmanagement committee in accordance with applicable PRC laws, regulations and rules. Our relatedparty transactions control sub-committee consists of three directors: Mr. LEUNG Kam Chung, Antony,Mr. John L. THORNTON and Mr. QIAN Yingyi. Mr. LEUNG Kam Chung, Antony currently servesas the chairman of our related party transactions control sub-committee. The primary responsibilities ofour related party transactions control sub-committee include:

Š identifying and reporting to the board of directors and board of supervisors on our relatedparties and informing our relevant staff in a timely manner about the identification ofrelated parties;

Š conducting a preliminary review of the related party transactions subject to approval bythe board of directors or the shareholders’ general meeting and submitting the related partytransactions to the board of directors or the shareholders’ general meeting for approval;and

Š reviewing and approving related party transactions and other matters regarding relatedparty transactions as authorized by our board of directors, and maintaining records ofrelated party transactions.

The scope of responsibility of the related party transactions control sub-committee is primarilybased on applicable PRC laws, regulations and rules, in particular the Administrative Measures onConnected Transactions between Commercial Banks and Insiders or Shareholders.

Nomination and Compensation Committee

Our nomination and compensation committee consists of six directors: Mr. QIAN Yingyi,Mr. YANG Kaisheng, Mr. FU Zhongjun, Mr. WANG Wenyan, Mr. LEUNG Kam Chung, Antony andMr. John L. THORNTON. Mr. QIAN Yingyi currently serves as the chairman of our nomination andcompensation committee. The primary responsibilities of our nomination and compensation committeeinclude:

Š drafting standards and procedures for the election of directors and senior managementmembers and submitting the proposed standards and procedures to the board of directorsfor approval;

Š proposing to the board of directors the candidates for directors, the president and thesecretary;

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Š examining and proposing to the board of directors senior management candidatesnominated by the president;

Š nominating the chairman and members of special committees of the board of directors;

Š drafting development plans for senior management members and key talents;

Š drafting assessment measures of directors, and compensation plans for directors andsupervisors (the compensation plans of supervisors need to be consulted with the board ofsupervisors), and submitting them to the board of directors for approval and then to theshareholders’ general meeting for resolution;

Š assessing the performances of directors, advising and proposing to the board of directorsthe compensation of directors for approval and then reporting to the shareholders’ generalmeeting for resolution;

Š advising and proposing to the board of directors the compensation of supervisors forapproval and then reporting to the shareholders’ general meeting for resolution accordingto the assessment of supervisors given by the board of supervisors; and

Š drafting and examining assessment measures and compensation plans for seniormanagement members, assessing the performances and conduct of senior managementmembers and submitting the assessment results to the board of directors for approval, andthen to the shareholders’ general meeting for approval, if necessary.

BOARD OF SUPERVISORS COMMITTEE

There is a supervision committee under our board of supervisors, which functions inaccordance with authorization from our board of supervisors and reports to our board of supervisors.Under the rules of procedure of the supervision committee, it is required to have at least four meetingsevery year.

Supervision Committee

Our supervision committee consists of three supervisors: Mr. WANG Daocheng, Ms. WANGChixi and Mr. MIAO Gengshu. Mr. WANG Daocheng currently serves as the chairman of oursupervision committee. The primary responsibilities of our supervision committee include:

Š drafting inspection and supervision plans for our financial activities;

Š drafting departure audit plans for our directors, president and other members of the seniormanagement; and

Š drafting audit plans for our decision-making process, risk management and internal controlwhen necessary.

COMPENSATION OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

We offer our executive directors, supervisors and senior management members, who are alsoemployees of our bank, various compensation in the form of salaries, bonuses, enterprise annuities,social security plans, housing provident fund plans which are defined as contribution plans and otherbenefits. Our independent non-executive directors and external supervisors receive compensationbased on their responsibilities, and as of the Latest Practicable Date, our non-executive directors

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(except for independent non-executive directors) have not received any compensation from us. Theaggregate amount of pre-tax compensation paid to our directors, supervisors and senior managementmembers for the six months ended June 30, 2006 and the years ended December 31, 2005, 2004 and2003 was approximately RMB6,441,000, RMB8,343,000, RMB3,672,000 and RMB2,330,000,respectively. As required by PRC regulations and rules, we participate in various retirement benefits,enterprise annuities, social security plans and housing provident fund plans organized by provincialand municipal governments for our employees (including employees who are directors, supervisorsand senior management members). We contributed approximately RMB490,000, RMB1,511,000,RMB388,000, RMB307,000 in the aggregate to these plans for our directors, supervisors and seniormanagement members for the six months ended June 30, 2006 and the years ended December 31,2005, 2004 and 2003, respectively.

The aggregate amount of pre-tax compensation we paid to our five highest paid individuals forthe six months ended June 30, 2006 and the years ended December 31, 2005, 2004 and 2003 wasapproximately RMB7,552,000, RMB18,066,000, RMB16,896,000 and RMB15,487,000, respectively.The five highest paid individuals are all staff of our overseas subsidiaries. The aggregate amount ofpre-tax compensation we paid to the five highest paid individuals of our head office, domestic branchesor subsidiaries for the six months ended June 30, 2006 and the years ended December 31, 2005, 2004and 2003 was approximately RMB2,602,000, RMB3,965,000, RMB2,648,000 and RMB1,702,000,respectively.

Under the existing arrangements currently in force, the aggregate amount of pre-taxremuneration payable to and benefits-in-kind received by our directors, supervisors and seniormanagement members for the year ending December 31, 2006 is estimated to be approximatelyRMB12,434,000 and RMB1,807,000, respectively.

SHARE APPRECIATION RIGHTS POLICY

In order to motivate and incentivize our management and other key employees, our board ofdirectors and shareholders have adopted a share appreciation rights policy, pursuant to which we willimplement a share appreciation rights plan.

Our share appreciation rights policy provides that eligible participants include directors,supervisors, senior management and other personnel designated by the board. Eligible participants willbe granted share appreciation rights, 25% of which will become exercisable each year after the thirdanniversary from the date of the grant, with all exercisable after seven years from the date of the grant.Share appreciation rights will be valid for ten years from the date of grant. Share appreciation rightswill be granted and exercised based on the price of our H shares. Eligible participants will be entitledto receive an amount equal to the difference, if any, between (i) the market price of our H shares on thedate of exercise and (ii) a price that is not lower than the market closing price of our H shares on thedate of grant (trading day) or the average closing market price of our H shares during the five tradingdays immediately preceding the date of grant, as adjusted for any change in our equity. We will grantshare appreciation rights for the first time in the first six months following the completion of theGlobal Offering. Total shares represented by share appreciation rights granted for the first time in thefirst six months after the Global Offering will not exceed 0.5% of our total share capital and the totalshares represented by all share appreciation rights granted will be limited in the amount stated in therelevant regulations of the State. See “Appendix IX—Statutory and General Information—4. OtherInformation—J. Share Appreciation Rights.”

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No shares will be issued under the share appreciation rights plan. Accordingly, the shareholdingof the shareholders will not be diluted by any grant or exercise of share appreciation rights under theplan.

WAIVER FROM RULES 8.12 AND 19A.15 OF THE HONG KONG LISTING RULES

According to Rule 8.12 and Rule 19A.15 of the Hong Kong Listing Rules, an issuer must havea sufficient management presence in Hong Kong with at least two of the issuer’s executive directorsordinarily resident in Hong Kong. We conduct substantially all of our operations in the PRC. Most ofour directors reside in the PRC, with all of our executive directors ordinarily resident in the PRC. Wedo not and, for the foreseeable future, will not have a sufficient management presence in Hong Kong.We will have certain internal arrangements to maintain effective communication with the Hong KongStock Exchange, including (i) appointing Mr. YANG Kaisheng and Mr. PAN Gongsheng as ourauthorized representatives to act as our principal channel of communication with the Hong Kong StockExchange; and (ii) retaining China International Capital Corporation (Hong Kong) Limited and MerrillLynch Far East Limited as compliance advisors to act as our principal channel of communication withthe Hong Kong Stock Exchange for the period commencing from the Listing Date and ending on thedate when our bank publishes its first full year results pursuant to Rule 3A.19 and Rule 19A.06(4) ofthe Hong Kong Listing Rules. Accordingly, we have obtained from the Hong Kong Stock Exchange awaiver from strict compliance with Rule 8.12 and Rule 19A.15 of the Hong Kong Listing Rules whichrequire us to have a sufficient management presence in Hong Kong.

WAIVER FROM RULES 8.17 AND 19A.16 OF THE HONG KONG LISTING RULES

Mr. PAN Gongsheng, our company secretary, does not possess the relevant qualification underRule 8.17 of the Hong Kong Listing Rules. Our company has appointed Ms. CHENG (Cathy) Puilingwho is a Hong Kong resident and a Hong Kong qualified solicitor (which is the required qualificationstipulated in Rule 8.17(2) of the Hong Kong Listing Rules) to act as an assistant to Mr. Pan and willcontinue to do so for a minimum period of three years after the Listing Date, to ensure that Mr. Panwill be able to acquire the necessary experience to satisfy the requirements of Rule 8.17(3) of the HongKong Listing Rules. In this regard, we also have procedures in place to provide Mr. Pan withappropriate training in order to enable Mr. Pan to acquire such necessary experience. We have obtainedfrom the Hong Kong Stock Exchange a waiver from strict compliance with the requirements underRule 8.17 and Rule 19A.16 of the Hong Kong Listing Rules, in appointing Mr. Pan as our companysecretary for a period of three years under the condition that and only so long as Ms. CHENG (Cathy)Puiling is appointed as an assistant to Mr. Pan as described above. Upon the expiry of the three-yearperiod, we will re-evaluate the qualifications of Mr. Pan to determine whether the requirements of Rule8.17 can be satisfied.

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SUBSTANTIAL SHAREHOLDERS

This section presents certain information regarding the shareholding percentage of ourshareholders following the completion of the Global Offering and, where relevant, the A ShareOffering.

Substantial Shareholders

At the Latest Practicable Date, our share capital is RMB286,509,130,026 comprising286,509,130,026 shares. The interests of our shareholders in our issued share capital are as follows:

NameNumber of

shares

Approximatepercentage

of issued sharecapital (%)

MOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,000,000,000 43.2796%Huijin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,000,000,000 43.2796Goldman Sachs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,476,014,155 5.7506SSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,324,392,623 4.9996Allianz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,432,601,015 2.2452American Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,276,122,233 0.4454

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286,509,130,026 100%

Immediately following completion of the Global Offering and the A Share Offering, assumingthat neither of the over-allotment options for the Global Offering and the A Share Offering isexercised, our share capital will be RMB327,821,930,026 comprising 77,245,975,188 H shares and250,575,954,838 A shares, representing 23.56% and 76.44%, respectively, of our share capital.Particulars of the shareholdings are as follows:

NameNumber of

shares



MOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,787,977,419 36.2355%Huijin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,787,977,419 36.2355SSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,670,237,785 5.3902Goldman Sachs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,476,014,155 5.0259Allianz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,432,601,015 1.9622American Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,276,122,233 0.3893H shares issued and sold pursuant to the Global Offering . . . . . . . . . . . . . . . . . . . 35,391,000,000 10.7958A shares issued pursuant to the A Share Offering . . . . . . . . . . . . . . . . . . . . . . . . . 13,000,000,000 3.9656

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327,821,930,026 100%

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Immediately following the completion of the Global Offering and the A Share Offering,assuming full exercise of the over-allotment options for the Global Offering and the A Share Offering,our share capital will be RMB334,018,850,026, comprising 83,056,501,962 H shares and250,962,348,064 A shares, representing 24.87% and 75.13%, respectively, of our share capital.Particulars of the shareholdings are as follows:

NameNumber of

shares



MOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,006,174,032 35.3292%Huijin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,006,174,032 35.3292SSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,172,114,559 5.4404Goldman Sachs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,476,014,155 4.9327Allianz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,432,601,015 1.9258American Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,276,122,233 0.3821H shares issued and sold pursuant to the Global Offering . . . . . . . . . . . . . . . . . . . 40,699,650,000 12.1848A shares issued pursuant to the A Share Offering . . . . . . . . . . . . . . . . . . . . . . . . . 14,950,000,000 4.4758

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334,018,850,026 100%

Immediately following the completion of the Global Offering, assuming no exercise of the over-allotment option for the Global Offering and without giving effect to the A Share Offering, our sharecapital will be RMB314,821,930,026, comprising 237,575,954,838 shares held by the MOF and Huijinand 77,245,975,188 H shares, representing 75.46% and 24.54%, respectively, of our share capital.Particulars of the shareholdings are as follows:

NameNumber of

shares



MOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,787,977,419 37.7318%Huijin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,787,977,419 37.7318SSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,670,237,785 5.6128Goldman Sachs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,476,014,155 5.2334Allianz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,432,601,015 2.0433American Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,276,122,233 0.4053H shares issued and sold pursuant to the Global Offering . . . . . . . . . . . . . . . . . . . 35,391,000,000 11.2416

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314,821,930,026 100%

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Immediately following the completion of the Global Offering, assuming full exercise of theover-allotment option for the Global Offering and without giving effect to the A Share Offering, ourshare capital will be RMB319,068,850,026, comprising 236,012,348,064 shares held by the MOF andHuijin and 83,056,501,962 H shares, representing 73.97% and 26.03%, respectively, of our sharecapital. Particulars of the shareholdings are as follows.

NameNumber of

shares



MOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,006,174,032 36.9845%Huijin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,006,174,032 36.9845SSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,172,114,559 5.6954Goldman Sachs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,476,014,155 5.1638Allianz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,432,601,015 2.0160American Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,276,122,233 0.4000H shares issued and sold pursuant to the Global Offering . . . . . . . . . . . . . . . . . . . 40,699,650,000 12.7558

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319,068,850,026 100%

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SHARE CAPITAL

This section presents certain information regarding our share capital following the completionof the Global Offering and, where relevant, the A Share Offering.

Before Global Offering

At the Latest Practicable Date, our share capital is RMB286,509,130,026 comprising286,509,130,026 shares. The interests of our shareholders in our issued share capital are as follows:

Name NatureNumber of

shares



MOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State-owned shares 124,000,000,000 43.2796%Huijin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State-owned shares 124,000,000,000 43.2796Goldman Sachs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign legal person shares 16,476,014,155 5.7506SSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State-owned shares 14,324,392,623 4.9996Allianz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign legal person shares 6,432,601,015 2.2452American Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign legal person shares 1,276,122,233 0.4454

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286,509,130,026 100%

Upon Completion of Global Offering and A Share Offering

Immediately following completion of the Global Offering and the A Share Offering, assumingthat neither of the over-allotment options for the Global Offering and the A Share Offering isexercised, our share capital will be RMB327,821,930,026 comprising 77,245,975,188 H shares and250,575,954,838 A shares, representing 23.56% and 76.44%, respectively, of our share capital.Particulars of the shareholdings are as follows:


shares



MOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note(1) 118,787,977,419 36.2355%Huijin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note(1) 118,787,977,419 36.2355SSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 17,670,237,785 5.3902Goldman Sachs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 16,476,014,155 5.0259Allianz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 6,432,601,015 1.9622American Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 1,276,122,233 0.3893H shares issued and sold pursuant to the Global Offering . . . . . . . . . . . H shares 35,391,000,000 10.7958A shares issued pursuant to the A Share Offering . . . . . . . . . . . . . . . . . A shares 13,000,000,000 3.9656

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327,821,930,026 100%

(1) For information relating to the shares held by the MOF and Huijin, please refer to “—Shares held by the MOF and Huijin.”

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SHARE CAPITAL

Immediately following the completion of the Global Offering and the A Share Offering,assuming full exercise of the over-allotment options for the Global Offering and the A Share Offering,our share capital will be RMB334,018,850,026, comprising 83,056,501,962 H shares and250,962,348,064 A shares, representing 24.87% and 75.13%, respectively, of our share capital.Particulars of the shareholdings are as follows:


shares



MOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note(1) 118,006,174,032 35.3292%Huijin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note(1) 118,006,174,032 35.3292SSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 18,172,114,559 5.4404Goldman Sachs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 16,476,014,155 4.9327Allianz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 6,432,601,015 1.9258American Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 1,276,122,233 0.3821H shares issued and sold pursuant to the Global Offering . . . . . . . . . . . H shares 40,699,650,000 12.1848A shares issued pursuant to the A Share Offering . . . . . . . . . . . . . . . . . A shares 14,950,000,000 4.4758

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334,018,850,026 100%

(1) For information relating to the shares held by the MOF and Huijin, please refer to “—Shares held by the MOF and Huijin.”

Upon Completion of Global Offering

Immediately following the completion of the Global Offering, assuming no exercise of theover-allotment option for the Global Offering and without giving effect to the A Share Offering, ourshare capital will be RMB314,821,930,026, comprising 237,575,954,838 shares held by the MOF andHuijin and 77,245,975,188 H shares, representing 75.46% and 24.54%, respectively, of our sharecapital. Particulars of the shareholdings are as follows:


shares



MOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State-owned shares 118,787,977,419 37.7318%Huijin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State-owned shares 118,787,977,419 37.7318SSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 17,670,237,785 5.6128Goldman Sachs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 16,476,014,155 5.2334Allianz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 6,432,601,015 2.0433American Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 1,276,122,233 0.4053H shares issued and sold pursuant to the Global Offering . . . H shares 35,391,000,000 11.2416

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314,821,930,026 100%

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SHARE CAPITAL

Immediately following the completion of the Global Offering, assuming full exercise of theover-allotment option for the Global Offering and without giving effect to the A Share Offering, ourshare capital will be RMB319,068,850,026, comprising 236,012,348,064 shares held by the MOF andHuijin and 83,056,501,962 H shares, representing 73.97% and 26.03%, respectively, of our sharecapital. Particulars of the shareholdings are as follows:


shares



MOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State-owned shares 118,006,174,032 36.9845%Huijin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State-owned shares 118,006,174,032 36.9845SSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 18,172,114,559 5.6954Goldman Sachs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 16,476,014,155 5.1638Allianz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 6,432,601,015 2.0160American Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H shares 1,276,122,233 0.4000H shares issued and sold pursuant to the Global Offering . . . H shares 40,699,650,000 12.7558

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319,068,850,026 100%

RANKING

The H shares and A shares in issue upon completion of the Global Offering and the A ShareOffering will be ordinary shares in the share capital of our company. However, apart from Chinesequalified domestic institutional investors, H shares generally cannot be subscribed for by or tradedbetween legal or natural persons of China. A shares, on the other hand, can only be subscribed for byand traded between legal or natural persons of China, qualified foreign institutional investors orqualified foreign strategic investors and must be traded in Renminbi. All dividends in respect of the Hshares are to be paid by us in Hong Kong dollars whereas all dividends in respect of A shares are to bepaid by us in Renminbi.

In addition, A and H shares are regarded as different classes of shares under our articles ofassociation. The differences between the two classes of shares, including provisions on class rights, thedispatch of notices and financial reports to shareholders, dispute resolution, registration of shares ondifferent branches of the register of shareholders, the method of share transfer and appointment ofdividend receiving agents are set out in our articles of association and summarized in Appendix VIII tothis prospectus. Further, any change or abrogation of the rights of class shareholders should beapproved by way of a special resolution of the general meeting of shareholders and by a separatemeeting of shareholders convened by the affected class shareholders. However, the procedures forapproval by separate class shareholders shall not apply (i) where we issue, upon approval by a specialresolution of our shareholders in a general meeting, either separately or concurrently every twelvemonths, not more than 20% of each of the existing issued A shares and H shares; (ii) where our plan toissue A shares and H shares on establishment is implemented within fifteen months from the date ofapproval by the securities regulatory authorities of the State Council; or (iii) to the conversion by ourpromoters of their shares to H shares upon receiving the approval of the CSRC or the authorizedsecurities approval authorities of the State Council. A shares and H shares will however rank paripassu with each other in all other respects and, in particular, will rank equally for all dividends ordistributions declared, paid or made after the date of this prospectus.

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SHARE CAPITAL

A and H shares are generally neither interchangeable nor fungible, and the market prices of ourA shares and H shares may be different after the Global Offering and A Share Offering.

SHARES HELD BY THE MOF AND HUIJIN

Upon completion of our Global Offering and the A Share Offering, all the shares held by theMOF and Huijin will be registered as A shares. These shares will be deposited with the ChinaSecurities Depository and Clearing Corporation Limited and are expected to be approved for listing onthe Shanghai Stock Exchange. Upon the Hong Kong Stock Exchange granting us approval for thelisting of our H shares as part of the Global Offering, all the shares held by the MOF and Huijin will beapproved for listing on the Hong Kong Stock Exchange and could, subject to completion of certainprocedural requirements, be listed on the Hong Kong Stock Exchange. The relevant proceduralrequirements are the withdrawal of such shares from the China Securities Depository and ClearingCorporation Limited and re-registering such shares on our branch share register maintained in HongKong, on the condition that (a) our Hong Kong branch share registrar lodges with the Hong KongStock Exchange a letter confirming the proper entry of the relevant shares on the Hong Kong branchshare register, and the due dispatch of share certificates, and (b) the admission of the shares to trade inHong Kong will comply with the Hong Kong Listing Rules and the General Rules of CCASS andCCASS Operational Procedures in force from time to time. Until such shares are re-registered on ourHong Kong branch share register, such shares would not be listed as H shares, and holders thereof willnot be entitled to attend and vote at meetings of H shareholders in respect of such shares. Aftercompletion of our Global Offering, no further approval from the Hong Kong Stock Exchange or of ourshareholders (including our H shareholders) would be required for the listing of such shares as Hshares on the Hong Kong Stock Exchange. However, prior to the shares held by the MOF and Huijinbecoming listed as H shares on the Hong Kong Stock Exchange, holders thereof would require theapproval of the CSRC or the authorized securities approval authorities of the State Council.

To effect the withdrawal of their shares that are deposited with the China Securities Depositoryand Clearing Corporation Limited and re-register such shares on our Hong Kong branch share register,the MOF or Huijin shall issue to us a removal request on a prescribed form in respect of a specifiednumber of shares attaching the relevant documents of title. Subject to our being satisfied with theauthenticity of the document, and with the approval of our board of directors, we would then issue anotice to our Hong Kong branch share registrar with instructions that, with effect from a specified date,our Hong Kong branch share registrar is to issue the relevant holders with H share certificates for suchspecified number of shares. The relevant holders’ shareholding interest deposited with the ChinaSecurities Depository and Clearing Corporation Limited would then be correspondingly reduced. Inaddition, we will comply with the Hong Kong Listing Rules in respect of the issuance of anannouncement to inform shareholders and the public of such fact not less than three days prior to theproposed specified date. We will also comply with the Shanghai Stock Exchange Securities ListingRules in respect of the issuance of announcements to shareholders and the public.

Upon completion of the Global Offering and the A Share Offering and the deposit of the sharesheld by the MOF and Huijin with the China Securities Depository and Clearing Corporation Limited,the MOF and Huijin will be subject to the following regulatory transfer restrictions:

Š Under the PRC Company Law, shares which have been in issue before we publicly issueshares are prevented from being transferred within one year from the date of listing on astock exchange.

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SHARE CAPITAL

Š Under the Hong Kong Listing Rules, the MOF and Huijin, as our controlling shareholders,are prevented from, amongst others (i) disposing of or agreeing to dispose any of ourshares for a period of six months from the date of listing on the Hong Kong StockExchange and (ii) during a period of six months thereafter, disposing of or agreeing todispose of any of our shares if, immediately after such disposition, they would respectivelycease to be one of our controlling shareholders.

Š Under the Shanghai Stock Exchange Securities Listing Rules, all the A shares held by theMOF and Huijin are subject to a 36-month lock-up restriction from the date of listing onthe Shanghai Stock Exchange.

Upon any re-registration of the shares of the MOF and Huijin on our Hong Kong branch shareregister, the MOF and Huijin will remain subject to the above transfer restrictions under the PRCCompany Law and Hong Kong Listing Rules to the extent that such restrictions have not expired.However, the 36-month lock-up restriction under the Shanghai Stock Exchange Securities ListingRules will not apply to such converted H shares.

TRANSFER OF SHARES ISSUED PRIOR TO THE GLOBAL OFFERING AND A SHAREOFFERING

The PRC Company Law provides that in relation to the public offering of a company, theshares issued by a company prior to the public offering of shares shall not be transferred within aperiod of one year from the date on which the publicly offered shares commence trading on any stockexchange. Accordingly, shares issued by us prior to the listing date shall generally be subject to thisstatutory restriction and shall not be transferred within a period of one year from the listing date.However, the shares to be transferred by the MOF, Huijin and the SSF, respectively, to the SSF inaccordance with relevant PRC regulations regarding disposal of state-owned shares (see “Transfer ofState-owned Shares” below) and shares sold by the Selling Shareholders as part of the Global Offeringare not subject to such statutory restrictions on transfer.

TRANSFER OF STATE-OWNED SHARES

In accordance with relevant PRC regulations regarding disposal of state-owned shares, ourstate-owned shareholders, namely the MOF, Huijin and the SSF, are required to transfer to the SSF, inproportion to their respective holdings in our bank, such number of shares in aggregate equivalent to10% of the number of the Offer Shares (3,539,100,000 shares before the exercise of the over-allotmentoption for the Global Offering, and an additional 530,865,000 shares upon the exercise in full of theover-allotment option for the Global Offering). At the time of the listing of our H shares on the HongKong Stock Exchange, all the shares held by the SSF (including those shares transferred to it from theMOF, Huijin and the SSF itself and those already held by the SSF) will be converted into H shares on aone-for-one basis. These H shares will not be part of the Global Offering. Our bank will not receiveany proceeds from the transfer by our state-owned shareholders to the SSF or any subsequent disposalof such H shares by the SSF.

The transfer of state-owned shares by our state-owned shareholders to the SSF was approved bythe MOF on August 17, 2006. The conversion of those shares into H shares was approved by theCSRC on September 19, 2006. We have been advised that the transfer and the conversion, and theholding of H shares by the SSF following such transfer and conversion, have been approved by therelevant PRC authorities and are legal under PRC law.

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SHARE CAPITAL

CONVERSION OF UNLISTED FOREIGN SHARES

Upon completion of the Global Offering, unlisted foreign shares held by Goldman Sachs,Allianz and American Express will be converted to H shares on a one-for-one basis and will be listedfor trading on the Hong Kong Stock Exchange.

PUBLIC FLOAT REQUIREMENTS

Rule 8.08(1)(a) and (b) of the Hong Kong Listing Rules require there to be an open market inthe securities for which listing is sought and for a sufficient public float of an issuer’s listed securitiesto be maintained. This normally means that (i) at least 25% of the issuer’s total issued share capitalmust at all times be held by the public; and (ii) where an issuer has more than one class of securitiesapart from the class of securities for which listing is sought, the total securities of the issuer held by thepublic (on all regulated market(s) including the Hong Kong Stock Exchange) at the time of listing mustbe at least 25% of the issuer’s total issued share capital. However, the class of securities for whichlisting is sought must not be less than 15% of the issuer’s total issued share capital and must have anexpected market capitalisation at the time of listing of not less than HK$50 million.

We have applied to the Hong Kong Stock Exchange to request the Hong Kong Stock Exchangeto exercise, and the Hong Kong Stock Exchange has confirmed that it will exercise, its discretion underRule 8.08(1)(d) of the Hong Kong Listing Rules to accept a lower public float percentage of ourcompany of the higher of:

(a) 15%; or

(b) such percentage of H shares and A shares held by the public immediately after completionof the Global Offering and the A Share Offering (where applicable), as increased by anyshares that may be issued upon the exercise of the over-allotment option under the GlobalOffering (where applicable).

The above discretion is subject to the conditions that: (i) the H shares held by the public willnot be less than 15% of our total share capital; and (ii) full compliance with the disclosurerequirements under Listing Rule 8.08(1)(d).

We will make appropriate disclosure of the lower prescribed percentage of public float andconfirm sufficiency of public float in successive annual reports after listing.

GENERAL MANDATE TO ISSUE SHARES

Subject to the completion of the Global Offering, our directors have been granted a generalmandate to allot and issue domestic shares (including A shares) and H shares (including share optionsor convertible bonds) at any time, either separately or concurrently, within a period ending on the dateof the next annual general meeting of the shareholders or the date on which our shareholders pass aspecial resolution to revoke or change such mandate, whichever is earlier, provided that, the number ofH shares or domestic shares (including A shares) to be issued shall not exceed 20% of the number ofeach of our H shares and domestic shares (including A shares) in issue, respectively, as of the date oflisting.

For further details of this general mandate, see “Appendix IX—Statutory and GeneralInformation—1. Further Information About Us—C. Resolutions of our Shareholders.”

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ASSETS AND LIABILITIES

The following discussion and analysis should be read in conjunction with the Accountants’Report in Appendix I, the unaudited supplementary financial information in Appendix II and theselected financial data, in each case together with the accompanying notes, included elsewhere inthis prospectus. The financial information have been prepared in accordance with IFRS.

We completed a financial restructuring in 2005 that has had and is expected to have asignificant impact on our results of operations and financial condition.

ASSETS

At June 30, 2006, our total assets amounted to RMB7,054.6 billion, an increase of 9.3% fromRMB6,456.1 billion at December 31, 2005. Our total assets increased by 27.4% to RMB6,456.1 billionat December 31, 2005 from RMB5,069.3 billion at December 31, 2004, which increased by 11.2%from RMB4,557.0 billion at December 31, 2003. The growth from December 31, 2003 to June 30,2006 was primarily due to the growth in net loans to customers and investment securities. Thefollowing table sets forth, at the dates indicated, the components of our total assets.


2003 2004 2005 2006


% oftotal Amount

% oftotal Amount

% oftotal


Loans to customers, total(1) . . . . . . 3,402,277 —% 3,707,748 —% 3,289,553(6) —% 3,461,080 —%Allowance for impairment

losses . . . . . . . . . . . . . . . . . . . . . (636,222) — (598,557) — (83,692)(7) — (85,738) —

Loans to customers, net . . . . . . . . 2,766,055 60.7 3,109,191 61.3 3,205,861 49.7 3,375,342 47.8

Investment securities, net(2) . . . . . 1,044,730 22.9 1,230,416 24.3 2,305,689 35.7 2,657,819 37.7of which:

Receivables(3) . . . . . . . . . . . . 397,996 8.7 397,996 7.9 1,074,461 16.6 1,078,786 15.3Cash and balances with central

banks . . . . . . . . . . . . . . . . . . . . . 457,816 10.0 508,616 10.0 553,873 8.6 598,269 8.5Due from banks and other

financial institutions, net(4) . . . . 66,009 1.5 69,430 1.4 132,162 2.0 131,133 1.9Reverse repurchase agreements . . 71,239 1.6 21,764 0.4 89,235 1.4 105,542 1.5Other assets(5) . . . . . . . . . . . . . . . . 151,102 3.3 129,907 2.6 169,311 2.6 186,520 2.6

Total Assets . . . . . . . . . . . . . . . . . 4,556,951 100.0% 5,069,324 100.0% 6,456,131 100.0%7,054,625 100.0%

(1) Includes advances, all of which were made to our corporate customers. For ease of reference, in this section and the “FinancialInformation” section of the prospectus, we refer to loans and advances to customers as “loans.”

(2) Net of the allowance for impairment losses in the amount of RMB278 million, RMB277 million, RMB4,221 million and RMB5,016million at June 30, 2006 and December 31, 2005, 2004 and 2003, respectively.

(3) Consists of the Huarong bonds, special government bond, MOF receivable and special PBOC bills. See “—Investment Securities—Receivables.”

(4) Net of the allowance for impairment losses in the amount of RMB183 million, RMB213 million, RMB5,933 million and RMB6,775million at June 30, 2006 and December 31, 2005, 2004 and 2003, respectively.

(5) Consists of property and equipment, investments in associates, deferred income tax assets, income tax recoverable and other assets.(6) The amount of total loans to customers at December 31, 2005 reflects the disposal of RMB635.0 billion of non-performing loans in

connection with our financial restructuring.(7) The amount of the allowance for impairment losses at December 31, 2005 reflects the RMB503.1 billion release from the allowance

resulting from the disposal of RMB635.0 billion of non-performing loans in connection with our financial restructuring.

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Our loans to customers are reported net of the allowance for impairment losses on ourconsolidated balance sheet. The discussion in this section, except as otherwise indicated, is based onthe total amount of our loans to customers, before deducting the allowance for impairment losses,rather than the net amount of our loans to customers.

Other than the amount of our loans to customers, the discussion of amounts of our other assetsin this section, such as investment securities, cash and balances with central banks and amounts duefrom banks and other financial institutions, are net of the allowance for impairment losses, except asotherwise indicated.

Impact of Financial Restructuring on Our Assets

As part of our financial restructuring, the MOF retained RMB124.0 billion in our then existingcapital. On April 22, 2005, we received a capital contribution of US$15.0 billion in cash from Huijin.

In May and June of 2005, we disposed of non-performing loans, effectively consisting entirelyof corporate loans, in an aggregate amount of RMB635.0 billion and other impaired assets in anaggregate amount of RMB70.0 billion, at book value (before the related allowance for impairmentlosses). Part of the proceeds from the disposals were accounted for as a receivable from the MOF in anaggregate amount of RMB246.0 billion. We also used the proceeds as consideration for a five-yearbill, in an aggregate amount of RMB430.5 billion, issued by the PBOC. This special PBOC bill is nottransferable. We have received the PBOC’s approval to treat the amount of this special PBOC bill asavailable for intraday settlement purposes. As a result of the disposals, the related allowance forimpairment losses in an aggregate amount of RMB567.6 billion was released and credited to ourcapital reserve. For discussion purposes in this section and the “Financial Information” section, wegenerally refer to the RMB635.0 billion of non-performing loans disposed of in connection with ourfinancial restructuring as the “restructuring-related disposal.” See “—Investment Securities—Receivables.”

Loans to Customers

We provide a broad range of loan products to our customers, the majority of which aredenominated in Renminbi. Our loans to customers, net of the allowance for impairment losses,represented 47.8%, 49.7%, 61.3% and 60.7% of our total assets at June 30, 2006, December 31, 2005,2004 and 2003, respectively.

For a description of the loan products we offer, see “Business—Our Principal BusinessActivities.” For ease of reference, in this section and the “Financial Information” section of thisprospectus, references to “corporate loans,” “discounted bills” and “personal loans” exclude amountsfrom our overseas operations.

At June 30, 2006, our total loans to customers amounted to RMB3,461.1 billion, an increase of5.2% from RMB3,289.6 billion at December 31, 2005. Our total loans to customers decreased by11.3% to RMB3,289.6 billion at December 31, 2005 from RMB3,707.7 billion at December 31, 2004primarily due to the restructuring-related disposal. Our total loans to customers at December 31, 2004increased by 9.0% from RMB3,402.3 billion at December 31, 2003. Assuming that the restructuring-related disposal did not occur, and that the loans disposed of were added back to the balance atDecember 31, 2005, our total loans to customers at that date would have been RMB3,924.6 billion, oran increase of 5.8% from December 31, 2004.

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Distribution of Loans by Business Line

The following table sets forth, at the dates indicated, our loans to customers by business line.


2003 2004 2005 2006


% oftotal Amount(1)

% oftotal Amount

% oftotal


Corporate loans . . . . . . . . . . . . . . . . . . . . 2,761,699 81.2% 2,811,490 75.8% 2,277,396 69.2% 2,400,230 69.4%Discounted bills . . . . . . . . . . . . . . . . . . . 156,489 4.6 310,148 8.4 392,717 11.9 416,336 12.0Personal loans . . . . . . . . . . . . . . . . . . . . . 407,672 12.0 486,867 13.1 515,042 15.7 533,087 15.4Overseas operations . . . . . . . . . . . . . . . . 76,417 2.2 99,243 2.7 104,398 3.2 111,427 3.2


(1) The amount of corporate loans at December 31, 2005 reflects our restructuring-related disposal.

Corporate loans constitute the largest component of our loan portfolio. In recent years, we haveexperienced a higher growth rate in discounted bills and personal loans as a result of changes in themarket environment and our strategic emphasis. See “—Corporate Loans,” “—Discounted Bills” and“—Personal Loans.” As a result of these trends and the restructuring-related disposal, discounted billsand personal loans accounted for a larger aggregate percentage of our total loan portfolio atDecember 31, 2005 than at December 31, 2003.

In the first half of 2006, our medium- and long-term corporate loans continued to increase at asteady pace. In response to the rapid expansion of credit in China in the first quarter of 2006, thePBOC implemented tighter monetary measures in the second quarter of 2006. We took initiatives toreduce the growth of our discounted bills and to create continued growth opportunities for higher-yielding corporate loans. As a result of these measures and a decline in the growth in our residentialmortgage loans, which was also primarily attributable to the government’s tighter monetary measures,our discounted bills and personal loans accounted for a slightly smaller aggregate percentage of ourtotal loans to customers at June 30, 2006 than at December 31, 2005.

Corporate Loans

Corporate loans represented 69.4%, 69.2%, 75.8% and 81.2% of our total loans to customers atJune 30, 2006, December 31, 2005, 2004 and 2003, respectively. For a description of the products weoffer, see “Business—Our Principal Business Activities—Corporate Banking.”

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The following table sets forth, at the dates indicated, our corporate loans by product type.


2003 2004 2005 2006


% oftotal Amount(1)

% oftotal Amount

% oftotal


Short-term loans . . . . . . . . . . . . . . . . . . . 1,652,999 59.9% 1,536,922 54.7% 938,909 41.2% 953,228 39.7%

Medium- and long-term loans . . . . . . . . 1,108,700 40.1 1,274,568 45.3 1,338,487 58.8 1,447,002 60.3

of which:Medium- and long-term property

development loans . . . . . . . . . . . . 138,702 5.0 161,414 5.7 174,267 7.7 204,641 8.5Syndicated loans . . . . . . . . . . . . . . . . 27,033 1.0 53,930 1.9 72,283 3.2 82,520 3.4

Total corporate loans . . . . . . . . . . . . . . . 2,761,699 100.0% 2,811,490 100.0% 2,277,396 100.0% 2,400,230 100.0%


At June 30, 2006, our corporate loans amounted to RMB2,400.2 billion, an increase of 5.4%from RMB2,277.4 billion at December 31, 2005. Our corporate loans decreased by 19.0% toRMB2,277.4 billion at December 31, 2005 from RMB2,811.5 billion at December 31, 2004, primarilydue to our restructuring-related disposal in May and June 2005. Assuming that the restructuring-relateddisposal did not occur, and that the loans disposed of were added back to the balance at December 31,2005, our total corporate loans at that date would have been approximately RMB2,912.4 billion, or anincrease of approximately 3.6% from December 31, 2004. Our corporate loans increased by 1.8% toRMB2,811.5 billion at December 31, 2004 from RMB2,761.7 billion at December 31, 2003, primarilydue to an increase in medium- and long-term loans.

A substantial majority of our short-term loans are working capital loans. We renewed workingcapital loans in the past to meet borrowers’ needs for long-term financing. A relatively high percentageof these working capital loans had become non-performing by 2003. Short-term loans decreased bothin absolute terms and as a percentage of our corporate loan portfolio from December 31, 2003 toDecember 31, 2005.

From December 31, 2003 to December 31, 2004, the decrease was primarily attributable to acombination of the following factors:

First, we strengthened the enforcement of our lending policies and procedures with respect tomaking new working capital loans and continued our policy, introduced in 2001, of not renewingshort-term loans that were used for longer-term financing purposes.

Second, there has been a market trend in recent years towards replacing short-term loans withdiscounted bills, which, compared to working capital loans, generally represent a less expensive meansof funding for borrowers and, in the case of discounted bills that take the form of bank acceptance bills,lower credit risk for the discounting banks. This trend was reflected in the increased balances of ourdiscounted bills from December 31, 2003 to December 31, 2005.

Third, certain large corporate customers have in recent years improved their cash managementand, as a result, reduced their need for short-term loans.

Fourth, we wrote off certain non-performing short-term loans in 2004.

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From December 31, 2004 to December 31, 2005, the decrease in short-term loans was primarilydue to the restructuring-related disposal. A substantial majority of the RMB635.0 billion ofnon-performing loans that we disposed of consisted of short-term loans. The remaining decrease wasattributable to the first three factors which affected the balance at December 31, 2004 compared toDecember 31, 2003, as described above, and, to a lesser extent, the introduction of corporatecommercial paper programs in the PRC in 2005, which reduced borrowings in the form of short-termloans by commercial paper issuers.

From December 31, 2005 to June 30, 2006, our short-term loans continued to decrease as apercentage of our corporate loan portfolio but increased in absolute terms. This reflected our recentfocus on expanding small-enterprise working capital loans, which are generally secured by collateraland subject to strict monitoring measures, and short-term trade financing businesses.

Medium- and long-term loans consist primarily of infrastructure-related and other project loans,such as loans to the following industries and types of projects: transportation and logistics (includinghighways, railroads and sea ports), power generation and supplies, data transmission, computer servicesand software (including telecommunications), and construction (including urban infrastructureconstruction); as well as property development loans and syndicated loans. Our property developmentloans consist primarily of loans to residential real estate developers. Medium- and long-term loansincreased both in absolute terms and as a percentage of our corporate loan portfolio from December 31,2003 to June 30, 2006.

The increase in medium- and long-term loans from December 31, 2003 to June 30, 2006primarily reflected increased lending to the transportation and logistics (in particular, highways,railroads and sea ports), power generation and supplies, construction (in particular, urban infrastructureconstruction) and mining (in particular, oil exploration) industries, as well as an increase in propertydevelopment loans, in the case of the balance at December 31, 2005, partially offset by the disposal ofnon-performing medium- and long-term loans in connection with our financial restructuring. Ourincreased medium- and long-term lending to these selected industries reflected both the relatively lowlevel of losses we have historically experienced on such loans to these industries and also our beliefthat they offer the potential for attractive risk-adjusted returns. The increase in property developmentloans from December 31, 2003 to June 30, 2006 reflected our policy of selectively increasing ourexposure to property developers we believe to be of high quality and reputation in selectedgeographical and relatively high-growth and low-risk markets.

Syndicated loans also increased in both absolute terms and as a percentage of our corporateloan portfolio from December 31, 2003 to June 30, 2006. This increase reflected the market trendtowards lending by pools of banks as a means of reducing concentration risk and increasing banks’ability to service large-scale financing needs.

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Distribution of Loan Exposure to Corporate Borrowers by Size

The following table sets forth, at June 30, 2006, the distribution of our loan exposure, in termsof outstanding loan balances, to our corporate borrowers by size.

At June 30, 2006

Amount % of total

(in millions of RMB,except percentages)

Up to RMB10 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,351 4.2%Over RMB10 million to RMB50 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306,254 12.8Over RMB50 million to RMB100 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,808 9.7Over RMB100 million to RMB500 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699,124 29.1Over RMB500 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,059,693 44.2

Total corporate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400,230 100.0%

Distribution of Corporate Loans by Industry

The following table sets forth, at the dates indicated, the distribution of our corporate loans byindustry classifications.


2003 2004 2005 2006


% oftotal Amount(1)

% oftotal Amount

% oftotal


ManufacturingChemicals . . . . . . . . . . . . . . . . . 163,226 5.9% 161,899 5.8% 106,103 4.7% 109,547 4.6%Machinery . . . . . . . . . . . . . . . . . 186,129 6.7 174,057 6.2 82,034 3.6 80,072 3.3Iron and steel . . . . . . . . . . . . . . . 84,671 3.1 81,776 2.9 68,558 3.0 69,305 2.9Textiles and apparels . . . . . . . . . 124,294 4.5 116,648 4.1 59,245 2.6 63,500 2.6Metal processing . . . . . . . . . . . . 85,495 3.1 80,363 2.9 53,867 2.4 59,591 2.5Petroleum processing . . . . . . . . 42,328 1.5 42,810 1.5 44,621 2.0 51,195 2.1Automobile . . . . . . . . . . . . . . . . 75,353 2.7 72,802 2.6 43,276 1.9 38,101 1.6Electronics . . . . . . . . . . . . . . . . . 57,405 2.1 55,424 2.0 37,806 1.7 37,955 1.6Cement . . . . . . . . . . . . . . . . . . . 62,520 2.3 61,019 2.2 32,602 1.4 31,548 1.3Others(2) . . . . . . . . . . . . . . . . . . . 259,996 9.4 216,474 7.6 134,264 5.8 127,093 5.3

Subtotal . . . . . . . . . . . . . . . 1,141,417 41.3 1,063,272 37.8 662,376 29.1 667,907 27.8

Transportation and logistics . . . . . . . 309,027 11.2 379,680 13.5 367,371 16.1 412,272 17.2Power generation and supplies . . . . . 198,553 7.2 261,222 9.3 281,179 12.3 311,395 13.0Retail, wholesale and catering . . . . . . 345,465 12.5 255,591 9.1 265,906 11.7 285,391 11.9Property development . . . . . . . . . . . . 203,385 7.4 207,071 7.4 194,024 8.5 217,284 9.1Education, hospitals and other non-

profit organizations . . . . . . . . . . . . 94,992 3.4 116,973 4.1 103,070 4.5 133,097 5.5Construction . . . . . . . . . . . . . . . . . . . 69,526 2.5 78,289 2.8 89,666 4.0 83,676 3.5Others(3) . . . . . . . . . . . . . . . . . . . . . . . 399,334 14.5 449,392 16.0 313,804 13.8 289,208 12.0

Total corporate loans . . . . . . . . . . . 2,761,699 100.0%2,811,490 100.0%2,277,396 100.0%2,400,230 100.0%

(1) The amounts at December 31, 2005 reflect our restructuring-related disposal.(2) Consists primarily of the pharmaceutical, food products, pulp and paper, beverage, and tobacco industries.(3) Consists primarily of the data transmission, computer services and software, mining, and water works, environmental and administration

of public facilities industries.

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The aggregate amount of loans to our borrowers in (i) manufacturing, (ii) transportation andlogistics, (iii) power generation and supplies, and (iv) retail, wholesale and catering, which are the fourlargest industries in terms of our aggregate loan exposure, represented 69.9%, 69.2%, 69.7% and72.2% of our total corporate loans, at June 30, 2006, December 31, 2005, 2004 and 2003, respectively.Our loans to borrowers in the manufacturing industry decreased from December 31, 2003 toDecember 31, 2005 both in absolute terms and as a percentage of our total corporate loan portfolio,primarily due to (i) at December 31, 2005, the restructuring-related disposal, and (ii) the gradualreduction of our exposure to the manufacturing sectors that we have identified as suffering from excesscapacity.

Discounted Bills

Discounted bills represented 12.0%, 11.9%, 8.4% and 4.6% of our total loans to customers atJune 30, 2006, December 31, 2005, 2004 and 2003, respectively.

At December 31, 2005, our discounted bills increased by 26.6% to RMB392.7 billion fromRMB310.1 billion at December 31, 2004, which increased by 98.2% from RMB156.5 billion atDecember 31, 2003. These increases were primarily due to increased market demand for this product,which generally represents a less expensive source of funding for corporate borrowers and generallytakes less time to arrange than the more traditional types of short-term corporate loans, coupled withour increased marketing efforts.

At June 30, 2006, our discounted bills amounted to RMB416.3 billion, an increase of 6.0%from RMB392.7 billion at December 31, 2005. The slower rate of growth from December 31, 2005 toJune 30, 2006 compared to previous years was primarily attributable to our constraining of the growthof lower-yielding discounted bills in favor of growth in higher-yielding corporate loans in the secondquarter of 2006.

The following table sets forth, at the dates indicated, our discounted bills by type. For adescription of the types of discounted bills, see “Business—Our Principal Business Activities—Corporate Banking—Discounted Bills.”


2003 2004 2005 2006


% oftotal Amount

% oftotal Amount

% oftotal


Bank acceptance bills . . . . . . . . . . . . . . . . . . . . 148,819 95.1% 268,507 86.6% 350,231 89.2% 381,610 91.7%Trade acceptance bills . . . . . . . . . . . . . . . . . . . . 7,670 4.9 41,641 13.4 42,486 10.8 34,726 8.3

Total discounted bills . . . . . . . . . . . . . . . . . . . . 156,489 100.0% 310,148 100.0% 392,717 100.0% 416,336 100.0%

Bank acceptance bills form the major component of our discounted bills portfolio. As they areaccepted by another commercial bank, discounting bank acceptance bills generally presents lower creditrisk than discounting trade acceptance bills, which are accepted by non-bank corporate entities. A largemajority of the trade acceptance bills in our discounted bills portfolio are resold to us by othercommercial banks that discounted the bills. As we have legal recourse to the banks selling these bills forrepayment, we believe discounting these bills generally present equivalent credit risk to discountingbank acceptance bills. Other than purchasing trade acceptance bills from other banks, we generally onlydiscount trade acceptance bills accepted by a small number of specified corporate entities to which we

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have assigned high internal credit ratings. At June 30, 2006, the trade acceptance bills in our discountedbill portfolio decreased by 18.3% to RMB34.7 billion from RMB42.5 billion at December 31, 2005,primarily attributable to a decrease in the volume of trade acceptance bills discounted and resold to usby small- and medium-sized commercial banks in line with the tighter credit environment in China inthe second quarter of 2006.

Personal Loans

The following table sets forth, at the dates indicated, our personal loans by product type.


2003 2004 2005 2006


% oftotal Amount

% oftotal Amount

% oftotal


Personal property mortgage loans . . . . . . . 330,115 81.0% 412,449 84.7% 447,302 86.8% 459,717 86.3%Personal consumption loans . . . . . . . . . . . 74,695 18.3 71,354 14.7 64,309 12.5 69,443 13.0Bank card overdrafts . . . . . . . . . . . . . . . . . 2,862 0.7 3,064 0.6 3,431 0.7 3,927 0.7

Total personal loans . . . . . . . . . . . . . . . . . 407,672 100.0% 486,867 100.0% 515,042 100.0% 533,087 100.0%

At June 30, 2006, our personal loans amounted to RMB533.1 billion, an increase of 3.5% fromRMB515.0 billion at December 31, 2005. Personal loans increased by 5.8% to RMB515.0 billion atDecember 31, 2005 from RMB486.9 billion at December 31, 2004, which increased by 19.4% fromRMB407.7 billion at December 31, 2003, primarily due to increases in personal property mortgageloans, partly offset by decreases in personal consumption loans from December 31, 2003 toDecember 31, 2005.

Personal property mortgage loans increased in absolute terms from December 31, 2003 toJune 30, 2006 and as a percentage of our total personal loan portfolio from December 31, 2003 toDecember 31, 2005. From December 31, 2003 to December 31, 2004, the increase was primarily dueto a combination of (i) our increased focus and marketing efforts on this product, and (ii) increaseddemand from customers, reflecting the high growth rate in the PRC residential property market,particularly in coastal cities. From December 31, 2004 to June 30, 2006, we experienced a slower rateof growth in personal property mortgage loans, as the amount of new loans—which was primarilyattributable to the two factors described above—was to a large extent offset by an increase inprepayments of existing loans ahead of their maturity dates. The increase in prepayments was primarilyattributable to a combination of increased personal wealth in the PRC and increased interest ratesresulting from (i) increases in the PBOC’s benchmark rates in October 2004 and April 2006 and (ii) therepeal of the PBOC’s mandatory discount rate on personal property mortgage loans in March 2005.The vast majority of our personal property mortgage loans are variable-rate loans.

Personal consumption loans decreased both in absolute terms and as a percentage of our totalpersonal loan portfolio from December 31, 2003 to December 31, 2005. The decrease was primarilydue to a decrease in auto loans, which reflected our policy of reducing our exposure to this type ofloan. This trend was reversed from December 31, 2005 to June 30, 2006, primarily due to the impact ofour expanding personal business loans, a new product we introduced in June 2005 on a pilot basis,partially offset by the continued decrease in auto loans. Personal business loans are generally made tosole proprietors or small private businesses on a secured basis. We have gradually expanded thegeographic scope of the pilot program since its launch.

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Bank card overdrafts represent outstanding balances on credit cards and quasi-credit cards.Bank card overdrafts increased in absolute terms from December 31, 2003 to June 30, 2006, primarilydue to the increased number of cards we issued, which reflected both our continued marketing effortsand increased acceptance of credit cards as a form of payment in the PRC.

Distribution of Personal Property Mortgage Loans by Size

The following table sets forth, at June 30, 2006, the distribution of our personal propertymortgage loans by size.

At June 30, 2006

Amount % of total


Up to RMB50,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,482 5.5%Over RMB50,000 to RMB100,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,923 12.8Over RMB100,000 to RMB250,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,365 29.5Over RMB250,000 to RMB500,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,824 25.2Over RMB500,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,123 27.0

Total personal property mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459,717 100.0%

The table above shows only the distribution by size of individual loans. There may be nocorrelation between the distribution by size of loans and the distribution by size of the total loanexposure to those borrowers.

Distribution of Loans by Geographical Region

We classify loans geographically based on the location of the branch that originates the loan.There is generally a high correlation between the location of the borrower and the location of thebranch that originates the loan, except in the case of our head office, which originates or manages loansto some of our largest corporate borrowers in all geographical regions of China and a large majority ofour discounted bills. The following table sets forth, at the dates indicated, the distribution of our totalloans to customers by geographical region. For definitions of our geographical regions, see“Definitions and Conventions.”


2003 2004 2005 2006


% oftotal Amount(1)

% oftotal Amount

% oftotal


Head Office . . . . . . . . . . . . . . . . . . . . . . . 121,317 3.6% 140,324 3.8% 263,117 8.0% 267,865 7.7%Yangtze River Delta . . . . . . . . . . . . . . . . 687,872 20.2 757,085 20.4 791,990 24.1 856,732 24.8Pearl River Delta . . . . . . . . . . . . . . . . . . . 475,848 14.0 509,229 13.7 453,773 13.8 484,358 14.0Bohai Rim . . . . . . . . . . . . . . . . . . . . . . . . 586,009 17.2 628,580 16.9 574,513 17.4 599,742 17.3Central China . . . . . . . . . . . . . . . . . . . . . 524,733 15.5 580,275 15.7 424,628 12.9 445,232 12.9Northeastern China . . . . . . . . . . . . . . . . . 377,969 11.1 399,326 10.8 193,000 5.9 192,066 5.5Western China . . . . . . . . . . . . . . . . . . . . . 552,112 16.2 593,686 16.0 484,134 14.7 503,658 14.6Overseas . . . . . . . . . . . . . . . . . . . . . . . . . 76,417 2.2 99,243 2.7 104,398 3.2 111,427 3.2


(1) The amount of total loans to customers at December 31, 2005 reflects our restructuring-related disposal.

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Distribution of Loans by Collateral

Loans secured by mortgages, pledges or guarantees represented, in the aggregate, 78.3%,79.5%, 80.2% and 79.9% of our total loan portfolio at June 30, 2006, December 31, 2005, 2004 and2003, respectively. The following table sets forth, at the dates indicated, the distribution of our loanportfolio by the type of collateral.


2003 2004 2005 2006


% oftotal Amount(1)

% oftotal Amount

% oftotal


Loans secured by mortgages(2)(3) . . . . . . . 1,206,412 35.5% 1,332,275 35.9% 1,123,344 34.1% 1,116,296 32.3%of which:

Personal property mortgageloans . . . . . . . . . . . . . . . . . . . . . . . 330,115 9.7 412,449 11.1 447,302 13.6 459,717 13.3

Loans secured by pledges(2)(4) . . . . . . . . . 391,858 11.5 591,348 16.0 726,379 22.1 791,673 22.9of which:

Discounted bills . . . . . . . . . . . . . . . . 156,489 4.6 310,148 8.4 392,717 11.9 416,336 12.0Guaranteed loans(2) . . . . . . . . . . . . . . . . . 1,119,087 32.9 1,048,347 28.3 765,746 23.3 800,770 23.1Unsecured loans . . . . . . . . . . . . . . . . . . . . 684,920 20.1 735,778 19.8 674,084 20.5 752,341 21.7

Total loans to customers . . . . . . . . . . . . 3,402,277 100.0% 3,707,748 100.0% 3,289,553 100.0%3,461,080 100.0%

(1) The amounts at December 31, 2005 reflect the restructuring-related disposal.(2) If a loan is secured by more than one form of security interest, the entire balance of the loan is allocated to the category of collateral

which secures the greater portion of the loan or, in the event the loan is equally secured by more than one form of security interest, thecategory that presents the lower degree of risk in connection with its enforcement.

(3) Represents security interests in certain assets, such as buildings and fixtures, land use rights, machines, equipment, and vehicles, withouttaking possession.

(4) Represents security interests in certain assets, such as movable assets, certificates of deposit, commercial bills, stock certificates,trademarks, patents or copyrights, by taking possession of or registering against such assets.

Loans secured by mortgages and pledges are subject to loan-to-value ratio limits based on thetype of collateral. Guarantors are subject to the same credit approval process as borrowers. Guaranteedloans decreased both in absolute terms and as a percentage of our total loan portfolio fromDecember 31, 2003 to December 31, 2005. From December 31, 2004 to December 31, 2005, thedecrease was primarily attributable to the disposal of guaranteed loans in connection with our financialrestructuring. The decrease from December 31, 2003 to December 31, 2005 also reflected a change inour lending policies with respect to guaranteed loans. In lending to customers that do not qualify forunsecured loans based on our internal credit risk rating system, we have increasingly required suchcustomers to provide collateral rather than guarantees—on which our exposure to the guarantor isgenerally unsecured—to secure the loan. From December 31, 2005 to June 30, 2006, guaranteed loanscontinued to decrease as a percentage of our total loan portfolio but increased in absolute terms, in linewith the general growth in our corporate loans. For a discussion of our internal credit risk ratings, see“Risk Management—Risk Management Structure—Credit Risk Management.”

Unsecured corporate loans are made to customers qualifying for such loans based on ourinternal credit risk rating system. The balance of our unsecured loans increased, both in absolute termsand as a percentage of our total loan portfolio, from December 31, 2003 to June 30, 2006, reflecting anincreased percentage of customers with higher internal credit ratings in our customer base.

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Borrower Concentration

In accordance with applicable PRC banking laws and regulations, we are subject to a lendinglimit of 10% of our Net Capital Base to any single borrower. The following table sets forth, at June 30,2006, our loan exposure, in terms of outstanding loan balances, to our ten largest single borrowers, allof which were classified as performing.

At June 30, 2006

Industry Amount

% oftotalloans

% ofNet

CapitalBase(1)


Borrower A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing 21,511 0.62% 5.82%Borrower B(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mining 16,030 0.46 4.34Borrower C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transportation and logistics 15,392 0.45 4.17Borrower D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Water works, environmental and

administration of public facilities 10,049 0.29 2.72Borrower E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction 10,030 0.29 2.71Borrower F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Water works, environmental and

administration of public facilities 9,451 0.27 2.56Borrower G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Data transmission, computer

services and software 8,100 0.24 2.19Borrower H(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mining 8,017 0.23 2.17Borrower I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Water works, environmental and

administration of public facilities 7,944 0.23 2.15Borrower J . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power generation and supplies 7,908 0.23 2.14

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,432 3.31% 30.97%

(1) Represents loan amounts as a percentage of our Net Capital Base, which consists of our core capital and supplementary capital lessdeductions, each calculated in accordance with CBRC statutory requirements under PRC GAAP. See “Regulation and Supervision—PRC Regulation and Supervision—Liquidity and Other Operational Ratios.” For a calculation of our Net Capital Base at June 30, 2006,see “Financial Information—Capital Resources—Capital Adequacy.”

(2) Members of the same group.

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In accordance with applicable PRC banking guidelines, we are subject to a recommendedlending limit of 15% of our Net Capital Base to any single group borrower. The following table setsforth, at June 30, 2006, our loan exposure, in terms of outstanding loan balances, to our ten largestgroup borrowers, 0.22% of which, or RMB507 million, were classified as non-performing.

At June 30, 2006

Industry Amount

% oftotalloans

% ofNet

CapitalBase(1)


Group A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing 33,813 0.98% 9.15%Group B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power generation and supplies 29,571 0.85 8.00Group C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power generation and supplies 27,750 0.80 7.51Group D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mining 25,506 0.74 6.90Group E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power generation and supplies 22,890 0.66 6.19Group F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Data transmission, computer

services and software 20,233 0.58 5.48Group G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power generation and supplies 18,577 0.54 5.03Group H . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power generation and supplies 17,597 0.51 4.76Group I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power generation and supplies 15,695 0.45 4.25Group J . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transportation and logistics 15,237 0.44 4.12

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226,869 6.55% 61.39%

(1) Represents loan amounts as a percentage of our Net Capital Base, which consists of our core capital and supplementary capital lessdeductions, each calculated in accordance with CBRC statutory requirements under PRC GAAP. See “Regulation and Supervision—PRC Regulation and Supervision—Liquidity and Other Operational Ratios.” For a calculation of our Net Capital Base at June 30, 2006,see “Financial Information—Capital Resources—Capital Adequacy.”

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Maturity Profile of Loan Portfolio

The following table sets forth, at June 30, 2006, our loan products by remaining maturity.

At June 30, 2006

Due less thanone year

Due between1 to 5 years

Due morethan 5 years Overdue(1) Total


Corporate loansShort-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 851,193 — — 102,035 953,228

Medium- and long-term loans . . . . . . . . . . . . . . . . 240,955 659,185 506,854 40,008 1,447,002

of which:Medium- and long-term property

development loans . . . . . . . . . . . . . . . . . . . 62,864 127,131 7,300 7,346 204,641Syndicated loans . . . . . . . . . . . . . . . . . . . . . . . 6,217 27,544 48,607 152 82,520

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,092,148 659,185 506,854 142,043 2,400,230

Discounted bills . . . . . . . . . . . . . . . . . . . . . . . . . . . 416,336 — — — 416,336

Personal loansPersonal property mortgage loans . . . . . . . . . . . . . 49,031 168,989 240,130 1,567 459,717Personal consumption loans . . . . . . . . . . . . . . . . . . 39,806 25,543 1,969 2,125 69,443Bank card overdrafts . . . . . . . . . . . . . . . . . . . . . . . 3,666 — — 261 3,927

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,503 194,532 242,099 3,953 533,087

Overseas operations . . . . . . . . . . . . . . . . . . . . . . . 37,339 45,447 27,746 895 111,427

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,638,326 899,164 776,699 146,891 3,461,080

(1) Includes loans on which either principal is overdue, or interest is overdue for more than 90 days. For installment loans, only theinstallments that are due but remain unpaid are treated as overdue.

At June 30, 2006, 47.3% of our total loans to customers were due in less than one year. Ourloans due in less than a year primarily consist of corporate working capital loans and discounted bills.We renew a portion of our performing corporate working capital loans. When we do so, the renewedloans are subject to the same credit approval policies and procedures as newly made loans. A majorityof our personal loans had terms of one year or more, primarily because the largest component of ourpersonal loans consisted of personal property mortgage loans, which were generally long-term loans.

Loan Interest Rate Profile

Interest rates are gradually being liberalized in China. Interest rates on Renminbi-denominatedloans are subject to resetting after a change in the relevant PBOC benchmark rate. In general, followinga change by the PBOC in benchmark rates, the interest rates on corporate loans are reset in accordancewith the terms of the loan agreements. However, on loans with remaining maturities of less than oneyear, it is our general practice not to reset their interest rates, and hence they are effectively fixed-rateloans. The interest rates on personal property mortgage loans are reset on January 1 of the yearfollowing the rate changes. See “Regulation and Supervision—PRC Regulation and Supervision—Pricing of Products and Services.”

From January 1, 2004, we have been permitted under new PRC government regulations toextend loans with maturities longer than one year with fixed interest rates. At June 30, 2006, less than0.1% of our total loans to customers were fixed-rate loans by their terms with maturities of one year ormore.

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Asset Quality of Our Loan Portfolio

In compliance with the PBOC guidelines, we classify our loans using a five-category loanclassification system. See “Regulation and Supervision—PRC Regulation and Supervision—LoanClassification, Provisioning and Write-offs—Loan Classification.” Since October 2005, solely forinternal credit risk management purposes, we have adopted a 12-grade loan classification system forour corporate loans, which further refines our five-category loan classification system. For adescription of our internal loan classification system, see “Risk Management—Credit RiskManagement—Credit Risk Management for Corporate Loans.” Since January 1, 2003, we haveassessed for impairment and made provisions for impairment losses on our loans to our customersusing the concept of impairment under IAS 39. See “—Allowance for Impairment Losses on Loans toCustomers” and Note 16 to our financial information included in the Accountants’ Report in AppendixI to this prospectus. For purposes of this section, we use the terms “impaired loans,” “non-performingloans” or “NPLs” synonymously to refer to the loans identified as “identified impaired loans andadvances” in Note 16 to our financial information included in the Accountants’ Report in Appendix Ito this prospectus.

Loan Classification Criteria

In determining the classification of our loan portfolio, we assess, on a case-by-case basis, thelikelihood of repayment by the borrower and the collectibility of principal and interest on the loan. Ourassessment is generally based on a series of general principles that are derived from the PBOCguidelines. These general principles focus on a number of factors, including (i) the borrower’s abilityto repay the loan, based on such factors as the borrower’s financial condition, its profitability and cashflow; (ii) the borrower’s repayment history; (iii) the borrower’s willingness to repay; (iv) the netrealizable value of any collateral; (v) the prospect for support from any financially responsibleguarantor; (vi) the remaining maturity of the loan; (vii) the structure and the seniority of the loan; and(viii) the length of time by which payment of principal or interest on a loan is overdue. The followingis a summary of these general principles:

Normal. Loans may be classified as normal only if the borrowers are able to honor the terms oftheir loans and there is no reason to doubt that the principal and interest payments will not be made infull and on a timely basis. Loans in the normal category generally demonstrate one or more of thefollowing characteristics:

Š The borrower maintains sound operations and generates adequate cash flows.

Š Principal and interest payments on the loan are made on a timely basis.

Š The guarantee or collateral securing the loan, if any, is valid, effective and sufficient.

Special mention. Loans may be classified as special mention if the borrowers have the currentability to repay principal and interest on the loans but the following adverse circumstances exist:

Š A principal payment on the loan is overdue for not more than 90 days.

Š The operational and financial status of the borrower changes.

Š The value of collateral has decreased or the operational and financial status of theguarantor has changed.

Š Macroeconomic, industry or market conditions have changed.

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Substandard. Loans may be classified as substandard if the borrowers’ inability to repay loansbecomes evident to the extent that they are unable to rely solely on their ordinary course of operationsto repay principal or interest on the loans and it becomes evident that we will incur certain loan losseseven if any collateral or guarantees securing the loans are enforced. Loans in the substandard categorygenerally demonstrate the following characteristics:

Š A principal payment or any interest payment on the loan is overdue for more than 90 daysbut not more than 180 days.

Š The borrower has difficulty in repaying the loan.

Š The loan needs to be restructured due to adverse changes in the borrower’s financialcondition or its inability to make payments.

Doubtful. Loans may be classified as doubtful if the borrowers become unable to repayprincipal and interest on the loans in full and it becomes evident that we will incur significant loanlosses even if any collateral or guarantees securing the loans are enforced. Loans in the doubtfulcategory generally demonstrate the following characteristics:

Š A principal payment or any interest payment on the loan is overdue for more than 180days.

Š The borrower has completely or partly suspended its operations.

Š The project for which the loan was extended has been terminated or suspended due tofunding shortages, worsening operating conditions, litigation or other reasons.

Š The loan is still overdue or the borrower is still unable to repay the loan in fullnotwithstanding its restructuring.

Loss. None or only a small portion of the principal and interest on the loans can be recoveredafter exhausting all possible measures and legal remedies.

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Distribution of Loans by Five-category Loan Classification

The following tables set forth, at the dates indicated, the distribution of our loan portfolio byfive-category loan classification. Under our five-category loan classification system, our non-performing loans are classified as substandard, doubtful or loss, as applicable.


2003 2004 2005 2006


% oftotal Amount(1)

% oftotal Amount

% oftotal


Normal . . . . . . . . . . . . . . . . . . . . 2,254,081 66.3% 2,619,708 70.6% 2,833,853 86.1% 3,042,289 87.9%Special mention . . . . . . . . . . . . . 323,548 9.5 303,384 8.2 301,283 9.2 276,761 8.0

Subtotal . . . . . . . . . . . . . . . 2,577,629 75.8 2,923,092 78.8 3,135,136 95.3 3,319,050 95.9

Substandard . . . . . . . . . . . . . . . . 94,498 2.8 106,348 2.9 93,049 2.8 77,846 2.3Doubtful . . . . . . . . . . . . . . . . . . 355,260 10.4 335,192 9.0 56,704 1.7 59,108 1.7Loss . . . . . . . . . . . . . . . . . . . . . . 374,890 11.0 343,116 9.3 4,664 0.2 5,076 0.1

Subtotal . . . . . . . . . . . . . . . 824,648 24.2 784,656 21.2 154,417 4.7 142,030 4.1

Total loans to customers . . . . . 3,402,277 100.0% 3,707,748 100.0% 3,289,553 100.0% 3,461,080 100.0%

Non-performing loanratio(2) . . . . . . . . . . . . . . . . . . 24.24% 21.16% 4.69% 4.10%

(1) The amounts reflect restructuring-related disposal.(2) Calculated by dividing total non-performing loans by total loans.

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2003 2004 2005 2006


% oftotal Amount(1)

% oftotal Amount

% oftotal


Corporate loansNormal . . . . . . . . . . . . . . . . . . . . . . . . 1,625,058 58.8% 1,743,218 62.0% 1,846,299 81.1% 2,031,556 84.7%Special mention . . . . . . . . . . . . . . . . . 318,529 11.5 291,763 10.4 288,822 12.7 237,493 9.9Substandard . . . . . . . . . . . . . . . . . . . . 92,917 3.4 103,462 3.7 88,742 3.9 74,660 3.1Doubtful . . . . . . . . . . . . . . . . . . . . . . . 350,692 12.7 330,059 11.7 49,009 2.1 51,587 2.1Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . 374,503 13.6 342,988 12.2 4,524 0.2 4,934 0.2

Subtotal . . . . . . . . . . . . . . . . . . . . 2,761,699 100.0 2,811,490 100.0 2,277,396 100.0 2,400,230 100.0

Non-performing loan ratio(2) . . . . . . 29.62% 27.62% 6.25% 5.47%

Discounted billsNormal . . . . . . . . . . . . . . . . . . . . . . . . 156,489 100.0 310,148 100.0 392,717 100.0 416,336 100.0Special mention . . . . . . . . . . . . . . . . . — — — — — — — —Substandard . . . . . . . . . . . . . . . . . . . . — — — — — — — —Doubtful . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — —Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — —

Subtotal . . . . . . . . . . . . . . . . . . . . 156,489 100.0 310,148 100.0 392,717 100.0 416,336 100.0

Non-performing loan ratio(2) . . . . . . — — — —

Personal loansNormal . . . . . . . . . . . . . . . . . . . . . . . . 399,003 97.9 472,321 97.0 493,105 95.8 486,232 91.2Special mention . . . . . . . . . . . . . . . . . 4,392 1.1 7,693 1.6 11,026 2.1 36,884 6.9Substandard . . . . . . . . . . . . . . . . . . . . 1,018 0.2 2,232 0.5 3,431 0.7 2,579 0.5Doubtful . . . . . . . . . . . . . . . . . . . . . . . 3,236 0.8 4,570 0.9 7,405 1.4 7,314 1.4Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 0.0 51 0.0 75 0.0 78 0.0

Subtotal . . . . . . . . . . . . . . . . . . . . 407,672 100.0 486,867 100.0 515,042 100.0 533,087 100.0


Overseas operations(3)

Performing . . . . . . . . . . . . . . . . . . . . . 74,158 97.0 97,949 98.7 103,167 98.8 110,549 99.2Non-performing . . . . . . . . . . . . . . . . . 2,259 3.0 1,294 1.3 1,231 1.2 878 0.8

Subtotal . . . . . . . . . . . . . . . . . . . . 76,417 100.0% 99,243 100.0% 104,398 100.0% 111,427 100.0%


Total loans to customers . . . . . . . . . 3,402,277 3,707,748 3,289,553 3,461,080


(1) The amounts of corporate loans reflect our restructuring-related disposal.(2) Calculated by dividing non-performing loans in each category by total loans in that category.(3) Loans made by our overseas operations are governed by the loan classification systems applicable in the relevant jurisdictions, which are

not necessarily comparable with one another or with our five-category loan classification system. Consequently, for purposes of thistable, we present these loans as performing or non-performing.

(4) Calculated by dividing total non-performing loans by total loans.

The decrease in the non-performing loan ratio of our total loans to customers fromDecember 31, 2003 to June 30, 2006 reflected an overall improvement in the asset quality of our loanportfolio, primarily attributable to (i) the disposals of non-performing loans in connection with ourfinancial restructuring in 2005; (ii) our continued efforts to strengthen our credit risk management,including by increasing our focus on selective exposures to specific industries and geographical

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regions, improving the risk management capabilities of our information technology systems, andstrengthening our credit approval, extension and monitoring policies and practices; and (iii) ourincreased efforts to recover non-performing loans. This improved trend in our non-performing loanratio was also positively affected by the overall growth of our loan portfolio.

All of our discounted bills were classified as normal from December 31, 2003 to June 30, 2006,reflecting the facts that (i) a substantial majority of our discounted bills consist of bank acceptancebills, (ii) a large majority of our trade acceptance bills are purchased from other banks, and (iii) weonly discount trade acceptance bills that are accepted by a limited number of companies to which wehave assigned high internal credit ratings.

Changes in the Asset Quality of Our Domestic Loan Portfolio by Pre-existing Loans andNew Loans

The following discussion analyzes the changes in the asset quality of our domestic loans at thedates presented. Since January 1, 1999, in conjunction with a change in our management structure andpolicy, which also reflected changes in the PRC government’s policy on lending by the Big Fourcommercial banks, we have made significant progress in overhauling and improving our credit riskmanagement practices and systems. This included the implementation of strengthened credit policiesand procedures and the launch of the predecessor to our current CM2002 credit management system,which enabled us, among other things, to begin implementing a bank-wide system of creditauthorization limits, to monitor the making of new loans on a real-time basis, and to more effectivelymonitor compliance with our loan classification and provisioning policies and criteria. Accordingly, webelieve that January 1, 1999 is an appropriate starting date for purposes of assessing the effectivenessof the improvements to our credit risk management practices and systems, as measured by our assetquality. We also believe that a January 1, 1999 starting date allows us to assess our asset quality over asufficiently long period to reflect the loan seasoning cycle of a sufficient proportion of domestic loansmade subsequent to that date.

For purposes of this discussion, we categorize our domestic loans into “Pre-existing Loans” and“New Loans.” Pre-existing Loans include domestic loans made for the first time prior to January 1,1999 and remained outstanding on the dates indicated in the following table, as they either did notreach their original maturity or were rolled over upon their maturity although not meeting the approvalcriteria for our newly made loans. New Loans include domestic loans made for the first time afterJanuary 1, 1999 and were outstanding on the dates indicated in the following table, which include theloans made prior to January 1, 1999 and subsequently refinanced at maturity after January 1, 1999,upon satisfying the approval criteria for our newly made loans. This discussion does not include anyloans made by our overseas operations.

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The following table sets forth, at the dates indicated, the amounts of our Pre-existing Loans andNew Loans.


2003 2004 2005 2006


% oftotal Amount(1)

% oftotal Amount

% oftotal


Pre-existing Loans . . . . . . . . . . . . 1,273,948 38.3% 997,945 27.7% 208,451 6.5% 161,710 4.8%New Loans . . . . . . . . . . . . . . . . . . 2,051,912 61.7 2,610,560 72.3 2,976,704 93.5 3,187,943 95.2

Total . . . . . . . . . . . . . . . . . . . 3,325,860 100.0% 3,608,505 100.0% 3,185,155 100.0% 3,349,653 100.0%

(1) Amounts reflect our restructuring-related disposal.

The following table sets forth, at the dates indicated, the distribution of our Pre-existing Loansby loan classification category.


2003 2004 2005 2006


% oftotal Amount(1)

% oftotal Amount

% oftotal


Corporate loansNormal . . . . . . . . . . . . . . . . . . . . . . . 266,975 21.0% 118,656 11.9% 46,617 22.5% 36,646 22.8%Special mention . . . . . . . . . . . . . . . . . 212,675 16.7 139,640 14.0 61,525 29.6 42,569 26.4Substandard . . . . . . . . . . . . . . . . . . . . 86,528 6.8 88,030 8.8 59,567 28.7 42,758 26.5Doubtful . . . . . . . . . . . . . . . . . . . . . . 335,597 26.4 312,352 31.4 35,927 17.3 34,574 21.5Loss . . . . . . . . . . . . . . . . . . . . . . . . . . 369,602 29.1 337,605 33.9 3,907 1.9 4,541 2.8

Subtotal . . . . . . . . . . . . . . . . . . . 1,271,377 100.0 996,283 100.0 207,543 100.0 161,088 100.0


Personal loansNormal . . . . . . . . . . . . . . . . . . . . . . . 2,222 86.4 1,414 85.1 777 85.6 513 82.5Special mention . . . . . . . . . . . . . . . . . 56 2.2 32 1.9 29 3.2 59 9.5Substandard . . . . . . . . . . . . . . . . . . . . 41 1.6 11 0.7 18 2.0 7 1.1Doubtful . . . . . . . . . . . . . . . . . . . . . . 245 9.5 201 12.1 77 8.5 41 6.6Loss . . . . . . . . . . . . . . . . . . . . . . . . . . 7 0.3 4 0.2 7 0.7 2 0.3

Subtotal . . . . . . . . . . . . . . . . . . . 2,571 100.0% 1,662 100.0% 908 100.0% 622 100.0%

Non-performing loan ratio(2) . . . . . 11.40% 13.00% 11.23% 8.04%Total Pre-existing Loans . . . . . . . . . 1,273,948 997,945 208,451 161,710

Non-performing loan ratio(3) . . . . . 62.17% 73.97% 47.73% 50.66%

(1) The amounts of corporate loans reflect the disposal of RMB604.1 billion of non-performing Pre-existing Loans in connection with ourfinancial restructuring.

(2) Calculated by dividing non-performing Pre-existing Loans in each category by total Pre-existing Loans in that category.(3) Calculated by dividing total non-performing Pre-existing Loans by total Pre-existing Loans.

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The following table sets forth, at the dates indicated, the distribution of our New Loans by loanclassification category.


2003 2004 2005 2006


% oftotal Amount(1)

% oftotal Amount

% oftotal


Corporate loansNormal . . . . . . . . . . . . . . . . . . . . 1,358,083 91.1% 1,624,562 89.5% 1,799,682 87.0% 1,994,910 89.1%Special mention . . . . . . . . . . . . . . 105,854 7.1 152,123 8.4 227,297 11.0 194,924 8.7Substandard . . . . . . . . . . . . . . . . . 6,389 0.4 15,432 0.8 29,175 1.4 31,902 1.4Doubtful . . . . . . . . . . . . . . . . . . . 15,095 1.0 17,707 1.0 13,082 0.6 17,013 0.8Loss . . . . . . . . . . . . . . . . . . . . . . . 4,901 0.4 5,383 0.3 617 0.0 393 0.0

Subtotal . . . . . . . . . . . . . . . . 1,490,322 100.0 1,815,207 100.0 2,069,853 100.0 2,239,142 100.0

Non-performing loan ratio(2) . . 1.77% 2.12% 2.07% 2.20%

Discounted billsNormal . . . . . . . . . . . . . . . . . . . . 156,489 100.0 310,148 100.0 392,717 100.0 416,336 100.0Special mention . . . . . . . . . . . . . . — — — — — — — —Substandard . . . . . . . . . . . . . . . . . — — — — — — — —Doubtful . . . . . . . . . . . . . . . . . . . — — — — — — — —Loss . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — —

Subtotal . . . . . . . . . . . . . . . . 156,489 100.0 310,148 100.0 392,717 100.0 416,336 100.0

Non-performing loan ratio(2) . . — — — —

Personal loansNormal . . . . . . . . . . . . . . . . . . . . 396,781 98.0 470,907 97.0 492,328 95.8 485,719 91.2Special mention . . . . . . . . . . . . . . 4,336 1.1 7,661 1.6 10,997 2.1 36,825 6.9Substandard . . . . . . . . . . . . . . . . . 977 0.2 2,221 0.5 3,413 0.7 2,572 0.5Doubtful . . . . . . . . . . . . . . . . . . . 2,991 0.7 4,369 0.9 7,328 1.4 7,273 1.4Loss . . . . . . . . . . . . . . . . . . . . . . . 16 0.0 47 0.0 68 0.0 76 0.0

Subtotal . . . . . . . . . . . . . . . . 405,101 100.0% 485,205 100.0% 514,134 100.0% 532,465 100.0%

Non-performing loan ratio(2) . . 0.98% 1.37% 2.10% 1.86%Total New Loans . . . . . . . . . . . . 2,051,912 2,610,560 2,976,704 3,187,943

Non-performing loan ratio(3) . . 1.48% 1.73% 1.80% 1.86%

(1) The amounts of corporate loans reflect the disposal of RMB30.9 billion of non-performing New Loans in connection with our financialrestructuring.

(2) Calculated by dividing non-performing New Loans in each category by total New Loans in that category.(3) Calculated by dividing total non-performing New Loans by total New Loans.

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The following table sets forth the distribution of the non-performing Pre-existing Loans andnon-performing New Loans disposed of in connection with our financial restructuring.

Restructuring-related disposal

Amount % of total


Pre-existing Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 604,098 95.1%New Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,904 4.9

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 635,002 100.0%

Migration of Non-performing Corporate Loans

The following table sets forth, at the dates indicated, the changes in the outstanding amounts ofnon-performing corporate loans in our loan portfolio.

Amount NPL ratio


At December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 818,112 29.62%Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,510Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (112,113)



At June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,181 5.47%

The following table sets forth, for the period indicated, reduction of our non-performingcorporate loans arising from securitizations, write-offs and the restructuring-related disposal:

For the year ended December 31,For the six months

ended June 30,

2004 2005 2006

Amount% of

reduction Amount% of

reduction Amount% of

reduction


Write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,974) 43.7% (26,419) 3.8% (5,750) 23.1%Securitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,602) 2.3% — — — —Restructuring-related disposal . . . . . . . . . . . . . . . . . — — (635,002) 92.4% — —

At June 30, 2006, the balance of our non-performing corporate loans amounted to RMB131.2billion, a decrease of 7.8% from RMB142.3 billion at December 31, 2005.

The balance of our non-performing corporate loans decreased by 81.7% to RMB142.3 billion atDecember 31, 2005 from RMB776.5 billion at December 31, 2004, primarily as a result of therestructuring-related disposal.

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The balance of our non-performing corporate loans decreased by 5.1% to RMB776.5 billion atDecember 31, 2004 from RMB818.1 billion at December 31, 2003, primarily due to write-offs ofnon-performing corporate loans. The amount of our non-performing corporate loans was also reducedby RMB2.6 billion as a result of the sale of non-performing corporate loans in a securitizationtransaction at one of our branches.

Distribution of Non-performing Loans by Product Type

The following table sets forth, at the dates indicated, our non-performing loans by product type.


2003 2004 2005 2006

Amount% oftotal

NPLratio(1) Amount

% oftotal

NPLratio(1) Amount(2)

% oftotal

NPLratio(1) Amount

% oftotal

NPLratio(1)


Corporate loansShort-term loans . . . . . . . . . 629,418 76.3% 38.08% 585,915 74.7% 38.12% 109,472 70.9% 11.66% 98,246 69.2% 10.31%

Medium- and long-termloans . . . . . . . . . . . . . . . . 188,694 22.9 17.02 190,594 24.3 14.95 32,803 21.2 2.45 32,935 23.2 2.28

of which:Medium- and long-

term propertydevelopmentloans . . . . . . . . . . . . 18,315 2.2 13.20 19,679 2.5 12.19 5,800 3.8 3.33 6,290 4.4 3.07

Syndicated loans . . . . . 282 0.0 1.04 247 0.0 0.46 207 0.1 0.29 152 0.1 0.18

Subtotal . . . . . . . . . . . . . . 818,112 99.2 29.62 776,509 99.0 27.62 142,275 92.1 6.25 131,181 92.4 5.47

Discounted bills . . . . . . . . . — — — — — — — — — — — —

Personal loansPersonal property mortgage

loans . . . . . . . . . . . . . . . . 3,636 0.4 1.10 5,077 0.6 1.23 8,495 5.5 1.90 7,164 5.0 1.56Personal consumption

loans . . . . . . . . . . . . . . . . 552 0.1 0.74 1,681 0.2 2.36 2,321 1.5 3.61 2,696 1.9 3.88Bank card overdrafts . . . . . . 89 0.0 3.11 95 0.0 3.10 95 0.1 2.77 111 0.1 2.83

Subtotal . . . . . . . . . . . . . . 4,277 0.5 1.05 6,853 0.8 1.41 10,911 7.1 2.12 9,971 7.0 1.87

Overseas operations . . . . . 2,259 0.3 2.96 1,294 0.2 1.30 1,231 0.8 1.18 878 0.6 0.79

Total non-performingloans . . . . . . . . . . . . . . . . 824,648 100.0% 24.24% 784,656 100.0% 21.16% 154,417 100.0% 4.69% 142,030 100.0% 4.10%

(1) Calculated by dividing non-performing loans in each category by total loans in that category.(2) The amounts of corporate loans reflect our restructuring-related disposal.

The overall improvement in the non-performing loan ratio of our total loan portfolio fromDecember 31, 2003 to June 30, 2006 was primarily due to an improvement in the non-performing loanratio of our corporate loan portfolio, together with an increase in the amount of discounted bills, thevast majority of which were bank acceptance bills, both in absolute terms and as a percentage of ourloan portfolio. None of our discounted bills was classified as non-performing at June 30, 2006,December 31, 2005, 2004, and 2003.

The decrease in the non-performing loan ratio of our corporate loans was primarily due to therestructuring-related disposal. Apart from the impact of our restructuring-related disposal, the decreasein the non-performing loan ratio of our corporate loan portfolio was primarily due to a combination ofthe following factors: (i) the continued strengthening of our credit risk management policies andpractices, including the introduction of policies on credit exposure by industry and geographical region

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and the launch of the CM2002 credit management system in April 2003; (ii) a decrease in ourexposure—most of which had historically been in the form of short-term loans—to lower-ratedborrowers; (iii) the positive impact on our non-performing loan ratio of the increase in loans newlymade; and (iv) our increased efforts to recover on non-performing loans. The NPL ratio of our short-term corporate loans was 10.31% at June 30, 2006, which was primarily attributable to the high NPLratio of our short-term Pre-existing Loans. Pre-existing Loans accounted for a majority of our non-performing short-term corporate loans at June 30, 2006.

Partly offsetting the improvement in our corporate loan portfolio and the increase in discountedbills was an increase in the non-performing loan ratio of our personal loan portfolio fromDecember 31, 2003 to December 31, 2005. This was primarily due to a combination of (i) an increasein non-performing personal property mortgage loans resulting from both the seasoning of a series ofloans made in 2000-2002 as a result of wrongful practices by certain property developers and theimpact of the PRC government’s macroeconomic control measures on the real estate industry, whichled to delays in the completion of a number of property development projects and consequently to anincrease in mortgage defaults among purchasers of properties in such projects and (ii) an increase innon-performing personal consumption loans, primarily attributable to auto loans, on which weexperienced an increase in borrower defaults primarily as a result of a general decline in automobileprices. To a lesser extent, the increase in the non-performing loan ratio of personal property mortgageloans at December 31, 2005 from December 31, 2004 was attributable to the increase in prepaymentson such loans, which had the effect of reducing the proportion of performing loans in our personalproperty mortgage loan portfolio at that date.

The non-performing loan ratio of our personal loan portfolio improved from December 31,2005 to June 30, 2006 primarily due to improved non-performing loan ratio on our personal propertymortgage loans, partially offset by increased non-performing loan ratios on our personal consumptionloans and bank card overdrafts. The non-performing loan ratio on our personal property mortgageloans decreased primarily due to (i) the continued strengthening of our credit risk management policiesand practices, including the launch of the PCM2003 personal credit management system in May 2006,(ii) increased write-offs, and (iii) increased recoveries. The decrease in personal loans classified asnormal and increase in personal loans classified as special mention from December 31, 2005 to June30, 2006, both in absolute terms and as a percentage of our personal loan portfolio, was primarily dueto the introduction of a more prudent criterion for classifying personal property mortgage loans inconnection with the launch of the PCM2003 system. See “—Distribution of Loans by Five-categoryLoan Classification.”

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Distribution of Non-performing Corporate Loans by Geographical Region

The following table sets forth, at the dates indicated, the distribution of our non-performingcorporate loans by geographical region. For a description of our geographical regions, see “Definitionsand Conventions.”


2003 2004 2005 2006

Amount% oftotal

NPLratio(1) Amount

% oftotal


% oftotal

NPLratio(1) Amount

% oftotal

NPLratio(1)


Head Office . . . . . . . . . . . . . 9,077 1.1% 10.94% 8,929 1.1% 14.26% 432 0.3% 0.65% 422 0.3% 0.78%Yangtze River Delta . . . . . . 65,749 8.1 11.97 50,865 6.6 9.09 14,176 9.9 2.40 13,245 10.1 2.02Pearl River Delta . . . . . . . . . 98,877 12.1 25.71 99,411 12.8 25.39 21,422 15.1 6.53 19,634 15.0 5.55Bohai Rim . . . . . . . . . . . . . . 134,368 16.4 28.61 116,854 15.0 24.15 24,742 17.4 5.82 24,247 18.5 5.44Central China . . . . . . . . . . . 178,542 21.8 38.40 170,729 22.0 33.73 20,025 14.1 5.86 18,582 14.1 5.20Northeastern China . . . . . . . 189,612 23.2 56.28 192,298 24.8 59.33 34,142 24.0 24.24 29,889 22.8 21.69Western China . . . . . . . . . . . 141,887 17.3 29.97 137,423 17.7 28.40 27,336 19.2 7.11 25,162 19.2 6.34

Total corporatenon-performingloans . . . . . . . . . . . . . . . . 818,112 100.0% 29.62% 776,509 100.0% 27.62% 142,275 100.0% 6.25% 131,181 100.0% 5.47%

(1) Calculated by dividing non-performing corporate loans in each category by total corporate loans in that category.(2) The amounts at December 31, 2005 reflect the restructuring-related disposal.

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Distribution of Non-performing Corporate Loans by Industry

The following table sets forth, at the dates indicated, the distribution of our non-performingcorporate loans by industry.


2003 2004 2005 2006

Amount% oftotal

NPLratio(1) Amount

% oftotal


% oftotal

NPLratio(1) Amount

% oftotal

NPLratio(1)


ManufacturingChemicals . . . . . . . . . . 72,593 8.9% 44.47% 68,317 8.8% 42.20% 14,004 9.9% 13.20% 12,753 9.7% 11.64%Machinery . . . . . . . . . . 114,011 13.9 61.25 99,376 12.8 57.09 15,202 10.7 18.53 11,979 9.1 14.96Iron and steel . . . . . . . . 20,298 2.5 23.97 18,747 2.4 22.92 2,985 2.1 4.35 2,694 2.1 3.89Textiles and

apparels . . . . . . . . . . 79,072 9.7 63.62 70,819 9.1 60.71 8,730 6.1 14.74 7,566 5.8 11.91Metal processing . . . . . 36,340 4.4 42.51 30,559 3.9 38.03 4,485 3.2 8.33 4,289 3.3 7.20Petroleum

processing . . . . . . . . 2,962 0.3 7.00 2,850 0.4 6.66 691 0.5 1.55 718 0.5 1.40Automobile . . . . . . . . . 27,873 3.4 36.99 25,976 3.3 35.68 4,693 3.3 10.84 3,850 2.9 10.10Electronics . . . . . . . . . . 17,783 2.2 30.98 16,154 2.1 29.15 2,772 1.9 7.33 3,287 2.5 8.66Cement . . . . . . . . . . . . 34,387 4.2 55.00 33,453 4.3 54.82 7,319 5.1 22.45 6,028 4.6 19.11Others(3) . . . . . . . . . . . . 115,917 14.2 44.58 111,543 14.4 51.53 20,598 14.5 15.34 19,912 15.2 15.67

Subtotal . . . . . . . . 521,236 63.7 45.67 477,794 61.5 44.94 81,479 57.3 12.30 73,076 55.7 10.94

Transportation andlogistics . . . . . . . . . . . . . . 19,728 2.4 6.38 18,925 2.5 4.98 3,864 2.7 1.05 4,933 3.8 1.20

Power generation andsupplies . . . . . . . . . . . . . . 9,708 1.2 4.89 11,012 1.4 4.22 6,118 4.3 2.18 6,227 4.7 2.00

Retail, wholesale andcatering . . . . . . . . . . . . . . 178,760 21.8 51.74 179,433 23.1 70.20 29,293 20.6 11.02 26,114 19.9 9.15

Property development . . . . . 31,580 3.9 15.53 29,867 3.8 14.42 9,945 7.0 5.13 9,708 7.4 4.47Education, hospitals and

other non-profitorganizations . . . . . . . . . . 9,638 1.2 10.15 15,352 2.0 13.12 3,511 2.5 3.41 3,393 2.6 2.55

Construction . . . . . . . . . . . . 7,417 0.9 10.67 6,784 0.9 8.67 1,784 1.2 1.99 2,069 1.6 2.47Others(4) . . . . . . . . . . . . . . . . 40,045 4.9 10.03 37,342 4.8 8.31 6,281 4.4 2.00 5,661 4.3 1.96

Total corporate loans . . . . 818,112 100.0% 29.62% 776,509 100.0% 27.62% 142,275 100.0% 6.25% 131,181 100.0% 5.47%

(1) Calculated by dividing non-performing corporate loans in each category by total corporate loans in that category.(2) The amounts at December 31, 2005 reflect the restructuring-related disposal.(3) Consists primarily of the pharmaceutical, food products, pulp and paper, beverage, and tobacco industries.(4) Consists primarily of the data transmission, computer services and software, mining, and water works, environmental and administration


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Ten Largest Non-performing Borrowers

The following table sets forth, at June 30, 2006, our borrowers with the ten largestnon-performing loan balances outstanding.

At June 30, 2006

Industry Amount% of total

non-performing loans% of Net

Capital Base(1)


Borrower A . . . . . . . . . . . . . . . . . . . . . . . Property development 742 0.52% 0.20%Borrower B . . . . . . . . . . . . . . . . . . . . . . . Transportation and logistics 654 0.46 0.18Borrower C . . . . . . . . . . . . . . . . . . . . . . . Manufacturing 616 0.43 0.17Borrower D . . . . . . . . . . . . . . . . . . . . . . . Manufacturing 597 0.42 0.16Borrower E . . . . . . . . . . . . . . . . . . . . . . . Manufacturing 592 0.42 0.16Borrower F . . . . . . . . . . . . . . . . . . . . . . . Manufacturing 553 0.39 0.15Borrower G . . . . . . . . . . . . . . . . . . . . . . . Manufacturing 529 0.37 0.14Borrower H . . . . . . . . . . . . . . . . . . . . . . . Manufacturing 528 0.37 0.14Borrower I . . . . . . . . . . . . . . . . . . . . . . . Manufacturing 526 0.37 0.14Borrower J . . . . . . . . . . . . . . . . . . . . . . . Manufacturing 507 0.36 0.14

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,844 4.11% 1.58%

(1) Represents loan amounts as a percentage of our Net Capital Base, which consists of our core capital and supplementary capital lessdeductions, each calculated in accordance with CBRC statutory requirements under PRC GAAP. See “Regulation and Supervision—PRC Regulation and Supervision—Liquidity and Other Operational Ratios.” For a calculation of our Net Capital Base at June 30, 2006,see “Financial information—Capital Resources—Capital Adequacy.”

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Loan Aging Schedule

The following table sets forth, at the dates indicated, our loan aging schedule for our loans tocustomers. For the purposes of the following aging analysis, overdue loans are loans on which eitherthe principal is overdue, or interest is overdue for more than 90 days. For installment loans, only theinstallments that are due but remain unpaid are treated as overdue.


2003 2004 2005 2006


% oftotal Amount(1)

% oftotal Amount

% oftotal


DomesticCurrent loans . . . . . . . . . . . . . . . . . . 2,575,845 75.7% 2,830,706 76.4% 3,018,597 91.7% 3,203,657 92.5%Loans past due for:

1 to 90 days . . . . . . . . . . . . . . . . 35,949 1.1 49,255 1.3 19,217 0.6 12,895 0.491 days to 180 days . . . . . . . . . 95,370 2.8 78,793 2.1 34,755 1.1 20,045 0.6181 days or more . . . . . . . . . . . 618,696 18.2 649,751 17.5 112,586 3.4 113,056 3.3

Subtotal . . . . . . . . . . . . . . . . . . . . . 3,325,860 97.8 3,608,505 97.3 3,185,155 96.8 3,349,653 96.8

Overseas operationsCurrent loans . . . . . . . . . . . . . . . . . . 73,326 2.2 97,212 2.7 103,167 3.2 110,532 3.2Loans past due for:

1 to 90 days . . . . . . . . . . . . . . . . 1,666 0.0 403 0.0 8 0.0 65 0.091 days to 180 days . . . . . . . . . 713 0.0 814 0.0 969 0.0 456 0.0181 days or more . . . . . . . . . . . 712 0.0 814 0.0 254 0.0 374 0.0

Subtotal . . . . . . . . . . . . . . . . . . . . . 76,417 2.2 99,243 2.7 104,398 3.2 111,427 3.2

Total loans to customers . . . . . . . . 3,402,277 100.0% 3,707,748 100.0%3,289,553 100.0%3,461,080 100.0%

Loans overdue for 91 days ormore . . . . . . . . . . . . . . . . . . . . . . . 715,491 21.0% 730,172 19.6% 148,564 4.5% 133,931 3.9%

(1) The amounts of loans past due at December 31, 2005 reflect the restructuring-related disposal.

Allowance for Impairment Losses on Loans to Customers

Since January 1, 2003, we have assessed our loans for impairment, determined a level ofallowance for impairment losses, and recognized any related provisions made in a period using theconcept of impairment under IAS 39. We individually assess for impairment our non-performingcorporate loans and discounted bills (i.e., those classified as substandard, doubtful or loss) and non-performing corporate loans and discounted bills arising from our overseas operations. See “FinancialInformation—Critical Accounting Policies—Allowance for Impairment Losses on Loans.” Theallowance for impairment losses on these loans is measured as the difference between the carryingamounts and the estimated recoverable amounts of the loans. The estimated recoverable amounts arethe sum of the present value of the estimated future cash flows of the loans and the recoverable valueof the collateral, up to the carrying amounts.

We collectively assess for impairment our personal loans and performing corporate loans anddiscounted bills (i.e., those classified as normal and special mention), and personal loans andperforming corporate loans and discounted bills arising from our overseas operations. For purposes ofcollective assessment, we estimate the future recoverable amount on a group of loans on the basis ofour historical loss experience on loans with similar credit risk characteristics. The historical loss

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experience is adjusted for current conditions to eliminate the impact of historical conditions that haveceased to have any current impact. See “Financial Information—Critical Accounting Policies—Allowance for Impairment Losses on Loans” and Note 16 to our financial information included in theAccountants’ Report in Appendix I to this prospectus.

The following table sets forth, at the dates indicated, the distribution by product type of ourloans that were individually and collectively assessed for impairment.


2003 2004 2005 2006


% oftotal Amount

% oftotal Amount

% oftotal


Collectively assessedCorporate loans(1) . . . . . . . . . . . . 1,943,587 57.2% 2,034,981 54.9% 2,135,121 64.9% 2,269,049 65.6%Discounted bills . . . . . . . . . . . . . . 156,489 4.6 310,148 8.4 392,717 11.9 416,336 12.0Personal loans . . . . . . . . . . . . . . . 407,672 12.0 486,867 13.1 515,042 15.7 533,087 15.4Overseas operations(2) . . . . . . . . . 74,158 2.1 97,949 2.6 103,167 3.1 110,549 3.2

Subtotal . . . . . . . . . . . . . . . . 2,581,906 75.9 2,929,945 79.0 3,146,047 95.6 3,329,021 96.2

Individually assessedCorporate loans(3) . . . . . . . . . . . . 818,112 24.0 776,509 20.9 142,275(4) 4.3 131,181 3.8Overseas operations(5) . . . . . . . . . 2,259 0.1 1,294 0.1 1,231 0.1 878 0.0

Subtotal . . . . . . . . . . . . . . . . 820,371 24.1 777,803 21.0 143,506 4.4 132,059 3.8

Total loans to customers . . . . . . 3,402,277 100.0% 3,707,748 100.0% 3,289,553 100.0% 3,461,080 100.0%

(1) Consists of corporate loans classified as normal and special mention.(2) Consists of all personal loans and performing corporate loans and discounted bills made by our overseas operations.(3) Consists of corporate loans classified as substandard, doubtful and loss.(4) Reflects the restructuring-related disposal.(5) Consists of non-performing corporate loans and discounted bills made by our overseas operations.

For a description of our methodologies in calculating the estimated recoverable amount ofloans, see “Financial Information—Critical Accounting Policies—Allowance for Impairment Losseson Loans.”

Our loans are reported net of the allowance for impairment losses on our consolidated balancesheet.

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Distribution of Allowance for Impairment Losses by Loan Classification

The following table sets forth, at the dates indicated, the allocation of the allowance forimpairment losses by loan classification category.


2003 2004 2005 2006

Amount% oftotal

Allowanceto loans(1) Amount

% oftotal

Allowanceto loans (1) Amount(2)

% oftotal

Allowanceto loans (1) Amount

% oftotal

Allowanceto loans (1)


Domestic . . . . . . .Normal . . . . . . . . . 22,596 3.6% 1.04% 23,848 4.0% 0.94% 23,271 27.8% 0.85% 23,885 27.9% 0.81%Special mention . . 5,638 0.9 1.75 6,177 1.0 2.06 6,512 7.8 2.17 7,490 8.7 2.73Substandard . . . . . 19,256 3.0 20.50 22,662 3.8 21.44 19,546 23.4 21.21 16,547 19.3 21.42Doubtful . . . . . . . . 212,135 33.3 59.94 201,236 33.6 60.14 28,772 34.4 51.00 31,907 37.2 54.17Loss . . . . . . . . . . . 374,526 58.9 100.00 343,039 57.3 100.00 4,599 5.4 100.00 5,012 5.9 100.00

Subtotal . . . . 634,151 99.7 19.07 596,962 99.7 16.54 82,700 98.8 2.60 84,841 99.0 2.53

Overseasoperations . . . .

Performing . . . . . . 694 0.1 0.94 794 0.1 0.81 416 0.5 0.40 468 0.5 0.42Non-performing . . 1,377 0.2 60.96 801 0.2 61.90 576 0.7 46.79 429 0.5 48.86

Subtotal . . . . 2,071 0.3 2.71 1,595 0.3 1.61 992 1.2 0.95 897 1.0 0.81

Total allowancefor loans tocustomers . . . . 636,222 100.0% 18.70% 598,557 100.0% 16.14% 83,692 100.0% 2.54% 85,738 100.0% 2.48%

(1) Calculated by dividing the amount of the allowance for impairment losses on loans in each category by the total amount of loans in thatcategory.

(2) The amount of the allowance for impairment losses at December 31, 2005 reflects the RMB503.1 billion release from the allowanceresulting from the restructuring-related disposal.

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The following table sets forth, at the dates indicated, the allocation of the allowance forimpairment losses by business line and by loan classification category.


2003 2004 2005 2006

Amount% oftotal

Allowanceto loans(1) Amount

% oftotal

Allowanceto loans (1) Amount(2)

% oftotal

Allowanceto loans (1) Amount

% oftotal

Allowanceto loans (1)


Corporate loansNormal . . . . . . . . . 18,305 2.9% 1.13% 18,165 3.0% 1.04% 18,361 21.9% 0.99% 19,000 22.2% 0.94%Special mention . . 5,567 0.9 1.75 6,013 1.0 2.06 6,301 7.5 2.18 6,523 7.6 2.75Substandard . . . . . 19,043 3.0 20.49 22,193 3.7 21.45 18,923 22.7 21.32 16,040 18.7 21.48Doubtful . . . . . . . . 210,314 33.0 59.97 198,385 33.2 60.11 25,373 30.3 51.77 28,243 32.9 54.75Loss . . . . . . . . . . . 374,503 58.9 100.00 342,988 57.3 100.00 4,524 5.4 100.00 4,934 5.8 100.00

Subtotal . . . . 627,732 98.7 22.73 587,744 98.2 20.91 73,482 87.8 3.23 74,740 87.2 3.11

Discounted billsNormal . . . . . . . . . 94 0.0 0.06 494 0.1 0.16 491 0.6 0.13 392 0.5 0.09Special mention . . — — — — — — — — — — — —Substandard . . . . . — — — — — — — — — — — —Doubtful . . . . . . . . — — — — — — — — — — — —Loss . . . . . . . . . . . — — — — — — — — — — — —

Subtotal . . . . 94 0.0 0.06 494 0.1 0.16 491 0.6 0.13 392 0.5 0.09

Personal loans . . .Normal . . . . . . . . . 4,197 0.7 1.05 5,189 0.9 1.10 4,419 5.3 0.90 4,493 5.2 0.92Special mention . . 71 0.0 1.62 164 0.0 2.13 211 0.3 1.91 967 1.1 2.62Substandard . . . . . 213 0.0 20.92 469 0.1 21.01 623 0.7 18.16 507 0.6 19.66Doubtful . . . . . . . . 1,821 0.3 56.27 2,851 0.4 62.39 3,399 4.1 45.90 3,664 4.3 50.10Loss . . . . . . . . . . . 23 0.0 100.00 51 0.0 100.00 75 0.0 100.00 78 0.1 100.00

Subtotal . . . . 6,325 1.0 1.55 8,724 1.4 1.79 8,727 10.4 1.69 9,709 11.3 1.82

Overseasoperations . . . . 2,071 0.3 2.71 1,595 0.3 1.61 992 1.2 0.95 897 1.0 0.81

Total allowancefor loans tocustomers . . . . 636,222 100.0% 18.70% 598,557 100.0% 16.14% 83,692 100.0% 2.54% 85,738 100.0% 2.48%

(1) Calculated by dividing the amount of the allowance for impairment losses on loans in each category by the total amount of loans in thatcategory.

(2) The amount of the allowance for impairment losses at December 31, 2005 reflected the RMB503.1 billion release from the allowanceresulting from the restructuring-related disposal.

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Changes to the Allowance for Impairment Losses

The following table sets forth, for the periods indicated, the changes to the allowance forimpairment losses on loans to customers.


At December 31, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640,245

Net provision for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,914Accretion of interest on impaired loans(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,844)Transfers out(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,347)Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,746)

At December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636,222

Net provision for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,511Accretion of interest on impaired loans(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,876)Transfer in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226Transfers out(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,450)Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51,076)

At December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598,557

Net provision for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,589Accretion of interest on impaired loans(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,349)Transfers out(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,468)Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,547)Releases on disposal of non-performing loans(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (503,090)

At December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,692

Net provision for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,645Accretion of interest on impaired loans(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (896)Transfers out(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,857)Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,846)

At June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,738

(1) Represents the increase in the present value of loans after impairment that is due to the passage of time, which we recognize as interestincome.

(2) Represents the transfer of non-performing loans to repossessed assets.(3) Consists of (i) the transfer of non-performing loans to repossessed assets, and (ii) the transfer of a non-performing loan to investment

securities through a debt-to-equity swap.(4) The amount of the allowance for impairment losses released was credited to our capital reserve.

June 30, 2006 Compared to December 31, 2005. Our allowance for impairment losses at June30, 2006 amounted to RMB85.7 billion, an increase of RMB2.0 billion or 2.4% from RMB83.7 billionat December 31, 2005, primarily due to the net provision for the period, partially offset by write-offs ofnon-performing loans.

2005 Compared to 2004. Our allowance for impairment losses at December 31, 2005 wasRMB83.7 billion, a decrease of RMB514.9 billion, or 86.0%, from RMB598.6 billion at December 31,2004. The decrease was primarily due to an RMB503.1 billion release from the allowance resultingfrom our restructuring-related disposal.

The net provision for the year decreased by RMB3.9 billion, or 12.9%, compared to 2004.

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2004 Compared to 2003. Our allowance for impairment losses at December 31, 2004 wasRMB598.6 billion at December 31, 2004, a decrease of RMB37.6 billion, or 5.9%, from RMB636.2billion at December 31, 2003. The decrease was primarily due to the impact of loan writing-offs,partially offset by the net provision for impairment losses. The decreases in the allowance resultingfrom loan write-offs amounted to RMB51.1 billion and related primarily to the write-off ofnon-performing corporate loans.

The net provision for the year decreased by RMB4.4 billion, or 12.6%, compared to 2003.

Distribution of Allowance for Impairment Losses by Product Type

The following table sets forth, at the dates indicated, the distribution of the allowance forimpairment losses for our loans to customers by product type.


2003 2004 2005 2006

AmountAllowanceto NPLs(1) Amount

Allowanceto NPLs(1) Amount(2)

Allowanceto NPLs(1) Amount

Allowanceto NPLs(1)


Corporate loansCollectively assessed . . . . . . . . . . . 23,872 —% 24,178 —% 24,662 —% 25,523 —%

Individually assessedShort-term loans . . . . . . . . . . . . . 455,862 72.43 415,346 70.89 37,963 34.68 37,831 38.51Medium- and long-term loans . . 147,998 78.43 148,220 77.77 10,857 33.10 11,386 34.57

of which:Medium- and long-term

property developmentloans . . . . . . . . . . . . . . . . 10,706 58.45 11,537 58.63 1,841 31.74 1,660 26.39

Syndicated loans . . . . . . . . . 107 37.94 147 59.51 98 47.34 85 55.92

Subtotal . . . . . . . . . . . . . . . . . . . . . 603,860 73.81 563,566 72.58 48,820 34.31 49,217 37.52

Total allowance for corporateloans . . . . . . . . . . . . . . . . . . . . . . . . 627,732 76.73 587,744 75.69 73,482 51.65 74,740 56.97

Discounted bills(3) . . . . . . . . . . . . . . . 94 — 494 — 491 — 392 —

Personal loans(4) . . . . . . . . . . . . . . . . 6,325 147.88 8,724 127.30 8,727 79.98 9,709 97.37

Overseas operationsCollectively assessed . . . . . . . . . . . 694 — 794 — 416 — 468 —Individually assessed . . . . . . . . . . 1,377 60.96 801 61.90 576 46.79 429 48.86

Total allowance for overseasoperations . . . . . . . . . . . . . . . . . . . 2,071 91.68 1,595 123.26 992 80.58 897 102.16

Total allowance for loans tocustomers . . . . . . . . . . . . . . . . . . . 636,222 77.15% 598,557 76.28% 83,692 54.20% 85,738 60.37%

(1) For corporate loans, calculated by dividing the amount of the allowance for impairment losses on loans in each category by the amountof non-performing loans in that category. For personal loans, calculated by dividing the total amount of the allowance for impairmentlosses on personal loans by the amount of non-performing personal loans.

(2) The amount of the allowance for impairment losses at December 31, 2005 reflects the RMB503.1 billion release from the allowanceresulting from the restructuring-related disposal.

(3) All discounted bills were classified as normal and thus collectively assessed for impairment.(4) All personal loans were collectively assessed for impairment.

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Distribution of Allowance for Impairment Losses for Corporate Loans by Industry

The following table sets forth, at the dates indicated, the distribution of the allowance forimpairment losses for our corporate loans by industry.


2003 2004 2005 2006

Amount% oftotal


% oftotal


% oftotal


% oftotal

Allowanceto NPLs(1)


Collectivelyassessed . . . . . . 23,872 3.8% —% 24,178 4.1% —% 24,662 33.6% —% 25,523 34.1% —%

Individuallyassessed

ManufacturingChemicals . . . 54,073 8.6 74.49 48,592 8.3 71.13 5,224 7.1 37.30 4,838 6.5 37.94Machinery . . . 79,448 12.7 69.68 68,467 11.6 68.90 5,784 7.9 38.05 4,931 6.6 41.16Iron and

steel . . . . . . 15,827 2.5 77.97 14,183 2.4 75.65 998 1.4 33.43 978 1.3 36.30Textiles and

apparels . . . 61,739 9.8 78.08 53,371 9.1 75.36 3,153 4.3 36.12 2,852 3.8 37.69Metal

processing . 26,734 4.3 73.57 22,035 3.7 72.11 1,543 2.1 34.40 1,743 2.3 40.64Petroleum

processing . 2,224 0.3 75.08 2,204 0.4 77.33 206 0.3 29.81 217 0.3 30.22Automobile . . 18,872 3.0 67.71 17,841 3.1 68.68 1,539 2.1 32.79 1,391 1.9 36.13Electronics . . 13,238 2.1 74.44 11,070 1.9 68.53 990 1.3 35.71 1,170 1.6 35.59Cement . . . . . 25,132 4.0 73.09 23,665 4.0 70.74 2,658 3.6 36.32 2,527 3.4 41.92Others (3) . . . . 88,329 14.1 76.20 82,895 14.1 74.32 7,121 9.7 34.57 7,708 10.3 38.71

Subtotal . 385,616 61.4 73.98 344,323 58.6 72.07 29,216 39.8 35.86 28,355 38.0 38.80

Transportation andlogistics . . . . . . . 13,269 2.1 67.26 12,787 2.2 67.57 916 1.2 23.71 2,313 3.1 46.89

Power generationand supplies . . . . 6,190 1.0 63.76 6,935 1.2 62.98 1,921 2.6 31.40 1,895 2.5 30.43

Retail, wholesaleand catering . . . . 136,896 21.8 76.58 136,809 23.3 76.25 9,758 13.3 33.31 9,753 13.1 37.35

Propertydevelopment . . . 20,251 3.2 64.13 19,608 3.3 65.65 3,012 4.1 30.29 2,914 3.9 30.02

Education,hospitals andother non-profitorganizations . . . 6,347 1.0 65.85 9,969 1.7 64.94 1,227 1.7 34.95 1,121 1.5 33.04

Construction . . . . . 5,288 0.9 71.30 5,037 0.8 74.25 563 0.7 31.56 681 0.9 32.91Others(4) . . . . . . . . . 30,003 4.8 74.92 28,098 4.8 75.25 2,207 3.0 35.14 2,185 2.9 38.60

Subtotal . . . . . . . . 603,860 96.2 73.81 563,566 95.9 72.58 48,820 66.4 34.31 49,217 65.9 37.52

Total allowancefor corporateloans . . . . . . . . . 627,732 100.0% 76.73% 587,744 100.0% 75.69% 73,482 100.0% 51.65% 74,740 100.0% 56.97%

(1) Calculated by dividing the amount of the allowance for impairment losses on loans in each category by the amount of non-performingloans in that category.

(2) The amount of the allowance for impairment losses at December 31, 2005 reflects the RMB503.1 billion release from the restructuring-related disposal.

(3) Consists primarily of the pharmaceutical, food products, pulp and paper, beverage, and tobacco industries.(4) Consists primarily of the data transmission, computer services and software, mining, and water works, environmental and administration


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Distribution of Allowance for Impairment Losses for Corporate Loans by Geographical Region

The following table sets forth, at the dates indicated, the allocation of our allowance forimpairment losses for our corporate loans by geographical region. For a description of ourgeographical regions, see “Definitions and Conventions.”


2003 2004 2005 2006

Amount% oftotal


% oftotal


% oftotal


% oftotal

Allowanceto NPLs(1)


Collectivelyassessed . . . . . . . . . 23,872 3.8% —% 24,178 4.1% —% 24,662 33.6% —% 25,523 34.1% —%

Individually assessedHead Office . . . . . 6,267 1.0 69.04 6,222 1.0 69.68 409 0.6 94.68 368 0.5 87.20Yangtze River

Delta . . . . . . . . 41,694 6.7 63.41 31,000 5.3 60.95 4,485 6.1 31.64 4,431 5.9 33.45Pearl River

Delta . . . . . . . . 71,657 11.4 72.47 69,169 11.8 69.58 6,986 9.5 32.61 7,150 9.6 36.42Bohai Rim . . . . . . 93,028 14.8 69.23 80,344 13.7 68.76 7,680 10.5 31.04 8,074 10.8 33.30Central China . . . 137,536 21.9 77.03 128,506 21.9 75.27 8,406 11.4 41.98 7,767 10.4 41.80Northeastern

China . . . . . . . . 148,095 23.6 78.10 149,921 25.5 77.96 11,930 16.2 34.94 11,724 15.7 39.23Western China . . . 105,583 16.8 74.41 98,404 16.7 71.61 8,924 12.1 32.65 9,703 13.0 38.56

Subtotal . . . 603,860 96.2 73.81 563,566 95.9 72.58 48,820 66.4 34.31 49,217 65.9 37.52

Total allowance forcorporate loans . . . 627,732 100.0% 76.73% 587,744 100.0% 75.69% 73,482 100.0% 51.65% 74,740 100.0% 56.97%

(1) Calculated by dividing the amount of the allowance for impairment losses on corporate loans in each category by the amount ofnon-performing corporate loans in that category.

(2) The amount of the allowance for impairment losses at December 31, 2005 reflects the RMB503.1 billion release from the restructuring-related disposal.

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Investment Securities

Our investment portfolio consists of listed and unlisted Renminbi- and foreign currency-denominated securities and other financial assets. Securities and other financial assets represented37.7%, 35.7%, 24.3% and 22.9% of our total assets at June 30, 2006, December 31, 2005, 2004 and2003, respectively. We classify our securities and other financial assets into (i) investments at fairvalue through profit or loss (primarily consisting of debt securities held for trading purposes),(ii) held-to-maturity securities, (iii) available-for-sale securities, and (iv) receivables. See Note 17 toour financial information included in the Accountants’ Report in Appendix I to this prospectus. Forpresentation purposes in this section of the prospectus, we classify our securities into (i) debtinstruments, (ii) receivables, and (iii) equity instruments, and we refer to our securities and otherfinancial assets as our “investment securities,” notwithstanding that a small portion of our securitiesand other financial assets are held for trading rather than investment purposes. The following table setsforth, at the dates indicated, the components of our investment securities.


2003 2004 2005 2006


% oftotal Amount

% oftotal Amount

% oftotal


Debt instruments(1) . . . . . . . . . . . 636,268 60.9% 824,443 67.0% 1,225,924 53.2% 1,573,612 59.2%Receivables . . . . . . . . . . . . . . . . . 397,996 38.1 397,996 32.4 1,074,461 46.6 1,078,786 40.6Equity instruments(2) . . . . . . . . . . 10,466 1.0 7,977 0.6 5,304 0.2 5,421 0.2

Total investment securities . . . . 1,044,730 100.0% 1,230,416 100.0% 2,305,689 100.0% 2,657,819 100.0%

(1) Consists of debt securities, which are accounted for in our financial information as debt securities at fair value through profit or loss,available-for-sale debt securities and held-to-maturity debt securities, and excludes debt-like obligations which are accounted for asreceivables in our financial information.

(2) Accounted for in our financial information as available-for-sale and held-for-trading investments.

Our total investment securities increased by 15.3% to RMB2,657.8 billion at June 30, 2006from RMB2,305.7 billion at December 31, 2005, primarily due to an increase in our holding of debtinstruments.

Our total investment securities increased by 87.4% to RMB2,305.7 billion at December 31,2005 from RMB1,230.4 billion at December 31, 2004, primarily because of the MOF receivable andspecial PBOC bill we received for the restructuring-related disposal, as well as an increase in ourholdings of debt instruments. See “Our Restructuring and Operational Reform—FinancialRestructuring.”

Our total investment securities increased by 17.8% to RMB1,230.4 billion at December 31,2004 from RMB1,044.7 billion at December 31, 2003 primarily due to an increase in our holdings ofdebt instruments as a result of increased funding from our customer deposits.

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Debt Instruments

Our debt instruments consist of listed and unlisted debt securities issued primarily bygovernments, central banks, policy banks, other banks and financial institutions, and corporations.Debt instruments represented 59.2%, 53.2%, 67.0% and 60.9% of our investment portfolio at June 30,2006, December 31, 2005, 2004 and 2003, respectively. The following table sets forth, at the datesindicated, the debt instruments in our investment portfolio by type of instrument.


2003 2004 2005 2006


% oftotal Amount

% oftotal Amount

% oftotal


Government bonds . . . . . . . . . . . . . . 256,527 40.3% 265,269 32.2% 309,867 25.3% 312,807 19.9%Policy bank bonds . . . . . . . . . . . . . . . 218,696 34.4 260,870 31.6 306,350 25.0 349,747 22.2PBOC bills . . . . . . . . . . . . . . . . . . . . 108,200 17.0 245,585 29.8 505,789 41.2 763,639 48.5Others(1) . . . . . . . . . . . . . . . . . . . . . . . 52,845 8.3 52,719 6.4 103,918 8.5 147,419 9.4

Total debt instruments . . . . . . . . . . 636,268 100.0% 824,443 100.0% 1,225,924 100.0% 1,573,612 100.0%

(1) Consists of debt instruments issued by other financial institutions, corporate bonds and debt instruments issued by public entities.

Our debt instruments increased by 48.7% to RMB1,225.9 billion at December 31, 2005 fromRMB824.4 billion at December 31, 2004, which increased by 29.6% from RMB636.3 billion atDecember 31, 2003. Our debt instruments further increased by 28.4% to RMB1,573.6 billion at June30, 2006 from December 31, 2005. The increase in our debt instruments from December 31, 2003 toJune 30, 2006 was primarily due to a significant increase in the balance of our holdings of PBOC billsand, to a lesser extent, increases in policy bank bonds and corporate bonds. Corporate bonds at June30, 2006 consisted primarily of foreign currency-denominated bonds issued by non-PRC corporateentities, Renminbi-denominated senior and subordinated bonds issued by PRC commercial banks andRenminbi-denominated commercial paper issued by PRC corporate entities; at year-end 2003 and2004, they consisted primarily of foreign currency-denominated bonds issued by non-PRC corporateentities and, to a lesser extent at year-end 2004, subordinated bonds issued by PRC commercial banks.

The overall increase in our debt instruments reflected increased funding from our customerdeposits and an allocation of an increased portion of those funds to investment securities rather thanloans. The increase in our holdings of PBOC bills primarily reflected the limited supply of PRCgovernment bonds and policy bank bonds and the increased supply of PBOC bills.

The following table sets forth, at the dates indicated, our debt instruments and receivables bydomicile of the issuer.


2003 2004 2005 2006


% oftotal Amount

% oftotal Amount

% oftotal


PRC . . . . . . . . . . . . . . . . . . . . . . . . . . 581,671 91.4% 766,736 93.0% 1,127,919 92.0% 1,450,570 92.2%Outside PRC . . . . . . . . . . . . . . . . . . . 54,597 8.6 57,707 7.0 98,005 8.0 123,042 7.8

Total debt instruments . . . . . . . . . 636,268 100.0% 824,443 100.0% 1,225,924 100.0% 1,573,612 100.0%

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The overall increase in the amount of debt instruments issued by PRC issuers fromDecember 31, 2003 to June 30, 2006 primarily reflected the increase in our investments in PBOC bills.The percentage of debt instruments issued by issuers outside the PRC increased to 7.8% at June 30,2006 from 7.0% at December 31, 2004, primarily due to the increase in our foreign currency funding inconnection with the Huijin capital contribution.

Receivables

Investment securities classified in the Accountants’ Report as receivables are financial assets(other than derivatives) with fixed or determinable payments that are not quoted in an active market orare not actively traded, and are neither classified as held-to-maturity nor available-for-sale. Receivablesrepresented 40.6%, 46.6%, 32.4% and 38.1% of our total investment securities at June 30,2006, December 31, 2005, 2004 and 2003, respectively. The following table sets forth, at the datesindicated, the components of the receivables in our investment portfolio.


2003 2004 2005 2006


% oftotal Amount

% oftotal Amount

% oftotal


Huarong bonds . . . . . . . . . . . . . . . . . 312,996 78.6% 312,996 78.6% 312,996 29.1% 312,996 29.0%Special government bond . . . . . . . . . 85,000 21.4 85,000 21.4 85,000 7.9 85,000 7.9MOF receivable . . . . . . . . . . . . . . . . — — — — 246,000 22.9 246,000 22.8Special PBOC bills . . . . . . . . . . . . . . — — — — 430,465 40.1 434,790 40.3

Total receivables . . . . . . . . . . . . . . . 397,996 100.0% 397,996 100.0% 1,074,461 100.0% 1,078,786 100.0%

Huarong bonds

We received a series of non-transferable bonds with an aggregate face value of RMB313.0billion issued by Huarong in 2000 and 2001 as consideration for the disposal of certain non-performingassets. The Huarong bonds have terms of ten years and bear interest at an annual rate of 2.25%. TheMOF has issued a notice providing support for the full repayment of principal and interest on theHuarong bonds. See “Our Restructuring and Operational Reform—Our History” and “Risk Factors—Risks Relating to Our Business—We are subject to certain risks relating to the bonds issued byHuarong.”

Special government bond

As part of the PRC government’s efforts to improve the capital adequacy of the Big Fourcommercial banks, the MOF issued a RMB85.0 billion, 30-year special government bond to us andused the proceeds as a capital contribution to us in 1998. The bond bore an interest rate of 7.20% perannum prior to December 1, 2005. From the issuance date of the bond to November 30, 2005, we wererequired to make an annual payment to the government in the same amount as the annual interestaccrued on the bond. Accordingly, the interest on this special government bond was effectively offsetby the annual payment and no cash settlement was ever made between us and the MOF. As part of ourfinancial restructuring, effective from December 1, 2005, we were no longer obligated to make theannual payment and the MOF began to pay interest on the bond at a reduced rate of 2.25% per annum.See “Our Restructuring and Operational Reform—Financial Restructuring—Amendment to the Termsof a Special Government Bond Issued by the MOF.”

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MOF receivable

In connection with our financial restructuring-related disposal of non-performing loans andcertain other assets to the MOF, which designated Huarong to hold these assets, we recorded a specialreceivable in an amount of RMB246.0 billion from the MOF on May 27, 2005. Interest is payable onthe outstanding amount of the MOF receivable at an annual rate of 3% from June 21, 2005. Togetherwith the MOF, we established a jointly managed fund, which is obligated to repay to us over five yearsthe principal of and the interest accrued on the MOF receivable. See “Our Restructuring andOperational Reform—Financial Restructuring—Disposal of Non-performing Assets” and “FinancialInformation—Financial Impact of Our Restructuring.”

Special PBOC bills

In connection with our financial restructuring-related disposal of non-performing loans, weused RMB430.5 billion of the proceeds from this disposal as consideration for a five-year specialPBOC bill. See “Our Restructuring and Operational Reform—Financial Restructuring—Disposal ofNon-performing Assets” and “Financial Information—Financial Impact of Our Restructuring.” ThePBOC bill matures in June 2010 and bears interest at an annual rate of 1.89%.

In addition, at the request of the PBOC, we transferred a Huarong receivable in the amount ofRMB4.3 billion at book value to the PBOC in June 2006. We used the entire proceeds from thistransaction to purchase a special PBOC bill with a face value of RMB4.3 billion. This bill matures inJune 2011 and bears interest at an annual rate of 1.89%.

Equity Instruments

The following table sets forth, at the dates indicated, the major components of our equityinstruments.


2003 2004 2005 2006

Amount(1)% oftotal Amount(1)

% oftotal Amount(1)

% oftotal Amount(1)

% oftotal


Debt-to-equity swap investments . . . . . 8,585 82.0% 6,331 79.4% 4,217 79.5% 4,217 77.8%Other equity investments . . . . . . . . . . . 1,881 18.0 1,646 20.6 1,087 20.5 1,204 22.2

Total equity investments . . . . . . . . . . 10,466 100.0% 7,977 100.0% 5,304 100.0% 5,421 100.0%

(1) Net of the allowance for impairment losses.

Our equity instruments primarily consist of equity holdings obtained through debt-to-equityswaps. Since 1999, we have acquired equity interests in certain large state-owned enterprises as a resultof debt-to-equity swaps of loans made by us to those enterprises. The decrease in the amount of ourdebt-to-equity swap investments from December 31, 2003 to June 30, 2006 was primarily due todisposals of certain holdings, consistent with the government policy that such assets should bedisposed of when conditions permit. In addition to debt-to-equity swap investments, we own equityinvestments in certain companies including financial institutions and equity interests in certain non-banking entities. See “Risk Factors—Risks Relating to Our Business—We are required to meet PRCand overseas regulatory requirements and guidelines and our non-compliance could result in fines,sanctions and other penalties.”

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Maturity Profile of Investment Securities

The following table sets forth, at June 30, 2006, the amount of our investment securities(excluding equity investments) by remaining maturity.

At June 30, 2006

Due less than3 months

Due between3 to 12 months

Due between1 to 5 years

Due more than5 years Total


Debt instrumentsGovernment bonds . . . . . . . . . . . . . . . . . . . . . . . . . 9,121 25,325 226,031 52,330 312,807Policy bank bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 13,193 53,978 161,265 121,311 349,747PBOC bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,524 452,744 68,371 — 763,639Others(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,617 26,020 40,321 71,461 147,419

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274,455 558,067 495,988 245,102 1,573,612

Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 993,786 85,000 1,078,786Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274,455 558,067 1,489,774 330,102 2,652,398

(1) Consists of debt instruments issued by other financial institutions, corporate bonds and debt instruments issued by public entities.

The proportion of our investment securities at June 30, 2006 consisting of instruments with aremaining maturity of one year or less primarily reflected our increased holdings in PBOC bills.

Carrying Value and Fair Value

All investment securities classified as available-for-sale and investments held for tradingpurposes are stated at market value. The following table sets forth, at the dates indicated, the carryingvalue and the fair value of the receivables and held-to-maturity securities in our investment portfolio.


2003 2004 2005 2006

Carryingvalue

Fairvalue

Carryingvalue

Fairvalue

Carryingvalue Fair value



Receivables . . . . . . . . . . . . 397,996 397,996 397,996 397,996 1,074,461 1,074,461 1,078,786 1,078,786Held-to-maturity

securities . . . . . . . . . . . . 363,827 363,299 428,229 436,400 882,704 887,584 1,079,366 1,082,834

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Investment Concentration

The following table sets forth, at June 30, 2006, our investment securities whose carrying valueexceeded 10% of our shareholders’ equity.

At June 30, 2006

Carryingvalue

% of totalinvestmentsecurities

% of totalshareholders’

equity(1)


PBOC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,198,429 45.1% 368.3%of which:

Special PBOC bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434,790 16.4 133.6MOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617,475 23.2 189.8

of which:Special government bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000 3.2 26.1MOF receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246,000 9.3 75.6

Huarong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,996 11.8 96.2China Development Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274,853 10.3 84.5

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,403,753 90.4% 738.8%

(1) For a calculation of our total shareholders’ equity, see “Financial Information—Capital Resources—Shareholders’ Equity.”

Other Components of Our Assets

Other components of our assets consist primarily of (i) cash and balances with central banks,(ii) amounts due from banks and other financial institutions, and (iii) amounts under reverse repurchaseagreements.

Cash and balances with central banks consist of cash on hand; mandatory reserve deposits,which consist of statutory reserve deposits with the PBOC; surplus reserve deposits; and otherrestricted deposits. Statutory reserve deposits represent the minimum level of cash deposits, calculatedas a percentage of the balance of our general deposits from customers, that we are required to maintainwith the PBOC. Surplus reserve deposits primarily consist of deposits in our reserve accounts with thePBOC in excess of our statutory reserve deposits. The surplus reserve deposits with the PBOC may beused for settlement and other routine payment purposes. At June 30, 2006, cash and balances withcentral banks amounted to RMB598.3 billion, an increase of 8.0% from RMB553.9 billion atDecember 31, 2005, primarily reflecting an increase in our statutory reserve deposits in line with thecontinued increase in our customer deposits. The amount of cash and balances with central banksincreased by 8.9% to RMB553.9 billion at December 31, 2005 from RMB508.6 billion atDecember 31, 2004, and increased by 11.1% at December 31, 2004 from RMB457.8 billion atDecember 31, 2003. These increases were primarily due to increases in our statutory reserve deposits,which primarily reflected both an increase in deposits from customers and the increases in the statutoryreserve ratio required by the PBOC. See “Regulation and Supervision—PRC Regulation andSupervision—Statutory Reserve Deposit and Surplus Reserve Deposit.”

Amounts due from banks and other financial institutions consist primarily of Renminbi-denominated and foreign currency-denominated inter-bank deposits and money-market placementswith banks and other financial institutions. At June 30, 2006, amounts due from banks and otherfinancial institutions, net of the allowance for impairment losses, remained effectively stable atRMB131.1 billion, compared to RMB132.2 billion at December 31, 2005. Amounts due from banks

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and other financial institutions, net of the allowance for impairment losses, increased by 90.4% toRMB132.2 billion at December 31, 2005 from RMB69.4 billion at December 31, 2004, primarily dueto an increase in our money-market placements with banks operating outside the PRC to RMB105.2billion at December 31, 2005 from RMB51.8 billion at December 31, 2004, reflecting the placement ofa portion of the US$15 billion Huijin capital contribution. Amounts due from banks and other financialinstitutions increased by 5.2% to RMB69.4 billion at December 31, 2004 from RMB66.0 billion atDecember 31, 2003, primarily due to an increase in our money-market placements with banksoperating outside the PRC to RMB51.8 billion at December 31, 2004 from RMB49.3 billion atDecember 31, 2003. This increase primarily reflected an increase in our foreign currency deposits.

Amounts due under reverse repurchase agreements consist of purchases of assets underagreements to resell equivalent assets. At June 30, 2006, our amounts due under reverse repurchaseagreements amounted to RMB105.5 billion, an increase of 18.3% from RMB89.2 billion atDecember 31, 2005, primarily reflecting the placement of funds in these short-term contracts at the endof June 2006 in anticipation of 50 basis points increase in the statutory reserve deposit ratio, whichbecame effective on July 5, 2006. Amounts due under reverse repurchase agreements increased toRMB89.2 billion at December 31, 2005 from RMB21.8 billion at December 31, 2004, which decreasedfrom RMB71.2 billion at December 31, 2003. These changes primarily reflected fluctuations in ourshort-term liquidity positions.

For a description of changes in the average balances of the amounts due from banks and otherfinancial institutions, including amounts due under reverse repurchase agreements, for the three yearsended December 31, 2005 and the six months ended June 30, 2005 and 2006, see “FinancialInformation—Results of Operations for the Years Ended December 31, 2005, 2004 and 2003—NetInterest Income—Interest Income—Interest Income from Amounts Due from Banks and OtherFinancial Institutions” and “Financial Information—Interim Results of Operations For the Six MonthsEnded June 30, 2006 and 2005—Net Interest Income—Interest Income—Interest Income fromAmounts Due from Banks and Other Financial Institutions.”

LIABILITIES AND SOURCES OF FUNDS

At June 30, 2006, our total liabilities amounted to RMB6,725.2 billion, an increase of 8.5%from RMB6,196.3 billion at December 31, 2005. Our total liabilities increased by 11.1% toRMB6,196.3 billion at December 31, 2005 from RMB5,577.4 billion at December 31, 2004, whichincreased by 9.4% from RMB5,096.1 billion at December 31, 2003. Deposits from customers havehistorically been our primary source of funding and represented 91.0%, 92.6%, 92.8% and 92.4% ofour total liabilities, at June 30, 2006, December 31, 2005, 2004 and 2003, respectively.

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The following table sets forth, at the dates indicated, the components of our total liabilities.


2003 2004 2005 2006


% oftotal Amount

% oftotal Amount

% oftotal


Due to a central bank . . . . . . . . . . 32,383 0.6% 28,402 0.5% — —% — —%Due to banks and other financial

institutions . . . . . . . . . . . . . . . . 219,009 4.3 205,695 3.7 232,910 3.8 367,218 5.4Repurchase agreements . . . . . . . . 16,253 0.3 26,339 0.4 32,301 0.5 11,622 0.2Certificates of deposit . . . . . . . . . 3,376 0.1 3,680 0.1 5,704 0.1 6,991 0.1Due to customers . . . . . . . . . . . . . 4,706,861 92.4 5,176,282 92.8 5,736,866 92.6 6,119,038 91.0Debt issued . . . . . . . . . . . . . . . . . — — 3,294 0.1 38,076 0.6 37,987 0.6Other liabilities(1) . . . . . . . . . . . . 118,203 2.3 133,677 2.4 150,398 2.4 182,304 2.7

Total liabilities . . . . . . . . . . . . . . 5,096,085 100.0% 5,577,369 100.0% 6,196,255 100.0% 6,725,160 100.0%

(1) Consists of income tax payables, deferred income tax liabilities and other liabilities.

Customer Deposits

We provide demand and time deposit products to corporate and personal customers. Thefollowing table sets forth, at the dates indicated, the deposits from customers by product type andbusiness line.


2003 2004 2005 2006


% oftotal Amount

% oftotal Amount

% oftotal


Corporate depositsTime . . . . . . . . . . . . . . . . . . . . . . 481,565 10.2% 579,338 11.2% 705,564 12.3% 845,797 13.8%Demand . . . . . . . . . . . . . . . . . . . . 1,532,662 32.6 1,654,146 32.0 1,778,145 31.0 1,853,931 30.3

Subtotal . . . . . . . . . . . . . . . . 2,014,227 42.8 2,233,484 43.2 2,483,709 43.3 2,699,728 44.1

Personal depositsTime . . . . . . . . . . . . . . . . . . . . . . 1,805,565 38.3 1,939,337 37.5 2,102,800 36.6 2,230,596 36.5Demand . . . . . . . . . . . . . . . . . . . . 775,333 16.5 870,897 16.8 1,003,498 17.5 1,048,135 17.1

Subtotal . . . . . . . . . . . . . . . . 2,580,898 54.8 2,810,234 54.3 3,106,298 54.1 3,278,731 53.6

Overseas deposits . . . . . . . . . . . . 40,750 0.9 64,022 1.2 68,920 1.2 87,328 1.4Other deposits(1) . . . . . . . . . . . . . 70,986 1.5 68,542 1.3 77,939 1.4 53,251 0.9

Total customer deposits . . . . . . 4,706,861 100.0% 5,176,282 100.0% 5,736,866 100.0% 6,119,038 100.0%

(1) Consists of fiscal deposits and remittances.

At June 30, 2006, our total deposits amounted to RMB6,119.0 billion, an increase of 6.7% fromRMB5,736.9 billion at December 31, 2005, in line with the continued increase in our customerdeposits in 2003-2005. Our total deposits increased by 10.8% to RMB5,736.9 billion at December 31,2005 from RMB5,176.3 billion at December 31, 2004, which increased by 10.0% from RMB4,706.9billion at December 31, 2003. A greater proportion of our personal deposits consists of time deposits,which bear higher interest rates than demand deposits. A greater proportion of our corporate depositsconsists of demand deposits primarily because our corporate customers often maintain demand deposit

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accounts to meet their potential liquidity requirements, notwithstanding lower interest yields. Thegeneral increase in each category of our customer deposits reflected increased wealth in the PRCarising from the continued growth of the PRC economy and relatively limited alternative investmentopportunities for our customers.

Distribution of Deposits by Geographical Region

We classify deposits geographically based on the location of the branch taking the deposit.There is generally a high correlation between the location of the depositor and the location of thebranch taking the deposit. The following table sets forth, at the dates indicated, the distribution of ourdeposits from customers by geographical region.


2003 2004 2005 2006


% oftotal Amount

% oftotal Amount

% oftotal


Head Office . . . . . . . . . . . . . . . . . 40,271 0.9% 80,061 1.5% 73,317 1.3% 86,702 1.4%Yangtze River Delta . . . . . . . . . . 924,078 19.6 1,021,123 19.7 1,150,194 20.0 1,235,828 20.2Pearl River Delta . . . . . . . . . . . . . 675,489 14.4 713,036 13.8 785,937 13.7 820,323 13.4Bohai Rim . . . . . . . . . . . . . . . . . . 1,189,460 25.2 1,310,384 25.4 1,524,750 26.6 1,648,545 26.9Central China . . . . . . . . . . . . . . . . 658,715 14.0 726,017 14.0 796,921 13.9 842,993 13.8Northeastern China . . . . . . . . . . . 438,162 9.3 451,426 8.7 476,559 8.3 492,739 8.1Western China . . . . . . . . . . . . . . . 739,936 15.7 810,213 15.7 860,268 15.0 904,580 14.8Overseas . . . . . . . . . . . . . . . . . . . 40,750 0.9 64,022 1.2 68,920 1.2 87,328 1.4

Total deposits fromcustomers . . . . . . . . . . . . . . . . 4,706,861 100.0% 5,176,282 100.0% 5,736,866 100.0% 6,119,038 100.0%

Distribution of Deposits by Remaining Maturity

The following table sets forth, at the dates indicated, the distribution of our deposits, includingcertificates of deposit, from customers by remaining maturity.


2003 2004 2005 2006


% oftotal Amount

% oftotal Amount

% oftotal


Repayable on demand . . . . . . . . . 2,390,291 50.8% 2,611,723 50.5% 2,878,156 50.2% 2,974,356 48.5%Less than 3 months . . . . . . . . . . . 873,388 18.5 991,887 19.1 1,098,275 19.1 1,094,353 17.93 months to 1 year . . . . . . . . . . . . 1,145,286 24.3 1,239,422 23.9 1,357,413 23.6 1,508,173 24.61 to 5 years . . . . . . . . . . . . . . . . . 297,593 6.3 333,025 6.4 403,898 7.0 543,266 8.9More than 5 years . . . . . . . . . . . . 3,679 0.1 3,905 0.1 4,828 0.1 5,881 0.1

Total . . . . . . . . . . . . . . . . . . . . . . 4,710,237 100.0% 5,179,962 100.0% 5,742,570 100.0% 6,126,029 100.0%

Other Components of Our Liabilities

Other components of our liabilities primarily include (i) amounts due to a central bank,(ii) amounts due to banks and other financial institutions, (iii) amounts due on repurchase agreements,(iv) certificates of deposit, and (v) debt issued.

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Amounts due to a central bank consisted primarily of amounts arising from certain policy loansmade through us by the PBOC, which had been completely repaid by December 31, 2005.

Amounts due to banks and other financial institutions consist primarily of Renminbi-denominated deposits by banks and other financial institutions. At June 30, 2006, our amounts due tobanks and other financial institutions increased by 57.7% to RMB367.2 billion at June 30, 2006 fromRMB232.9 billion at December 31, 2005, primarily attributable to an increase in Renminbi-denominated inter-bank deposits received from securities firms in our securities clearing business,reflecting the resumption of public equity offerings in the PRC in May of 2006, which was suspendedby the CSRC in 2005. Amounts due to banks and other financial institutions increased by 13.2% toRMB232.9 billion at December 31, 2005 from RMB205.7 billion at December 31, 2004, whichdecreased by 6.1% from RMB219.0 billion at December 31, 2003. These changes reflected normalfluctuations in inter-bank deposits.

Amounts due on repurchase agreements consist primarily of sales of assets under agreements torepurchase equivalent assets. We generally enter into Renminbi-denominated repurchase contracts atyear-end, when we have greater liquidity needs than at other times of the year. As a result, amountsunder repurchase agreements decreased by 64.0% to RMB11.6 billion at June 30, 2006 from RMB32.3billion at December 31, 2005. Amounts due on repurchase agreements increased by 22.6% toRMB32.3 billion at December 31, 2005 from RMB26.3 billion at December 31, 2004, which increasedby 62.1% from RMB16.3 billion at December 31, 2003. These changes reflected normal fluctuations inour short-term liquidity positions.

Certificates of deposit consist of foreign currency-denominated certificates of deposit issued byone of our overseas subsidiaries, ICBC (Asia). At June 30, 2006, certificates of deposit increased by22.6% to RMB7.0 billion at June 30, 2006 from RMB5.7 billion at December 31, 2005. Certificates ofdeposit increased by 55.0% to RMB5.7 billion at December 31, 2005 from RMB3.7 billion atDecember 31, 2004, which increased by 9.0% from RMB3.4 billion at December 31, 2003. Theincrease in certificates of deposit from December 31, 2003 to June 30, 2006 reflected our efforts toincrease our funding in foreign currencies.

Debt issued consists of subordinated bonds and U.S. dollar-denominated notes payable. Werecorded our U.S. dollar-denominated notes at fair value. Debt issued remained effectively stable atJune 30, 2006, compared to December 31, 2005. Debt issued increased to RMB38.1 billion atDecember 31, 2005 from RMB3.3 billion at December 31, 2004, primarily due to our issuance ofsubordinated bonds in the aggregate principal amount of RMB35.0 billion to strengthen oursupplementary capital. Debt issued increased to RMB3.3 billion at December 31, 2004 from nil atDecember 31, 2003, reflecting the issuance of notes in an aggregate principal amount ofUS$400 million by ICBCA (C.I.) Limited, a subsidiary of ICBC (Asia).

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FINANCIAL INFORMATION

The following discussion and analysis should be read in conjunction with the Accountants’Report in Appendix I, the unaudited supplementary financial information in Appendix II and theselected financial data, in each case together with the accompanying notes, included elsewhere inthis prospectus. The financial information have been prepared in accordance with IFRS. Thecapital adequacy ratios discussed in this section are calculated in accordance with applicableCBRC guidelines and are based on PRC GAAP. The capital adequacy ratios are not part of theAccountants’ Report and have not been audited.

FINANCIAL IMPACT OF OUR RESTRUCTURING

We initiated a restructuring in April 2005 that has had and is expected to have a significantimpact on our results of operations and financial condition. For a description of our financialrestructuring, see “Our Restructuring and Operational Reform—Financial Restructuring.” The tablebelow sets forth the impact of our financial restructuring on our shareholders’ equity in 2005.

Amount


Huijin capital contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,148Equity contribution from the disposal of non-performing loans and impaired assets . . . . . . . . 567,558Injection of land use rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,906Surplus on revaluation of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,697Capital adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,028)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 726,281

As part of our financial restructuring, the MOF retained RMB124.0 billion in our then existingcapital.

On April 22, 2005, we received a capital contribution of US$15.0 billion in cash from Huijin.

On May 27, 2005, we disposed of non-performing loans classified under the loss category in anaggregate amount of RMB176.0 billion and other impaired assets in an aggregate amount of RMB70.0billion at book value, before allowance for impairment losses, to the MOF on a non-recourse basis. TheMOF designated Huarong to hold these non-performing loans and assets. The proceeds from thedisposal were accounted for as a receivable from the MOF. On June 27, 2005, we disposed ofnon-performing loans in an aggregate amount of RMB459.0 billion at book value, before allowance forimpairment losses, to four asset management companies on a non-recourse basis. We used RMB430.5billion of the proceeds we received from this disposal as consideration for a five-year bill issued by thePBOC. This bill is not transferable. However, we have received the PBOC’s approval to treat theamount of this special PBOC bill as available for intraday settlement purposes. As a result of thedisposals, the related allowance for impairment losses in an aggregate amount of RMB567.6 billionwas released and credited to our capital reserve.

The PRC government contributed, as a capital injection, the land use rights to 10,994 parcels ofland formerly allocated to us, with a fair value of approximately RMB19.9 billion at June 30, 2005.

The appraised value of our net assets at June 30, 2005, which was appraised in connection withour incorporation, amounted to RMB256.0 billion. On October 28, 2005, we were incorporated as ajoint-stock limited company with a total registered capital of RMB248.0 billion. The difference of

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RMB8.0 billion related to the government’s grant of land use rights to us and was recorded as apayable to the MOF. Upon our incorporation, our registered capital was divided into 248.0 billionshares, with par value of RMB1.00 each, with the MOF and Huijin each receiving 50% of our sharesimmediately following our incorporation.

GENERAL FACTORS AFFECTING OUR RESULTS OF OPERATIONS

PRC Economic Condition

Our results of operations and financial condition are significantly affected by China’s economicconditions and the economic measures undertaken by the PRC government. China has experiencedrapid economic growth over the past two decades largely as a result of the PRC government’sextensive economic reforms, which have focused on transforming China’s centrally planned economyto a more market-based economy. The PRC’s GDP grew at a compound annual growth rate of 13.6%between 2001 and 2005, according to the National Bureau of Statistics of China. During the sameperiod, fixed asset investments increased at a compound annual growth rate of 24.2%, according to theNational Bureau of Statistics of China. The growth of China’s economy has led to increased corporateactivities. China’s economic growth has also led to significant increases in personal wealth, with percapita annual disposable income in urban areas increased at a compound annual growth rate of 11.2%from 2001 to 2005. Total Renminbi-denominated loans increased at a compound annual growth rate of14.7% from 2001 to 2005, according to the PBOC. Beginning in the second half of 2003, the PRCgovernment implemented a series of macroeconomic policies, which included raising the benchmarkinterest rates, increasing the PBOC statutory reserve deposits ratio applicable to banks, imposingcommercial bank lending guidelines and using a number of measures to restrict loans to certainindustries.

Interest Rate Environment

In recent years, as part of the overall reform of the banking system, the PBOC has implementeda series of initiatives designed to gradually liberalize interest rates and move towards a more market-based interest rate regime. Currently, interest rates on Renminbi-denominated loans may not be lowerthan the limits set based on the PBOC benchmark rates, but generally are not subject to maximumlimits. Interest rates on Renminbi-denominated deposits may not exceed the PBOC benchmark rates.Adjustments to benchmark rates have significantly affected the average rates of our loans and deposits,which in turn have had an impact on our net interest income. The PBOC adjusted the overallbenchmark rates for loans and deposits in February 2002 and October 2004, repealed the mandatorydiscount rate on personal property mortgage loans in March 2005 and adjusted the benchmark rates forloans in April 2006. In August 2006, the PBOC further adjusted the benchmark rates for both loans anddeposits. See “Regulation and Supervision—PRC Regulation and Supervision—Pricing of Productsand Services.” In addition, we expect competition to continue to play an increasingly important role indetermining interest rates as the PRC government continues its policy liberalizing interest rates onloans and deposits.

Development of China’s Capital Markets

The regulation of the PRC’s banking industry has been evolving and the PBOC and CBRChave taken initiatives to gradually allow the development and introduction of new fee- andcommission-based banking services and new financial instruments banks may offer or in which theymay invest. For example, the PBOC and CBRC have permitted the issuance of and caused the gradual

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development of a market for commercial paper. In addition, the discounted bills market has also grownrapidly in recent years. This has affected part of our lending business, as certain borrowers havereplaced higher-cost loans with lower-cost discounted bills and commercial paper. On the other hand,these and other developments in the PRC’s capital markets, such as the growth of investment andsimilar funds, have allowed us to expand our fee- and commission-based businesses, including wealthmanagement services, such as the distribution of mutual funds and other investment products. Inaddition, the newly developed commercial paper market in the PRC has allowed us to develop a newsource of underwriting fee income. The development of China’s capital markets has also broadened thescope of our investment securities into a range of new products, such as corporate commercial paperand asset-backed securities, which generally offer higher yields than our more traditional investments,such as PBOC bills.

Competition

The market-oriented liberalization in recent years has led to an increased level of competition inthe PRC banking industry. Other PRC commercial banks, including the state-owned commercialbanks, joint-stock commercial banks, city commercial banks and foreign-invested financial institutions,compete with us in many of the same markets. This competition affects the pricing of our loans anddeposits, as well as the pricing of and hence the income from our fee- and commission-based services.In the accession agreement relating to China’s entry to the WTO, China has undertaken to eliminate allrestrictions placed on the geographical presence, customer base and operational licences of foreign-invested banks in China by the end of 2006. The competition we face from foreign-invested financialinstitutions is likely to intensify significantly in the future. See “Banking Industry in China—IndustryTrends.”

INTERIM RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2006AND 2005

Our profit before tax increased by 9.7% to RMB38.8 billion for the six months ended June 30,2006 from RMB35.4 billion for the six months ended June 30, 2005, primarily due to a 6.7% growth inour net interest income, which was primarily attributable to an increase in the average balance of ourinterest-earning assets partially offset by a 1.3% decrease in our non-interest income. The decrease inour non-interest income was primarily attributable to a 69.4% decrease in our other operating income,partially offset by a 61.6% increase in our net fee and commission income.

Net Interest Income

Net interest income was the largest component of our operating income, representing 89.2% ofour operating income for the six months ended June 30, 2006.

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The following table sets forth, for the periods indicated, our interest income, interest expenseand net interest income.

For the six months endedJune 30,

2005 (unaudited) 2006


Interest income(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,283 129,038Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,558) (52,530)

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,725 76,508

(1) Includes interest income on impaired loans that represents the increase in the present value of such loans after impairment that is due tothe passage of time. The amount of such interest income was RMB896 million and RMB5,657 million for the six months ended June 30,2006 and 2005, respectively.

Our net interest income increased by 6.7% to RMB76.5 billion for the six months endedJune 30, 2006 compared to RMB71.7 billion for the six months ended June 30, 2005. This increasereflected a greater increase in interest income in absolute terms than in interest expense for the sameperiod. Interest income increased by RMB16.7 billion, or 14.9%, to RMB129.0 billion for the sixmonths ended June 30, 2006 compared to RMB112.3 billion for the six months ended June 30, 2005.Interest expense increased by RMB11.9 billion, or 29.5%, to RMB52.5 billion for the six monthsended June 30, 2006 compared to RMB40.6 billion for the six months ended June 30, 2005.

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The table below sets forth, for the periods indicated, the average balances of our assets andliabilities and the related interest income or expense and the average yields or costs. The averagebalances of interest-earning assets and interest-bearing liabilities were the average of the dailybalances. The average balances of non-interest-earning assets, non-interest-bearing liabilities and theallowance for impairment losses were the average of the balances at January 1 and June 30 for the sixmonths ended June 30, 2005 and 2006, respectively.

For the six months ended June 30,


Averagebalance Interest

Averagerate(1)


Averagerate(1)


AssetsLoans to customers, total . . . . . . . . . . . . . . . . . . . . . 3,690,466 84,961 4.60% 3,390,593 89,570 5.28%Investment securities . . . . . . . . . . . . . . . . . . . . . . . . 1,292,159 21,723 3.36 2,375,899 31,335 2.64

of which:Investment securities other than

receivables(2) . . . . . . . . . . . . . . . . . . . . . . . . 894,163 15,142 3.39 1,301,438 19,156 2.94Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,996 6,581 3.31 1,074,461 12,179 2.27

Due from central banks . . . . . . . . . . . . . . . . . . . . . . 504,326 4,331 1.72 524,697 4,508 1.72Due from banks and other financial

institutions(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,555 1,268 2.12 221,678 3,625 3.27

Total interest-earning assets . . . . . . . . . . . . . 5,606,506 112,283 4.01 6,512,867 129,038 3.96

Allowance for impairment losses . . . . . . . . . . . . . . . (355,826) (88,147)Non-interest-earning assets(4) . . . . . . . . . . . . . . . . . . 238,025 260,719

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,488,705 6,685,439

LiabilitiesDue to customers(5) . . . . . . . . . . . . . . . . . . . . . . . . . 5,304,534 37,865 1.43 5,930,814 48,415 1.63Due to banks and other financial institutions(6) . . . . 277,773 2,625 1.89 345,139 3,499 2.03Debt issued(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,245 68 4.19 38,073 616 3.24

Total interest-bearing liabilities . . . . . . . . . . 5,585,552 40,558 1.45% 6,314,026 52,530 1.66%

Non-interest-bearing liabilities(8) . . . . . . . . . . . . . . . 138,107 166,351

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 5,723,659 6,480,377

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . 71,725 76,508

Net interest spread(9) . . . . . . . . . . . . . . . . . . . . . . . 2.56% 2.30%

Net interest margin(10) . . . . . . . . . . . . . . . . . . . . . . 2.56% 2.35%

(1) The average rates for the six months ended June 30, 2005 and 2006 were annualized figures.(2) Consists of held-to-maturity debt securities, available-for-sale debt securities and debt securities at fair value through profit or loss.(3) Includes amounts under reverse repurchase agreements.(4) Consists of cash on hand, available-for-sale equity securities, property and equipment, deferred income tax assets and other assets.(5) Includes certificates of deposit.(6) Includes amounts due to a central bank and amounts under repurchase agreements.(7) Consists of notes payable and subordinated bonds.(8) Consists of income tax payable, deferred income tax liabilities and other liabilities.(9) Calculated as the difference between the average yield on total interest-earning assets and the average cost on total interest-bearing

liabilities.(10) Calculated by dividing net interest income by the average balance of total interest-earning assets.

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The following table sets forth, for the periods indicated, the allocation of changes in our interestincome and interest expense to changes in volume and changes in rate. Changes in volume aremeasured by changes in the average balances and changes in rate are measured by changes in theaverage rates. Changes due to the combination of volume and rate have been allocated to changes involume.

For the six months endedJune 30,

2006 vs. 2005

Increase/(decrease) due to Net

increase(3)Volume(1) Rate(2)


AssetsLoans to customers, total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,939) 12,548 4,609Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,694 (4,082) 9,612

of which:Investment securities other than receivables(4) . . . . . . . . . . . . . . . . . . . . . . . . . 6,026 (2,012) 4,014Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,668 (2,070) 5,598

Due from central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 — 177Due from banks and other financial institutions(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,670 687 2,357

Change in interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,602 9,153 16,755

LiabilitiesDue to customers(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,245 5,305 10,550Due to banks and other financial institutions(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680 194 874Debt issued(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563 (15) 548

Change in interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,488 5,484 11,972

Change in net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,114 3,669 4,783

(1) Represents the average balance for the period minus the average balance for the previous period, multiplied by the average yield/cost forthe period.

(2) Represents the average yield/cost for the period minus the average yield/cost for the previous period, multiplied by the average balancefor the previous period.

(3) Represents interest income/expense for the period minus interest income/expense for the previous period.(4) Consists of held-to-maturity debt securities, available-for-sale debt securities and debt securities at fair value through profit or loss.(5) Includes amounts under reverse repurchase agreements.(6) Includes certificates of deposit.(7) Includes amounts due to a central bank and amounts under repurchase agreements.(8) Consists of notes payable and subordinated bonds.

Interest Income

Interest income increased by 14.9% to RMB129.0 billion for the six months ended June 30,2006 compared to RMB112.3 billion for the six months ended June 30, 2005, primarily due to anincrease in the average yield on our loans to customers, which was partially offset by a decrease in theaverage yield of our investment securities, and secondarily due to an increase in the average balance ofour investment securities, which was partially offset by a decrease in the average balance of our loansto customers. The reasons for these changes are discussed in greater detail below.

The average yield on our interest-earning assets was 3.96% and 4.01% for the six months endedJune 30, 2006 and 2005, respectively.

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Interest Income from Loans to Customers

Interest income from loans to customers was the largest component of our interest income,representing 69.4% of our total interest income for the six months ended June 30, 2006.

The following table sets forth, for the periods indicated, the average balance, interest incomeand average yield for each component of our loans to customers.



Averagebalance

Interestincome

Averageyield(1)

Averagebalance

Interestincome

Averageyield(1)


Corporate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,786,185 64,583 4.64% 2,333,962 66,408 5.69%Discounted bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,694 4,817 3.09 431,338 5,244 2.43Personal loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494,373 14,005 5.67 519,749 15,024 5.78Overseas operations . . . . . . . . . . . . . . . . . . . . . . . . . . 98,214 1,556 3.17 105,544 2,894 5.48

Total loans to customers . . . . . . . . . . . . . . . . . 3,690,466 84,961 4.60% 3,390,593 89,570 5.28%

(1) The average yields for the six months ended June 30, 2005 and June 30, 2006 figures were annualized.

Interest income from loans to customers increased by 5.4% to RMB89.6 billion for the sixmonths ended June 30, 2006 from RMB85.0 billion for the six months ended June 30, 2005, primarilydue to an increase in the average yield from 4.60% to 5.28%, partially offset by a decrease in theaverage balance. The largest component of our interest income from loans to customers has beeninterest income from corporate loans, representing 74.1% of our total interest income from loans tocustomers for the six months ended June 30, 2006. Interest income from corporate loans as apercentage of interest income from total loans to customers decreased for the six months endedJune 30, 2006 compared to the six months ended June 30, 2005, primarily due to a higher growth ratein interest income from overseas operations, personal loans and discounted bills.

Interest income from corporate loans increased by 2.8% to RMB66.4 billion for the six monthsended June 30, 2006 from RMB64.6 billion for the six months ended June 30, 2005, primarily due toan increase in the average yield from 4.64% to 5.69%, partially offset by a decrease in the averagebalance. The average yield on corporate loans for the six months ended June 30, 2006 increasedprimarily as a result of the following factors: (i) the restructuring-related disposal in 2005, as the loansdisposed of earned very little interest income; (ii) an increase in loans made to small-sized enterprises,which generally earn higher interest rates than loans to our other corporate customers, and (iii) thecontinued impact of the increase in PBOC benchmark rates in October 2004, as the interest rates onsome loans were not reset until after June 30, 2005 in accordance with the terms of the loanagreements, and the increase in the PBOC benchmark rates in loans in April 2006. The averagebalance of corporate loans for the six months ended June 30, 2006 decreased due to the impact of therestructuring-related disposal.

Interest income from discounted bills increased by 8.9% to RMB5.2 billion for the six monthsended June 30, 2006 from RMB4.8 billion for the six months ended June 30, 2005, primarily due to anincrease in the average balance, partially offset by a decrease in the average yield from 3.09% to2.43%. The average balance of discounted bills increased by 38.4% primarily due to increased marketdemand, particularly during the first quarter of 2006, for this product, which serves as a lower costreplacement for short-term corporate loans. The average yield on discounted bills decreased primarily

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due to continued decrease in market interest rates, reflecting increased market competition in anenvironment of excess liquidity.

Interest income from personal loans increased by 7.3% to RMB15.0 billion for the six monthsended June 30, 2006 from RMB14.0 billion, due to a combination of an increase in the average balanceand an increase in the average yield from 5.67% to 5.78%. The average balance of personal loansincreased by 5.1%, primarily due to an increase in the average balance of personal property mortgageloans, and secondarily due to an increase in the average balance of personal consumption loans,primarily as a result of our increased personal business loans. The average yield on personal loansincreased primarily due to a combination of an increase in the PBOC benchmark rates in April 2006and the impact of the repeal of the PBOC’s mandatory discount rate on personal property mortgageloans in March 2005.

Interest income from our loans to customers in our overseas operations consisted primarily ofincome from loans made by ICBC (Asia). Interest income from our loans to customers in our overseasoperations increased by 86.0% to RMB2.9 billion for the six months ended June 30, 2006 fromRMB1.6 billion for the six months ended June 30, 2005. This increase was primarily due to an increasein the average yield from 3.17% to 5.48%, reflecting an increase in the Hong Kong interest rate in thesame period and, secondarily, due to an increase in the average balance in line with the expansion ofour overseas operations, particularly in Hong Kong.

Interest Income from Investment Securities

Interest income from investment securities was the second largest component of our interestincome, representing 24.3% of our interest income for the six months ended June 30, 2006. For the sixmonths ended June 30, 2006, we earned interest income from both our investment securities, consistingprimarily of our available-for-sale and held-to-maturity debt securities, and the receivables arisingfrom our financial restructuring.

Interest income from total investment securities increased by 44.2% to RMB31.3 billion for thesix months ended June 30, 2006 from RMB21.7 billion for the six months ended June 30, 2005,primarily due to a combination of an increase in the interest income from receivables and an increasein the interest income from investment securities other than receivables. The increase in the interestincome from receivables was primarily due to an increase in the average balance, partially offset by adecrease in the average yield. The increase in the average balance reflected our receipt of the MOFreceivable and special PBOC bill in May and June of 2005, respectively, in connection with ourfinancial restructuring. The decrease in the average yield on our receivables was primarily due to thelower interest rate on the special PBOC bills and a decrease in the interest rate of the specialgovernment bonds, effective December 1, 2005, from 7.2% to 2.25%. The increase in interest incomefrom investment securities other than receivables for the six months ended June 30, 2006 was primarilydue to an increase in the average balance, partially offset by a decrease in the average yield on ouravailable-for-sale and held-to-maturity debt securities. The increase in the average balance wasprimarily due to increased funding from our customer deposits and a consequent increase in ourholdings of available-for-sale and held-to-maturity debt securities, particularly PBOC bills that wereissued by the central bank as part of its measures to restrain available credit in China, and secondarilydue to our increased holding of foreign currency-denominated debt securities. The increase in theaverage balance of foreign currency-denominated debt securities primarily reflected our use of thefunds from the Huijin capital contribution to increase our foreign currency-denominated investments.

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The decrease in the average yield was primarily due to the relatively lower interest rates on the PBOCbills.

Interest Income from Amounts Due from Central Banks

Our interest-earning balances with central banks consist primarily of statutory reserve depositsand surplus reserve deposits with the PBOC. Statutory reserve deposits represent the minimum level ofcash deposits, calculated as a percentage of the balance of our general deposits from customers, that weare required to maintain at the PBOC. Surplus reserve deposits with the PBOC are the deposits in ourreserve accounts at the PBOC in excess of our statutory reserve deposits, which we may use forsettlement and other routine payment purposes.

Interest income from balances with central banks increased by 4.1% to RMB4.5 billion for thesix months ended June 30, 2006 from RMB4.3 billion for the six months ended June 30, 2005. Theincrease in interest income from balances with central banks was primarily due to an increase in theaverage balance. The increase in the average balance was primarily due to an increase in our statutoryreserve deposits, which reflected an increase in deposits from customers.

Interest Income from Amounts Due from Banks and Other Financial Institutions

Amounts due from banks and other financial institutions consist primarily of inter-bankdeposits and placements and balances under reverse repurchase agreements.

Interest income on amounts due from banks and other financial institutions increased by185.9% to RMB3.6 billion for the six months ended June 30, 2006 from RMB1.3 billion for the sixmonths ended June 30, 2005, primarily due to a combination of an increase in the average yield from2.12% to 3.27% and an increase in the average balance. The average balance increased by 85.4%,primarily due to our placement of a portion of the foreign currency denominated funds we received aspart of the Huijin capital contribution in the inter-bank money market. The interest rates on theseforeign currency-denominated inter-bank money market placements were LIBOR-based. The increasein the average yield on amounts due from banks and other financial institutions for the six monthsended June 30, 2006 primarily reflected the increase in LIBOR in the same period and, to a lesserextent, an increase in the market rates on Renminbi-denominated inter-bank money market placements.

Interest Expense

Interest expense increased by 29.5% to RMB52.5 billion for the six months ended June 30,2006 from RMB40.6 billion for the six months ended June 30, 2005, primarily due to an increase in theaverage balance, and, to a lesser extent, due to an increase in the average cost of our interest-bearingliabilities to 1.66% for the six months ended June 30, 2006 from 1.45% for the six months endedJune 30, 2005.

Interest Expense on Customer Deposits

Customer deposits was our primary source of funding. Interest expense on customer depositsrepresented 92.2% of our total interest expense for the six months ended June 30, 2006. The averagebalance of each category of our customer deposits increased for the six months ended June 30, 2006compared to June 30, 2005, reflecting the continued growth of the PRC economy and relatively limitedalternative investment opportunities for our customers.

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Interest expense on customer deposits increased by 27.9% to RMB48.4 billion for the sixmonths ended June 30, 2006 from RMB37.9 billion for the six months ended June 30, 2005, primarilydue to an increase in the average cost to 1.63% for the six months ended June 30, 2006 from 1.43% forthe six months ended June 30, 2005, and, to a lesser extent, an increase in average balance.

The following table sets forth, for the periods indicated, the average balance, interest expenseand average cost for corporate and personal deposits by product type.



Averagebalance

Interestexpense

Averagecost(1)

Averagebalance

Interestexpense

Averagecost(1)


Corporate depositsTime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 577,698 5,830 2.02% 763,912 8,982 2.35%Demand(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,709,007 7,044 0.82 1,862,539 7,921 0.85

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,286,705 12,874 1.13 2,626,451 16,903 1.29

Personal depositsTime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,032,159 21,057 2.07 2,207,707 25,994 2.35Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 907,478 3,286 0.72 1,017,063 3,666 0.72

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,939,637 24,343 1.66 3,224,770 29,660 1.84Overseas operations(3) . . . . . . . . . . . . . . . . . . . . . . . 78,192 648 1.66 79,593 1,852 4.65

Total deposits from customers . . . . . . . . . . . . 5,304,534 37,865 1.43% 5,930,814 48,415 1.63%

(1) The average costs for the six months ended June 30, 2005 and 2006 are annualized.(2) Includes fiscal deposits and remittances.(3) Includes certificates of deposit.

Interest expense on corporate deposits increased by 31.3% to RMB16.9 billion for the sixmonths ended June 30, 2006 from RMB12.9 billion for the six months ended June 30, 2005, primarilydue to an increase in the interest expense on corporate time deposits and secondarily due to an increasein the interest expense on corporate demand deposits.

Interest expense on corporate time deposits increased by 54.1% due to a combination of anincrease in the average balance and an increase in the average cost from 2.02% to 2.35%. The increasein the average cost was primarily due to the following factors: the continued impact of the increase inPBOC benchmark interest rates in October 2004, the lengthening of the maturity profile of thesedeposits, reflecting customer preferences, and the increases in the interest rates on our foreigncurrency-denominated deposits.

Interest expense on corporate demand deposits increased by 12.5% primarily due to an increasein the average balance and, to a lesser extent, an increase in the average cost from 0.82% to 0.85%.The average cost on corporate demand deposits exceeded the PBOC benchmark demand depositinterest rate of 0.72% primarily because of the impact of “step-up” deposits offered to selectedcorporate customers, which pay a higher rate than the PBOC benchmark rate for demand deposits onbalances exceeding a certain threshold amount, reflecting an increase in the PBOC benchmark rates forforeign currency deposits in December 2005.

Interest expense on personal deposits increased by 21.8% to RMB29.7 billion for the sixmonths ended June 30, 2006 from RMB24.3 billion for the six months ended June 30, 2005, primarilydue to an increase in the interest expense on personal time deposits.

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Interest expense on personal time deposits increased by 23.4% due to a combination of anincrease in the average balance and an increase in the average cost from 2.07% to 2.35%. The averagecost on personal time deposits increased primarily due to a combination of the continued impact of theincrease in PBOC benchmark interest rates in October 2004 on our personal time deposits, thelengthening of the maturity profile of these deposits, reflecting customer preferences and the increasesin the interest rates on our foreign currency-denominated personal deposits.

Interest expense on personal demand deposits increased by 11.6% due to an increase in theaverage balance.

Interest expense on deposits in our overseas operations consisted of interest expense paid onour Hong Kong dollar-denominated deposits and U.S. dollar-denominated deposits. Interest expense ondeposits in our overseas operations increased to RMB1.9 billion for the six months ended June 30,2006 from RMB648 million for the six months ended June 30, 2005, primarily due to an increase in theaverage cost from 1.66% to 4.65%, which primarily reflected increases in Hong Kong interest rates,and secondarily due to an increase in the average balance, primarily reflecting the launch of a numberof new deposit products, particularly structured deposits.

Interest Expense on Amounts Due to Banks and Other Financial Institutions

Interest expense on amounts due to banks and other financial institutions increased by 33.3% toRMB3.5 billion for the six months ended June 30, 2006 from RMB2.6 billion for the six months endedJune 30, 2005 due to a combination of an increase in the average cost from 1.89% to 2.03% and anincrease in average balance. The increase in the average cost primarily due to increases in the averagecost of foreign currency-denominated inter-bank deposits, reflecting the continued increases in LIBOR.The average balance increased by 24.3% to RMB345.1 billion for the six months ended June 30, 2006from RMB277.8 billion for the six months ended June 30, 2005, primarily due to an increase inRenminbi-denominated inter-bank deposits received from securities firms in our securities clearingbusiness, reflecting the resumption of equity securities offerings in the PRC securities offerings in thePRC.

Interest Expense on Debt Issued

Interest expense on debt issued increased to RMB616 million for the six months ended June 30,2006 from RMB68 million for the six months ended June 30, 2005 primarily due to an increase in theaverage balance. The average balance increased to RMB38.1 billion for the six months ended June 30,2006 due to our issuance of subordinated bonds in the second half of 2005 in an aggregate amount ofRMB35 billion.

Net Interest Margin and Net Interest Spread

Net interest margin is the ratio of net interest income to the average balance of total interest-earning assets. Our net interest margin decreased to 2.35% for the six months ended June 30, 2006compared to 2.56% for the six months ended June 30, 2005 because our net interest income increasedat a lower rate than the average balance of interest-earning assets.

Net interest spread is the difference between the average yield on interest-earning assets and theaverage cost on interest-bearing liabilities. Our net interest spread decreased to 2.30% for the sixmonths ended June 30, 2006 from 2.56% for the six months ended June 30, 2005 because the average

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yield on our interest-earning assets decreased by five basis points compared to an increase of 21 basispoints in the average cost on our interest-bearing liabilities.

Non-interest Income

Non-interest income represented 10.8% of our operating income for the six months endedJune 30, 2006. The following table sets forth, for the periods indicated, the principal components of ournon-interest income.

For the six monthsended June 30,



Fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,502 8,761Fee and commission expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (635) (895)

Net fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,867 7,866Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500 1,376

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,367 9,242

Our non-interest income decreased by 1.3% to RMB9.2 billion for the six months endedJune 30, 2006 from RMB9.4 billion for the six months ended June 30, 2005, primarily due to adecrease in our other operating income, partially offset by an increase in our net fee and commissionincome. The decrease in other operating income was primarily attributable to a lower net gain fromforeign currency dealing, whereas the increase in our net fee and commission income reflected ourcontinued focus on diversifying our sources of income.

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Net Fee and Commission Income

Net fee and commission income was the largest component of our non-interest income. Our netfee and commission income increased by 61.6% to RMB7.9 billion for the six months ended June 30,2006 from RMB4.9 billion for the six months ended June 30, 2005. These increases reflected ourexpanding intermediary business as an important component of our business strategy. The followingtable sets forth, for the periods indicated, the principal components of our net fee and commissionincome.




Fee and commission incomeRenminbi settlement and clearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,279 2,153Bank card business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 999 1,355Investment banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 974 1,764Wealth management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714 1,409Agency services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454 599Foreign currency intermediary business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376 493Electronic banking services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 335Custody . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 143Guarantees and commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 238Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 272

Gross fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,502 8,761

Fee and commission expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (635) (895)

Net fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,867 7,866

Renminbi Settlement and Clearing

Renminbi settlement and clearing fee income consists primarily of fees earned on moneytransfer and other fees earned on settlement and clearing services, account and cash managementservices. Renminbi settlement and clearing fees increased by 68.3% to RMB2.2 billion for the sixmonths ended June 30, 2006 from RMB1.3 billion for the six months ended June 30, 2005. Theincrease in Renminbi settlement and clearing fee income was primarily due to the introduction ofservice fees on personal deposit accounts with low balances starting in the second quarter of 2006. Italso reflected increased settlement transaction volumes with our small- and medium-sized enterprisecustomers.

Bank Card Business

Bank card fee income consists primarily of annual fees on our debit and credit cards,transaction fees from merchants on the use of our bank cards and transaction fees charged for servicingcards issued by other banks. Bank card fee income increased by 35.6% to RMB1.4 billion for the sixmonths ended June 30, 2006 from RMB999 million for the six months ended June 30, 2005. Theseincreases were primarily due to increased annual fee income on our debit cards, reflecting an increasein the number of new cards issued, and secondarily due to increased merchant fees on our cards andtransaction fees for servicing other banks’ cards, reflecting an increase in the number of new bankcards issued and increased transaction volumes on our bank cards and ATM machines.

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Investment Banking

Investment banking fee income consists primarily of fees earned on our financial consulting,corporate investment and finance advisory, mergers and acquisitions advisory, and syndicatearrangement services. Investment banking fee income increased by 81.1% to RMB1.8 billion for thesix months ended June 30, 2006 from RMB974 million for the six months ended June 30, 2005. Theincrease in investment banking fee income was primarily due to increases in (i) fees from our corporateinvestment and finance advisory services, reflecting our increased efforts to develop this business,(ii) our financial advisory fees, primarily attributable to the impact of the launch of our new financialinformation advisory management information system at the end of 2005 and (iii) fees from oursyndicate arrangement and underwriting services, reflecting increased business volumes.

Wealth Management

Wealth management fee income consists primarily of fees from the distribution of governmentbonds and other securities, third-party investment funds, and life and other insurance products. Incomearising from our wealth management services increased by 97.3% to RMB1.4 billion for the sixmonths ended June 30, 2006 from RMB714 million for the six months ended June 30, 2005. Theincrease was primarily due to increased transaction volumes in the distribution of life insuranceproducts and mutual funds. The increase in fees from life insurance products reflected an increasedmarket trend in the use by insurance companies of commercial banks as product distribution channels.The increase in fees from mutual funds reflected an increase in the issuance of mutual fund products inthe first half of 2006, primarily attributable to the improved performance of China’s equity market.

Agency Services

Agency service fee income consists primarily of fees earned on our corporate agency securities,corporate agency insurance, collection and disbursement services, including effecting transactions insecurities for customers, payroll payment services, and the collection of utilities andtelecommunications payments. Agency service fee income increased by 31.9% to RMB599 million forthe six months ended June 30, 2006 from RMB454 million for the six months ended June 30, 2005.The increase in agency service fees was primarily due to increased transaction volumes in our agencysecurities and entrusted provident housing fund mortgage loan businesses.

Foreign Currency Intermediary Business

Foreign currency intermediary business fee income consists primarily of fees earned on ourinternational settlement and customer foreign currency trading services. Foreign currency intermediarybusiness fee income increased by 31.1% to RMB493 million for the six months ended June 30, 2006from RMB376 million for the six months ended June 30, 2005. The increase in foreign currencyintermediary business fees was primarily due to increased transaction volumes in the areas relating totrade finance, particularly the issuance of letters of credit and our increased focus on this business.

Electronic Banking Services

Income from our electronic banking services consists primarily of annual fees, agency fees,settlement fees and electronic commerce transaction fees. Income from our e-banking servicesincreased by 67.5% to RMB335 million for the six months ended June 30, 2006 from RMB200 millionfor the six months ended June 30, 2005. These increases were primarily due to the additional servicesprovided and the increase of fee rates.

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Custody

Income from our custody services consists primarily of custody fees collected on the assets ofinvestment funds, insurance companies, social security funds, and qualified foreign institutionalinvestors, or QFIIs, that are under our custody. The custody fees are determined based on the net assetvalue of the assets under custody. Income from our asset custody services increased by 12.6% toRMB143 million for the six months ended June 30, 2006 from RMB127 million for the six monthsended June 30, 2005. These increases were primarily attributable to an increase both in the value ofassets under custody and the number of funds under custody, reflecting the improved performance ofChina’s equity market in the first half of 2006.

Guarantees and Commitments

Income from our RMB- and foreign currency-denominated guarantee fees increased by 88.9%to RMB238 million for the six months ended June 30, 2006 from RMB126 million for the six monthsended June 30, 2005. The increase in our guarantee fees was primarily due to an increase in thetransaction volumes of Renminbi-denominated guarantees provided for PRC companies in connectionwith the issuance of their corporate bonds.

Fee and Commission Expenses

Fee and commission expenses consist primarily of fees paid to third parties in connection withour fee- and commission-based services that can be directly allocated to the provision of such services.Our fee and commission expenses increased by 40.9% to RMB895 million for the six months endedJune 30, 2006 from RMB635 million for the six months ended June 30, 2005, primarily due toincreased transaction volumes in our fee- and commission-based services.

Other Operating Income

The following table sets forth, for the periods indicated, the principal components of our otheroperating income.




Dividend income from unlisted investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3Gain from foreign exchange and foreign exchange products, net . . . . . . . . . . . . . . . . . . . . 1,681 218Gain/(loss) on investments in securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405 (341)Gain from other dealing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662 410Gain on disposal of property and equipment and other assets, net . . . . . . . . . . . . . . . . . . . 707 166Sundry banking income(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522 226Others(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523 694

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500 1,376

(1) Consists primarily of dormant deposits, reversal of other payables, recoveries of litigation expenses, and bank card overdue fees.(2) Consists of operating lease income, recoveries on other assets previously written off, and miscellaneous items.

Other operating income decreased by 69.4% to RMB1.4 billion for the six months endedJune 30, 2006 compared to RMB4.5 billion for the six months ended June 30, 2005. The decrease inother operating income for the six months ended June 30, 2006 compared to 2005 was primarily due to

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a decrease in the net gain from foreign exchange and foreign exchange products and, to a lesser extent,a loss on investments in securities, a decrease in the net gain on the disposal of property and equipmentand other assets, and a decrease in the net gain from other dealing activities.

Net Gain from Foreign Exchange and Foreign Exchange Products

For the six months ended June 30, 2006, the net gain from foreign exchange and foreignexchange products consisted primarily of net realized and unrealized gains or losses on our foreigncurrency option contract in the notional amount of US$12 billion that we entered into with Huijin tomanage our foreign currency exposures resulting from the Huijin capital contribution and other foreigncurrency dealing activities. Our net gain from foreign exchange and foreign exchange productsdecreased to RMB218 million for the six months ended June 30, 2006 compared to RMB1,681 millionfor the six months ended June 30, 2005, primarily due to an RMB0.7 billion translation loss for the sixmonths ended June 30, 2006, which reflected primarily an increased magnitude of appreciation in thevalue of the Renminbi against the U.S. dollar in the same period. See “—Quantitative and QualitativeAnalysis of Market Risk—Exchange Rate Risk.”

Net Gain/(Loss) on Investments in Securities

The net gain/(loss) on investments in securities consists of net realized and unrealized gains orlosses on our securities held for trading purposes or recognized at fair value through profit or loss, aswell as net realized gains or losses on our investment portfolio (other than interest income), whichconsists of available-for-sale and held-to-maturity debt securities. We incurred a net loss oninvestments in securities of RMB341 million for the six months ended June 30, 2006 compared to a netgain of RMB405 million for the six months ended June 30, 2005. The decrease was primarily due tothe decrease in the fair value of the debt securities held by us, which was attributable to the increasedinterest rates in the bond markets.

Net Gain Arising from Other Dealing Activities

The net gain arising from other dealing activities consists primarily of net realized andunrealized gains or losses arising from derivatives transactions. Our derivatives transactions primarilyconsist of transactions entered into with our customers and proprietary derivatives transactions enteredinto to manage some of our market risks. The net gain arising from other dealing activities decreasedby 38.1% to RMB410 million for the six months ended June 30, 2006 from RMB662 million for thesix months ended June 30, 2005, primarily due to a decreased volume in our derivatives transactionsand an unrealized loss on proprietary derivatives transactions.

Net Gain on Disposal of Property and Equipment and Other Assets

The net gain on disposal of property and equipment and other assets arises primarily from oursales of properties and buildings that are no longer necessary to our continued operations. The amountof net gain we recognize in any period is primarily a function of the timing and volume of ourdisposals and has varied from year to year without following any particular trend.

Sundry Banking Income

Our sundry banking income consists primarily of income arising from dormant deposits,reversals of payables, which were payables that had been outstanding for a prolonged period of time,

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recoveries of litigation expenses, which were advances made for court costs in connection withlitigation claims that were written off, and bank card overdue fees. Income from dormant corporatedeposits relates to corporate deposits that are inactive for a prolonged period of time, which may berecognized as our income until such time as they are claimed. Our sundry banking income decreasedby 56.7% to RMB226 million for the six months ended June 30, 2006 compared to RMB522 millionfor the six months ended June 30, 2005, primarily due to a combination of (i) decreased income arisingfrom dormant deposits; and (ii) a decrease in the reversals of payables.

Operating Expenses

The following table sets forth, for the periods indicated, the principal components of ouroperating expenses.




General staff expenses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,071 14,685Supplementary retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,987 389Property and equipment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,517 7,253Operating and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,981 4,564Business tax and surcharges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,361 5,368Expenses in relation to special government bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,060 —Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,987 2,437

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,964 34,696

Cost-to-income ratio(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.9% 40.5%Adjusted cost-to-income ratio(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.0% 34.2%

(1) Includes directors’ and supervisors’ emoluments.(2) Calculated by dividing total operating expenses by operating income.(3) Calculated by dividing total operating expenses (less business tax and surcharges, and, in the case of the six months ended June 30, 2005,

expenses in relation to special government bond) by operating income (in the case of the six months ended June 30, 2005, less interestincome in relation to special government bond). See “—Critical Accounting Policies” and “—Interim Results of Operations for the SixMonths Ended June 30, 2006 and 2005—Operating Expenses—Expenses in Relation to Special Government Bond.”

Our operating expenses increased by 2.2% to RMB34.7 billion for the six months endedJune 30, 2006 compared to RMB34.0 billion for the six months ended June 30, 2005. This wasprimarily due to an increase in general staff expenses, partially offset by a decrease in oursupplementary retirement benefits.

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General Staff Expenses

The following table sets forth, for the periods indicated, the components of our general staffexpenses, which include directors’ and supervisors’ emoluments.




Salaries and bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,490 9,704Defined contribution plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,205 1,694Other staff benefits(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,376 3,287

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,071 14,685

(1) Consists primarily of contributions to the provident housing fund, unemployment, medical, injury and maternity insurance, staffeducation fees, union fees and other staff benefits.

General staff expenses consist primarily of salaries and bonuses, social insurance contributions,pension scheme contributions, and housing and medical benefits and other staff welfare. General staffexpenses increased by 45.8% for the six months ended June 30, 2006 compared to the six monthsended June 30, 2005, primarily reflecting an increase in our salaries and bonuses and relatedcontributions and benefits that took place in the second half of 2005.

Supplementary Retirement Benefits

We provide supplementary retirement benefits to certain employees who retired prior toJune 30, 2005. These benefits are recognized as a liability. We have obtained the approval of the MOFand made a special provision in the amount of RMB29.2 billion with respect to the supplementaryretirement benefits in connection with our financial restructuring in 2005. The amount of such liabilityis calculated based on actuarial assumptions of a number of variables including the discount rate,healthcare cost increase rate, average life expectancy of these retirees and other factors. The differencebetween the actual amount of these variables and the actuarial assumptions may result in variations inthe amount of supplemental retirement benefits. We recognize year-on-year variations in the amount ofsupplemental retirement benefits as gains or losses in the year of occurrence. While we believe ourcurrent actuarial assumptions to be accurate, actual conditions may be different from these assumptionsand the amount of gains or losses arising from our supplemental retirement benefits may be affected.The changes in our actuarial gains or losses for the six months ended June 30, 2006 compared to thesix months ended June 30, 2005 were primarily due to the changes in the discount rates used in ouractuarial assumptions.

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Property and Equipment Expenses

The following table sets forth, for the periods indicated, the components of our property andequipment expenses.




Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,571 5,053Operating lease expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 792 882Utility expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625 648Repairs and maintenance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529 670

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,517 7,253

Depreciation

We depreciate our properties and buildings, leasehold improvements, office equipment andcomputers and motor vehicles, whereas we do not recognize any depreciation expense on constructionin progress. Our depreciation expenses increased by 10.5% to RMB5.1 billion for the six months endedJune 30, 2006 compared to RMB4.6 billion for the six months ended June 30, 2005, primarily due to are-valuation of our fixed assets at June 30, 2005 in connection with our financial restructuring, whichresulted in the creation of a depreciable revaluation surplus in the amount of RMB22.7 billion.

Operating and Administrative Expenses

Operating and administrative expenses consist primarily of expenses relating to printing,supplies, publication and stationery, electronic supplies, travel, promotions and advertising, andtelecommunications and postage. Our operating and administrative expenses remained effectivelystable for the six months ended June 30, 2006 compared to the six months ended June 30, 2005. Ourtravel and publication and stationery expenses decreased overall, reflecting our introduction of costcontrol measures on these items, such as centralized purchasing.

Business Tax and Surcharges

Business tax is levied at 5% primarily on our interest income from loans to customers and ourgross fee and commission income. In addition, certain surcharges are levied at aggregate rates,depending on the locality, up to 10% of the amount of our business tax paid. The increase in ourbusiness tax and surcharges for the six months ended June 30, 2006 compared to the six months endedJune 30, 2005 was in line with the increase in our interest income and non-interest income during thesame period.

Expenses in Relation to Special Government Bond

For a description of the expenses in relation to the special government bond, see “OurRestructuring and Operational Reform—Financial Restructuring—Amendment to the Terms of aSpecial Government Bond issued by the MOF.”

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Other Operating Expenses

Other operating expenses consist primarily of expenses relating to amortization, miscellaneoustaxes, supervision fees and losses arising from writing off certain impaired assets. Other operatingexpenses increased by 22.6% to RMB2.4 billion for the six months ended June 30, 2006 compared toRMB2.0 billion for the six months ended June 30, 2005. The increase in other operating expenses forthe six months ended June 30, 2006 was primarily due to an increase in amortization of certain assets.

Provisions for Impairment Losses

Provisions for impairment losses consist primarily of provisions on loans and other assets.Provisions for impairment losses increased by 4.2% to RMB12.2 billion for the six months endedJune 30, 2006 from RMB11.7 billion for the six months ended June 30, 2005. The following table setsforth, for the periods indicated, the principal components of our provisions for impairment losses.




Loans to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,558 11,645Nostro accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 4Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 188Repossessed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 399Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 15Placements with banks and other financial institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (33)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,723 12,218

The largest component of our provisions for impairment losses consists of provisions on loansto customers. Provisions for impairment losses on loans to customers increased by 0.8% toRMB11,645 million for the six months ended June 30, 2006 from RMB11,558 million for the sixmonths ended June 30, 2005. For details on changes in our allowance for loan losses, includingprovisions for impairment losses, see “Assets and Liabilities—Assets—Asset Quality of Our LoanPortfolio—Allowance for Impairment Losses on Loans to Customers.”

Our provisions for impairment losses on property and equipment primarily reflect provisions onour properties and buildings and our construction in progress. The provisions for impairment losses onproperty and equipment for the six months ended June 30, 2006 primarily reflected a decrease inrecoverable amounts of certain properties.

Our provisions for impairment losses on repossessed assets reflect adverse changes in theirprevailing conditions. These provisions increased for the six months ended June 30, 2006 compared tothe six months ended June 30, 2005, primarily as a result of a decrease in recoverable amounts ofcertain repossessed assets.

Our provisions for impairment losses on investment securities reflect adverse changes in theprevailing conditions of our non-publicly traded equity holdings obtained through debt-to-equityswaps. These provisions increased for the six months ended June 30, 2006 compared to the six monthsended June 30, 2005, primarily as a result of a decrease in the recoverable amount on our equityinvestment in a non-banking entity.

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Our provision for impairment losses on placements with banks and other financial institutionsprimarily reflect provision for impairment losses on our placements with other PRC financialinstitutions, particularly securities firms. We recorded a reversal of provision on impairment losses onplacements with banks and other financial institutions in the amount of RMB33 million for the sixmonths ended June 30, 2006, which resulted from the recovery of placements with a securities firm anda city commercial bank in the PRC.

Income Tax Expense

The following table sets forth, for the period indicated, a reconciliation of our income taxexpenses to the statutory PRC income tax rate of 33%.




Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,405 38,841

Tax at the statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,684 12,818Non-deductible expenses(1)

Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,723 2,792Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 1,256Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 367

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,884 4,415

Non-taxable incomeIncome arising from government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,275) (1,801)Income arising from Huarong bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,162) —Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (174) (874)

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,611) (2,675)

Over provision in prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (1,359)

Total charge at effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,957 13,199

(1) Amounts mainly represent staff costs in excess of the statutory deductible threshold for income tax purpose, assets write-offs that werenot allowed for tax deduction by tax authorities, and entertainment expenses, depreciation and amortization charges which are not taxdeductible.

Our income tax expense increased by 32.6% to RMB13.2 billion for the six months endedJune 30, 2006 compared to RMB10.0 billion for the six months ended June 30, 2005. Our income taxexpense increased for the six months ended June 30, 2006 compared to the six months ended June 30,2005 primarily due to an increase in our profit before tax. Our effective tax rate was 34.0% for the sixmonths ended June 30, 2006 and 28.1% for the six months ended June 30, 2005. The increase in oureffective tax rate for the six months ended June 30, 2006 compared to the six months ended June 30,2005 was primarily due to an increase in non-deductible staff costs as a result of the increases insalaries and bonuses to our employees, and non-deductible loans and assets write-offs that were notallowed for tax deduction, and a decrease in non-taxable income associated with interest income fromthe Huarong bonds.

In connection with a disposal of non-performing assets to Huarong, we received a series ofnon-transferable ten-year bonds issued by Huarong with an aggregate face value of RMB313.0 billionin 2000-2001. See “Our Restructuring and Operational Reform—Our History.” The interest income

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from the Huarong bonds were exempted from income taxes prior to July 1, 2005, on which date thetaxation on this interest income was resumed pursuant to a notice issued by the MOF. Consequently,none of the interest income from these bonds were tax-exempted in the six months ended June 30, 2006.

We have applied to the MOF and SAT for exemptions from certain taxes arising from ourfinancial restructuring and deductions with respect to certain employee compensation expenses. Wecannot assure you that we will be granted the amount of exemptions or deductions applied for or at all.

Net Profit

As a result of all the foregoing factors, our net profit increased by 0.8% to RMB25.6 billion forthe six months ended June 30, 2006 from RMB25.4 billion for the six months ended June 30, 2005.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND2003

Our profit before tax increased by 15.8% to RMB63.0 billion in 2005 from RMB54.4 billion in2004, which increased by 60.6% from RMB33.9 billion in 2003, primarily due to (i) the growth in ournet interest income at a compound annual growth rate of 11.9%, primarily attributable to the increasein the average balance of our interest-earning assets; (ii) the growth in our non-interest income at acompound annual growth rate of 33.7%, primarily attributable to the increase in our net fee andcommission income, which grew at a compound annual growth rate of 36.9%, and, to a lesser extent,due to the growth in our other operating income, which grew at a compound annual growth rate of29.5%; and (iii) the decrease in our net provisions for impairment losses.

Net Interest Income

Net interest income has been the largest component of our operating income, representing89.5%, 91.1% and 92.4% of our operating income for the years ended December 31, 2005, 2004 and2003, respectively.

The following table sets forth, for the periods indicated, our interest income, interest expenseand net interest income.


2003 2004 2005


Interest income(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189,069 204,889 240,202Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66,361) (70,161) (86,599)

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,708 134,728 153,603

(1) Includes interest income on impaired loans that represent the increase in the present value of such loans after impairment that is due tothe passage of time. The amount of such interest income was RMB8,349 million, RMB9,876 million and RMB9,844 million for theyears ended December 31, 2005, 2004 and 2003, respectively.

Our net interest income increased by 14.0% to RMB153.6 billion in 2005 compared toRMB134.7 billion in 2004, which increased by 9.8% in 2004 compared to RMB122.7 billion in 2003.These increases reflected a consistently higher increase in interest income in absolute terms than ininterest expense during the three-year period. Interest income increased by 17.2% to RMB240.2 billion

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in 2005 compared to RMB204.9 billion in 2004, which increased by 8.4% in 2004 compared toRMB189.1 billion in 2003. Interest expense increased by 23.4% to RMB86.6 billion in 2005 comparedto RMB70.2 billion in 2004, which increased by 5.7% in 2004 compared to RMB66.4 billion in 2003.

The table below sets forth, for the periods indicated, the average balances of our assets andliabilities and the related interest income or expense and the average yields or costs. The averagebalances of interest-earning assets and interest-bearing liabilities are the average of the daily balances.The average balances of non-interest-earning assets, non-interest-bearing liabilities and the allowancefor impairment losses are the average of the balances at January 1 and December 31 for the yearsended December 31, 2005, 2004 and 2003.


2003 2004 2005


Averagerate


Averagerate

Averagebalance(1) Interest

Averagerate


AssetsLoans to customers, total . . . . . . 3,217,010 147,354 4.58% 3,575,473 160,168 4.48% 3,429,852 175,285 5.11%Investment securities . . . . . . . . . 942,486 30,564 3.24 1,110,418 34,197 3.08 1,751,037 51,480 2.94

of which:Investment securities other

than receivables(2) . . . . . 544,490 17,402 3.20 712,422 21,035 2.95 1,005,027 30,650 3.05Receivables . . . . . . . . . . . . 397,996 13,162 3.31 397,996 13,162 3.31 746,010 20,830 2.79

Due from central banks . . . . . . . 390,706 7,523 1.93 451,005 8,286 1.84 534,063 8,967 1.68Due from banks and other

financial institutions(3) . . . . . . 194,629 3,628 1.86 138,864 2,238 1.61 177,813 4,470 2.51

Total interest-earningassets . . . . . . . . . . . . . . . 4,744,831 189,069 3.98 5,275,760 204,889 3.88 5,892,765 240,202 4.08

Allowance for impairmentlosses . . . . . . . . . . . . . . . . . . . (670,539) (648,214) (357,696)

Non-interest-earning assets(4) . . 231,413 231,736 236,478

Total assets . . . . . . . . . . . . 4,305,705 4,859,282 5,771,547

LiabilitiesDue to customers(5) . . . . . . . . . . 4,435,407 60,423 1.36 4,968,326 65,821 1.32 5,465,941 80,753 1.48Due to banks and other financial

institutions(6) . . . . . . . . . . . . . 347,101 5,938 1.71 269,671 4,300 1.59 278,670 5,356 1.92Debt issued(7) . . . . . . . . . . . . . . — — — 970 40 4.12 14,360 490 3.41

Total interest-bearingliabilities . . . . . . . . . . . . 4,782,508 66,361 1.39% 5,238,967 70,161 1.34% 5,758,971 86,599 1.50%

Non-interest-bearingliabilities(8) . . . . . . . . . . . . . . 97,394 125,940 142,038

Total liabilities . . . . . . . . . 4,879,902 5,364,907 5,901,009

Net interest income . . . . . . . . . 122,708 134,728 153,603

Net interest spread(9) . . . . . . . . 2.59% 2.54% 2.58%

Net interest margin(10) . . . . . . . 2.59% 2.55% 2.61%

(1) The average balance of our loans to customers in 2005 includes RMB635.0 billion of non-performing loans disposed of in connectionwith our financial restructuring until the disposal dates of May 27 and June 27, 2005, as applicable.

(2) Consists of held-to-maturity debt securities, available-for-sale debt securities and debt securities at fair value through profit or loss.(3) Includes amounts under reverse repurchase agreements.(4) Consists of cash on hand, available-for-sale equity securities, property and equipment, deferred income tax assets and other assets.(5) Includes certificates of deposit.(6) Includes amounts due to a central bank and amounts under repurchase agreements.(7) Consists of notes payable and subordinated bonds.(8) Consists of income tax payable, deferred income tax liabilities and other liabilities.(9) Calculated as the difference between the average yield on total interest-earning assets and the average cost on total interest-bearing

liabilities.(10) Calculated by dividing net interest income by the average balance of total interest-earning assets.

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The following table sets forth, for the periods indicated, the allocation of changes in our interestincome and interest expense to changes in volume and changes in rate. Changes in volume aremeasured by changes in the average balances and changes in rate are measured by changes in theaverage rates. Changes due to the combination of volume and rate have been allocated to changes involume.


2004 vs. 2003 2005 vs. 2004


increase/(decrease)(3)


increase(3)Volume(1) Rate(2) Volume(1) Rate(2)


AssetsLoans to customers, total . . . . . . . . . . . . . . . . . . . . . 16,031 (3,217) 12,814 (7,408) 22,525 15,117Investment securities . . . . . . . . . . . . . . . . . . . . . . . . 4,994 (1,361) 3,633 18,641 (1,358) 17,283

of which:Investment securities other than

receivables(4) . . . . . . . . . . . . . . . . . . . . . . . . 4,994 (1,361) 3,633 8,903 712 9,615Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 9,738 (2,070) 7,668

Due from central banks . . . . . . . . . . . . . . . . . . . . . . 1,115 (352) 763 1,403 (722) 681Due from banks and other financial

institutions(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (903) (487) (1,390) 982 1,250 2,232

Change in interest income . . . . . . . . . . . . . . . . . . 21,237 (5,417) 15,820 13,618 21,695 35,313

LiabilitiesDue to customers(6) . . . . . . . . . . . . . . . . . . . . . . . . . 7,172 (1,774) 5,398 6,983 7,949 14,932Due to banks and other financial institutions(7) . . . . (1,221) (417) (1,638) 166 890 1,056Debt issued(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 — 40 457 (7) 450

Change in interest expense . . . . . . . . . . . . . . . . . . 5,991 (2,191) 3,800 7,606 8,832 16,438

Change in net interest income . . . . . . . . . . . . . . . 15,246 (3,226) 12,020 6,012 12,863 18,875

(1) Represents the average balance for the year minus the average balance for the previous year, multiplied by the average yield/cost for theyear.

(2) Represents the average yield/cost for the year minus the average yield/cost for the previous year, multiplied by the average balance forthe previous year.

(3) Represents interest income/expense for the year minus interest income/expense for the previous year.(4) Consists of held-to-maturity debt securities, available-for-sale debt securities and debt securities at fair value through profit or loss.(5) Includes amounts under reverse repurchase agreements.(6) Includes certificates of deposit.(7) Includes amounts due to a central bank and amounts under repurchase agreements.(8) Consists of notes payable and subordinated bonds.

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Interest Income

Interest income increased by 17.2% to RMB240.2 billion in 2005 from RMB204.9 billion in2004, primarily due to an increase in the average yield on our interest-earning assets and secondarilydue to an increase in the average balance. The increase in the average yield was almost entirelyattributable to our loan portfolio, in particular our corporate loans. The increase in the average balancewas primarily due to an increase in our investment securities. The reasons for these changes arediscussed in greater detail below.

Interest income increased by 8.4% to RMB204.9 billion in 2004 from RMB189.1 billion in2003, due to an increase in the average balance of our interest-earning assets, partially offset by adecrease in the average yield. The increase in the average balance was primarily due to our corporateloans and discounted bills. The decrease in the average yield was attributable primarily to our loans,investment securities and amounts due from banks and other financial institutions. The reasons for thechanges are discussed in greater detail below.

The average yield on our interest-earning assets was 4.08%, 3.88% and 3.98% in 2005, 2004and 2003, respectively.

Interest Income from Loans to Customers

Interest income from loans to customers has been the largest component of our interest income,representing 73.0%, 78.2% and 77.9% of our total interest income for the years ended December 31,2005, 2004 and 2003, respectively.

The following table sets forth, for the periods indicated, the average balance, interest incomeand average yield for each component of our loans to customers.


2003 2004 2005

Averagebalance

Interestincome

Averageyield

Averagebalance

Interestincome

Averageyield

Averagebalance(1)

Interestincome

Averageyield


Corporate loans . . . . . . . . . . 2,635,259 121,034 4.59% 2,803,264 125,420 4.47% 2,505,521 133,199 5.32%Discounted bills . . . . . . . . . 161,999 5,724 3.53 230,417 7,959 3.45 339,123 9,044 2.67Personal loans . . . . . . . . . . . 351,362 18,466 5.26 454,533 24,242 5.33 498,851 29,060 5.83Overseas operations . . . . . . 68,390 2,130 3.11 87,259 2,547 2.92 86,357 3,982 4.61

Total loans tocustomers . . . . . . . . 3,217,010 147,354 4.58% 3,575,473 160,168 4.48% 3,429,852 175,285 5.11%

(1) The average balance of our loans to customers in 2005 includes RMB635.0 billion of non-performing loans disposed of in connectionwith our financial restructuring until the disposal dates of May 27 and June 27, 2005, as applicable.

Interest income from loans to customers increased by 9.4% to RMB175.3 billion in 2005 fromRMB160.2 billion in 2004, primarily due to an increase in the average yield from 4.48% to 5.11%,partially offset by a decrease in the average balance. Interest income from loans to customers increasedby 8.7% to RMB160.2 billion in 2004 from RMB147.4 billion in 2003, primarily due to an increase inthe average balance, partially offset by a decrease in the average yield from 4.58% to 4.48%.

The largest component of our interest income from loans to customers has been interest incomefrom corporate loans, representing 76.0%, 78.3% and 82.1% of our total interest income from loans to

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customers for the years ended December 31, 2005, 2004 and 2003, respectively. Interest income fromcorporate loans, as a percentage of interest income from total loans to customers, decreased from 2003through 2005, primarily due to a higher growth rate in interest income from personal loans anddiscounted bills.

2005 Compared to 2004. Interest income from corporate loans increased by 6.2% to RMB133.2billion in 2005 from RMB125.4 billion in 2004, primarily due to an increase in the average yield from4.47% to 5.32%, partially offset by a decrease in the average balance. The average yield on corporateloans in 2005 increased primarily as a result of the following factors: (i) the restructuring-relateddisposal, as the loans disposed of earned very little interest income; (ii) the increase in the PBOCbenchmark rate in October 2004; and (iii) an increase in loans made to small-sized enterprises, whichgenerally earn higher interest rates than loans to our other corporate customers. The average balance ofcorporate loans in 2005 decreased due to the impact of the restructuring-related disposal.

Interest income from discounted bills increased by 13.6% to RMB9.0 billion in 2005 fromRMB8.0 billion in 2004, primarily due to an increase in the average balance, partially offset by adecrease in the average yield from 3.45% to 2.67%. The average balance of discounted bills increasedby 47.2% primarily due to increased market demand for this product, which serves as a lower costreplacement for short-term corporate loans, and our increased marketing efforts. The average yield ondiscounted bills decreased primarily due to a decrease in the PBOC surplus reserve deposit interestrate, which serves as a benchmark rate for the discounted bill market.

Interest income from personal loans increased by 19.9% to RMB29.1 billion in 2005 fromRMB24.2 billion in 2004, due to a combination of an increase in the average balance and an increasein the average yield from 5.33% to 5.83%. The average balance of personal loans increased by 9.8%,primarily due to an increase in the average balance of personal property mortgage loans, partially offsetby a decrease in the average balance of personal consumption loans, particularly auto loans. Theaverage yield on personal loans increased primarily due to an increase in the PBOC benchmark rates inOctober 2004 and, to a lesser extent, the repeal of the PBOC’s mandatory discount rate on personalproperty mortgage loans in March 2005.

Interest income from our loans to customers in our overseas operations consisted primarily ofincome from loans made by ICBC (Asia). Interest income from our loans to customers in our overseasoperations increased by 56.3% to RMB4.0 billion in 2005 from RMB2.5 billion in 2004. This increasewas primarily due to an increase in the average yield from 2.92% to 4.61%, reflecting an increase inthe Hong Kong interest rate in the same period, partially offset by a slight decrease in the averagebalance.

2004 Compared to 2003. Interest income from corporate loans increased by 3.6% to RMB125.4billion in 2004 from RMB121.0 billion in 2003, primarily due to an increase in the average balance,partially offset by a decrease in the average yield from 4.59% to 4.47%. The average balance ofcorporate loans increased by 6.4% in 2004 from 2003, primarily due to an increase in medium- andlong-term loans, particularly to the transportation and logistics, power generation and supplies,construction and mining industries, which was partially offset by a decrease in short-term workingcapital loans. The average yield on corporate loans decreased primarily due to increased competition,resulting in an increase in the amount of loans made at a discount to the benchmark rate.

Interest income from discounted bills increased by 39.0% to RMB8.0 billion in 2004 fromRMB5.7 billion in 2003, primarily due to an increase in the average balance, partially offset by a

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decrease in the average yield from 3.53% to 3.45%. The average balance increased primarily due toincreased market demand and our increased marketing efforts. The decrease in the average yieldprimarily due to a decrease in the PBOC surplus reserve deposit interest rate on December 21, 2003.

Interest income from personal loans increased by 31.3% to RMB24.2 billion in 2004 fromRMB18.5 billion in 2003, primarily due to an increase in the average balance and, to a lesser extent, aslight increase in the average yield from 5.26% to 5.33%. The increase in the average balance wasprimarily due to an increase in the average balance of personal property mortgage loans, partially offsetby a decrease in the average balance of personal consumption loans, particularly auto loans. Theaverage yield increased primarily due to the increase in the PBOC benchmark rates on October 29,2004.

Interest income from our loans to customers in our overseas operations increased by 19.6% toRMB2.5 billion in 2004 from RMB2.1 billion in 2003, primarily due to an increase in the averagebalance, partially offset by a decrease in the average yield from 3.11% to 2.92%, reflecting thecontinued impact of the decreases in Hong Kong interest rates in earlier periods.

Interest Income from Investment Securities

Interest income from investment securities has been the second largest component of ourinterest income, representing 21.4%, 16.7% and 16.2% of our interest income for the years endedDecember 31, 2005, 2004 and 2003, respectively. In 2005, we earned interest income from both ourinvestment securities, consisting primarily of our available-for-sale and held-to-maturity debtsecurities, and the receivables arising from our financial restructuring.

Interest income from total investment securities increased by 50.5% to RMB51.5 billion in2005 from RMB34.2 billion in 2004, primarily due to a combination of an increase in the interestincome from investment securities other than receivables and an increase in the interest income fromreceivables. The increase in the interest income from investment securities other than receivables in2005 was primarily due to an increase in the average balance and, to a lesser extent, an increase in theaverage yield on our available-for-sale and held-to-maturity debt securities. The increase in the averagebalance was primarily due to increased funding from our customer deposits and a consequent increasein our holdings of available-for-sale and held-to-maturity debt securities and secondarily due to ourincreased holding of foreign currency-denominated debt securities, primarily as a result of ourincreased foreign currency funding from the Huijin capital contribution. The increase in the averageyield was primarily due to the higher interest rates on these foreign currency-denominated debtsecurities. The increase in the interest income from receivables was primarily due to an increase in theaverage balance, partially offset by a decrease in the average yield. The increase in the average balancereflected our receipt of the special PBOC bill and MOF receivable in connection with our financialrestructuring. The average yield decreased primarily due to the impact of the relatively low-yieldingspecial PBOC bill we acquired in connection with our financial restructuring, partially offset by theimpact of the relatively high-yielding MOF receivable we obtained in connection with our financialrestructuring.

Interest income from investment securities increased by 11.9% to RMB34.2 billion in 2004from RMB30.6 billion in 2003, primarily due to an increase in the average balance, partially offset by adecrease in the average yield from 3.24% to 3.08%. The average balance increased by 17.8% in 2004primarily due to increased funding from our customer deposits and a consequent increase in our

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holdings of available-for-sale and held-to-maturity debt securities. The average yield decreasedprimarily due to a combination of (i) a decrease in interest rates on our portfolio of debt securities, assecurities issued in earlier years which earned higher interest rates matured and were replaced bysecurities issued in more recent years at lower interest rates, reflecting the general trend in marketinterest rates; and (ii) an increase in the proportion of our debt securities portfolio consisting of PBOCbills, which are generally shorter-term and earn lower interest rates than other debt securities.

Interest Income from Amounts Due from Central Banks

Our interest-earning balances with central banks consist primarily of statutory reserve depositsand surplus reserve deposits with the PBOC. Statutory reserve deposits represent the minimum level ofcash deposits, calculated as a percentage of the balance of our general deposits from customers, that weare required to maintain at the PBOC. Surplus reserve deposits with the PBOC are the deposits in ourreserve accounts at the PBOC in excess of our statutory reserve deposits, which we may use forsettlement and other routine payment purposes.

Interest income from balances with central banks increased by 8.2% to RMB9.0 billion in 2005from RMB8.3 billion in 2004, which increased by 10.1% from RMB7.5 billion in 2003. The increasein interest income from balances with central banks during this three-year period was primarily due toan increase in the average balance in each year, partially offset by a decrease in the average yield from1.93% in 2003 to 1.84% in 2004 and 1.68% in 2005. The increase in the average balance in each yearwas primarily due to an increase in our statutory reserve deposits, which reflected both an increase indeposits from customers and the increase in the statutory reserve deposit ratio required by the PBOC,partially offset by a decrease in our surplus reserve deposits as a result of developments in the PRCinter-bank money market, which provided more avenues for placing our available cash, and ourimproved cash management, which reduced the amount of cash required for our settlement purposes.The decrease in the average yield during this three-year period was primarily due to reductions in theinterest rate on surplus reserve deposits in December 2003 and March 2005.

Interest Income from Amounts Due from Banks and Other Financial Institutions

Amounts due from banks and other financial institutions consist primarily of inter-bankdeposits and placements and balances under reverse repurchase agreements.

Interest income on amounts due from banks and other financial institutions increased by 99.7%to RMB4.5 billion in 2005 from RMB2.2 billion in 2004, primarily due to an increase in the averageyield from 1.61% to 2.51% and secondarily due to an increase in the average balance. The averagebalance increased by 28.0%, primarily due to our placement of a portion of the foreign currency-denominated funds we received as part of the Huijin capital contribution in the inter-bank moneymarket. The interest rates on these foreign currency-denominated inter-bank money market placementswere LIBOR-based and the increase in the average yield in amounts due from banks and other financialinstitutions in 2005 primarily reflected the increase in LIBOR in the same period, which was partiallyoffset by a decrease in the average yield on Renminbi-denominated inter-bank money marketplacements.

Interest income on amounts due from banks and other financial institutions decreased toRMB2.2 billion in 2004 from RMB3.6 billion in 2003, due to a combination of decrease in the averagebalance and a decrease in the average yield. The average balance decreased primarily because a lowerproportion of our funding was allocated to Renminbi-denominated placements in the inter-bank money

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market when higher-yielding PBOC bills became available in 2004. The average yield decreased from1.86% in 2003 to 1.61% in 2004, primarily due to (i) a decrease in the average balance of relativelyhigh-yielding reverse purchase agreements as a percentage of total, (ii) a decrease in the average yieldof reverse purchase agreements, and (iii) an increase in the average balance of relatively low-yieldingforeign currency-denominated placement in the inter-bank money market as a percentage of total.

Interest Expense

Interest expense increased by 23.4% to RMB86.6 billion in 2005 from RMB70.2 billion in2004, primarily due to an increase in the average cost from 1.34% to 1.50% and secondarily due to anincrease in the average balance of our interest-bearing liabilities. Interest expense increased by 5.7% toRMB70.2 billion in 2004 from RMB66.4 billion in 2003, primarily due to an increase in the averagebalance, partially offset by a decrease in the average cost from 1.39% to 1.34%.

Interest Expense on Amounts Due to Customers

Customer deposits historically have been our primary source of funding. Interest expense oncustomer deposits represented 93.2%, 93.8% and 91.1% of our total interest expense for the yearsended December 31, 2005, 2004 and 2003, respectively. The average balance in each category of ourcustomer deposits increased generally in 2003-2005, reflecting continued growth of the PRC economyand relatively limited alternative investment opportunities for our customers.

Interest expense on customer deposits increased by 22.7% to RMB80.8 billion in 2005 fromRMB65.8 billion in 2004, primarily due to an increase in the average cost from 1.32% to 1.48% andsecondarily due to an increase in the average balance. Interest expense on customer deposits increasedby 8.9% to RMB65.8 billion in 2004 from RMB60.4 billion in 2003, primarily due to an increase in theaverage balance, partially offset by a decrease in the average cost from 1.36% to 1.32%.

The following table sets forth, for the periods indicated, the average balance, interest expenseand average cost for corporate and personal deposits by product type.


2003 2004 2005

Averagebalance

Interestexpense

Averagecost

Averagebalance

Interestexpense

Averagecost

Averagebalance

Interestexpense

Averagecost


Corporate depositsTime . . . . . . . . . . . . . . . . . . . 430,438 8,568 1.99% 509,568 9,873 1.94% 639,564 13,542 2.12%Demand(1) . . . . . . . . . . . . . . . 1,505,586 12,495 0.83 1,671,562 13,850 0.83 1,780,003 14,988 0.84

Subtotal . . . . . . . . . . . . . 1,936,024 21,063 1.09 2,181,130 23,723 1.09 2,419,567 28,530 1.18

Personal depositsTime . . . . . . . . . . . . . . . . . . . 1,717,908 33,358 1.94 1,874,466 35,325 1.88 2,066,699 43,228 2.09Demand . . . . . . . . . . . . . . . . . 737,782 5,329 0.72 853,405 6,152 0.72 919,829 6,666 0.72

Subtotal . . . . . . . . . . . . . 2,455,690 38,687 1.58 2,727,871 41,477 1.52 2,986,528 49,894 1.67

Overseas operations(2) . . . . . 43,693 673 1.54 59,325 621 1.05 59,846 2,329 3.89

Total deposits fromcustomers . . . . . . . . . 4,435,407 60,423 1.36% 4,968,326 65,821 1.32% 5,465,941 80,753 1.48%

(1) Includes fiscal deposits and remittances.(2) Includes certificates of deposit.

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2005 Compared to 2004. Interest expense on corporate deposits increased by 20.3% toRMB28.5 billion in 2005 from RMB23.7 billion in 2004, primarily due to an increase in the interestexpense on corporate time deposits and secondarily due to an increase in the interest expense oncorporate demand deposits.

Interest expense on corporate time deposits increased due to a combination of an increase in theaverage balance and an increase in the average cost from 1.94% to 2.12%. The average cost oncorporate time deposits increased primarily due to the continued impact of the increase in PBOCbenchmark interest rates in October 2004.

Interest expense on corporate demand deposits increased by 8.2% primarily due to an increasein the average balance and to a lesser extent, a slight increase in the average cost from 0.83% to 0.84%.The average cost on corporate demand deposits exceeded the PBOC benchmark demand depositinterest rate of 0.72% primarily because of the impact of “step-up” deposits offered to selectedcorporate customers, which pay a higher rate than the PBOC benchmark rate for demand deposits onbalances exceeding a certain threshold amount.

Interest expense on personal deposits increased by 20.3% to RMB49.9 billion in 2005 fromRMB41.5 billion in 2004, primarily due to an increase in the interest expense on personal timedeposits.

Interest expense on personal time deposits increased by 22.4% due to a combination of anincrease in the average balance and an increase in the average cost from 1.88% to 2.09%. The averagecost on personal time deposits increased primarily due to an increase in the PBOC benchmark rates inOctober 2004.


Interest expense on deposits in our overseas operations consisted of interest expense paid onour Hong Kong dollar-denominated deposits and U.S. dollar-denominated deposits. Interest expense ondeposits in our overseas operations increased to RMB2.3 billion in 2005 from RMB621 million in2004, primarily due to an increase in the average cost from 1.05% to 3.89%, primarily reflectingincreases in Hong Kong interest rates.

2004 Compared to 2003. Interest expense on corporate deposits increased by 12.6% toRMB23.7 billion in 2004 from RMB21.1 billion in 2003, due to a combination of an increase in theinterest expense on corporate demand deposits and an increase in the interest expense on corporatetime deposits.

Interest expense on corporate demand deposits increased by 10.8% due to an increase in theaverage balance.

Interest expense on corporate time deposits increased by 15.2% due to an increase in theaverage balance, partially offset by a decrease in the average cost from 1.99% to 1.94%. The averagecost of corporate time deposits decreased primarily due to a shortening of the maturity profile of thesedeposits by our customers.

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Interest expense on personal deposits increased by 7.2% to RMB41.5 billion in 2004 fromRMB38.7 billion in 2003, due to a combination of an increase in the interest expense on personal timedeposits and an increase in the interest expense on personal demand deposits.

Interest expense on personal time deposits increased due to an increase in the average balance,partially offset by a decrease in the average cost from 1.94% to 1.88%. The decrease in the averagecost on personal time deposits primarily resulted from the replacement of time deposits made in earlieryears, which bore higher interest rates, by time deposits at lower interest rates, reflecting the continuedimpact of decreases in the PBOC benchmark rates in earlier years.


Interest expense on deposits in our overseas operations decreased by 7.7% to RMB621 millionin 2004 from RMB673 million in 2003, primarily due to a decrease in the average cost from 1.54% to1.05%, reflecting decreases in Hong Kong interest rates, partially offset by an increase in the averagebalance.

Interest Expense on Amounts Due to Banks and Other Financial Institutions

Interest expense on amounts due to banks and other financial institutions increased by 24.6% toRMB5.4 billion in 2005 from RMB4.3 billion in 2004 due to a combination of an increase in theaverage balance and an increase in the average cost from 1.59% to 1.92%. The average balanceincreased by 3.3% to RMB278.7 billion in 2005 from RMB269.7 billion in 2004 primarily due to anincrease in Renminbi-denominated inter-bank deposits. The increase in the average cost was primarilydue to the deregulation of interest rates payable on such deposits since March 17, 2005.

Interest expense on amounts due to banks and other financial institutions decreased by 27.6% toRMB4.3 billion in 2004 from RMB5.9 billion in 2003, primarily due to a decrease in the averagebalance and, to a lesser extent, a decrease in the average cost from 1.71% to 1.59%. The averagebalance decreased by 22.3% to RMB269.7 billion in 2004 from RMB347.1 billion in 2003 primarilydue to a decrease in deposits from securities firms. The average cost decreased primarily due to thereduction of the PBOC’s surplus reserve deposit interest rate, which serves as a reference for interestrates for inter-bank deposits, in December 2003.

Interest Expense on Debt Issued

Interest expense on debt issued increased to RMB490 million in 2005 from RMB40 million in2004 primarily due to an increase in the average balance. The average balance increased to RMB14.4billion in 2005 due to our issuance of subordinated bonds in the second half of 2005 in an aggregateamount of RMB35.0 billion.

We did not have any outstanding debt issued in 2003. Our debt issued in 2004 consisted ofnotes in an aggregate amount of US$400 million issued by ICBCA (C.I.) Limited, a subsidiary ofICBC (Asia) in September 2004.

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Net Interest Margin and Net Interest Spread

Net interest margin is the ratio of net interest income to the average balance of total interest-earning assets. Our net interest margin increased to 2.61% in 2005 compared to 2.55% in 2004 becauseour net interest income increased at a higher rate than the average balance of interest-earning assets.Our net interest margin decreased to 2.55% in 2004 compared to 2.59% in 2003 because the averagebalance of interest-earning assets increased at a higher rate than our net interest income.

Net interest spread is the difference between the average yield on interest-earning assets and theaverage cost on interest-bearing liabilities. Our net interest spread increased to 2.58% in 2005 from2.54% in 2004 because the average yield on our interest-earning assets increased by 20 basis pointscompared to an increase of 16 basis points in the average cost on our interest-bearing liabilities. Ournet interest spread decreased to 2.54% in 2004 compared to 2.59% in 2003 because the average yieldon our interest-earning assets decreased by 10 basis points, whereas the average cost on our interest-bearing liabilities decreased by 5 basis points.

Our net interest margin and net interest spread decreased in 2004 from 2003, primarilyattributable to the reasons described in greater details above, including in particular a decrease in theyield of our corporate loans which is primarily due to increased competition, and a decrease in the yieldof discounted bills which is primarily due to a decrease in the PBOC surplus reserve deposit interest rate.

Non-interest Income

Non-interest income represented 10.5%, 8.9% and 7.6% of our operating income for the yearsended December 31, 2005, 2004 and 2003, respectively. The following table sets forth, for the periodsindicated, the principal components of our non-interest income.


2003 2004 2005


Fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,059 9,780 12,376Fee and commission expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,435) (1,572) (1,830)

Net fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,624 8,208 10,546Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,452 5,023 7,471

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,076 13,231 18,017

Our non-interest income increased by 36.2% to RMB18.0 billion in 2005 from RMB13.2 billionin 2004, primarily due to a combination of the increase in our net fee and commission income and theincrease in our other operating income. Our non-interest income increased by 31.3% to RMB13.2 billionin 2004 from RMB10.1 billion in 2003, primarily due to an increase in our net fee and commissionincome and, to a lesser extent, an increase in our other operating income. The increase in our net fee andcommission income reflected our continued focus on diversifying our sources of income.

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Net Fee and Commission Income

Net fee and commission income is the largest component of our non-interest income. Our net feeand commission income increased by 28.5% to RMB10.5 billion in 2005 from RMB8.2 billion in 2004,and increased by 45.9% in 2004 from RMB5.6 billion in 2003. These increases reflected our expandingintermediary business as an important component of our business strategy. The following table setsforth, for the periods indicated, the principal components of our net fee and commission income.


2003 2004 2005


Fee and commission incomeRenminbi settlement and clearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,719 2,374 2,824Bank card business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,001 1,616 2,346Investment banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796 1,234 2,018Wealth management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,446 1,843 1,929Agency services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 815 963 1,081Foreign currency intermediary business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 654 778 879Electronic banking services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 235 421Custody . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 182 263Guarantees and commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 166 261Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 389 354

Gross fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,059 9,780 12,376Fee and commission expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,435) (1,572) (1,830)

Net fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,624 8,208 10,546

Renminbi Settlement and Clearing

Renminbi settlement and clearing fee income consists primarily of fees earned on moneytransfer and settlement and clearing services and cash management services. Renminbi settlement andclearance fees increased by 19.0% to RMB2.8 billion in 2005 from RMB2.4 billion in 2004, whichincreased by 38.1% from RMB1.7 billion in 2003. The increase in Renminbi settlement and clearancefee income from 2003 to 2005 was primarily due to increased transaction volumes, particularly forpersonal customers. It also reflects the expansion of our cash management services.

Bank Card Business

Bank card fee income consists primarily of annual fees on our debit and credit cards,transaction fees from merchants on the use of our bank cards and transaction fees charged for servicingcards issued by other banks. Bank card fee income increased by 45.2% to RMB2.3 billion in 2005from RMB1.6 billion in 2004, which increased by 61.4% from RMB1.0 billion in 2003. Theseincreases were primarily due to the introduction of annual fees on our debit cards starting in the secondhalf of 2004, increased merchant fees on our cards and increased transaction fees for servicing otherbanks’ cards, in the latter two cases reflecting increased transaction volumes from 2003 to 2005.

Investment Banking

Investment banking fee income consists primarily of fees earned on our financial consulting,corporate investment and finance advisory, mergers and acquisitions advisory, and syndicate

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arrangement services. Investment banking fee income increased by 63.5% to RMB2.0 billion in 2005from RMB1.2 billion in 2004, which increased by 55.0% from RMB0.8 billion in 2003. The increasein investment banking fee income from 2003 to 2005 was primarily due to increases in (i) our financialadvisory fees from providing consulting and other advisory services to small- and medium-sizedenterprises and listed companies, reflecting both an increase in the number of customers and fees percustomer, and (ii) fees from our corporate investment and finance advisory, credit information, andsyndicate arrangement and underwriting services, reflecting increased business volumes.

Wealth Management

Wealth management fee income consists primarily of fees from the distribution of governmentbonds and other securities, third-party investment funds, and life and other insurance products. Incomearising from our wealth management services increased by 4.7% to RMB1.9 billion in 2005 fromRMB1.8 billion in 2004, which increased by 27.5% from RMB1.4 billion in 2003. The increase from2003 to 2005 was primarily due to increased transaction volumes in the distribution of life insuranceproducts, mutual funds and government bonds.

Agency Services

Agency service fee income consists primarily of fees earned on our corporate agency securities,corporate agency insurance, collection and disbursement services, including effecting transactions insecurities for customers, payroll payment services, and the collection of utilities andtelecommunications payments. Agency service fee income increased by 12.3% to RMB1.1 billion in2005 from RMB1.0 billion in 2004, which increased by 18.2% from RMB0.8 billion in 2003. Theincrease in agency service fees from 2003 to 2005 was primarily due to increased transaction volumesin our collection and disbursement services.

Foreign Currency Intermediary Business

Foreign currency intermediary business fee income consists primarily of fees earned on ourinternational settlement and customer foreign currency trading services. Foreign currency intermediarybusiness fee income increased by 13.0% to RMB0.9 billion in 2005 from RMB0.8 billion in 2004,which increased by 19.0% from RMB0.7 billion in 2003. The increase in foreign currencyintermediary business fees from 2003 to 2005 was primarily due to increased transaction volumes.

Electronic Banking Services

Income from our electronic banking services consists primarily of annual fees, agency fees,settlement fees and electronic commerce transaction fees. Income from our e-banking servicesincreased by 79.1% to RMB421 million in 2005 from RMB235 million in 2004, which increased by106.1% compared to RMB114 million in 2003. These increases were primarily due to increasede-banking transaction volumes.

Custody

Income from our custody services consists primarily of custody fees collected on the assets ofinvestment funds, insurance companies, social security funds, and qualified foreign institutionalinvestors, or QFIIs, that are under our custody. The custody fees are determined based on the net assetvalue of the assets under custody. Income from our asset custody services increased by 44.5% to

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RMB263 million in 2005 from RMB182 million in 2004, which increased by 111.6% fromRMB86 million in 2003. These increases were primarily attributable to an increase both in the value ofassets under custody and the number of funds under custody.

Guarantees and Commitments

Income from our RMB- and foreign currency-denominated guarantee fees increased by 57.2%to RMB261 million in 2005 from RMB166 million in 2004, which remained effectively stablecompared to 2003. The increase in our guarantee fees in 2005 was primarily due to an increase in thetransaction volumes of Renminbi-denominated guarantees.

Fee and Commission Expenses

Fee and commission expenses consist primarily of fees paid to third parties in connection withour fee- and commission-based services that can be directly allocated to the provision of such services.Our fee and commission expenses increased by 16.4% to RMB1.8 billion in 2005 from RMB1.6billion in 2004, which increased by 9.5% from RMB1.4 billion in 2003, primarily due to increasedtransaction volumes in our fee- and commission-based services.

Other Operating Income

The following table sets forth, for the periods indicated, the principal components of our otheroperating income.


2003 2004 2005


Gain from foreign exchange and foreign exchange products, net . . . . . . . . . . . . . . . . . . . . . 1,190 894 2,255Gain on investments in securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553 358 107Gain/(loss) from other dealing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (326) 660 1,207Gain on disposal of property and equipment and other assets, net . . . . . . . . . . . . . . . . . . . . . 482 814 626Sundry banking income(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 893 744 1,309Others(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,660 1,553 1,967

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,452 5,023 7,471

(1) Consists primarily of dormant deposits, reversals of other payables, recoveries of litigation expenses, and bank card overdue fees.(2) Consists of operating lease income, recoveries on other assets previously written off, and miscellaneous items.

Other operating income increased by 48.7% to RMB7,471 million in 2005 compared toRMB5,023 million in 2004 and increased by 12.8% in 2004 compared to RMB4,452 million in 2003.The increase in other operating income in 2005 compared to 2004 was primarily due to an increase inthe net gain from foreign exchange and foreign exchange products and, to a lesser extent, increases insundry banking income, the net gain from other dealing activities, and other miscellaneous items. Theincrease in other operating income in 2004 compared to 2003 was primarily attributable to increases inthe net gain on other dealing activities and, to a lesser extent, the net gain on disposal of property,equipment and other assets.

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Net Gain from Foreign Exchange and Foreign Exchange Products

The net gain from foreign exchange and foreign exchange products consists primarily of netrealized and unrealized gains or losses on our foreign currency holdings, foreign currency derivativestransactions, and foreign currency dealing activities.

In 2005, our foreign currency holdings were primarily attributable to the US$15.0 billion Huijincapital contribution, and our foreign currency derivatives transactions were primarily attributable to aforeign currency option contract that we entered into with Huijin in the notional amount of US$12.0billion to manage our foreign currency exposures resulting from the Huijin capital contribution. Ournet gain from foreign exchange and foreign exchange products increased to RMB2.3 billion in 2005compared to RMB894 million in 2004, primarily attributable to an unrealized gain in the amount ofRMB4.2 billion arising from this option contract, which reflected primarily an appreciation in the valueof the Renminbi against the U.S. dollar. See “—Quantitative and Qualitative Analysis of MarketRisk—Exchange Rate Risk.” This unrealized gain was offset by an RMB2.2 billion translation lossresulting from a decrease in the Renminbi value of both the US$15.0 billion Huijin capital contributionand the foreign currency holdings used in our treasury operations. In 2003 and 2004, our foreigncurrency holdings were primarily attributable to the foreign currency holdings used in our treasuryoperations. Our foreign currency derivatives transactions were primarily attributable to our effectingforward, swap, option and other similar transactions with our customers and managing our positionsresulting from such transactions.

Our foreign currency dealing activities were primarily attributable to our effecting foreigncurrency transactions with our customers, on which we charge an exchange rate spread, and managingour foreign currency positions resulting from such transactions. Our net gain from foreign exchangeand foreign exchange products decreased by 24.9% to RMB894 million in 2004 compared toRMB1,190 million in 2003, primarily attributable to a net unrealized loss of RMB202 million in 2004on our foreign currency derivatives compared to a net unrealized gain of RMB88 million in 2003. Ournet realized gains from foreign exchange and foreign exchange products remained effectively stable in2004 compared to 2003.

Net Gain on Investments in Securities

The net gain on investments in securities consists of net realized and unrealized gains or losseson our securities held for trading purposes or recognized at fair value through profit or loss, as well asnet realized gains or losses on our investment portfolio (other than interest income), which consists ofavailable-for-sale and held-to-maturity debt securities. Our net gain on investments in securitiesdecreased by 70.1% to RMB107 million in 2005 from RMB358 million in 2004, which decreased by35.3% from RMB553 million in 2003. The decrease in 2005 compared to 2004 was primarily due tounrealized losses on the part of our investment portfolio on which we apply hedge accounting, whichlosses reduced the amount of net gains in 2005. These losses were partially offset by an increase inrealized gains on our securities held for trading purposes. The decrease in 2004 compared to 2003 wasprimarily due to a decrease in realized gains on our trading portfolio, partially offset by a decrease inunrealized losses.

Net Gain Arising from Other Dealing Activities

The net gain arising from other dealing activities consists primarily of net realized andunrealized gains or losses arising from derivatives transactions. Our derivatives transactions primarily

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consist of transactions entered into with our customers and proprietary derivatives transactions enteredinto to manage some of our market risks. Our net gain arising from other dealing activities increased by82.9% to RMB1,207 million in 2005 from RMB660 million in 2004, which increased from a net lossof RMB326 million in 2003. The increase in 2005 compared to 2004 was attributable primarily to anincrease in the volume in our derivatives transactions and an increase in unrealized gains from thederivatives on which we apply hedge accounting. The increase in 2004 compared to 2003 wasprimarily attributable to a volume increase in our derivatives transactions. Our net loss from otherdealing activities in 2003 was primarily attributable to unrealized losses arising from the derivativestransactions we entered into to manage certain of our market risks.

Net Gain on Disposal of Property and Equipment and Other Assets

The net gain on disposal of property and equipment and other assets arises primarily from oursales of properties and buildings that are no longer necessary to our continued operations. The amountof net gain we recognize in any one year is primarily a function of the timing and volume of ourdisposals and has varied from year to year without following any particular trend.

Sundry Banking Income

Our sundry banking income consists primarily of income arising from dormant deposits,reversals of payables, which were payables that had been outstanding for a prolonged period of time,recoveries of litigation expenses, which were advances made for court costs in connection withlitigation claims that were written off, and bank card overdue fees. Income from dormant corporatedeposits relates to corporate deposits that are inactive for a prolonged period of time, which may berecognized as our income until such time as they are claimed. Our sundry banking income increased by75.9% to RMB1,309 million in 2005 compared to RMB744 million in 2004, primarily due to acombination of (i) increased recoveries of litigation expenses, and (ii) an increase in the reversals ofpayables. Our sundry banking income decreased by 16.7% to RMB744 million in 2004 compared toRMB893 million in 2003, primarily due to a decrease in the income from the reversals of payables andincome from dormant corporate deposits.

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Operating Expenses

The following table sets forth, for the periods indicated, the principal components of ouroperating expenses.


2003 2004 2005


General staff expenses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,181 22,223 27,990Supplementary retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 (2,677) 4,770Property and equipment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,658 12,835 14,409Operating and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,442 10,383 10,484Business tax and surcharges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,279 8,270 9,419Expenses in relation to special government bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,120 6,120 5,610Others(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,702 5,485 8,903

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,575 62,639 81,585

Cost-to-income ratio(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47.1% 42.3% 47.5%Adjusted cost-to-income ratio(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.8% 34.0% 40.1%

(1) Includes directors’ and supervisors’ emoluments.(2) Includes one-time housing subsidy in the amount of RMB736 million for the year ended December 31, 2003.(3) Calculated by dividing total operating expenses by operating income.(4) Calculated by dividing total operating expenses (less business tax and surcharges and expenses in relation to special government bond)

by operating income (less interest income in relation to special government bond, and in the case of the year ended December 31, 2005,other than interest income accrued after December 1, 2005). See “—Critical Accounting Policies” and “—Results of Operations for theYears Ended December 31, 2005, 2004 and 2003—Operating Expenses—Expenses in Relation to Special Government Bond.”

Our operating expenses increased by 30.2% to RMB81.6 billion in 2005 compared to RMB62.6billion in 2004. This was primarily due to an increase in our supplementary retirement benefits and, toa lesser extent, an increase in general staff expenses. Our operating expenses remained effectivelystable in 2004 compared to 2003.

General Staff Expenses

The following table sets forth, for the periods indicated, the components of our general staffexpenses, which include directors’ and supervisors’ emoluments.


2003 2004 2005


Salaries and bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,435 14,767 18,975Defined contribution plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,573 1,946 2,413Other staff benefits(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,173 5,510 6,602

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,181 22,223 27,990

(1) Consists primarily of contributions to the provident housing fund, unemployment, medical, injury and maternity insurance, staffeducation fees, union fees and other staff benefits.

General staff expenses consist primarily of salaries and bonuses, social insurance contributions,pension scheme contributions, housing and medical benefits, and other staff welfare. General staff

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expenses increased by 26.0% in 2005 compared to 2004, which increased by 10.1% compared to 2003,due to an increase in our salaries and bonuses and related contributions and benefits.

Salaries and bonuses increased from 2003 through 2005, primarily due to increases in the levelof employee compensation, reflecting our improved results of operations and financial condition andthe increasing level of employee compensation in the PRC banking industry in recent years. Since ourcontributions to funded defined contribution pension schemes, insurance and other social contributions,staff welfare and other staff benefits are based on our employees’ salaries, these contributions andbenefits increased from 2003 through 2005 in line with the increases in salary levels.

Supplementary Retirement Benefits

We provide supplementary retirement benefits to certain employees who retired prior toJune 30, 2005. These benefits are recognized as a liability. We have obtained the approval of the MOFand made a special provision in the amount of RMB29.2 billion with respect to the supplementaryretirement benefits in connection with our financial restructuring in 2005. The amount of such liabilityis calculated based on actuarial assumptions of a number of variables including the discount rate,healthcare cost increase rate, average life expectancy of these retirees and other factors. The differencebetween the actual amount of these variables and the actuarial assumptions may result in variations inthe amount of supplemental retirement benefits. We recognize year-on-year variations in the amount ofsupplemental retirement benefits as gains or losses in the year of occurrence. While we believe ourcurrent actuarial assumptions to be accurate, actual conditions may be different from these assumptionsand the amount of gains or losses arising from our supplemental retirement benefits may be affected.The changes in our actuarial gains or losses for the years ended December 31, 2005, 2004 and 2003were primarily due to the changes in the discount rates used in our actuarial assumptions.

Property and Equipment Expenses

The following table sets forth, for the periods indicated, the components of our property andequipment expenses.


2003 2004 2005


Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,654 8,977 9,852Operating lease expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,704 1,698 1,895Utility expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,229 1,247 1,406Repairs and maintenance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,071 913 1,256

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,658 12,835 14,409

Depreciation

We depreciate our properties and buildings, leasehold improvements, office equipment andcomputers and motor vehicles, whereas we do not recognize any depreciation expense on constructionin progress. Our depreciation expenses increased by 9.7% to RMB9.9 billion in 2005 compared toRMB9.0 billion in 2004, primarily due to a re-valuation of our fixed assets at June 30, 2005 inconnection with our financial restructuring, which resulted in the creation of a depreciable revaluationsurplus in the amount of RMB22.7 billion. Our depreciation expenses increased by RMB0.3 billion, or

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3.7%, to RMB9.0 billion in 2004 compared to RMB8.7 billion in 2003, primarily due to increases inour fixed assets as a result of our expanding business.

Operating and Administrative Expenses

Operating and administrative expenses consist primarily of expenses relating to printing,supplies, publication and stationery, electronic supplies, travel, promotions and advertising, andtelecommunications and postage. Our operating and administrative expenses remained effectivelystable during the three years ended December 31, 2005. Our travel and publication and stationeryexpenses decreased overall from 2003 through 2005, reflecting our introduction of cost controlmeasures on these items, such as centralized purchasing.

Business Tax and Surcharges

Business tax is levied at 5% primarily on our interest income from loans to customers and ourgross fee and commission income. In addition, certain surcharges are levied at aggregate rates,depending on the locality, up to 10% of the amount of our business tax paid. The increase in ourbusiness tax and surcharges from 2003 through 2005 was in line with the increase in our interestincome and non-interest income during the same period.

Expenses in Relation to Special Government Bond

For a description of the expenses in relation to the special government bond, see “OurRestructuring and Operational Reform—Financial Restructuring—Amendment to the Terms of aSpecial Government Bond issued by the MOF.”

Other Operating Expenses

Other operating expenses consist primarily of expenses relating to amortization, miscellaneoustaxes, supervision fees and losses arising from writing off certain impaired assets. Other operatingexpenses increased by 62.3% to RMB8.9 billion in 2005 compared to RMB5.5 billion in 2004, whichdecreased by 3.8% compared to RMB5.7 billion in 2003. The increase in other operating expenses in2005 was primarily due to an increase in losses arising from writing off certain impaired assets.

Provisions for Impairment Losses

Provisions for impairment losses consist primarily of provisions on loans and other assets.Provisions for impairment losses decreased by 12.5% to RMB27.0 billion in 2005 from RMB30.9billion in 2004, which decreased by 15.0% from RMB36.3 billion in 2003.

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The following table sets forth, for the periods indicated, the principal components of ourprovisions for impairment losses.


2003 2004 2005


Loans to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,914 30,511 26,589Nostro accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (6)Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 — 289Repossessed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484 348 101Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 789 — 13Placements with banks and other financial institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 — 28

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,293 30,859 27,014

The largest component of our provisions for impairment losses consists of provisions on loansto customers. Provisions for impairment losses on loans to customers decreased by 12.9% to RMB26.6billion in 2005 from RMB30.5 billion in 2004, which decreased by 12.6% from RMB34.9 billion in2003. For details on changes in our allowance for loan losses, including provisions for impairmentlosses, see “Assets and Liabilities—Assets—Asset Quality of Our Loan Portfolio—Allowance forImpairment Losses on Loans to Customers.”

Our provisions for impairment losses on property and equipment primarily reflect provisions onour properties and buildings and our construction in progress. The provisions for impairment losses onproperty and equipment in 2005 resulted primarily from an impairment loss of RMB182 million arisingfrom our construction in progress.

Our provisions for impairment losses on repossessed assets reflect adverse changes in theirprevailing conditions. These provisions decreased from 2003 to 2005, primarily as a result of ourincreased efforts to dispose of our repossessed assets in the ordinary course of our business and inconnection with our financial restructuring in 2005.

Our provisions for impairment losses on investment securities reflect adverse changes in theprevailing conditions of our non-publicly traded equity holdings obtained through debt-to-equityswaps. These provisions decreased from 2003 to 2005, primarily as a result of our increased efforts todispose of these holdings in the ordinary course of our business and in connection with our financialrestructuring in 2005.

Our provisions for impairment losses on placements with banks and other financial institutionsprimarily reflect provisions on our placements with other PRC financial institutions, particularlysecurities firms. The provisions for impairment losses on placements with banks and other financialinstitutions in 2005 resulted primarily from our outstanding placements with a failed securities firm inthe PRC.

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Income Tax Expense

The following table sets forth, for the period indicated, a reconciliation of our income taxexpenses to the statutory PRC income tax rate of 33%.


2003 2004 2005


Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,884 54,411 63,026

Tax at the statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,182 17,956 20,799Non-deductible expenses(1)

Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,983 3,576 5,687Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465 3,274 3,506Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,589 3,491 745

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,037 10,341 9,938

Non-taxable incomeIncome arising from government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,424) (2,610) (4,315)Income arising from Huarong bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,324) (2,324) (1,162)Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (179) (170) (253)

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,927) (5,104) (5,730)

Tax charge at effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,292 23,193 25,007

(1) Amounts mainly represent staff costs in excess of the statutory deductible threshold for income tax purpose, assets write-offs that werenot allowed for tax deduction by tax authorities, and entertainment expenses, depreciation and amortization charges which are not taxdeductible.

Our income tax expense increased by 7.8% to RMB25.0 billion in 2005 compared to RMB23.2billion in 2004, which increased by 105.4% compared to RMB11.3 billion in 2003. Our income taxexpense increased in 2005 from 2004 primarily due to our increased profit before tax. Our effective taxrate in 2003 was in line with the statutory tax rate of 33%. Our effective tax rate was 42.6% in 2004and 39.7% in 2005. The increase in our effective tax rate in 2004 compared to 2003 was primarily dueto a significant increase in the amount of our asset write-offs that were treated as non-deductible by thePRC tax authorities. The decrease in our effective tax rate in 2005 compared to 2004 was primarily dueto the decrease in the amount of non-deductible asset write-offs, partially offset by an increase innon-deductible staff costs as a result of the increases in salaries and bonuses to our employees and adecrease in non-taxable income associated with the interest income from the Huarong bonds.

In connection with a disposal of non-performing assets to Huarong, we received a series ofnon-transferable ten-year bonds issued by Huarong with an aggregate face value of RMB313.0 billionin 2000-2001. See “Our Restructuring and Operational Reform—Our History.” The interest incomefrom the Huarong bonds was exempted from income taxes prior to July 1, 2005, on which date thetaxation on this interest income was resumed pursuant to a notice issued by the MOF.

We have applied to the MOF and SAT for exemptions from certain taxes arising from ourfinancial restructuring and deductions with respect to certain employee compensation expenses. Wecannot assure you that we will be granted the amount of exemptions or deductions applied for or at all.

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Net Profit

As a result of all the foregoing factors, our net profit increased by 21.8% to RMB38.0 billion in2005 from RMB31.2 billion in 2004, which increased by 38.2% from RMB22.6 billion in 2003.

SUMMARY SEGMENT OPERATING RESULTS

Historically, we managed our business primarily along geographical lines based on our branchstructure. In recent years, we have begun to reorganize our management structure with a view tomanaging our business through both the geographical lines and business segments. See “OurRestructuring and Operational Reform—Operational Reform.”

Summary Business Segment Information

Our principal business segments are corporate banking, personal banking and treasuryoperations. The financial results of our business segments for the six months ended June 30, 2006 and2005 and for the years ended December 31, 2005, 2004 and 2003 in this subsection are presented as ifwe had managed our business in such segments throughout these periods. For a description of productsand services included in these segments, see “Business—Our Principal Business Activities.”

We use a performance value management system (PVMS) as a management tool to assess theperformance of our business segments. We apply an internal fund transfer pricing system based onmarket interest rates to allocate our net interest income among business segments. The market interestrates are based on and adjusted for PBOC benchmark rates and the interest rates on PBOC bills,government bonds, inter-bank deposits and placements and repurchase agreements. Inter-segmentincome and expenses recognized through the fund transfer pricing system are eliminated in ourconsolidated results of operations.

The following table sets forth, for the period indicated, our operating income for each of ourprincipal business segments.


2003 2004 2005 2005 (unaudited) 2006



Corporate banking . . . 76,893 57.9% 81,019 54.8% 87,482 51.0% 40,014 49.3% 43,617 50.9%Personal banking(1) . . 32,655 24.6 40,269 27.2 53,681 31.3 26,417 32.6 29,679 34.6Treasury

operations . . . . . . . 20,566 15.5 24,313 16.4 28,296 16.5 14,081 17.4 11,905 13.9Others(2) . . . . . . . . . . . 2,670 2.0 2,358 1.6 2,161 1.2 580 0.7 549 0.6

Total operatingincome . . . . . . . . . . 132,784 100.0% 147,959 100.0% 171,620 100.0% 81,092 100.0% 85,750 100.0%

(1) As shown in Note 38 to the Accountants’ Report in Appendix I to this prospectus, our personal banking segment generally incurs a netinterest expense with respect to external third parties. This is because the personal banking segment’s interest expense on personaldeposits is generally greater than its interest income from personal loans, which in turn reflects the fact that the average balance ofpersonal deposits is generally several times higher than the average balance of personal loans.

(2) Includes equity investments and income and expenses that are not directly attributable to a segment or cannot be allocated on areasonable basis.

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Summary Geographical Segment Information

In presenting information on the basis of geographical segments, operating income is allocatedbased on the location of the branch that generated the revenue. For purposes of presentation, wecategorize this information into regions. The following table sets forth, for the periods indicated, theoperating income attributable to each of these geographical regions. For a description of ourgeographical regions, see “Definitions and Conventions.”


2003 2004 2005 2005 (unaudited) 2006



Head office . . . . . . . . 16,077 12.1% 14,713 10.0% 18,828 11.0% 10,787 13.3% 7,594 8.9%Yangtze River

Delta . . . . . . . . . . . 26,422 19.9 31,102 21.0 38,290 22.3 16,813 20.7 19,083 22.3Pearl River Delta . . . . 18,272 13.8 20,766 14.0 22,560 13.1 10,332 12.8 10,691 12.5Bohai Rim . . . . . . . . . 26,388 19.9 30,076 20.3 34,381 20.0 16,806 20.7 17,177 20.0Central China . . . . . . . 17,014 12.8 18,787 12.7 21,023 12.3 9,824 12.1 11,581 13.5Northeastern China . . 7,816 5.9 8,733 5.9 8,595 5.0 3,760 4.6 4,919 5.7Western China . . . . . . 19,439 14.6 21,776 14.7 24,739 14.4 10,865 13.4 12,379 14.4Overseas . . . . . . . . . . 1,356 1.0 2,006 1.4 3,204 1.9 1,905 2.4 2,326 2.7

Total operatingincome . . . . . . 132,784 100.0% 147,959 100.0% 171,620 100.0% 81,092 100.0% 85,750 100.0%

LIQUIDITY

We fund our loan and investment portfolios principally through our customer deposits.Although a majority of deposits from customers have been short-term deposits, deposits fromcustomers have been, and we believe will continue to be, a stable source of our funding. The amountdue to customers with remaining maturities of less than one year represented 91.0%, 92.9%, 93.5% and93.6% of total deposits from customers at June 30, 2006, and December 31, 2005, 2004 and 2003,respectively. For additional information about our short-term liabilities and sources of funds, see“Assets and Liabilities—Liabilities and Sources of Funds” and “Regulation and Supervision—PRCRegulation and Supervision—Liquidity and Other Operational Ratios.”

We manage liquidity primarily by monitoring the maturities of our assets and liabilities in aneffort to ensure that we have sufficient funds to meet obligations as they become due. In addition, weinvest in a significant amount of liquid assets such as PBOC bills and PRC government bonds, whichgive us the flexibility to meet potential liquidity requirements. If further liquidity requirements arise,we have access to the inter-bank money market, where we have historically been a net lender.

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The following table sets forth, at June 30, 2006, the remaining maturities of our assets andliabilities.

At June 30, 2006

Overdue(1)/Repayableon demand

Less than3 months

Between3 months

and 1 yearBetween

1 and 5 yearsMore than

5 years Undated(2) Total


AssetsCash and balances with

central banks . . . . . . . . . . 117,006 — — — — 481,263 598,269Due from banks and other

financial institutions(3) . . . 29,824 155,136 51,605 110 — — 236,675Loans to customers . . . . . . . 45,412 573,034 1,001,223 887,210 772,421 96,042 3,375,342Investments(4) . . . . . . . . . . . . — 274,455 558,067 1,489,774 330,102 5,546 2,657,944Property and equipment . . . . — — — — — 88,709 88,709Others(5) . . . . . . . . . . . . . . . . 15,222 21,859 9,965 5,952 2,720 41,968 97,686

Total assets . . . . . . . . . . . . . 207,464 1,024,484 1,620,860 2,383,046 1,105,243 713,528 7,054,625

LiabilitiesDue to banks and other

financial institutions(6) . . . 242,006 101,155 35,007 672 — — 378,840Due to customers(7) . . . . . . . 2,974,356 1,094,353 1,508,173 543,266 5,881 — 6,126,029Debt issued(8) . . . . . . . . . . . . — — — 2,987 35,000 — 37,987Others(9) . . . . . . . . . . . . . . . . 136,029 17,765 21,942 6,487 81 — 182,304

Total liabilities . . . . . . . . . . 3,352,391 1,213,273 1,565,122 553,412 40,962 — 6,725,160

Liquidity gap . . . . . . . . . . . (3,144,927) (188,789) 55,738 1,829,634 1,064,281 713,528 329,465Cumulative liquidity

gap . . . . . . . . . . . . . . . . . . (3,144,927) (3,333,716) (3,277,978) (1,448,344) (384,063)

(1) Includes loans and other assets on which either principal or interest is overdue for 30 days or less.(2) Includes loans and other assets on which either principal or interest is overdue for more than 30 days.(3) Includes amounts under reverse repurchase agreements.(4) Include investments in associates.(5) Consists of income tax recoverable, deferred income tax assets and other assets.(6) Includes amounts under repurchase agreements.(7) Includes certificates of deposits.(8) Consists of notes payable and subordinated bonds.(9) Consists of income tax payable, deferred income tax liabilities and other liabilities.

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CASH FLOWS

The table below sets forth, for the periods indicated, our cash flows. See “Appendix I—Accountants’ Report—Consolidated Cash Flow Statements.”

For the year ended December 31,For the six months

ended June 30,

2003 2004 20052005

(Unaudited) 2006


Net cash inflows from operating activities . . . . . . . . . . . . . 160,884 120,764 367,494 149,922 329,355Net cash outflows from investing activities . . . . . . . . . . . . (132,124) (200,067) (397,411) (144,767) (196,208)Net cash inflows/(outflows) from financing activities . . . . (91) 4,533 158,448 124,024 39,659Effect of exchange rate changes on cash and cash

equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 169 (2,126) 27 (510)

Net increase /(decrease) in cash and cash equivalents . . . . 28,991 (74,601) 126,405 129,206 172,296

Cash Flows from Operating Activities

Cash inflows from operating activities are primarily attributable to our customer deposits andinterest income received. The net increase in the balance of our customer deposits for the six monthsended June 30, 2006 and 2005, and the year ended December 31, 2005, 2004 and 2003 was RMB382.2billion, RMB327.0 billion, RMB560.6 billion, RMB448.0 billion and RMB536.5 billion, respectively.The interest income received for the six months ended June 30, 2006 and 2005, and the year endedDecember 31, 2005, 2004 and 2003 was RMB123.4 billion, RMB96.1 billion, RMB209.0 billion,RMB187.0 billion and RMB176.6 billion, respectively. In addition, cash inflows from operatingactivities for the six months ended June 30, 2006 were also attributable to an increase in the amountsdue to banks and other financial institutions. The net increase in the amounts due to banks and otherfinancial institutions in the six months ended June 30, 2006 and 2005 were RMB134.3 billion andRMB53.0 billion, respectively.

Cash outflows from our operating activities are primarily attributable to loan disbursements andinterest payments. The net increase in the total balance of our loans for the six months ended June 30,2006 and 2005, and the year ended December 31, 2005, 2004 and 2003 was RMB184.2 billion,RMB166.6 billion, RMB244.5 billion, RMB355.0 billion and RMB431.7 billion, respectively. Theinterest paid for the six months ended June 30, 2006 and 2005, and the year ended December 31, 2005,2004 and 2003 was RMB44.6 billion, RMB33.9 billion, RMB82.3 billion, RMB68.2 billion andRMB63.4 billion, respectively.

Cash Flows from Investing Activities

Cash inflows from our investing activities are primarily attributable to proceeds from sale andredemption of investments. The proceeds from sale and redemption of our investments for the sixmonths ended June 30, 2006 increased to RMB663.1 billion from RMB176.2 billion for the six monthsended June 30, 2005, primarily due to an increase in the amount of PBOC bills matured, reflecting anincrease in the amount of PBOC bills we held. Our proceeds from sale and redemption of investmentsfor the year ended December 31, 2005, 2004 and 2003 was RMB327.1 billion, RMB270.3 billion andRMB222.0 billion, respectively. The increase in proceeds from sale and redemption of investmentsfrom 2003 to 2005 was primarily due to increased holdings in held-to-maturity and available-for-saledebt securities.

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Our cash outflows from investing activities are primarily attributable to purchases ofinvestments in debt instruments. Our purchases of investments in debt instruments for the six monthsended June 30, 2006 increased to RMB858.1 billion from RMB320.5 billion for the six months endedJune 30, 2005, primarily due to an increase in our purchases of held-to-maturity and available-for-saledebt securities, particularly PBOC bills. Our purchases of investments in debt instruments for the yearended December 31, 2005, 2004 and 2003 was RMB720.0 billion, RMB467.9 billion and RMB346.2billion, respectively. The increase in our purchases of investments in debt instruments from 2003 to2005 was primarily due to an increase in our purchases of held-to-maturity and available-for-sale debtsecurities.

Cash Flows from Financing Activities

Our cash inflows from financing activities are primarily attributable to capital injections,including the Huijin capital contribution, investments made by our strategic investors and otherinvestors, and proceeds from debt issued. On April 22, 2005, Huijin contributed US$15 billion in cashas capital to our bank. On April 29, 2006, each of our overseas strategic investors, Goldman Sachs,Allianz and American Express subscribed our newly issued shares for a cash consideration ofUS$2,582 million, €825 million and US$200 million, respectively. On June 29, 2006, the SSFsubscribed our newly issued shares for a consideration of RMB18 billion, of which RMB10 billion waspaid in cash. The debt issued by us included the subordinated bonds with an aggregate principalamount of RMB35 billion issued during the six months ended December 31, 2005 and the notes withan aggregate principal amount of US$400 million issued by ICBCA (C.I.) Limited, a subsidiary ofICBC (Asia), in September 2004. We did not issue any debt in 2003.

Cash outflows from financing activities are primarily attributable to interest paid on debt issuedand dividend paid to minority shareholders. The interest paid on debt issued increased to RMB616million for the six months ended June 30, 2006 from RMB68 million for the six months ended June 30,2005, primarily due to the interest paid on the subordinated bonds issued by us during the six monthsended December 31, 2005. The interest paid on debt issued increased to RMB490 million for the yearended December 31, 2005 from RMB40 million for the year ended December 31, 2004, primarilyattributable to interest paid on the US$400 million notes issued by ICBCA (C.I.) Limited, a subsidiaryof ICBC (Asia), in September 2004. For the six months ended June 30, 2006 and 2005, and the yearended December 31, 2005, 2004 and 2003, dividend paid to minority shareholders of our subsidiariesamounted to RMB163 million, RMB146 million, RMB238 million, RMB186 million and RMB91million, respectively.

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CAPITAL RESOURCES

Shareholders’ Equity

Our total equity increased to RMB329.5 billion at June 30, 2006 from RMB259.9 billion atDecember 31, 2005, negative RMB508.0 billion at December 31, 2004 and negative RMB539.1 billionat December 31, 2003. The accumulated deficit of RMB508.0 billion at December 31, 2004 primarilyreflects our accumulated net losses for the period prior to that date as calculated in accordance withIFRS. These net losses were primarily due to impairment losses on loans in earlier years. Thefollowing table sets forth, for the periods indicated, the components of the changes in our total equity.

Shareholders’ equity Minority interests Total equity


At January 1, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (561,410) 1,586 (559,824)Net change in fair value of available-for-sale investments . . . . . . . . . . . . . . . . . (1,557) — (1,557)Reserves realized on the disposal of available-for-sale investments . . . . . . . . . (313) — (313)Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 — 123

Total income and expense for the year recognized directly in equity . . . . . . . . (1,747) — (1,747)Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,472 120 22,592

Total income and expense for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,725 120 20,845Transfer of capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64) — (64)Profit distribution by a subsidiary(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (91) (91)

At December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (540,749) 1,615 (539,134)

Net change in fair value of available-for-sale investments . . . . . . . . . . . . . . . . . (2,365) — (2,365)Reserves realized on the disposal of available-for-sale investments . . . . . . . . . (95) — (95)Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 — 114

Total income and expense for the year recognized directly in equity . . . . . . . . (2,346) — (2,346)Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,863 355 31,218

Total income and expense for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,517 355 28,872Transfer of capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) — (2)Subsidiary’s shares issued to a minority shareholder . . . . . . . . . . . . . . . . . . . . . 521 1,884 2,405Profit distribution by a subsidiary(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (186) (186)

At December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (511,713) 3,668 (508,045)

Net change in fair value of available-for-sale investments . . . . . . . . . . . . . . . . . 3,453 — 3,453Reserves realized on the disposal of available-for-sale investments . . . . . . . . . 480 — 480Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (217) (61) (278)Assets revaluation surplus arising from Restructuring . . . . . . . . . . . . . . . . . . . . 22,697 — 22,697

Total income and expense for the year recognized directly in equity . . . . . . . . 26,413 (61) 26,352Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,555 464 38,019

Total income and expense for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,968 403 64,371Restructuring:

Capital injection(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,054 — 144,054Capital adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,028) — (8,028)Equity contribution arising from the disposal of impaired assets . . . . . . . . 567,558 — 567,558

Subsidiary’s shares issued to a minority shareholder . . . . . . . . . . . . . . . . . . . . . — 204 204Profit distribution by a subsidiary(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (238) (238)

At December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255,839 4,037 259,876

Net change in fair value of available-for-sale investments . . . . . . . . . . . . . . . . . (884) — (884)Reserves realized on the disposal of available-for-sale investments . . . . . . . . . 59 — 59Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (25) 6

Total income and expense for the period recognized directly in equity . . . . . . . (794) (25) (819)Profit for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,399 243 25,642

Total income and expense for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,605 218 24,823Issue of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,466 — 48,466Dividend -2005 final . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,537) — (3,537)Profit distribution by a subsidiary(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (163) (163)

At June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325,373 4,092 329,465

(1) Profit distribution made by ICBC (Asia).(2) Consists of a US$15.0 billion Huijin capital contribution and an injection of land use rights in the aggregate amount of RMB19.9 billion

in connection with our financial restructuring.

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Capital Adequacy

We are subject to capital adequacy requirements as promulgated by the CBRC, which requirePRC commercial banks to maintain a minimum core capital adequacy ratio of 4% and a capitaladequacy ratio of 8%. In March 2004, the CBRC introduced new guidelines which amended themethod by which capital adequacy ratios are calculated. See “Regulation and Supervision—PRCRegulation and Supervision—Capital Adequacy.”

The ratios at December 31, 2005 are prepared in accordance with the statutory financialstatements and do not reflect the impact of Caikuai (2005) No. 14 “Provisional Guidelines onRecognition and Measurement of Financial Instruments” issued by the MOF. The ratios as at June 30,2006 are prepared in accordance with the PRC GAAP.


2005 2006

(in millions of RMB, exceptpercentages)

Core capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.11% 8.97%

Capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.89% 10.74%

Components of capital baseCore capital:

Issued share capital/paid-up capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,000 286,509Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,444 19,916Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,037 4,092

Total core capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257,481 310,517

Supplementary capital:General provisions for doubtful debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,846 26,111Reserve for net change in the fair value of available-for-sale investments . . . . . — 604Subordinated bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000

Total supplementary capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,846 61,715

Total capital base before deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314,327 372,232Deductions:

Unconsolidated equity investments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,176) (1,416)Goodwill(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,307) (1,265)

Net Capital Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,844 369,551

Core capital base after deductions(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255,586 308,544

Risk weighted assets and market risk capital adjustment . . . . . . . . . . . . . . . . . . . 3,152,206 3,439,547

(1) Pursuant to applicable PRC regulations, the core capital base after deductions was derived by applying 50% and 100% of deductions inthe unconsolidated equity investments and goodwill, respectively.

Our capital adequacy ratio and core capital adequacy ratio at December 31, 2004 and 2003were below regulatory requirements and we had capital deficits at December 31, 2004 and 2003. Nosanctions were imposed on us for our failure to meet the regulatory requirements. At June 30, 2006 andDecember 31, 2005, our capital adequacy ratio was 10.74% and 9.89%, respectively, and our corecapital adequacy ratio was 8.97% and 8.11%, respectively, and thus we were in compliance with therequirements.

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OFF-BALANCE SHEET COMMITMENTS

Our off-balance sheet commitments consist primarily of loan commitments, guarantees, lettersof credit and acceptances. Loan commitments are our commitments to extend credit. We issueguarantees and letters of credit to guarantee the performance of our customers to third parties.Acceptances comprise undertakings by us to pay bills of exchange issued by our customers. Thefollowing table sets forth the contractual amounts of our off-balance sheet commitments at the datesindicated.


2003 2004 2005 2006


Irrevocable loan commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,588 172,565 100,231 195,220Letters of credit issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,913 59,674 51,718 57,784Guarantees issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,786 92,573 121,117 146,998Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,511 68,736 92,565 122,390

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346,798 393,548 365,631 522,392

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table sets forth our known contractual obligations by remaining maturityclassified into the categories specified below at June 30, 2006. This table is based on disclosurerequirements applicable to domestic and foreign issuers in the United States and is presented for theconvenience of our international investors.

At June 30, 2006

Lessthan

1 year

Between1 and

5 years

Morethan

5 years Total


On-balance sheetSubordinated debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 35,000 35,000Certificates of deposit issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,095 3,896 — 6,991Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,987 — 2,987Off-balance sheetOperating lease commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,467 2,936 1,341 5,744Redemption obligation (bearer-form treasury bonds) . . . . . . . . . . . . . . . . . . . 82,613 168,116 — 250,729

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,175 177,935 36,341 301,451

Capital commitments authorized or contracted for . . . . . . . . . . . . . . . . . . . . 7,861

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309,312

QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK

Market risk arises from movements in market variables such as interest rates, exchange rates,equity prices and commodity prices, and other market changes that affect market risk-sensitiveinstruments. We are exposed to market risk primarily through the assets and liabilities on our balancesheet, as well as our off-balance sheet commitments and guarantees. The principal types of market riskaffecting our business are interest rate risk and exchange rate risk. We have imposed a set of exposurelimits for our investment and trading activities in an effort to manage potential market losses withinacceptable limits.

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Interest Rate Risk

The primary source of our interest rate risk arises from mismatches in the maturity or repricingperiods of our interest rate-sensitive assets and liabilities. Maturity mismatches may cause net interestincome to be affected by changes in the prevailing level of interest rates. Currently, we use both a gapanalysis and a sensitivity analysis (based on the impact of 100 basis point increases or decreases ininterest rates on our net interest income) to assess our exposure to interest rate risk. In addition,different pricing bases for different products may also lead to interest rate risk for our assets andliabilities within the same repricing period. We manage our interest rate risk exposure primarily byadjusting the maturity profile of our banking portfolio based on our assessment of potential changes inthe interest rate environment.

The following table sets forth, at June 30, 2006, the results of our gap analysis based on theearlier of (i) the next expected repricing dates and (ii) the final maturity dates for our assets andliabilities.

At June 30, 2006

Less than3 months

Between 3months and

1 year

Between1 and 5years

More than5 years

Interest-bearing total

Non-interestbearing Total


AssetsLoans to customers . . . . . . . . . . . . . . . . . . . . . . . . 1,240,046 2,134,849 198 249 3,375,342 — 3,375,342Investments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,501 670,342 1,386,302 255,253 2,652,398 5,546 2,657,944Cash and balances with central banks . . . . . . . . . . 566,513 — — — 566,513 31,756 598,269Due from banks and other financial

institutions(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 184,960 51,605 110 — 236,675 — 236,675Others(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — 186,395 186,395

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 2,332,020 2,856,796 1,386,610 255,502 6,830,928 223,697 7,054,625

LiabilitiesDue to customers(4) . . . . . . . . . . . . . . . . . . . . . . . . 4,015,452 1,508,173 543,266 5,881 6,072,772 53,257 6,126,029Due to banks and other financial institutions(5) . . . 343,161 35,007 672 — 378,840 — 378,840Debt issued(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 — 15,987 13,000 37,987 — 37,987Others(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — 182,304 182,304

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 4,367,613 1,543,180 559,925 18,881 6,489,599 235,561 6,725,160

Pricing gap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,035,593) 1,313,616 826,685 236,621 341,329 N/A N/A

Cumulative pricing gap . . . . . . . . . . . . . . . . . . . (2,035,593) (721,977) 104,708 341,329 341,329 N/A N/A

Sensitivity analysis(8)

100 basis point increase . . . . . . . . . . . . . . . . (20,356) 13,136 8,267 2,366 3,413100 basis point decrease . . . . . . . . . . . . . . . . 20,356 (13,136) (8,267) (2,366) (3,413)

(1) Includes investments in associates.(2) Includes amounts under reverse repurchase agreements.(3) Consists of property and equipment, deferred income tax assets, income tax recoverable and other assets.(4) Includes certificates of deposits.(5) Includes amounts under repurchase agreements.(6) Consists of notes payable and subordinated bonds.(7) Consists of income tax payable, deferred income tax liabilities and other liabilities.(8) The sensitivity analysis above sets forth, for the repricing period indicated, the impact of changes in interest rates on the net interest

income from our total portfolio of net assets on an annualized basis. For example, if interest rates increased by 100 basis points, weexpect that the net interest income from the portion of our portfolio at June 30, 2006, that reprices or is due within three months would, ifwe immediately repriced this portfolio, decrease by RMB20,356 million on an annualized basis. This sensitivity analysis is for riskmanagement purposes and assumes that no other changes were made to the portfolio. Actual changes in net interest income may varyfrom this model.

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Exchange Rate Risk

The primary source of our exchange rate risk arises from currency mismatches in our assets andliabilities. We primarily monitor our net currency positions to assess our exposure to exchange raterisk. We manage our exchange rate risk primarily by seeking to match the assets and liabilities on acurrency-by-currency basis.

The following table sets forth, at June 30, 2006, our assets and liabilities by currency.

At June 30, 2006

RMB US$(1) HK$(2) Others(3) Total

(in millions of RMB equivalent)

AssetsLoans to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,149,983 120,088 88,866 16,405 3,375,342Investments(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,524,442 115,472 6,930 11,100 2,657,944Cash and balances with central banks . . . . . . . . . . . . . . . . . . . 589,487 5,611 1,719 1,452 598,269Due from banks and other financial institutions(5) . . . . . . . . . 115,087 99,796 4,756 17,036 236,675Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,917 340 259 193 88,709Others(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,809 10,994 2,323 1,560 97,686

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,549,725 352,301 104,853 47,746 7,054,625

LiabilitiesDue to customers(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,867,087 156,254 81,902 20,786 6,126,029Due to banks and other financial institutions(8) . . . . . . . . . . . . 312,779 48,171 8,714 9,176 378,840Debt issued(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 2,987 — — 37,987Others(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,984 8,795 7,923 7,602 182,304

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,372,850 216,207 98,539 37,564 6,725,160

Net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,875 136,094 6,314 10,182 329,465

Off-balance sheet credit commitments . . . . . . . . . . . . . . . . 366,699 99,926 31,266 24,501 522,392

(1) Translated at the exchange rate of RMB7.9956 to US$1.00 as set by the PBOC for foreign exchange transactions prevailing on June 30,2006.

(2) Translated at the exchange rate of RMB1.0294 to HK$1.00 as set by the PBOC for foreign exchange transactions prevailing on June 30,2006.

(3) Translated at the Renminbi exchange rates for the relevant foreign currencies as set by the PBOC for foreign exchange transactionsprevailing on June 30, 2006.

(4) Includes investments in associates.(5) Includes amounts under reverse repurchase agreements.(6) Consists of deferred income tax assets, income tax recoverable and other assets.(7) Includes certificates of deposits.(8) Includes amounts under repurchase agreements.(9) Consists of notes payable and subordinated bonds.(10) Consists of income tax payable, deferred income tax liabilities, and other liabilities.

Any appreciation of the Renminbi against the U.S. dollar or any other foreign currencies mayresult in a decrease in the value of our foreign currency-denominated assets. On April 30, 2005, weentered into a foreign exchange option contract with Huijin in an effort to economically hedge a part ofthe currency risk arising from the US$15.0 billion Huijin capital contribution. This capital contributionsignificantly increased our foreign currency assets. See “Risk Factors—Risks Relating to China—Weare subject to PRC government controls on currency conversion and future movements in exchangerates.” Pursuant to the foreign exchange option contract with Huijin, we purchased from Huijin anoption to sell a maximum of US$12.0 billion in exchange for Renminbi at a pre-determined exchangerate of US$1 to RMB8.2765. The option is exercisable in 2008 in twelve equal monthly installments.

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Whether or not the option is exercised, we will pay Huijin an aggregate consideration of RMB3.0billion in twelve equal monthly installments in 2008.

The following table sets forth our U.S. dollar-denominated debt instruments by category ofissuer at June 30, 2006.

At June 30, 2006

Amount % of total

(in millions of RMBequivalent, except

percentages)

Banks and other financial institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,804 54.5%Overseas operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,161 18.3Governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,455 22.1Policy banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,459 4.7Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476 0.4

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,355 100.0%

CAPITAL EXPENDITURES

Our capital expenditures from 2003 through June 30, 2006 were primarily applied to expansionand relocations of our branch and outlet network. In addition, we applied our capital expenditures toinformation technology systems. For the six months ended June 30, 2006, our capital expenditurestotaled RMB1.7 billion, a decrease of 33.8% from RMB2.6 billion for the six months ended June 30,2005. Our capital expenditures increased by 9.7% to RMB9.2 billion in 2005 from RMB8.4 billion in2004, which decreased by 7.0% from RMB9.0 billion in 2003. At June 30, 2006, we had authorizedcapital commitments of RMB7.9 billion, of which RMB1.2 billion were contracted for, and RMB6.7billion were authorized but not contracted for. The foregoing amounts and purposes may changedepending on business conditions.

CRITICAL ACCOUNTING POLICIES

We have identified certain accounting policies that are significant to the preparation of ourfinancial information. These significant accounting policies, which are important for the understandingof our financial condition and results of operations, are set forth in detail in Note 2 to the Accountants’Report in Appendix I to this prospectus. These accounting policies usually involve subjectiveassumptions and estimates, and complex judgments relating to accounting items such as asset valuesand impairment losses. In each case, the determination of these items requires management judgmentbased on information and financial data that may change in future periods. We set out below theaccounting policies used in the preparation of our financial information that we believe involve themost significant estimates and judgments.

Allowance for Impairment Losses on Loans

In 2003 when we adopted IFRS, we began to assess our loans for impairment, determine a levelof allowance for credit losses, and recognize any related provisions made in a period by using theconcept of impairment under IAS 39. For purposes of the financial information included in theAccountants’ Report in Appendix I to this prospectus, the allowance for credit losses and provisionsfor impairment losses are presented on a consistent basis for all the periods presented.

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Our loans are reported on the balance sheet net of the allowance for credit losses. Loans areassessed at each balance sheet date to determine whether there is any objective evidence thatimpairment of a loan or portfolio of loans has occurred. A loan or portfolio of loans is impaired andimpairment losses are incurred if, and only if, there is objective evidence of impairment as a result ofone or more events that occurred after the initial recognition of the asset and that event (or events) hasan impact on the estimated future cash flows of the loan or portfolio of loans that can be reliablyestimated.

Losses expected as a result of future events, no matter how likely, are not recognized becausethe necessary loss event has not yet occurred. We use two methods of assessing impairment losses: onan individual basis and on a collective basis.

Individually Assessed Loans

All corporate loans and discounted bills are individually reviewed for objective evidence ofimpairment and then classified based on a five-category classification system. Corporate loans anddiscounted bills that are classified as substandard, doubtful or loss regardless of size are assessedindividually for impairment.

If there is objective evidence that an impairment loss on a loan or advance has incurred on anindividual basis, the amount of the loss is measured as the difference between the asset’s carryingamount and the present value of estimated future cash flows discounted at the asset’s original effectiveinterest rate. The carrying amount of the asset is reduced through the use of the allowance for creditlosses. The amount of the impairment loss is recognized in the consolidated income statement.

Loans which are assessed individually for impairment are assessed in light of objectiveevidence of loss events, such as:

Š significant financial difficulties for the borrower;

Š a breach of contract by the borrower, such as a default or delinquency in making principalor interest payments;

Š a concession to the borrower by us that we would not consider making other than foreconomic or legal reasons relating to the borrower’s financial difficulties; or

Š the likelihood that the borrower will experience financial deterioration, or enter intobankruptcy proceedings or other forms of financial reorganization based upon events thathave already occurred.

It may not be possible to identify a single, discrete event that caused the impairment, but it maybe possible to identify impairment through the combined effect of several events. Cash flows relatingto short-term loans are not discounted if the effect of discounting is immaterial. The calculation of thepresent value of the estimated future cash flows of a secured loan reflects that cash flows that mayresult from the sale of collateral through foreclosure, less the costs of obtaining and selling thecollateral, whether or not foreclosure is probable.

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Collectively Assessed Loans

Loans that are assessed for impairment losses on a collective basis include the following:

Š homogeneous groups of loans, including all of our personal loans; and

Š all loans for which no impairment can be identified individually, either due to the absenceof any loss events or due to an inability to measure reliably the impact of potential lossevents on future cash flows.

For the purpose of collective assessment, assets are grouped on the basis of similar credit riskcharacteristics that are indicative of the debtors’ ability to pay all amounts due according to thecontractual terms.

Objective evidence of impairment losses on a collective basis consists of observable dataindicating a measurable decrease in the estimated future cash flows from a group of loans since theinitial recognition of those loans, including:

Š adverse changes in the payment status of borrowers in the group of loans; and

Š national or local economic conditions that correlate with defaults on assets in the group ofloans.

Homogeneous Groups of Loans Not Considered Individually Significant

For homogeneous groups of loans, we adopt a flow rate methodology to assess impairmentlosses on a collective basis. This methodology utilizes an analysis of historical trends of probability ofdefault and amount of consequential loss, as well as an evaluation of current economic conditions thatmay have a consequential impact on inherent losses in the portfolio.

Individually Assessed Loans with No Objective Evidence of Impairment

When no impairment can be identified for individual loans, either due to the absence of anyloss events or due to an inability to measure reliably the impact of potential loss events on future cashflows, these loans are grouped together in portfolios of similar credit risk characteristics for thepurpose of assessing a collective impairment loss. This loss covers those loans that were impaired atthe balance sheet date but which will not be individually identified as impaired until some time in thefuture. The collective impairment loss is assessed after taking into account:

Š historical loss experience in portfolios of similar risk characteristics; and

Š the current economic and credit environments and whether in management’s experiencethese indicate that the actual level of incurred but not yet identified losses is likely to begreater or less than that suggested by historical experience.

As soon as information is available that specifically identifies objective evidence of impairmenton individual assets in a pool, those assets are individually assessed. Assets that are individuallyassessed for impairment and for which an impairment loss is or continues to be recognized are notincluded in a collective assessment for impairment.

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Valuation of Investment Securities

We classify investment securities on our balance sheet into (i) receivables, (ii) held-to-maturityassets, (iii) available-for-sale assets and (iv) financial assets at fair value through profit or loss.

Š Receivables are non-derivative financial assets with fixed or determinable payments thatare not quoted on an active market, other than those that we intend to sell immediately orin the near term, and those that are designated as available for sale upon initial recognition.This category includes special government bonds, receivables from MOF, special PBOCbills, and Huarong bonds.

Š Held-to-maturity assets are non-derivative financial assets with fixed or determinablepayments and fixed maturity that we have the positive intent and ability to hold tomaturity.

Š Available-for-sale assets are non-derivative financial assets that are designated asavailable-for-sale or are not classified as financial assets at fair value through profit orloss, receivables or held-to-maturity assets.

Š Financial assets at fair value through profit or loss are financial assets held principally forshort-term profit-taking purposes or financial assets that are designated by us uponrecognition as at fair value through profit or loss.

At initial recognition, all investments are measured at fair value plus, in the case of a financialasset not at fair value through profit or loss, transaction costs that are directly attributable to theacquisition or issue of the financial asset.

In the case of the special government bond, MOF receivable, special PBOC bill, and Huarongbonds categorized as receivables within investment securities, the fair value of these receivables isestimated on the basis of the stated interest rate and including consideration of the relevant specialclauses of the instrument evaluated in the absence of any other relevant observable market data.

Subsequent to initial recognition, investments are measured at fair value, without any deductionfor transaction costs that may occur on sale or other disposal except for receivables andheld-to-maturity assets, which are measured at amortized cost using the effective interest rate method.

Gains or losses from changes in the fair value of the assets at fair value through profit or lossare included in the income statement as they arise. Gains or losses arising from a change in the fairvalue of available-for-sale assets are recognized directly in equity, except for impairment losses andforeign exchange gains and losses, until the asset is derecognized, at which time the cumulative gainsor losses previously recognized in equity will be recognized in the income statement. For investmentscarried at amortized cost, a gain or loss is recognized in the income statement when the investment isderecognized or impaired.

The fair value of investments securities is based on their quoted market price at the valuationdate without any deduction for the transaction costs. If a quoted market price is not available, the fairvalue of the investment securities is established by using a valuation technique. Valuation techniquesinclude using recent arm’s length market transactions between knowledgeable, willing parties, ifavailable, reference to the current fair value of another instrument that is substantially the same,discounted cash flow analysis and option pricing models. To the extent practicable, valuation techniquemakes maximum use of market inputs.

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Derivatives

Derivatives include forward, swaps, options, futures and the combination of any of them. Atinitial recognition, they are stated in the balance sheet at fair value at the inception date andsubsequently re-measured at fair value at the valuation date. Fair values are based on quoted marketprices, discounted cash flow models and pricing models as appropriate. Fair value of a derivative isincluded in “Other assets” when it is positive, or “Other liabilities” when it is negative. Changes in thefair value of derivatives are included in other operating income.

Certain derivatives embedded in other financial instruments are treated as separate derivativeswhen their risks and economic characteristics are not closely related to those of the host contract andthe hybrid instrument is not carried at fair value through profit or loss.

Except for certain contracts used in fair value hedges by our overseas operations, all derivativetransactions are treated as derivatives held for trading with fair value gains or losses recognized in theincome statement. Derivatives used in such fair value hedges are hedges of exposure to changes in thefair value of a recognized asset or liability or an unrecognized firm commitment, or an identifiedportion of such an asset, liability or firm commitment, that is attributable to a particular risk and couldaffect profit or loss. The carrying amount of the hedged item is adjusted for gains and lossesattributable to the risk being hedged and the derivative is remeasured at fair value with gains and lossesfrom both being taken to profit or loss.

Valuation of Property and Equipment

Prior to June 30, 2005, property and equipment were stated at cost less accumulateddepreciation and any impairment losses. The cost of an item of property and equipment comprises itspurchase price and any directly attributable costs of bringing the asset to its present working conditionand location for its intended use.

In preparation for the restructuring into a joint-stock limited company, we engaged independentprofessional valuers registered in the PRC to conduct valuations of property and equipment at June 30,2005. The surplus arising upon revaluation was credited to equity.

Following initial recognition at cost, from June 30, 2005, property and equipment (except forleasehold improvements) are carried at revalued amount, which is the fair value at the date ofrevaluation less any subsequent accumulated depreciation and subsequent accumulated impairmentlosses. Valuations are performed frequently enough to ensure that the fair value of a revalued assetdoes not differ materially from its carrying amount.

An annual transfer from the asset revaluation reserve to retained profits is made for thedifference between the depreciation amount based on the revalued carrying amount of the assets andthe depreciation amount based on the assets, original cost. Additionally, accumulated depreciation as atthe revaluation date is eliminated against the gross carrying amount of the asset and the net amount isrestated to the revalued amount of the asset. Upon disposal of an asset, any revaluation reserve relatingto the particular asset being sold is transferred to retained profits.

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Income Taxes

Current tax assets and liabilities for the current and prior periods are measured at the amountexpected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used tocompute the amount are those that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is provided using the liability method on all temporary differences at thebalance sheet date between the tax bases of assets and liabilities and their carrying amounts forfinancial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, except:

Š where the deferred income tax liability arises from the initial recognition of goodwill or ofan asset or liability in a transaction that is not a business combination and, at the time ofthe transaction, affects neither the accounting profit nor taxable profit or loss; and

Š in respect of taxable temporary differences associated with investments in subsidiaries andassociates where the timing of the reversal of the temporary differences can be controlledand it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences,carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxableprofit will be available against which the deductible temporary differences, and the carryforward ofunused tax credits and unused tax losses can be utilized except:

Š where the deferred income tax asset relating to the deductible temporary difference arisesfrom the initial recognition of an asset or liability in a transaction that is not a businesscombination and, at the time of the transaction, affects neither the accounting profit nortaxable profit or loss; and

Š in respect of deductible temporary differences associated with investments in subsidiariesand associates, deferred income tax assets are recognized only to the extent that it isprobable that the temporary differences will reverse in the foreseeable future and taxableprofit will be available against which the temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date andreduced to the extent that it is no longer probable that sufficient taxable profit will be available to allowall or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets arereassessed at each balance sheet date and are recognized to the extent that it has become probable thatfuture taxable profit will allow the deferred income tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected toapply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws)that have been enacted or substantively enacted at the balance sheet date.

Income tax relating to items recognized directly in equity is recognized in equity and not in theincome statement.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceableright exists to set off current tax assets against current tax liabilities and the deferred income taxesrelate to the same taxable entity and the same taxation authority.

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RECENT ACCOUNTING PRONOUNCEMENTS

We have not applied the following new and revised IFRSs, that have been issued but are not yeteffective, in our financial information:

IAS 1 Amendment Capital Disclosures

IAS 1 Amendment shall be applied for annual periods beginning on or after January 1, 2007.The revised standards will affect the disclosure regarding qualitative information about our objective,policies and processes for managing capital; quantitative data about what we regard as capital; andcompliance with any capital requirements and the consequences of any non-compliance.

IFRS 7 Financial Instruments: Disclosure

IFRS 7 will be effective for annual periods beginning on or after January 1, 2007. IFRS 7requires more detailed qualitative and quantitative disclosure primarily of fair value information andrisk management and, accordingly, will affect the level of details in the disclosures to our financialinformation.

We do not expect the above to have any significant financial impacts on our financialinformation.

INDEBTEDNESSAt the close of business on August 31, 2006, being the latest practicable date prior to the

printing of this prospectus for the purpose of this indebtedness statement, our indebtedness includes:

Š Callable subordinated bonds in the aggregate amount of RMB35,000 million issuedthrough open market bidding in 2005, of which RMB22,000 million have a term of 10years and RMB13,000 million have a term of 15 years. We have the option to redeem allor part of the bonds at face value prior to their maturity dates; and

Š Notes issued in the aggregate principal amount of US$400 million (with a carrying valueof RMB2,958 million), maturing on September 16, 2009.

In addition, as of August 31, 2006, we had deposits from customers, amounts due to banks andother financial institutions, certificates of deposits issued, balances under repurchase agreements, creditcommitments, acceptances, issued letters of guarantee and letters of credit, other commitments andcontingencies, including outstanding litigation, that arise from our ordinary course of business.

Except as otherwise disclosed in this prospectus, we did not have at the close of business onAugust 31, 2006 any outstanding mortgages, charges, debentures or other loan capital (issued or agreedto be issued), bank overdrafts, loans, liabilities under acceptance or other similar indebtedness, hirepurchase and finance lease commitments or any guarantees or other material contingent liabilities.

The Directors have confirmed that there has not been any material change in the indebtednessor contingent liabilities of our bank since August 31, 2006.

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RULES 13.11 TO 13.19 OF THE HONG KONG LISTING RULES

We confirm that we are not aware of any circumstances which will trigger disclosurerequirements under Rule 13.11 to Rule 13.19 of the Hong Kong Listing Rules.

PROFIT FORECAST FOR THE YEAR ENDING DECEMBER 31, 2006

All statistics set forth in the table below do not give effect to the A Share Offering and arebased on the assumption that (i) the Global Offering is completed and (ii) the over-allotment option forthe Global Offering is not exercised.

Forecast consolidated profit attributable to equity holders(1) . . . . . . . . . . . . . . . . . not less than RMB47,200 millionForecast earnings per share

(a) pro forma basis(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RMB0.16 (HK$0.16)(b) weighted average basis(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RMB0.17 (HK$0.17)

(1) The bases and assumptions on which the profit forecast has been prepared are set out in Appendix IV to this prospectus.(2) The calculation of the forecast earnings per share on a pro forma basis is based on the forecast consolidated profit attributable to equity

holders for the year ending December 31, 2006, and a weighted average of 300,044,723,024 shares assumed to be issued and outstandingduring the year ending December 31, 2006. The weighted average of 300,044,723,024 shares is calculated based on the 248,000,000,000shares issued and outstanding as of December 31, 2005, the 24,184,737,403 shares issued in aggregate on April 28, 2006 uponcompletion of the investment by Goldman Sachs, Allianz and American Express, the 14,324,392,623 shares issued on June 29, 2006upon completion of the investment by the SSF and the 28,312,800,000 H shares to be issued pursuant to the Global Offering assumingthat the Global Offering had been completed on January 1, 2006. The forecast consolidated profit attributable to equity holders for theyear ending December 31, 2006 is based on the audited consolidated results for the six months ended June 30, 2006 and a forecast of theconsolidated results for the six months ending December 31, 2006. Had effect been given to the A Share Offering in this calculation, theforecast earnings per share on a pro forma basis would have been RMB0.15 (HK$0.15), based on the assumption that the 13,000,000,000A shares newly issued in the A Share Offering had been issued on January 1, 2006 (assuming the over-allotment option for the A ShareOffering is not exercised).

(3) The calculation of the forecast earnings per share on a weighted average basis is based on the forecast consolidated profit attributable toequity holders for the year ending December 31, 2006 and a weighted average of 276,851,497,819 shares issued and outstanding duringthe year. This calculation assumes that the 28,312,800,000 H shares newly issued in the Global Offering were issued on October 27,2006. Had effect been given to the A Share Offering in this calculation, the forecast earnings per share on a weighted average basiswould have been RMB0.17 (HK$0.17), based on the assumption that the 13,000,000,000 A shares newly issued in the A Share Offeringwere issued on October 24, 2006 (assuming the over-allotment option for the A Share Offering is not exercised).

DIVIDEND POLICY

Our shareholders’ general meeting decides whether to pay any dividends and in what amountbased on our results of operations, cash flow, financial condition, capital adequacy ratios, futureprospects, statutory and regulatory restrictions on the payment of dividends by us and other relevantfactors. Under the PRC Company Law and our articles of association, all of our shareholders haveequal rights to dividends and distributions. We will pay dividends out of our net profit only after wehave fully covered our accumulated losses, if any, and have made the following appropriations:

Š appropriations to the statutory surplus reserve equivalent to 10% of our net profit less anyaccumulated losses, as determined under PRC GAAP; no further appropriations to thestatutory surplus reserve are required once this reserve reaches an amount equal to 50% ofour registered capital; and

Š appropriations to a discretionary surplus reserve as approved by the shareholders in ourshareholders’ meeting.

In addition, according to recent MOF guidelines, financial institutions, including us, arerequired to maintain a general reserve not less than 1% of the year-end balance of their risk-bearingassets prior to making a dividend distribution. This general reserve will constitute a part of the

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financial institution’s reserves. The MOF has recommended that financial institutions take thenecessary steps to satisfy this requirement by the end of 2008 but, in any event, no later than the end of2010. At an extraordinary general meeting of shareholders on July 31, 2006, our shareholders approvedour dividend policies. To comply with MOF’s guidelines by the end of 2010, we will appropriate 20%of our net profit as general reserve prior to the completion of the Global Offering or the A ShareOffering, whichever is earlier, and 20% to 30% of our net profit as general reserve after the completionof the Global Offering or the A Share Offering, whichever is earlier.

Under PRC law, dividends may be paid only out of distributable profits. Distributable profitsmeans, as determined under PRC GAAP or IFRS, whichever is lower, the net profits for a period, plusthe distributable profits or net of the accumulated losses, if any, at the beginning of such period, lessappropriations to statutory surplus reserve (determined under PRC GAAP), general reserve, anddiscretionary surplus reserve (as approved by our shareholders meeting). Any distributable profits thatare not distributed in a given year are retained and available for distribution in subsequent years.However, ordinarily we will not pay any dividends in a year in which we do not have any distributableprofits in respect of that year. The payment of any dividends by us must also be approved at a generalmeeting of shareholders. Holders of our H shares will be entitled to receive dividends in proportion totheir shareholdings.

The CBRC has the discretionary authority to restrict any bank that has a capital adequacy ratiobelow 8% or a core capital adequacy ratio below 4%, or that has violated certain other PRC bankingregulations, from paying dividends or other forms of distributions. See “Regulation and Supervision—PRC Regulation and Supervision—Capital Adequacy—CBRC Supervision of Capital Adequacy” and“Regulation and Supervision—PRC Regulation and Supervision—Principal Regulators—The CBRC.”At June 30, 2006, we had a capital adequacy ratio of 10.74% and a core capital adequacy ratio of8.97%.

At an extraordinary general meeting of shareholders on April 28, 2006, our board of directorsrecommended and our shareholders approved a cash dividend to the MOF and Huijin in the amount ofRMB3,537 million for the year ended December 31, 2005.

At extraordinary general meetings of shareholders on July 31, 2006 and September 22, 2006,respectively, our board of directors recommended, and our shareholders approved, the followingdividend distributions and policies:

Š in respect of the six months ended June 30, 2006, the declaration of a cash dividend in theaggregate amount of RMB18,593 million to our existing shareholders, including the MOF,Huijin, Goldman Sachs, Allianz, American Express and SSF. The amount of this dividendis equal to our distributable profits (as defined under PRC law and described above, whichcontemplated the appropriations of a statutory surplus reserve and a general reserve thatamounted to 10% and 20%, respectively, of our net profits) for the six months endedJune 30, 2006. Such cash dividend will be proportionally allocated in accordance with thenumber of our shares held by these shareholders at June 30, 2006 and the number of dayseach shareholder respectively held such shares during the six months ended June 30, 2006;

Š in respect of the period from July 1, 2006 to the date immediately preceding thecompletion of the Global Offering or the A Share Offering, whichever is earlier, or, theSpecial Dividend Period, the declaration of a cash dividend to our existing shareholders,namely, the MOF, Huijin, Goldman Sachs, Allianz, American Express and the SSF, in an

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aggregate amount equal to our distributable profits (as defined under PRC law anddescribed above, which contemplates the appropriations of a statutory surplus reserve anda general reserve that amount to 10% and 20%, respectively, of our net profits) for theSpecial Dividend Period. Such amount will be determined through a special audit of thenet profits for the period from July 1, 2006 to the end of the month in which the GlobalOffering or the A Share Offering is completed, whichever is earlier, or, the Special AuditPeriod, prorated according to the actual number of days in the Special Dividend Period asa percentage to the Special Audit Period. These prorated net profits in the SpecialDividend Period are referred to as the “Special Dividend Period Net Profits” in thissection. In addition, our shareholders’ meeting has authorized our chairman of the board orour president to, individually or jointly, make adjustments to the ending date of the SpecialAudit Period to reflect changes in the completion date of the Global Offering or the AShare Offering. The declaration of this dividend, which is currently estimated to beRMB9,559 million, will be disclosed through public announcements in the PRC and HongKong; and

Š in respect of the period from the date of completion of the Global Offering or the A ShareOffering, whichever is earlier, to December 31, 2006, the declaration of a cash dividend toall of our eligible shareholders. Such amount will be equal to 45% of the difference, asdetermined under PRC GAAP or IFRS, whichever is lower, between the audited netprofits for the year ending December 31, 2006 and the sum of the audited net profits forthe six months ended June 30, 2006 and the Special Dividend Period Net Profits.

In respect of each of the years ending December 31, 2007 and 2008, our board currentlycontemplates a dividend distribution in an amount between 45% and 60% of our net profit asdetermined under PRC GAAP or IFRS, whichever is lower, for the relevant year.

If, following the completion of the Global Offering or the A Share Offering, whichever isearlier, our distributable profits increase as a result of the granting of certain tax exemptions, theadditional distributable profits will be allocated among all of our shareholders, including our existingshareholders and all other shareholders, pursuant to the dividend policies approved by our shareholderson July 31, 2006 and September 22, 2006, respectively.

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UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

The following information regarding our unaudited pro forma adjusted consolidated nettangible assets is prepared based on our consolidated net tangible assets at June 30, 2006, as derivedfrom the Unaudited Pro Forma Financial Information, the text of which is set forth in Appendix III tothis prospectus, adjusted as described below. The following information has been prepared forillustrative purposes only and, as a result, may not be an accurate reflection of our financial position.

The following table has been prepared to show the effect on our consolidated net tangible assetsas at June 30, 2006 as if the Global Offering was completed on June 30, 2006.

Consolidatednet tangible

assetsattributable

to equityholders as at

June 30,2006(1)

Estimatednet

proceedsfrom theGlobal

Offering(2)

Unauditedpro formaadjusted

consolidatednet tangible

assetsattributable

to equityholders(3)

Unauditedpro formaadjusted

consolidatednet tangibleassets per

share(4)

(in millions of RMB) RMB HK$

Based on the offer price of HK$2.56 per H share . . . . . . . . . . 322,700 71,440 394,140 1.25 1.23

Based on the offer price of HK$3.07 per H share . . . . . . . . . . 322,700 85,771 408,471 1.30 1.28

(1) Our consolidated net tangible assets attributable to equity holders as of June 30, 2006 is compiled based on the Accountants’ Report setout in Appendix I to the prospectus, which is based on our audited consolidated net assets attributable to equity holders as of June 30,2006 of RMB325,373 million with an adjustment for the intangible assets of RMB2,673 million as of June 30, 2006.

(2) Our estimated net proceeds from the Global Offering are based on (i) the offer price of HK$2.56 per H share and HK$3.07 per H shareand (ii) the assumption that there are 28,312,800,000 newly issued H shares in the Global Offering (assuming the over-allotment optionfor the Global Offering is not exercised), and after deduction of the underwriting fees and other related expenses payable by us.

(3) Our unaudited pro forma adjusted consolidated net tangible assets attributable to equity holders do not take into account the effect of theprofit for the period from and including July 1, 2006 to the date immediately preceding the date of the Global Offering and thedistribution of such profit to our shareholders.

(4) Our unaudited pro forma adjusted consolidated net tangible assets per share are arrived at after the adjustments referred to in note(2) above and on the basis that 314,821,930,026 shares are issued and outstanding following the completion of the Global Offering andthat the over-allotment option for the Global Offering is not exercised. If the over-allotment option is exercised in full, these per sharevalues will increase. Had effect been given to the A Share Offering in this calculation, our unaudited pro forma adjusted consolidated nettangible assets per share would have been HK$1.28 or RMB1.30 based on the offer prices of HK$2.56 per H share and RMB2.60 per Ashare and HK$1.35 or RMB1.37 based on the offer prices of HK$3.07 per H share and RMB3.12 per A share. This calculation is basedon the assumption that there were 13,000,000,000 newly issued A shares in the A Share Offering (assuming the over-allotment option forthe A Share Offering is not exercised) and the resulting net proceeds (after deduction of the estimated underwriting fees and other relatedexpenses payable by us) of RMB33.0 billion (based on the offer price of RMB2.60 per A share) and RMB39.6 billion (based on the offerprice of RMB3.12 per A share) from the A Share Offering.

(5) Details of the valuation of our properties as at August 31, 2006 are set out in Appendix V to this prospectus. The unaudited net bookvalue of our properties as at August 31, 2006 was not substantially different from the valuation of our properties as included in AppendixV to this prospectus.

A dividend of RMB18,593 million from the distributable profits at June 30, 2006 was proposedand subsequently approved in the extraordinary general meeting of shareholders on July 31, 2006. Hadit been permissible to include this dividend in the above calculation, the unaudited pro forma adjustedconsolidated net tangible assets per share would have been reduced to HK$1.17 or RMB1.19 based onthe offer price of HK$2.56 per H share and HK$1.22 or RMB1.24 based on the offer price of HK$3.07per H share.

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NO MATERIAL ADVERSE CHANGE

Our directors confirm that, other than as disclosed in this prospectus, there has been no materialadverse change in our financial or trading position since June 30, 2006.

WORKING CAPITAL

Rule 8.21A(1) and paragraph 36 of Part A of Appendix 1A of the Hong Kong Listing Rulesrequire this prospectus to include a statement by our directors that, in their opinion, the working capitalavailable to our bank is sufficient. Rule 8.21A(2) of the Hong Kong Listing Rules further provides thatsuch a working capital statement will not be required to be made by an issuer whose business isentirely or substantially that of the provision of financial services, provided that the Hong Kong StockExchange is satisfied that the inclusion of such a statement would not provide significant informationfor investors and that the issuer’s solvency and capital adequacy are subject to prudential supervisionby another regulatory body. We are of the view that the concept of “working capital” does not apply tobanking businesses such as ours and that such a statement would not provide significant informationfor our investors. We are regulated in the PRC by, among others, the PBOC and the CBRC. Theseregulatory authorities impose minimum capital adequacy and liquidity requirements on commercialbanks operating in the PRC. In view of the above, pursuant to Rule 8.21A(2) of the Hong Kong ListingRules, we are not required to include a working capital statement from our directors in this prospectus.

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FUTURE PLANS AND USE OF PROCEEDS

FUTURE PLANS AND PROSPECTS

See “Business—Our Strategy” for a detailed description of our future plans.

USE OF PROCEEDS

After deducting the underwriting commission and our estimated offering expenses, we estimatethat the net proceeds to us from the Global Offering will be approximately HK$77.4 billion (RMB78.6billion) if the underwriters do not exercise their over-allotment option, or HK$89.1 billion (RMB90.5billion) if the underwriters exercise their over-allotment option in full, assuming an offer price ofHK$2.815 (RMB2.86) per H share, the midpoint of the range set forth on the cover page of thisprospectus. We will not receive any of the proceeds from the sale of shares by the Selling Shareholdersin the Global Offering. The Selling Shareholders will bear their proportional underwriting commissionand offering expenses.

We expect to use the net proceeds from the Global Offering to strengthen our capital base tosupport the ongoing growth of our business as set forth in “Business—Our Strategy.”

See “A Share Offering—Use of Proceeds of A Share Offering” for a description of the use ofproceeds of the A Share Offering.

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UNDERWRITING

UNDERWRITERS FOR THE HONG KONG PUBLIC OFFERING

Joint Lead Managers

Merrill Lynch Far East Limited

China International Capital Corporation (Hong Kong) Limited

Credit Suisse (Hong Kong) Limited

Deutsche Bank AG, Hong Kong Branch

ICEA Capital Limited

Co-Lead Managers

BNP Paribas Peregrine Capital Limited

China Everbright Securities (HK) Limited

DBS Asia Capital Limited

Guangdong Securities Limited

The Hongkong and Shanghai Banking Corporation Limited

Taifook Securities Company Limited

Co-Managers

BCOM Securities Company Limited

Cazenove Asia Limited

Oriental Patron Asia Limited

Shenyin Wanguo Capital (H.K.) Limited

Sun Hung Kai International Limited

UNDERWRITING ARRANGEMENTS AND EXPENSES

Hong Kong Public Offering

Hong Kong Underwriting Agreement

Pursuant to the Hong Kong Public Offering, we are offering the Hong Kong Offer Shares forsubscription on, and subject to, the terms and conditions of this prospectus and the application forms.Subject to the Listing Committee of the Hong Kong Stock Exchange granting listing of, andpermission to deal in, the H shares to be offered pursuant to the Global Offering as mentioned hereinand to certain other conditions set out in the Hong Kong underwriting agreement, the Hong Kongunderwriters have agreed severally and not jointly to subscribe or procure subscribers for the HongKong Offer Shares which are being offered but are not taken up under the Hong Kong Public Offeringon the terms and conditions of this prospectus, the application forms and the Hong Kong underwritingagreement.

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Grounds for Termination

The obligations of the Hong Kong Underwriters to subscribe or procure subscribers for theHong Kong Offer Shares under the Hong Kong underwriting agreement are subject to termination, if,at any time prior to 8:00 a.m. on the day that trading in the H shares commences on the Hong KongStock Exchange:

(a) there develops, occurs, exists or comes into force:

(i) any change or development involving a prospective change or development, or anyevent or series of events resulting in or representing a change or development, orprospective change or development, in local, national, regional or internationalfinancial, political, military, industrial, economic, currency market, fiscal orregulatory or market conditions (including, without limitation, conditions in stock andbond markets, money and foreign exchange markets and inter-bank markets, a changein the system under which the value of the Hong Kong currency is linked to that ofthe currency of the United States or a devaluation of the Renminbi against anyforeign currencies) in or affecting Hong Kong, China, the United States, UnitedKingdom or Japan; or

(ii) any new law or regulation or any change in existing law or regulation, or any changein the interpretation or application thereof by any court or other competent authorityin or affecting Hong Kong, China, the United States, United Kingdom or Japan; or

(iii) any event or series of events in the nature of force majeure (including, withoutlimitation, acts of government, strikes, lock-outs, fire, explosion, flooding, civilcommotion, acts of war, acts of terrorism (whether or not responsibility has beenclaimed), acts of God, accident or interruption or delay in transportation) in oraffecting Hong Kong, China, the United States, United Kingdom or Japan; or

(iv) any local, national, regional or international outbreak or escalation of hostilities(whether or not was is or has been declared) or other state of emergency or calamityor crisis in or affecting Hong Kong, China, the United States, United Kingdom orJapan; or

(v) (A) any suspension or limitation on trading in shares or securities generally on theHong Kong Stock Exchange, the New York Stock Exchange, the Nasdaq NationalMarket, the London Stock Exchange, the Shanghai Stock Exchange, the Tokyo StockExchange or (B) a general moratorium on commercial banking activities in NewYork, London, Hong Kong, Japan or China declared by the relevant authorities, or amaterial disruption in commercial banking activities or foreign exchange trading orsecurities settlement or clearance services in or affecting Hong Kong, China, theUnited States, United Kingdom or Japan; or

(vi) any (A) material change or prospective material change in exchange controls,currency exchange rates or foreign investment regulations or (B) any change orprospective change in taxation, in Hong Kong, China, the United States, UnitedKingdom or Japan adversely affecting an investment in the H shares; or

(vii) any material litigation or claim being threatened or instigated against the Company orany of its subsidiaries,

and which, in any such case and in the sole opinion of the Joint Bookrunners (forthemselves and on behalf of the other Hong Kong Underwriters),

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(A) is or will be materially adverse to, or materially and prejudicially affect, thebusiness or financial or trading position or prospects of the Company and itssubsidiaries as a whole; or

(B) has or will have a material adverse effect on the success of the Global Offeringand/or make it impracticable for any material part of the Hong Kongunderwriting agreement, the Hong Kong Public Offering or the Global Offeringto be performed or implemented as envisaged; or

(C) makes or will make it impracticable to proceed with the Hong Kong PublicOffering and/or the Global Offering or the delivery of the Offer Shares on theterms and in the manner contemplated by this prospectus; or

(b) there has come to the notice of the Joint Bookrunners or any of the Hong KongUnderwriters after the date of the Hong Kong underwriting agreement:

(i) that any statement contained in this prospectus, the application forms, the formalnotice and any announcements in the agreed form issued by the Company inconnection with the Hong Kong Public Offering (including any supplement oramendment thereto) was or has become untrue, incorrect or misleading in anymaterial respect; or

(ii) any matter has arisen or has been discovered which would, had it arisen immediatelybefore the date of this prospectus, not having been disclosed in this prospectus,constitutes a material omission therefrom; or

(iii) any of the warranties given by the Company in the Hong Kong UnderwritingAgreement is (or would when repeated be) untrue or misleading in any materialrespect; or

(iv) any event, act or omission which gives or is likely to give rise to any liability of theCompany pursuant to the indemnities given by the Company under the Hong Kongunderwriting agreement which liability has a material adverse effect on the businessor financial or trading position of the Company and its subsidiaries, as a whole; or

(v) any material breach of any of the obligations of the Company under the Hong Kongunderwriting agreement; or

(vi) any material adverse change or prospective material adverse change in the business,results of operations, in the financial or trading position or prospects of the Companyand its subsidiaries as a whole,

then the Joint Bookrunners may, in their sole discretion and upon giving notice in writing to theCompany and the Hong Kong Underwriters, terminate the Hong Kong Underwriting Agreement withimmediate effect.

Undertakings to the Hong Kong Stock Exchange pursuant to the Hong Kong Listing Rules

By Us

We have undertaken to the Hong Kong Stock Exchange that no further shares or securitiesconvertible into our equity securities (whether or not a class already listed) may be issued by us orform the subject of any agreement to such an issue by us within six months from the date on which ourH shares first commence dealing on the Hong Kong Stock Exchange (whether or not such issue of

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shares or our securities will be completed within six months from the commencement of dealing),except:

(a) in certain circumstances prescribed by Rule 10.08 of the Hong Kong Listing Rules; or

(b) pursuant to our proposed A Share Offering. See “A Share Offering.”

By Huijin and the MOF

Each of Huijin and the MOF has undertaken to the Hong Kong Stock Exchange that, except tofacilitate the exercise of the over-allotment option granted to the International Offering underwriters, itshall not and shall procure that the relevant registered holder shall not:

(a) in the period commencing on the date by reference to which disclosure of its shareholdingis made in this prospectus and ending on the date which is six months from the date onwhich dealings in our H shares commence on the Hong Kong Stock Exchange (the “FirstSix-month Period”), dispose of, or enter into any agreement to dispose of or otherwisecreate any options, rights, interests or encumbrances in respect of, any of those shares orsecurities of the Company in respect of which it is shown by this prospectus to be thebeneficial owner; or

(b) in the period of six months commencing on the date on which the First Six-month Periodexpires, dispose of, nor enter into any agreement to dispose of or otherwise create anyoptions, rights, interests or encumbrances in respect of, any of the shares or securitiesreferred to in (a) above if, immediately following such disposal or upon the exercise orenforcement of such options, it would cease to be our controlling shareholder.

Each of Huijin and MOF has also undertaken to the Hong Kong Stock Exchange and us that,within the period commencing on the date by reference to which disclosure of its shareholding is madein this prospectus and ending on the date which is 12 months from the date on which dealings in ourH shares commence on the Hong Kong Stock Exchange, it will:

(a) when it pledges or charges any of shares or of other share capital beneficially owned by itin favor of an authorized institution (as defined in the Banking Ordinance (Chapter 155 ofthe Laws of Hong Kong)) for a bona fide commercial loan, immediately inform us of suchpledge or charge together with the number of such shares or other securities so pledged orcharged; and

(b) when it receives any indications, either verbal or written, from any pledgee or chargee ofany of shares or of other securities pledged or charged that such shares or securities will bedisposed of, immediately inform us of any such indications.

We will inform the Hong Kong Stock Exchange as soon as we have been informed of the abovematters (if any) by Huijin or MOF and disclose such matters by way of a press notice which ispublished in the newspapers as soon as possible after being so informed by Huijin or MOF.

Undertakings to the Underwriters

By Us

We have, pursuant to the Hong Kong underwriting agreement, undertaken to each of the JointGlobal Coordinators, Joint Bookrunners, the Joint Sponsors and the Hong Kong underwriters that, at

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any time after the date of the Hong Kong underwriting agreement up to and including the date falling180 days after date of the final offering circular in respect of the International Offering, the Companywill not without the Joint Bookrunners’ prior written consent (subject to the requirements set out in theHong Kong Listing Rules):

(a) offer, pledge, issue, sell, contract to issue or sell, sell any option or contract to purchase,purchase any option or contract to sell, grant or agree to grant any option, right or warrantto purchase or subscribe for, lend or otherwise transfer or dispose of, either directly orindirectly, or repurchase, any of its share capital or any securities convertible into orexercisable or exchangeable for or that represent the right to receive such share capital; or

(b) enter into any swap or other arrangement that transfers to another, in whole or in part, anyof the economic consequences of ownership of such share capital,

whether any of the foregoing transactions described in limb (a) or (b) above is to be settled by deliveryof share capital or such other securities, in cash or otherwise, provided that the foregoing restrictionsshall not apply to the issue of H shares by the Company pursuant to the Global Offering (includingpursuant to the over-allotment option) or to the issue of A shares by the Company pursuant to the AShare Offering (including pursuant to the over-allotment option), and the Company further agrees that,in the event of an issue or disposal of any H Shares or any interest therein after the date falling180 days after the date of the final offering circular in respect of the International Offering, it will takeall reasonable steps to ensure that such an issue or disposal will not create a disorderly or false marketfor the H Shares.

Indemnity

We have agreed to indemnify the Hong Kong underwriters for certain losses which they maysuffer, including losses arising from their performance of their obligations under the Hong Kongunderwriting agreement and any breach by us of the Hong Kong underwriting agreement.

Commission and Expenses

The Hong Kong underwriters will receive a gross underwriting commission of 2.5% of theoffer price payable for the Hong Kong Offer Shares initially offered under the Hong Kong PublicOffering, out of which they will pay any sub-underwriting commissions. For unsubscribed Hong KongOffer Shares reallocated to the International Offering, we will pay an underwriting commission at therate applicable to the International Offering and such commission will be paid to the Joint Bookrunnersand the relevant underwriters (but not the Hong Kong underwriters).

The aggregate commissions and fees, together with listing fees, SFC transaction levy, the HongKong Stock Exchange trading fee, legal and other professional fees, and printing and other expenses ofus and the Selling Shareholders relating to the Global Offering are estimated to amount toapproximately HK$2,287 million and HK$572 million, respectively (assuming an offer price ofHK$2.815 per share, which is the mid-point of our indicative offer price range for the Global Offering,and that the over-allotment option for the Global Offering is not exercised) in total. The underwritershave agreed to reimburse us for certain expenses we incur in connection with the Global Offering.

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UNDERWRITING

Hong Kong Underwriters’ Interest in Our Company

Save for its obligations under the Hong Kong underwriting agreement, none of the Hong Kongunderwriters has any shareholding interests in our company or any right (whether legally enforceableor not) to subscribe for or to nominate persons to subscribe for securities in our company.

The International Offering

In connection with the International Offering, it is expected that we and the SellingShareholders will, on or about October 20, 2006, shortly after determination of the offer price, enterinto the international underwriting agreement with the Joint Bookrunners on behalf of the InternationalOffering underwriters. Under the international underwriting agreement, the underwriters to be namedtherein are expected to severally agree to subscribe or procure subscribers for the International OfferShares initially being offered in the International Offering.

RESTRICTIONS ON THE OFFER SHARES

No action has been taken to permit a public offering of the Offer Shares, other than in HongKong and Japan, or the distribution of this prospectus in any jurisdiction other than Hong Kong.Accordingly, this prospectus may not be used for the purpose of, and does not constitute, an offer orinvitation in any jurisdiction or in any circumstances in which such an offer or invitation is notauthorized or to any person to whom it is unlawful to make such an offer or invitation.

In particular, the Offer Shares have not been offered or sold, and will not be offered or sold,directly or indirectly, in the PRC.

STABILIZATION AND OVER-ALLOTMENT

Stabilization is a practice used by underwriters in some markets to facilitate the distribution ofsecurities. To stabilize, the underwriters may bid for, or purchase, the securities in the secondarymarket, during a specified period of time, to retard and, if possible, prevent, any decline in the marketprice of the securities below the offer price. In Hong Kong and certain other jurisdictions, the price atwhich stabilization is effected is not permitted to exceed the offer price.

In connection with the Global Offering, Merrill Lynch Far East Limited, as stabilizing manager(the “Stabilizing Manager”), or any person acting for it, on behalf of the underwriters, may over-allocate or effect short sales or any other stabilizing transactions with a view to stabilizing ormaintaining the market price of our H shares at a level higher than that which might otherwise prevailin the open market. Short sales involve the sale by the Stabilizing Manager of a greater number of Hshares than the underwriters are required to purchase in the Global Offering. “Covered” short sales aresales made in an amount not greater than the over-allotment option.

The Stabilizing Manager may close out any covered short position by either exercising theover-allotment option to purchase additional H shares or purchasing H shares in the open market. Indetermining the source of the H shares to close out the covered short position, the Stabilizing Managerwill consider, among other things, the price of H shares in the open market as compared to the price atwhich they may purchase additional H shares pursuant to the over-allotment option. Stabilizingtransactions consist of certain bids or purchases made for the purpose of preventing or retarding adecline in the market price of the H shares while the Global Offering is in progress. Any market

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UNDERWRITING

purchases of our H shares may be effected on any stock exchange, including the Hong Kong StockExchange, any over-the-counter market or otherwise, provided that they are made in compliance withall applicable laws and regulatory requirements. However, there is no obligation on the StabilizingManager or any person acting for it to conduct any such stabilizing activity, which, if commenced, willbe done at the absolute discretion of the Stabilizing Manager and may be discontinued at any time.Any such stabilizing activity is required to be brought to an end within 30 days of the last day for thelodging of applications under the Hong Kong Public Offering. The number of our H shares that may beover-allocated will not exceed the number of our H shares that may be sold under the over-allotmentoption, namely 5,308,650,000 H shares, which is 15% of the H shares initially available under theGlobal Offering.

In Hong Kong, stabilizing activities must be carried out in accordance with the Securities andFutures Price Stabilizing Rules. Stabilizing action permitted pursuant to the Securities and FuturesPrice Stabilizing Rules includes (i) over-allocation for the purpose of preventing or minimizing anyreduction in the market price, (ii) selling or agreeing to sell our H shares so as to establish a shortposition in them for the purpose of preventing or minimizing any reduction in the market price,(iii) subscribing, or agreeing to subscribe, for our H shares pursuant to the over-allotment option inorder to close out any position established under (i) or (ii) above, (iv) purchasing, or agreeing topurchase, our H shares for the sole purpose of preventing or minimizing any reduction in the marketprice, (v) selling our H shares to liquidate a long position held as a result of those purchases and(vi) offering or attempting to do anything described in (ii), (iii), (iv) or (v).

Stabilizing actions by the Stabilizing Manager, or any person acting for it, will be entered intoin accordance with the laws, rules and regulations in place in Hong Kong on stabilization.

As a result of effecting transactions to stabilize or maintain the market price of our H shares,the Stabilizing Manager, or any person acting for it, may maintain a long position in our H shares. Thesize of the long position, and the period for which the Stabilizing Manager, or any person acting for it,will maintain the long position, is at the discretion of the Stabilizing Manager and is uncertain. In theevent that the Stabilizing Manager liquidates this long position by making sales in the open market,this may lead to a decline in the market price of our H shares.

Stabilizing action by the Stabilizing Manager, or any person acting for it, is not permitted tosupport the price of our H shares for longer than the stabilizing period, which begins on the day onwhich trading of our H shares commences on the Hong Kong Stock Exchange and ends on the thirtiethday after the last day for the lodging of applications under the Hong Kong Public Offering. Thestabilizing period is expected to end on November 17, 2006. As a result, demand for our H shares, andtheir market price, may fall after the end of the stabilizing period. These activities by the StabilizingManager may stabilize, maintain or otherwise affect the market price of the H shares. As a result, theprice of the H shares may be higher than the price that otherwise might exist in the open market. Anystabilizing action taken by the Stabilizing Manager, or any person acting for it, may not necessarilyresult in the market price of our H shares staying at or above the offer price either during or after thestabilizing period. Bids for or market purchases of our H shares by the Stabilizing Manager, or anyperson acting for it, may be made at a price at or below the offer price and therefore at or below theprice paid for our H shares by purchasers.

A public announcement in compliance with the Securities and Futures (Price Stabilizing) Ruleswill be made within seven days of the expiration of the stabilizing period.

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PRICING AND ALLOCATION

Offer Price Range

The offer price will be not more than HK$3.07 per Offer Share and is expected to be not lessthan HK$2.56 per Offer Share, unless otherwise announced not later than the morning of the last dayfor lodging applications under the Hong Kong Public Offering, as explained below. Prospectiveinvestors should be aware that the offer price to be determined on the price determination date may be,but is not expected to be, lower than the indicative offer price range stated in this prospectus.

Price Payable on Application

Applicants for Hong Kong Offer Shares under the Hong Kong Public Offering are required topay, on application, the maximum offer price of HK$3.07 for each Hong Kong Offer Share (plusbrokerage, SFC transaction levy and Hong Kong Stock Exchange trading fee). If the offer price is lessthan HK$3.07, appropriate refund payments (including brokerage, SFC transaction levy and the HongKong Stock Exchange trading fee attributable to the surplus application monies) will be made tosuccessful applicants. See “Further Terms and Conditions of the Hong Kong Public Offering —8. Refund of Application Monies.”

Determining the Offer Price

The International Offering underwriters are soliciting from prospective investors indications ofinterest in acquiring our H shares in the International Offering. Prospective investors will be requiredto specify the number of our H shares under the International Offering they would be prepared toacquire either at different prices or at a particular price. This process, known as “book-building,” isexpected to continue up to, and to cease on or around, October 20, 2006.

The offer price is expected to be fixed by agreement between the Joint Bookrunners (on behalfof the underwriters) and us (for ourselves and on behalf of the Selling Shareholders), on the pricedetermination date, when market demand for the Offer Shares will be determined. The pricedetermination date is expected to be on or around October 20, 2006 and, in any event, no later thanOctober 25, 2006.

If, for any reason, we and the Joint Bookrunners (on behalf of the underwriters) are unable toreach agreement on the offer price on or before October 25, 2006, the Global Offering will notproceed.

Reduction in Offer Price Range and/or Number of Offer Shares

If, based on the level of interest expressed by prospective institutional, professional and otherinvestors during the book-building process, the Joint Bookrunners (on behalf of the underwriters andwith our consent) consider it appropriate, the indicative offer price range and/or the number of OfferShares may be reduced below that stated in this prospectus at any time prior to the morning of the lastday for lodging applications under the Hong Kong Public Offering.

In such a case, we will, as soon as practicable following the decision to make any suchreduction, and in any event not later than the morning of the last day for lodging applications under theHong Kong Public Offering, cause to be published in South China Morning Post (in English) and HongKong Economic Times (in Chinese) notice of the reduction in the indicative offer price range and/or

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number of Offer Shares. Such notice will also include confirmation or revision, as appropriate, of theoffering statistics as currently set out in the section headed “Summary” and any other financialinformation which may change as a result of such reduction. The offer price, if agreed upon, will befixed within such revised offer price range. Before submitting applications for Hong Kong OfferShares, applicants should have regard to the possibility that any announcement of a reduction in theindicative offer price range and/or number of Offer Shares may not be made until the day which is thelast day for lodging applications under the Hong Kong Public Offering. Applicants under theHong Kong Public Offering should note that in no circumstances can applications be withdrawn oncesubmitted, even if the indicative offer price range and/or number of Offer Shares is so reduced.

Allocation

The H shares to be offered in the Hong Kong Public Offering and the International Offeringmay, in certain circumstances, be reallocated as between these offerings at the discretion of the JointBookrunners.

Allocation of our H shares pursuant to the International Offering will be determined by theJoint Bookrunners and will be based on a number of factors including the level and timing of demand,total size of the relevant investor’s invested assets or equity assets in the relevant sector and whether ornot it is expected that the relevant investor is likely to buy further, and/or hold or sell H shares after thelisting of our H shares on the Hong Kong Stock Exchange. Such allocation may be made toprofessional, institutional, corporate and (in the case of the public offer without listing in Japan) retailinvestors and is intended to result in a distribution of our H shares on a basis which would lead to theestablishment of a stable shareholder base to the benefit of our company and our shareholders as awhole.

Allocation of H shares to investors under the Hong Kong Public Offering will be based solelyon the level of valid applications received under the Hong Kong Public Offering. The basis ofallocation may vary, depending on the number of Hong Kong Offer Shares validly applied for byapplicants. The allocation of Hong Kong Offer Shares could, where appropriate, consist of balloting,which would mean that some applicants may receive a higher allocation than others who have appliedfor the same number of Hong Kong Offer Shares, and those applicants who are not successful in theballot may not receive any Hong Kong Offer Shares.

Announcement of Offer Price and Basis of Allotment

The offer price for H shares under the Global Offering and the offer price for A shares underthe A Share Offering are expected to be announced on October 23, 2006 in South China Morning Post(in English) and Hong Kong Economic Times (in Chinese).

The level of applications in the Hong Kong Public Offering, the level of indications of interestin the International Offering, and the basis of allotment of the Hong Kong Offer Shares will beannounced on October 26, 2006 in South China Morning Post (in English) and Hong Kong EconomicTimes (in Chinese).

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CONDITIONS OF THE HONG KONG PUBLIC OFFERING

Acceptance of all applications for the Offer Shares pursuant to the Hong Kong Public Offeringwill be conditional on:

Š the Listing Committee of the Hong Kong Stock Exchange granting listing of, andpermission to deal in, the H shares to be issued pursuant to the Global Offering (includingthe additional H shares which may be made available pursuant to the exercise of the over-allotment option) and shares held by MOF, Huijin, SSF, Goldman Sachs, Allianz andAmerican Express;

Š the offer price having been duly agreed between us (for ourselves and on behalf of theSelling Shareholders) and the Joint Bookrunners (on behalf of the underwriters);

Š the execution and delivery of the international underwriting agreement on or around theprice determination date; and

Š the obligations of the underwriters under each of the Hong Kong underwriting agreementand the international underwriting agreement having become unconditional and not havingbeen terminated in accordance with the terms of the respective agreements,

in each case on or before the dates and times specified in such underwriting agreements (unless and tothe extent such conditions are waived on or before such dates and times) and in any event not later thanNovember 15, 2006.

The consummation of each of the Hong Kong Public Offering and the International Offering isconditional upon, among other things, the other becoming unconditional and not having beenterminated in accordance with its terms. Neither the Hong Kong Public Offering nor the InternationalOffering are conditional upon the A Share Offering becoming unconditional and not having beenterminated in accordance until its terms. For more information on our A Share Offering, see “A ShareOffering.”

If the above conditions are not fulfilled or waived, prior to the dates and times specified, theGlobal Offering will lapse and the Hong Kong Stock Exchange will be notified immediately. Notice ofthe lapse of the Hong Kong Public Offering will be caused to be published by us in South ChinaMorning Post (in English) and Hong Kong Economic Times (in Chinese) on the next day followingsuch lapse. In such eventuality, all application monies will be returned, without interest, on the termsset out in the section headed “Further Terms and Conditions of the Hong Kong Public Offering—8. Refund of Application Monies.” In the meantime, the application monies will be held in separatebank account(s) with the receiving bankers or other bank(s) in Hong Kong licensed under the HongKong Banking Ordinance.

Share certificates for the Offer Shares will be issued on October 26, 2006 but will only becomevalid certificates of title at 8:00 a.m. on October 27, 2006, provided that (i) the Global Offering hasbecome unconditional in all respects and (ii) the right of termination as described in the section headed“Underwriting—Underwriting Arrangements and Expenses—Hong Kong Public Offering—HongKong Underwriting Agreement—Grounds for Termination” has not been exercised.

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THE HONG KONG PUBLIC OFFERING

We are initially offering 1,769,550,000 Offer Shares at the offer price, representingapproximately 5% of the 35,391,000,000 Offer Shares initially available under the Global Offering, forsubscription by the public in Hong Kong.

The total number of Hong Kong Offer Shares available under the Hong Kong Public Offeringwill initially be divided into two pools for allocation purposes as follows:

Š Pool A: The Offer Shares in Pool A will be allocated on an equitable basis to applicantswho have applied for Offer Shares with a total subscription amount (excluding brokerage,SFC transaction levy and the Hong Kong Stock Exchange trading fee) of HK$5,000,000or less; and

Š Pool B: The Offer Shares in Pool B will be allocated on an equitable basis to applicantswho have applied for Offer Shares with a total subscription amount (excluding brokerage,SFC transaction levy and the Hong Kong Stock Exchange trading fee) of more thanHK$5,000,000 and up to the value of Pool B.

Applicants should be aware that applications in Pool A and Pool B are likely to receivedifferent allocation ratios. If Hong Kong Offer Shares in one pool (but not both pools) are under-subscribed, the surplus Hong Kong Offer Shares will be transferred to the other pool to satisfy demandin that other pool and be allocated accordingly.

Applicants can only receive an allocation of Hong Kong Offer Shares from either Pool A orPool B but not from both pools. Multiple or suspected multiple applications and any application formore than 884,775,000 Hong Kong Offer Shares will be rejected.

Paragraph 4.2 of Practice Note 18 of the Hong Kong Listing Rules requires a clawbackmechanism to be put in place which would have the effect of increasing the number of Hong KongOffer Shares to certain percentages of the total number of Offer Shares offered in the Global Offeringif certain prescribed total demand levels are reached. An application has been made for, and the HongKong Stock Exchange has granted, a waiver from strict compliance with paragraph 4.2 of PracticeNote 18 of the Hong Kong Listing Rules such that, in the event of over-applications, the JointBookrunners, after consultation with us, shall apply a clawback mechanism following the closing ofthe application lists on the following basis:

Š if the number of Offer Shares validly applied for under the Hong Kong Public Offeringrepresents 15 times or more but less than 50 times the number of Offer Shares initiallyavailable for subscription under the Hong Kong Public Offering, then shares will bereallocated to the Hong Kong Public Offering from the International Offering, so that thetotal number of Offer Shares available under the Hong Kong Public Offering will be2,654,326,000 Offer Shares, representing approximately 7.5% of the Offer Shares initiallyavailable under the Global Offering;

Š if the number of Offer Shares validly applied for under the Hong Kong Public Offeringrepresents 50 times or more but less than 100 times the number of Offer Shares initiallyavailable for subscription under the Hong Kong Public Offering, then the number of sharesto be reallocated to the Hong Kong Public Offering from the International Offering will beincreased so that the total number of Offer Shares available under the Hong Kong Public

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Offering will be 3,539,100,000 Offer Shares, representing approximately 10% of the OfferShares initially available under the Global Offering; and

Š if the number of Offer Shares validly applied for under the Hong Kong Public Offeringrepresents 100 times or more the number of Offer Shares initially available forsubscription under the Hong Kong Public Offering, then the number of shares to bereallocated to the Hong Kong Public Offering from the International Offering will beincreased, so that the total number of Offer Shares available under the Hong Kong PublicOffering will be 7,078,200,000 Offer Shares, representing 20% of the Offer Sharesinitially available under the Global Offering.

If the Hong Kong Public Offering is not fully subscribed, the Joint Bookrunners have theauthority to reallocate all or any unsubscribed Hong Kong Offer Shares to the International Offering.

Each applicant under the Hong Kong Public Offering will be required to give an undertakingand confirmation in the application form submitted by him or her that he or she and any person(s) forwhose benefit he or she is making the application have not indicated an interest for or taken up and willnot indicate an interest for or take up any Offer Shares in the International Offering, and suchapplicant’s application will be rejected if the said undertaking and/or confirmation is breached and/oruntrue.

The Company, our directors and the Hong Kong underwriters will take reasonable steps toidentify and reject applications under the Hong Kong Public Offering from investors who havereceived H shares in the International Offering, and to identify and reject indications of interest in theInternational Offering from investors who have received H shares in the Hong Kong Public Offering.

The Joint Bookrunners (on behalf of the underwriters) may require any investor who has beenoffered H shares under the International Offering, and who has made an application under the HongKong Public Offering, to provide sufficient information to the Joint Bookrunners so as to allow them toidentify the relevant applications under the Hong Kong Public Offering and to ensure that it isexcluded from any application for H shares under the Hong Kong Public Offering.

References in this prospectus to applications, application forms, application monies or theprocedure for application relate solely to the Hong Kong Public Offering.

THE INTERNATIONAL OFFERING

The International Offering will consist of initially 33,621,450,000 H shares, to be offered by usand the Selling Shareholders (a) in the United States to qualified institutional buyers (as such term isdefined in Rule 144A under the U.S. Securities Act), and (b) outside of the United States in reliance onRegulation S under the U.S. Securities Act, including to professional and institutional investors inHong Kong, and pursuant to a public offering without listing in Japan.

We and the Selling Shareholders are expected to grant to the International Offeringunderwriters the over-allotment option, exercisable by the Joint Bookrunners on behalf of theInternational Offering underwriters during the 30-day period from the last day for the lodging ofapplications under the Hong Kong Public Offering, to require our company to allot and issue and theSelling Shareholders to sell up to an aggregate of 5,308,650,000 additional H shares, representing inaggregate approximately 15% of the Offer Shares initially available under the Global Offering. These

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shares will be issued or sold at the same price per share under the International Offering solely to coverover-allocations in the International Offering, if any.

The Selling Shareholders are initially offering a total of 7,078,200,000 H shares (to beconverted from domestic shares), representing 20% of the total shares under the Global Offering (priorto any exercise of the over-allotment option), for sale in the International Offering. The SellingShareholders may sell an additional 1,061,730,000 H shares if the over-allotment option is exercised infull.

H SHARES WILL BE ELIGIBLE FOR CCASS

All necessary arrangements have been made enabling the H shares to be admitted into theCentral Clearing and Settlement System, or CCASS, established and operated by HKSCC.

If the Hong Kong Stock Exchange grants the listing of, and permission to deal in, the H sharesand our company complies with the stock admission requirements of HKSCC, the H shares will beaccepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effectfrom the date of commencement of dealings in the H shares on the Hong Kong Stock Exchange or anyother date HKSCC chooses. Settlement of transactions between participants of the Hong Kong StockExchange is required to take place in CCASS on the second business day after any trading day.

All activities under CCASS are subject to the General Rules of CCASS and CCASSOperational Procedures in effect from time to time.

DEALING ARRANGEMENTS

Assuming that the Hong Kong Public Offering becomes unconditional at or before 8:00 a.m. inHong Kong on Friday, October 27, 2006, dealings in our H shares on the Hong Kong Stock Exchangewill commence at 9:30 a.m. on Friday, October 27, 2006.

Our H shares will be traded in board lots of 1,000 H shares each.

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A SHARE OFFERING

Concurrently with the Global Offering, we are offering A shares in the PRC by means ofan A share prospectus. The A share prospectus, which is issued in the Chinese language only, isprepared pursuant to the regulatory requirements of the PRC. However, you should rely only onthe information contained in this prospectus and the related application forms to make yourinvestment decision in purchasing or trading in our H shares.

Our Proposed A Share Offering

Concurrently with the Global Offering, we are undertaking a public offering of our A shares inthe PRC.

The A Share Offering comprises an offering of initially 13,000,000,000 A shares forsubscription, representing 3.97% of our total outstanding shares following the completion of the GlobalOffering and the A Share Offering, assuming that neither of the over-allotment options for the GlobalOffering and the A Share Offering is exercised. The information set forth in this prospectus related toour A Share Offering, including, but not limited to, the net proceeds of the A Share Offering and ournet tangible assets, share capital and substantial shareholders after the completion of the A ShareOffering, has been prepared based on the assumption that our A Share Offering will comprise anoffering of initially 13,000,000,000 A shares for subscription.

We have granted the A Share Offering underwriters an over-allotment option exercisable byChina International Capital Corporation Limited on behalf of the A Share Offering underwriters within30 days following the listing of our A shares on the Shanghai Stock Exchange, which will require us toissue and allot up to an aggregate of 1,950,000,000 A shares representing 15% of the A shares initiallyoffered in the A Share Offering. We expect to make public announcements in the PRC and Hong Kongwith respect to any exercise of the over-allotment option for the A Share Offering.

Our A shares will be listed and traded on the Shanghai Stock Exchange and may only be heldby legal or natural persons or other entities in the PRC, qualified foreign institutional investors orforeign strategic investors, subject to applicable PRC laws and regulations. Our A shares and H shareswill rank pari passu with each other in all material respects other than the exceptions described in thesection headed “Share Capital.” Dividends on our A shares will be paid in Renminbi. Our H shares andA shares will not be fungible. However, our A shares held by the MOF and Huijin may be re-registeredas H shares. See “Share Capital.”

Pricing of A Share Offering

The offer price for A shares in the A Share Offering is expected to be not more than RMB3.12per share and not less than RMB2.60 per share. It is intended that the offer price for our A shares in theA Share Offering will be equivalent to the offer price for our H shares in the Global Offering, asadjusted for the exchange rate difference between Hong Kong dollar and Renminbi. We expect topublish an announcement in Hong Kong following the determination of the offer prices for the GlobalOffering and the A Share Offering.

Offerings Not Inter-conditional

Neither our Global Offering nor our A Share Offering is conditional upon the other.

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We cannot assure you that we will be able to complete our A Share Offering as proposed. Ifdomestic market conditions within the PRC are such that it is not advisable or practicable for our AShare Offering to proceed concurrently with the Global Offering, our A Share Offering may take placefollowing the completion of the Global Offering, and the size and other details in respect of the AShare Offering set out above may be subject to change. We have applied for and the Hong Kong StockExchange has indicated that it will grant a waiver from strict compliance with Rule 10.08 of the HongKong Listing Rules, such that we may undertake the A Share Offering within six months after thecompletion of the Global Offering. The issue of A shares in such circumstances has been approved byour shareholders and a separate class vote by holders of our H shares is not required. The issue of Ashares in such circumstances will comply with Rule 19A.38 of the Hong Kong Listing Rules.

Use of Proceeds of A Share Offering

After deducting the underwriting commission and our estimated offering expenses, we estimatethat the net proceeds to us from the A Share Offering will be RMB36.3 billion (HK$35.8 billion) at theoffer price of RMB2.86 (HK$2.82), being the midpoint of the price range of the A Share Offering,assuming that the over-allotment for the A Share Offering is not exercised, or RMB41.8 billion(HK$41.1 billion) at the offer price of RMB2.86 (HK$2.82), being the midpoint of the price range ofthe A Share Offering, assuming that the over-allotment for the A Share Offering is fully exercised.

We expect to use the net proceeds from the A Share Offering to strengthen our capital base tosupport the ongoing growth of our business as set forth in “Business—Our Strategy.” If we are not ableto raise some or all of the net proceeds of the A Share Offering, we do not expect this to have anymaterial adverse effect on our capital base.

Application for Listing of A Shares

Application is expected to be made for the listing and trading of our A shares on the ShanghaiStock Exchange.

Trading of our A shares is expected to commence on the Shanghai Stock Exchange on or aboutOctober 27, 2006 at 9:30 a.m.

Key Events in the A Share Offering

The key events in the A Share Offering are as follows:

Price consultation and marketing to institutional investors . . . . . . . . . . September 27, 2006 – September 29, 2006October 9, 2006 – October 11, 2006

Book building period for A share institutional investors . . . . . . . . . . . . . . . . October 16, 2006 – October 19, 2006

Public subscription period for A share investors through the trading system of the ShanghaiStock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October 19, 2006

Announcement of the offer price for the A Share Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October 23, 2006

Expected listing date of A shares on the Shanghai Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . October 27, 2006

In connection with our A Share Offering, we are required to make certain announcements in thePRC in accordance with applicable PRC laws and regulations. Such announcements in relation to ourA Share Offering will be published on the website of the Hong Kong Stock Exchange. However, suchinformation and the prospectus for the A Share Offering do not and will not form part of thisprospectus. You should rely solely on the information contained in this prospectus and the related

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application forms in Hong Kong in making your investment decision regarding our H shares. See “RiskFactors—Risks Relating to the Global Offering—We strongly caution you not to place any reliance onany information contained in press articles or other media regarding our Global Offering or A ShareOffering or information released by us in connection with the A Share Offering.”

Publication of Quarterly Results

Upon listing of our A shares on the Shanghai Stock Exchange, we will be required to publishquarterly results of operations in the PRC prepared in accordance with PRC GAAP. We willsimultaneously disclose these quarterly results prepared under PRC GAAP in Hong Kong inaccordance with rule 13.09(2) of the Hong Kong Listing Rules.

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HOW TO APPLY FOR HONG KONG OFFER SHARES

1. WHO CAN APPLY FOR THE HONG KONG OFFER SHARES

You can apply for Hong Kong Offer Shares if you or any person(s) for whose benefit you areapplying, are an individual, and:

Š are 18 years of age or older;

Š have a Hong Kong address;

Š are outside the United States; and

Š are not a legal or natural person of the PRC (except qualified domestic institutionalinvestors).

If you wish to apply for Hong Kong Offer Shares online through the designated website of theeIPO Service Provider, referred to herein as the “White Form eIPO” service, in addition to the aboveyou must also:

Š have a valid Hong Kong identity card number; and

Š be willing to provide a valid e-mail address and a contact telephone number.

You may only apply by means of the White Form eIPO service if you are an individualapplicant. Corporations or joint applicants may not apply by means of White Form eIPO.

If the applicant is a firm, the application must be in the names of the individual members, notthe firm’s name. If the applicant is a body corporate, the application form must be signed by a dulyauthorized officer, who must state his or her representative capacity.

If an application is made by a person duly authorized under a valid power of attorney, the JointBookrunners (or their respective agents or nominees) may accept it at their discretion, and subject toany conditions they think fit, including production of evidence of the authority of the attorney.

The number of joint applicants may not exceed four.

We and the Joint Bookrunners, in their capacity as our agent, will have full discretion to rejector accept any application, in full or in part, without assigning any reason.

The Hong Kong Offer Shares are not available to existing beneficial owners of shares in ourcompany, our directors, supervisors or chief executive or their respective associates or any otherconnected persons (as defined in the Hong Kong Listing Rules) of our company or persons who willbecome our connected persons immediately upon completion of the Global Offering.

You may apply for H shares under the Hong Kong Public Offering or indicate an interest for Hshares under the International Offering, but may not do both.

2. METHODS OF APPLYING FOR THE HONG KONG OFFER SHARES

There are four ways to make an application for the Hong Kong Offer Shares:

Š You may apply for the Hong Kong Offer Shares by using a white application form. Use awhite application form if you want the H shares issued in your own name;

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Š Instead of using a white application form, you may apply for the Hong Kong Offer Sharesby means of White Form eIPO by submitting applications online through the designatedwebsite of the eIPO Service Provider at www.eipo.com.hk. Use White Form eIPO if youwant the H shares issued in your own name;

Š You may apply for the Hong Kong Offer Shares by using a yellow application form. Use ayellow application form if you want the H shares issued in the name of HKSCC Nomineesand deposited directly into CCASS for credit to your CCASS Investor Participant stockaccount or your designated CCASS Participant’s stock account; or

Š Instead of using a yellow application form, you may give electronic applicationinstructions to HKSCC to cause HKSCC Nominees to apply for the Hong Kong OfferShares on your behalf.

3. WHERE TO COLLECT THE PROSPECTUS AND APPLICATION FORMS

You can collect a white application form and a prospectus from:

Any of the following addresses of the Hong Kong underwriters:

Merrill Lynch Far East Limited 17th Floor, ICBC Tower3 Garden RoadCentral, Hong Kong

China International Capital Corporation (Hong Kong)Limited

Suite 2307, 23rd FloorOne International Finance Centre1 Harbour View StreetCentral, Hong Kong

Credit Suisse (Hong Kong) Limited 45th Floor, Two Exchange Square8 Connaught PlaceCentral, Hong Kong

Deutsche Bank AG, Hong Kong Branch 55th Floor, Cheung Kong Center2 Queen’s Road CentralHong Kong

ICEA Capital Limited 26th Floor, ICBC Tower3 Garden RoadCentral, Hong Kong

BNP Paribas Peregrine Capital Limited 63/F, Two International Finance Centre8 Finance StreetCentral, Hong Kong

China Everbright Securities (HK) Limited 36th Floor, Far East Finance Centre16 Harcourt Road, Hong Kong

DBS Asia Capital Limited 22nd Floor, The Center99 Queen’s Road CentralCentral, Hong Kong

Guangdong Securities Limited Unit 2505, 25/F, Low BlockGrand Millennium Plaza181 Queen’s Road Central, Hong Kong

The Hong Kong and Shanghai Banking CorporationLimited

Level 16, HSBC Main Bldg1 Queen’s Road, Central

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Taifook Securities Company Limited 25/F, New World Tower16-18 Queen’s Road Central, Hong Kong

BCOM Securities Company Limited 3rd Floor, Far East Consortium Building121 Des Voeux Road Central, Hong Kong

Cazenove Asia Limited 50th Floor, One Exchange Square8 Connaught Place, Central, Hong Kong

Oriental Patron Asia Limited 27/F, Two Exchange Square8 Connaught Place, Central, Hong Kong

Shenyin Wanguo Capital (H.K.) Limited 28/F, Citibank Tower, Citibank Plaza3 Garden Road, Central, Hong Kong

Sun Hung Kai International Limited Level 12, One Pacific Place88 Queensway, Hong Kong

or any of the following branches of The Hongkong and Shanghai Banking CorporationLimited:

Hong Kong Island:Aberdeen Centre Branch Shop 2, G/F, Site I, Aberdeen Centre, AberdeenHong Kong Office 1 Queen’s Road CentralDes Voeux Road Central Branch China Insurance Group Bldg, 141 Des Voeux Road CentralChai Wan Branch Shop No. 1-11, Block B, G/F, Walton Estate, Chai WanNorth Point Branch G/F, Winner House, 306-316 King’s Road, North PointHopewell Centre Branch Shop No.1-2, G/F, Hopewell Centre, 183 Queen’s Road

East, Wan ChaiDes Voeux Road West Branch Western Centre, 40-50 Des Voeux Road West

Kowloon:Whampoa Garden Branch Shop No. G6 & 6A, G/F, Site 4, Whampoa GardenFestival Walk Branch Shop LG1-37, Festival Walk, 80 Tat Chee Avenue,

Kowloon TongKwun Tong Branch No. 1, Yue Man Square, Kwun TongAmoy Plaza Branch Shops G193 - 200 & 203, G/F, Amoy Plaza Phase II, 77

Ngau Tau Kok RoadMongkok Branch 673 Nathan Road, Mongkok

New Territories:Citylink Plaza Branch Shops 38-46, Citylink Plaza, Shatin Station Circuit, Sha

TinTuen Mun Town Plaza Branch Shop 1, UG/F, Shopping Arcade Phase II, Tuen Mun Town

Plaza, Tuen MunYuen Long Branch G/F, HSBC Building Yuen Long, 150-160 Castle Peak Rd,

Yuen Long

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or any of the following branches of Industrial and Commercial Bank of China (Asia) Limited:

Hong Kong Island:Causeway Bay Branch Shop A, G/F, Jardine Center, 50 Jardine’s Bazaar,

Causeway BayQueen’s Road Central Branch 122-126 Queen’s Road Central, CentralCentral Branch 1/F, 9 Queen’s Road CentralSheung Wan Branch Shop F, G/F, Kai Tak Commercial Building, 317-319 Des

Voeux Road Central, Sheung WanWanchai Branch 117-123 Hennessy Road, WanchaiHappy Valley Branch 23 King Kwong Street, Happy ValleyWest Point Branch 242-244 Queen’s Road West, Sai Ying Pun

Kowloon:Kwun Tong Branch G/F, Lemmi Centre, 50 Hoi Yuen Road, Kwun TongMongkok Branch G/F, Belgian Bank Building, 721-725 Nathan Road,

MongkokPrince Edward Branch 777 Nathan Road, MongkokTo Kwa Wan Branch G/F, 287-289 To Kwa Wan RoadTsimshatsui East Branch Shop B, G/F, Railway Plaza, 39 Chatham Road South,

TsimshatsuiTsim Sha Tsui Branch Shop 6-7, G/F, Hankow Centre, 5-15 Hankow Road,

Tsimshatsui

New Territories:Kwai Fong Branch C63A-C66, 2/F, Kwai Chung Plaza, Kwai FongTseung Kwan O Branch Shop Nos. 2011-2012, Level 2, Metro City Plaza II, 8 Yan

King Road, Tseung Kwan OSha Tsui Road Branch Shop 4, G/F, Chung On Building, 297-313 Sha Tsui Road,

Tsuen Wan

or any of the following branches and/or sub-branches of Bank of China (Hong Kong) Limited:

Hong Kong Island:Bank of China Tower Branch 3/F, 1 Garden RoadCentral District (Wing On House) Branch 71 Des Voeux Road CentralNorth Point (Kiu Fai Mansion) Branch 413-415 King’s Road, North PointTaikoo Shing Branch Shop G1006-7, Hoi Sing Mansion, Taikoo Shing

Kowloon:Kowloon Plaza Branch Unit 1, Kowloon Plaza, 485 Castle Peak RoadKwun Tong Branch 20-24 Yue Man Square, Kwun TongDiamond Hill Branch G107, Plaza Hollywood, Diamond HillMei Foo Mount Sterling Mall Branch Shop N47-49 Mount Sterling Mall, Mei Foo Sun ChuenMong Kok (President Commercial Centre)

Branch608 Nathan Road, Mong Kok

New Territories:Lucky Plaza Branch Lucky Plaza, Wang Pok Street, ShatinSheung Shui Branch 61 San Fung Avenue, Sheung ShuiEast Point City Branch Shop 101, East Point City, Tseung Kwan OCastle Peak Road (Tsuen Wan) Wealth

Management Centre167 Castle Peak Road, Tsuen Wan

Tuen Mun Town Plaza Branch Shop 2, Tuen Mun Town Plaza Phase II

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or any of the following branches and/or sub-branches of Bank of Communications Co., Ltd.,Hong Kong Branch:

Hong Kong Island:Hong Kong Branch 20 Pedder Street, Central, Hong KongTaikoo Shing Sub-Branch Shop 38, G/F, City Plaza 2, 18 Taikoo Shing Road

Kowloon:Cheung Sha Wan Plaza Sub-Branch Unit G04, Cheung Sha Wan Plaza, 833 Cheung Sha Wan

RoadHunghom Sub-Branch 1-3A Tak Man Street, Whampoa Estate, Hunghom,

KowloonWong Tai Sin Sub-Branch Shops 127-129, 1/F Lung Cheung Mall, 136 Lung Cheung

Road, Wong Tai Sin

New Territories:Fanling Sub-Branch No. 84A-84B, G/F, Flora Plaza, FanlingMa On Shan Sub-Branch Shop 3038A, Level 3, Sunshine Plaza, Ma On ShanTsuen Wan Sub-Branch Shop G10-11, Pacific Commercial Plaza, Bo Shek

Mansion, 328 Sha Tsui Road

or any of the following branches of The Bank of East Asia, Limited:

Hong Kong Island:Causeway Bay Branch 46 Yee Wo StreetMain Branch 10 Des Voeux Road, CentralShaukiwan Branch G/F, Ka Fook Building, 289-293 Shau Kei Wan RoadWanchai Branch Shop Nos. A-C, G/F, Easey Commercial Building, 253-261

Hennessy Road, Wanchai

Kowloon:Millennium City 5 Branch Shop 1, G/F, Millennium City 5, 418 Kwun Tong Road,

Kwun TongMongkok Branch 638-640 Nathan RoadYaumatei Branch G/F, 526 Nathan Road

New Territories:Tai Po Plaza Branch Units 49-52, Level 1, Tai Po PlazaTai Wai Branch 16-18 Tai Wai Road, Cheung Fung Mansion, Shatin

or any of the following branches of Hang Seng Bank Limited:

Hong Kong Island:Causeway Bay Branch 28 Yee Wo StreetHead Office 83 Des Voeux Road CentralNorth Point Branch 335 King’s RoadWanchai Branch 200 Hennessy RoadDes Voeux Road West Branch 52 Des Voeux Road West

Kowloon:Hung Hom Branch 21 Ma Tau Wai RoadKwun Tong Branch 70 Yue Man SquareMongkok Branch 677 Nathan RoadKowloon Main Branch 618 Nathan RoadTsimshatsui Branch 18 Carnarvon RoadPei Ho Street Branch 151 Pei Ho StreetKowloon Bay Branch Shop P18 Telford Gardens

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New Territories:Shatin Branch Shop 18 Lucky Plaza, Wang Pok Street, ShatinTsuen Wan Branch 289 Sha Tsui Road, Tsuen WanYuen Long Branch 93 Castle Peak Road

or any of the following branches of Standard Chartered Bank (Hong Kong) Limited:

Hong Kong Island:Aberdeen Branch Shop 4A, G/F, Aberdeen Centre, No. 6 Nam Ning Street,

Aberdeen88 Des Voeux Road Branch 88 Des Voeux Road Central, CentralCentral Branch Shop No. 16, G/F and Lower G/F, New World Tower, 16-

18 Queen’s Road Central, CentralQuarry Bay Branch G/F, Westlands Gardens, 1027 King’s Road, Quarry Bay

Kowloon:San Po Kong Branch Shop A, G/F, Perfect Industrial Building, 31 Tai Yau

Street, San Po KongKwun Tong Branch 88-90 Fu Yan Street, Kwun TongTelford Gardens Branch Shop P9-12, Telford Centre, Telford Gardens, Tai Yip

Street, Kwun TongTsimshatsui Branch G/F, 10 Granville Road, Tsimshatsui

New Territories:Tuen Mun Town Plaza Branch Shop No. G047-G052, Tuen Mun Town Plaza Phase I,

Tuen MunMetroplaza Branch Shop Nos. 186-188, Level 1, Metroplaza, 223 Hing Fong

Road, Kwai ChungShatin Centre Branch Shop 32C, Level 3, Shatin Shopping Arcade, Shatin

Centre, 2-16 Wang Pok Street, Shatin

Prospectuses and application forms will be available for collection at the above places duringthe following times:

Monday, October 16, 2006 . . . . . . . . . . . . . . . . 9:00 a.m. – 4:30 p.m.Tuesday, October 17, 2006 . . . . . . . . . . . . . . . . 9:00 a.m. – 4:30 p.m.Wednesday, October 18, 2006 . . . . . . . . . . . . . . 9:00 a.m. – 4:30 p.m.Thursday, October 19, 2006 . . . . . . . . . . . . . . . . 8:00 a.m. – 12:00 noon

You can collect a yellow application form and a prospectus during normal business hours from9:00 a.m. on Monday, October 16, 2006 until 12:00 noon on Thursday, October 19, 2006, from theDepository Counter of HKSCC at 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, HongKong.

Your stockbroker may also have application forms and this prospectus available.

4. HOW TO APPLY USING A WHITE OR YELLOW APPLICATION FORM

(a) Obtain an application form as described in the section headed “3. Where to Collect theProspectus and Application Forms,” above.

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(b) Complete the application form in English using blue or black ink, and sign it. There are detailedinstructions on each application form. You should read these instructions carefully. If you donot follow the instructions, your application may be rejected and returned by ordinary posttogether with the accompanying cheque(s) or banker’s cashier order(s) to you (or the first-named applicant in the case of joint applicants) at your own risk at the address stated in theapplication form.

(c) Each application form must be accompanied by payment, in the form of either one cheque orone banker’s cashier order. You should read the detailed instructions set out on the applicationform carefully, as an application is liable to be rejected if the cheque or banker’s cashier orderdoes not meet the requirements set out on the application form.

(d) Lodge the application form in one of the collection boxes by the time and at one of thelocations as described in paragraph (a) of the section headed “7. When May Applications beMade,” below.

In order for an application made on a yellow application form to be valid:

(i) If the application is made through a designated CCASS Participant (other than a CCASSInvestor Participant):

(A) the designated CCASS Participant or its authorized signatories must sign in theappropriate box; and

(B) the designated CCASS Participant must endorse the form with its company chop(bearing its company name) and insert its participant I.D. in the appropriate box.

(ii) If the application is made by an individual CCASS Investor Participant:

(A) the application form must contain the CCASS Investor Participant’s name and HongKong Identity Card Number; and

(B) the CCASS Investor Participant must insert its participant I.D. and sign in theappropriate box in the application form.

(iii) If the application is made by a joint individual CCASS Investor Participant:

(A) the application form must contain all joint CCASS Investor Participants’ names andthe Hong Kong Identity Card Number of all joint CCASS Investor Participants; and

(B) the participant I.D. must be inserted and the authorized signatory(ies) of the CCASSInvestor Participant’s stock account must sign in the appropriate box in theapplication form.

(iv) If the application is made by a corporate CCASS Investor Participant:

(A) the application form must contain the CCASS Investor Participant’s name andHong Kong Business Registration number; and

(B) the participant I.D. and company chop (bearing its company name) endorsed by itsauthorized signatory(ies) must be inserted in the appropriate box in the applicationform.

Signature(s), number of signatories and form of chop, where appropriate, on each yellowapplication form should match the records kept by HKSCC. Incorrect or incomplete details of the

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CCASS Participant or the omission or inadequacy of authorized signatory(ies) (if applicable),participant I.D. or other similar matters may render the application invalid.

5. HOW TO APPLY THROUGH WHITE FORM eIPO

(a) If you are an individual and meet the criteria set out above in “1. Who can apply for the HongKong Offer Shares”, you may apply through White Form eIPO by submitting an application tothe eIPO Service Provider through the designated website of the eIPO Service Provider atwww.eipo.com.hk. If you apply through White Form eIPO, the H shares will be issued in yourown name.

(b) Detailed instructions for application through the White Form eIPO service are set out on thedesignated website www.eipo.com.hk. You should read these instructions carefully. If you donot follow the instructions, your application may be rejected by the eIPO Service Provider andmay not be submitted to our company.

(c) In addition to the terms and conditions set out in this prospectus, the eIPO Service Providermay impose additional terms and conditions upon you for use of the White Form eIPO service.Such terms and conditions are set out on the designated website www.eipo.com.hk. You will berequired to read, understand and agree to such terms and conditions in full prior to making anyapplication.

(d) By submitting an application to the eIPO Service Provider through the White Form eIPOservice, you are deemed to have authorized the eIPO Service Provider to transfer the details ofyour application to our company and our registrars.

(e) You may submit an application through the White Form eIPO service in respect of a minimumof 1,000 Hong Kong Offer Shares. Each electronic application instruction in respect of morethan 1,000 Hong Kong Offer Shares must be in one of the numbers set out in the table in theapplication forms, or as otherwise specified on the designated website www.eipo.com.hk.

(f) You should give electronic application instructions through White Form eIPO at the times setout in paragraph (b) of the section headed “7. When may applications be made” below.

(g) You should make payment for your application made by White Form eIPO service inaccordance with the methods and instructions set out in the designated websitewww.eipo.com.hk. If you do not make complete payment of the application monies(including any related fees) on or before 12:00 noon on Thursday, October 19, 2006, orsuch later time as described under the section headed “Effects of Bad Weather Conditionson the Opening of the Application Lists” in the section headed “7. When MayApplications be Made,” below, the eIPO Service Provider will reject your application andyour application monies will be returned to you in the manner described in the designatedwebsite www.eipo.com.hk.

(h) Warning: The application for Hong Kong Offer Shares through the White Form eIPO serviceis only a facility provided by the eIPO Service Provider to public investors. Our company, ourdirectors, the Joint Global Coordinators, Joint Bookrunners, Joint Sponsors, Joint LeadManagers and the underwriters take no responsibility for such applications, and provideno assurance that applications through the White Form eIPO service will be submitted toour company or that you will be allotted any Hong Kong Offer Shares.

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Please note that Internet services may have capacity limitations and/or be subject toservice interruptions from time to time. To ensure that you can submit your applications throughthe White Form eIPO service, you are advised not to wait until the last day for submittingapplications in the Hong Kong Public Offering to submit your electronic application instructions.In the event that you have problems connecting to the designated website for the White Form eIPOservice, you should submit a white application form. However, once you have submitted electronicapplication instructions and completed payment in full using the payment reference number providedto you on the designated website, you will be deemed to have made an actual application and shouldnot submit a white application form. See—“8. How many applications may be made” below.

6. APPLYING BY GIVING ELECTRONIC APPLICATION INSTRUCTIONS TOHKSCC

(a) General

CCASS Participants may give electronic application instructions to HKSCC to apply for theHong Kong Offer Shares and to arrange payment of the monies due on application and payment ofrefunds. This will be in accordance with their participant agreements with HKSCC and the GeneralRules of CCASS and the CCASS Operational Procedures.

If you are a CCASS Investor Participant, you may give electronic application instructionsthrough the CCASS Phone System by calling 2979 7888 or through the CCASS Internet System(https://ip.ccass.com) (using the procedures contained in HKSCC’s “An Operating Guide for InvestorParticipants” in effect from time to time).

HKSCC can also input electronic application instructions for you if you go to:

Hong Kong Securities Clearing Company LimitedCustomer Service Centre2/F Vicwood Plaza199 Des Voeux Road CentralHong Kong

and complete an input request form.

Prospectuses are available for collection from the above address.

If you are not a CCASS Investor Participant, you may instruct your broker or custodian whois a CCASS Broker Participant or a CCASS Custodian Participant to give electronic applicationinstructions via CCASS terminals to apply for the Hong Kong Offer Shares on your behalf.

You are deemed to have authorized HKSCC and/or HKSCC Nominees to transfer the details ofyour application, whether submitted by you or through your broker or custodian, to our company andour registrars.

(b) Minimum Subscription Amount and Permitted Multiples

You may give electronic application instructions in respect of a minimum of 1,000 Hong KongOffer Shares. Each electronic application instruction in respect of more than 1,000 Hong Kong OfferShares must be in one of the numbers or multiples set out in the table in the application forms.

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(c) Warning

The subscription for the Hong Kong Offer Shares by giving electronic application instructionsto HKSCC is only a facility provided to CCASS Participants. Our company, the directors, the JointGlobal Coordinators, the Joint Sponsors, the Joint Bookrunners, the Joint Lead Managers and theunderwriters take no responsibility for the application and provide no assurance that any CCASSParticipant will be allotted any Hong Kong Offer Shares.

To ensure that CCASS Investor Participants can give their electronic application instructions toHKSCC through the CCASS Phone System or the CCASS Internet System, CCASS InvestorParticipants are advised not to wait until the last minute to input their electronic applicationinstructions. In the event that CCASS Investor Participants have problems connecting to the CCASSPhone System or the CCASS Internet System to submit their electronic application instructions, theyshould either:

(i) submit a white or yellow application form; or

(ii) go to HKSCC’s Customer Service Centre to complete an input request form for electronicapplication instructions before 12:00 noon on October 19, 2006, or such later time asdescribed under the section headed “Effects of Bad Weather Conditions on the Opening ofthe Application Lists” in the section headed “7. When May Applications be Made,” below.

7. WHEN MAY APPLICATIONS BE MADE

(a) Applications on White or Yellow Application Forms

Your completed white or yellow application form, together with payment attached, should bedeposited in the special collection boxes provided at any of the branches of the receiving banks listedunder the section headed “3. Where to Collect the Prospectus and Application Forms” above at thefollowing times:

Monday, October 16, 2006 . . . . . . . . . . . . . . . . 9:00 a.m. – 4:30 p.m.Tuesday, October 17, 2006 . . . . . . . . . . . . . . . . 9:00 a.m. – 4:30 p.m.Wednesday, October 18, 2006 . . . . . . . . . . . . . . 9:00 a.m. – 4:30 p.m.Thursday, October 19, 2006 . . . . . . . . . . . . . . . . 8:00 a.m. – 12:00 noon

Completed white or yellow application forms, together with payment attached, must be lodgedby 12:00 noon on Thursday, October 19, 2006, or, if the application lists are not open on that day, thenby the time and date stated in the sub-paragraph headed “Effect of bad weather conditions on theopening of the application lists” below.

(b) White Form eIPO

You may submit your application to the eIPO Service Provider through the designated websitewww.eipo.com.hk from 9:00 a.m. on Monday, October 16, 2006 until 11:30 a.m. on Thursday,October 19, 2006 or such later time as described under the sub-paragraph headed “Effects of BadWeather Conditions on the Opening of the Applications Lists” below (24 hours daily, except on thelast application day).

The latest time for completing full payment of application monies in respect of suchapplications will be 12:00 noon on Thursday, October 19, 2006, the last application day, or, if the

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application lists are not open on that day, then by the time and date stated in the sub-paragraph headed“Effect of Bad Weather Conditions on the Opening of the Application Lists” below.

You will not be permitted to submit your application to the eIPO Service Providerthrough the designated website www.eipo.com.hk after 11:30 a.m. on the last day for submittingapplications. If you have already submitted your application and obtained a payment referencenumber from the website prior to 11:30 a.m., you will be permitted to continue the applicationprocess (by completing payment of application monies) until 12:00 noon on the last day forsubmitting applications, when the application lists close.

(c) Electronic Application Instructions to HKSCC via CCASS

CCASS Broker/Custodian Participants should input electronic application instructions at thefollowing times on the following dates:

Monday, October 16, 2006 . . . . . . . . . 9:00 a.m. – 8:30 p.m.(1)

Tuesday, October 17, 2006 . . . . . . . . . 8:00 a.m. – 8:30 p.m.(1)

Wednesday, October 18, 2006 . . . . . . . 8:00 a.m. – 8:30 p.m.(1)

Thursday, October 19, 2006 . . . . . . . . 8:00 a.m.(1) – 12:00 noon

(1) These times are subject to change as HKSCC may determine from time to time with prior notification to CCASS Broker/CustodianParticipants.

CCASS Investor Participants can input electronic application instructions from 9:00 a.m. onMonday, October 16, 2006 until 12:00 noon on Thursday, October 19, 2006 (24 hours daily, except thelast application day).

The latest time for inputting electronic application instructions will be 12:00 noon on Thursday,October 19, 2006, the last application day, or if the application lists are not open on that day, by thetime and date stated in the paragraph headed “Effects of Bad Weather Conditions on the Opening ofthe Application Lists” below.

(d) Application Lists

The application lists will be open from 11:45 a.m. to 12:00 noon on Thursday, October 19,2006, except as provided in the paragraph headed “Effects of Bad Weather Conditions on the Openingof the Application Lists,” below.

Applicants should note that cheques or banker’s cashier orders will not be presented forpayment before the closing of the application lists but may be presented at any time thereafter.

(e) Effects of Bad Weather Conditions on the Opening of the Application Lists

The application lists will not open if there is:

Š a tropical cyclone warning signal number 8 or above, or

Š a “black” rainstorm warning signal

in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Thursday, October 19, 2006.Instead they will open between 11:45 a.m. and 12:00 noon on the next business day which does not

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have either of those warnings in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon.For this purpose, “Business Day” means a day that is not a Saturday, Sunday or a public holiday inHong Kong.

8. HOW MANY APPLICATIONS MAY BE MADE

Multiple applications or suspect multiple applications are liable to be rejected.

You may make more than one application for the Hong Kong Offer Shares if and only ifyou are a nominee, in which case you may make an application as a nominee by (i) giving electronicapplication instructions to HKSCC (if you are a CCASS Participant) and; (ii) lodging more than oneapplication form in your own name if each application is made on behalf of different beneficialowners. In the box on the application form marked “For nominees” you must include:

Š an account number; or

Š some other identification code

for each beneficial owner. If you do not include this information, the application will be treated asbeing made for your benefit.

Otherwise, multiple applications are not allowed.

If you apply by means of White Form eIPO, once you complete payment in respect of anyelectronic application instruction given by you or for your benefit to the eIPO Service Provider to makean application for Hong Kong Offer Shares, an actual application shall be deemed to have been made.For the avoidance of doubt, giving an electronic application instruction under White Form eIPO morethan once and obtaining different payment reference numbers without effecting full payment in respectof a particular reference number will not constitute an actual application.

If you are suspected of submitting more than one application through the White Form eIPOservice by giving electronic application instructions to the eIPO Service Provider through thedesignated website and completing payment in respect of such electronic application instructions, or ofsubmitting one application through the White Form eIPO service and one or more applications by anyother means, all of your applications are liable to be rejected.

If you have made an application by giving electronic application instructions to HKSCC andyou are suspected of having made multiple applications or if more than one application is made foryour benefit, the number of Hong Kong Offer Shares applied for by HKSCC Nominees will beautomatically reduced by the number of Hong Kong Offer Shares in respect of which you have givensuch instructions and/or in respect of which such instructions have been given for your benefit. Anyelectronic application instructions to make an application for the Hong Kong Offer Shares given byyou or for your benefit to HKSCC shall be deemed to be an actual application for the purposes ofconsidering whether multiple applications have been made. No application for any other number ofHong Kong Offer Shares will be considered and any such application is liable to be rejected.

For further information, please see “Further Terms and Conditions of the Hong Kong PublicOffering—5. Multiple Applications.”

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9. HOW MUCH ARE THE HONG KONG OFFER SHARES

The maximum offer price is HK$3.07 per H share. You must also pay brokerage of 1%, SFCtransaction levy of 0.005% and Hong Kong Stock Exchange trading fee of 0.005%. This means that forevery board lot of 1,000 H shares you will pay approximately HK$3,101.00. The application formshave tables showing the exact amount payable for multiples of H shares up to 884,775,000 H shares.

If the offer price as finally determined is less than HK$3.07 per H share, appropriate refundpayments (including brokerage, SFC transaction levy and Hong Kong Stock Exchange trading feeattributable to the surplus application monies) will be made to successful applicants, without interest.Details of the procedure for refund are set out below in the section headed “10. Dispatch/Collection ofH Share Certificates and Refunds of Application Monies.”

If your application is successful, brokerage is paid to participants of the Hong Kong StockExchange (or the Hong Kong Stock Exchange, as the case may be), the Hong Kong Stock Exchangetrading fee is paid to the Hong Kong Stock Exchange, and the SFC transaction levy is paid to the SFC.

10. RESULTS OF ALLOCATIONS

Results of allocations in the Hong Kong Public Offering, including the Hong Kong identitycard numbers, passport numbers or Hong Kong business registration numbers of successful applicants(where supplied) and the number of Hong Kong Offer Shares successfully applied for under white andyellow application forms, by White Form eIPO and by giving electronic application instructions toHKSCC via CCASS, will be made available at the times and dates and in the manner specified below:

Š results of allocations will be available from our Hong Kong Public Offering allocationresults telephone enquiry line. Applicants may find out whether or not their applicationshave been successful and the number of Hong Kong Offer Shares allocated to them, if any,by calling 1833881 between 8:00 a.m. and 12:00 midnight from Thursday, October 26,2006 to Sunday, October 29, 2006;

Š results of allocations will be available from our Hong Kong Public Offering website atwww.icbcipo.com on a 24-hour basis from 8:00 a.m. on Thursday, October 26, 2006 to12:00 midnight on Thursday, November 2, 2006. The user will be required to key in theHong Kong identity card/ passport/Hong Kong business registration number provided inhis/her/its application form to search for his/ her/ its own allocation result;

Š results of allocations will be available from the dedicated website of Hong KongExchanges and Clearing Limited at www.iporesults.hkex.com.hk from Thursday,October 26, 2006;

Š special allocation results booklets setting out the results of allocations will be available forinspection during opening hours of individual branches and sub-branches from Thursday,October 26, 2006 to Saturday, October 28, 2006 at all the receiving bank branches andsub-branches and the Hong Kong Underwriters at the addresses set out in the sectionheaded “How to Apply for Hong Kong Offer Shares—3. Where to Collect the Prospectusand Application Forms”; and

Š special allocation results booklets setting out the results of allocations will be available forinspection at all branches of ICBC (Asia) Limited located in Hong Kong during openinghours of individual branches from Thursday, October 26, 2006 to Saturday, October 28,2006.

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11. DISPATCH/COLLECTION OF H SHARE CERTIFICATES AND REFUNDS OFAPPLICATION MONIES

Refund cheques for surplus application monies (if any) under white or yellow application formsand H share certificates for successful applicants under white application forms and White Form eIPOwill be posted and/or available for collection (as the case may be) on Friday, October 27, 2006.

H share certificates will only become valid certificates of title at 8:00 a.m. on Friday,October 27, 2006 provided that the Hong Kong Public Offering has become unconditional in allrespects and the right of termination described in the section entitled “Underwriting—Underwriting Arrangements and Expenses—Hong Kong Public Offering—Hong KongUnderwriting Agreement—Grounds for Termination” has not been exercised.

For further information on arrangements for the dispatch/collection of H share certificates andrefunds of application monies, please refer to the section headed “Further Terms and Conditions of theHong Kong Public Offering—7. If your Application for Hong Kong Offer Shares is Successful (inwhole or in part)” and “—8. Refund of Application Monies.”

12. DEFINITIONS

In this section and the section headed “Further Terms and Conditions of the Hong Kong PublicOffering,” the following terms have the meanings set out below:

“CCASS” The Central Clearing and Settlement System established and operated byHKSCC

“CCASS Broker Participant” a person admitted to participate in CCASS as a broker participant

“CCASS Custodian Participant” a person admitted to participate in CCASS as a custodian participant

“CCASS Investor Participant” a person admitted to participate in CCASS as an investor participant, whomay be an individual or joint individuals or a corporation

“CCASS Participant” a CCASS Broker Participant, a CCASS Custodian Participant or aCCASS Investor Participant

“eIPO Service Provider” ICEA Securities Limited

“HKSCC” Hong Kong Securities Clearing Company Limited

“HKSCC Nominees” HKSCC Nominees Limited

“White Form eIPO” applying for Hong Kong Offer Shares to be issued in your own name bysubmitting applications online through the designated website of theeIPO Service Provider, www.eipo.com.hk

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FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING

1. GENERAL

(a) If you apply for Hong Kong Offer Shares in the Hong Kong Public Offering, you will beagreeing with the Company and the Joint Lead Managers (for themselves and on behalf of theHong Kong underwriters) as set out below.

(b) If you give electronic application instructions to HKSCC via CCASS to cause HKSCCNominees to apply for Hong Kong Offer Shares on your behalf, you will have authorizedHKSCC Nominees to apply on the terms and conditions set out below, as supplemented andamended by the terms and conditions applicable to the relevant application method.

(c) If you give electronic application instructions to the eIPO Service Provider through thedesignated website at www.eipo.com.hk, you will have authorized the eIPO Service Provider toapply on the terms and conditions set out below, as supplemented and amended by the termsand conditions applicable to the White Form eIPO service.

(d) In this section, references to “you,” “applicants,” “joint applicants” and other like referencesshall, if the context so permits, include references to both nominees and principals on whosebehalf HKSCC Nominees or the eIPO Service Provider is applying for Hong Kong OfferShares, and references to the making of an application shall, if the context so permits, includereferences to making applications electronically by giving instructions to HKSCC or bysubmitting an application to the eIPO Service Provider through the designated website for theWhite Form eIPO service.

(e) Applicants should read this prospectus carefully, including the terms and conditions set outherein and in the application forms or imposed by HKSCC and/or the eIPO Service Providerprior to making any application for Hong Kong Offer Shares.

2. OFFER TO PURCHASE THE HONG KONG OFFER SHARES

(a) You offer to purchase from us at the offer price the number of the Hong Kong Offer Sharesindicated in your application form (or any smaller number in respect of which your applicationis accepted) on the terms and conditions set out in this prospectus and the relevant applicationform.

(b) For applicants using application forms, a refund cheque in respect of the surplus applicationmonies (if any) representing the Hong Kong Offer Shares applied for but not allocated to youand representing the difference (if any) between the final offer price and the maximum offerprice (including the brokerage, SFC transaction levy and Hong Kong Stock Exchange tradingfee attributable thereto), will be sent to you at your own risk to the address stated on yourapplication form on or before Friday, October 27, 2006.

Details of the procedure for refunds relating to each of the Hong Kong Public Offering methodsare contained below in the paragraphs headed “7. If your application for the Hong Kong OfferShares is successful (in whole or in part),” “8. Refund of application monies” and“10. Additional information for applicants applying by giving electronic applicationinstructions to HKSCC” in this section.

(c) Any application may be rejected in whole or in part.

(d) Applicants under the Hong Kong Public Offering should note that in no circumstances (save forthose provided under section 40 of the Hong Kong Companies Ordinance) can applications be

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withdrawn once submitted. For the avoidance of doubt, our company and all other partiesinvolved in the preparation of this prospectus acknowledge that each CCASS Participant whogives, or causes to give, electronic application instructions to HKSCC via CCASS is a personwho may be entitled to compensation under section 40 of the Hong Kong CompaniesOrdinance.

3. ACCEPTANCE OF YOUR OFFER

(a) The Hong Kong Offer Shares will be allocated after the application lists close. We expect toannounce the final number of Hong Kong Offer Shares, the level of applications under theHong Kong Public Offering and the basis of allocations of the Hong Kong Offer Shares inSouth China Morning Post (in English) and Hong Kong Economic Times (in Chinese) onThursday, October 26, 2006.

(b) The results of allocations of the Hong Kong Offer Shares under the Hong Kong PublicOffering, including the Hong Kong identity card numbers, passport numbers or Hong Kongbusiness registration numbers (where applicable) of successful applicants and the number ofHong Kong Offer Shares successfully applied for, will be made available on Thursday,October 26, 2006 in the manner described in the section headed “How to Apply for Hong KongOffer Shares—10. Results of Allocations.”

(c) We may accept your offer to purchase (if your application is received, valid, processed and notrejected) by announcing the basis of allocations and/or making available the results ofallocations publicly.

(d) If we accept your offer to purchase (in whole or in part), there will be a binding contract underwhich you will be required to purchase the Hong Kong Offer Shares in respect of which youroffer has been accepted if the conditions of the Global Offering are satisfied or the GlobalOffering is not otherwise terminated. Further details are contained in the section headed“Structure of the Global Offering.”

(e) You will not be entitled to exercise any remedy of rescission for innocent misrepresentation atany time after acceptance of your application. This does not affect any other right you mayhave.

4. EFFECT OF MAKING ANY APPLICATION

(a) By completing and submitting any application you:

Š instruct and authorize our company and/or the Joint Bookrunners (or their respectiveagents or nominees) to execute any transfer forms, contract notes or other documents onyour behalf and to do on your behalf all other things necessary to effect the registration ofany Hong Kong Offer Shares allocated to you in your name(s) or HKSCC Nominees, asthe case may be, as required by our articles of association and otherwise to give effect tothe arrangements described in this prospectus and the relevant application form;

Š undertake to sign all documents and to do all things necessary to enable you or HKSCCNominees, as the case may be, to be registered as the holder of the Hong Kong OfferShares allocated to you, and as required by our articles of association;

Š represent, warrant and undertake that the H shares have not been and will not beregistered under the U.S. Securities Act and you are outside the United States when

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completing the application form and are not a United States person (as defined inRegulation S under the U.S. Securities Act);

Š confirm that you have received and/or read a copy of this prospectus and have only reliedon the information and representations contained in this prospectus in making yourapplication, and will not rely on any other information or representation save as set out inany supplement to this prospectus;

Š confirm that you understand that our registered share capital comprises A shares and Hshares and that holders of H shares shall have the same rights as holders of A shares saveas to certain rights which holders of H shares are entitled;

Š agree (without prejudice to any other rights which you may have) that once yourapplication has been accepted, you may not rescind it because of an innocentmisrepresentation;

Š (if the application is made for your own benefit) warrant that the application is the onlyapplication which will be made for your benefit on a white or yellow Application Form orby giving electronic application instructions to HKSCC;

Š (if the application is made by an agent on your behalf) warrant that you have validly andirrevocably conferred on your agent all necessary power and authority to make theapplication;

Š (if you are an agent for another person) warrant that the application is the onlyapplication which will be made for the benefit of that other person on a white or yellowapplication form or by giving electronic application instructions to HKSCC, and thatyou are duly authorized to sign the application form or to give electronic applicationinstruction as that other person’s agent;

Š undertake and confirm that you (if the application is made for your benefit) or theperson(s) for whose benefit you have made the application have not applied for or takenup or indicated an interest in or received or been placed or allocated (includingconditionally and/or provisionally) and will not apply for or take up or indicate anyinterest in any Offer Shares in the International Offering, nor otherwise participate in theInternational Offering;

Š warrant the truth and accuracy of the information contained in your application;

Š agree that your application, any acceptance of it and the resulting contract will begoverned by and construed in accordance with the laws of Hong Kong;

Š undertake and agree to accept the H shares applied for, or any lesser number allocated toyou under the application;

Š authorize our company to place your name(s) or HKSCC Nominees, as the case may be,on our register of members as the holder(s) of any Hong Kong Offer Shares allocated toyou, and our company and/or our agents to send any H share certificate(s) (whereapplicable) and/or any refund cheque (where applicable) to you or (in case of jointapplicants) the first-named applicant in the application form by ordinary post at your ownrisk to the address stated on your application form (except if you have applied for1,000,000 Hong Kong Offer Shares or more and have indicated in your application formyour wish to collect your refund cheque and H share certificates (where applicable) inperson);

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Š understand that these declarations and representations will be relied upon by ourcompany, the Joint Bookrunners and the Joint Lead Managers in deciding whether or notto allocate any Hong Kong Offer Shares in response to your application;

Š if the laws of any place outside Hong Kong are applicable to your application, you agreeand warrant that you have complied with all such laws and none of our company, theJoint Global Coordinators, the Joint Sponsors, the Joint Bookrunners, the Joint LeadManagers and the underwriters, nor any of their respective officers or advisors willinfringe any laws outside Hong Kong as a result of the acceptance of your offer topurchase, or any actions arising from your rights and obligations under the terms andconditions contained in this prospectus;

Š agree with our company and each shareholder of our company, and our company agreeswith each of our shareholders, to observe and comply with the PRC Company Law, theSpecial Regulations of the State Council on Overseas Offering and Listing of Shares byJoint Stock Limited Companies, or the Special Regulations, and our articles of association;

Š agree with our company, and each shareholder, director, supervisor, manager and officerof our company, and our company acting for itself and for each director, supervisor,manager and officer agrees with each shareholder of our company to refer all differencesand claims arising from our articles of association or any rights or obligations conferred orimposed by the PRC Company Law or other relevant laws and administrative regulationsconcerning our affairs to arbitration in accordance with our articles of association, and anyreference to arbitration shall be deemed to authorize the arbitration tribunal to conducthearings in open session and to publish its award, which shall be final and conclusive;

Š agree with our company and each shareholder of our company that the H shares in ourcompany are freely transferable by the holder thereof; and

Š authorize our company to enter into a contract on your behalf with each of our directors,supervisors and officers whereby each such director, supervisor and officer undertakes toobserve and comply with his obligations to shareholders as stipulated in our articles ofassociation;

Š agree that our company, the Joint Sponsors, the Joint Global Coordinators, the JointBookrunners, the Joint Lead Managers, the underwriters and any of their respectivedirectors, officers, employees, agents or advisors and any other parties involved in theGlobal Offering are liable only for and that you have only relied upon, the information andrepresentations contained in this prospectus and any supplement to this prospectus;

Š acknowledge and agree that you have not relied upon the information contained in theinformation packs or announcements relating to our A Share Offering made available onthe website of Hong Kong Exchanges and Clearing Limited, and that our company, theJoint Sponsors, Joint Global Coordinators, Joint Bookrunners, Joint Lead Managers,underwriters and their respective directors, officers, employees, agents and advisors do notmake any express or implied representation or warranty as to the accuracy or completenessof such information and expressly disclaim any and all liability in relation to suchinformation, or any omission from or inaccuracies or errors in such information;

Š agree to disclose to our company, our registrar, the receiving bankers, the Joint GlobalCoordinators, the Joint Bookrunners, the Joint Lead Managers and their respective

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advisors and agents any personal data or other information which they require about youor the person(s) for whose benefit you have made the application.

(b) If you apply for the Hong Kong Offer Shares using a yellow application form, in addition to theconfirmations and agreements referred to in (a) above, you (and if you are joint applicants, eachof you jointly and severally) agree that:

Š any Hong Kong Offer Shares allocated to you shall be registered in the name of HKSCCNominees and deposited directly into CCASS operated by HKSCC for credit to yourCCASS Investor Participant stock account or the stock account of your designated CCASSParticipant in accordance with your election on the application form;

Š each of HKSCC and HKSCC Nominees reserves the right (1) not to accept any or part ofsuch allotted Hong Kong Offer Shares issued in the name of HKSCC Nominees or not toaccept such allotted Hong Kong Offer Shares for deposit into CCASS; (2) to cause suchallotted Hong Kong Offer Shares to be withdrawn from CCASS and transferred into yourname (or, if you are a joint applicant, to the first-named applicant) at your own risk andcosts; and (3) to cause such allotted Hong Kong Offer Shares to be issued in your name(or, if you are a joint applicant, to the first-named applicant) and in such a case, to post theH share certificates for such allotted Hong Kong Offer Shares at your own risk to theaddress on your application form by ordinary post or to make available the same for yourcollection;

Š each of HKSCC and HKSCC Nominees may adjust the number of allotted Hong KongOffer Shares issued in the name of HKSCC Nominees;

Š neither HKSCC nor HKSCC Nominees shall have any liability for the information andrepresentations not so contained in this prospectus and the application form;

Š neither HKSCC nor HKSCC Nominees shall be liable to you in any way.

(c) In addition, by giving electronic application instructions to HKSCC or instructing yourbroker or custodian who is a CCASS Broker Participant or a CCASS Custodian Participant togive such instructions to HKSCC, you (and if you are joint applicants, each of you jointly andseverally) are deemed to have done the following things. Neither HKSCC nor HKSCCNominees shall be liable to our company or any other person in respect of the things mentionedbelow:

Š instructed and authorized HKSCC to cause HKSCC Nominees (acting as nominee for therelevant CCASS Participants) to apply for the Hong Kong Offer Shares on your behalf;

Š instructed and authorized HKSCC to arrange payment of the maximum offer price,brokerage, SFC transaction levy and Hong Kong Stock Exchange trading fee by debitingyour designated bank account and, in the case of a wholly or partially unsuccessfulapplication and/or the offer price is less than the offer price per H share initially paid onapplication, refund of the application monies, in each case including brokerage, SFCtransaction levy and Hong Kong Stock Exchange trading fee, by crediting your designatedbank account;

Š (where a white application form is signed by HKSCC Nominees on behalf of persons whohave given electronic application instructions to apply for the Hong Kong Offer Shares) inaddition to the confirmations and agreements set out in paragraph (a), above, instructed

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and authorized HKSCC to cause HKSCC Nominees to do on your behalf all the thingswhich it has stated to do on your behalf in the white application form, and the following:

— agree that the Hong Kong Offer Shares to be allocated shall be issued in the name ofHKSCC Nominees and deposited directly into CCASS for the credit of the stockaccount of the CCASS Participant who has inputted electronic applicationinstructions on your behalf or your CCASS Investor Participant stock account;

— undertake and agree to accept the Hong Kong Offer Shares in respect of which youhave given electronic application instructions or any lesser number;

— (if the electronic application instructions are given for your own benefit) declare thatonly one set of electronic application instructions has been given for your benefit;

— (if you are an agent for another person) declare that you have only given one set ofelectronic application instructions for the benefit of that other person and that you areduly authorized to give those instructions as that other person’s agent;

— understand that the above declaration will be relied upon by our company, thedirectors and the Joint Bookrunners in deciding whether or not to make any allotmentof Hong Kong Offer Shares in respect of the electronic application instructions givenby you and that you may be prosecuted if you make a false declaration;

— authorize our company to place the name of HKSCC Nominees on the register ofmembers of our company as the holder of the Hong Kong Offer Shares allotted inrespect of your electronic application instructions and to send H share certificate(s)and/or refund monies in accordance with the arrangements separately agreed betweenour company and HKSCC;

— confirm that you have read the terms and conditions and application procedures setout in this prospectus and agree to be bound by them;

— confirm that you have only relied on the information and representations in thisprospectus in giving your electronic application instructions or instructing yourbroker or custodian to give electronic application instructions on your behalf;

— agree (without prejudice to any other rights which that person may have) that oncethe application of HKSCC Nominees has been accepted, the application cannot berescinded for innocent misrepresentation;

— agree that any application made by HKSCC Nominees on behalf of that personpursuant to the electronic application instructions given by that person is irrevocablebefore November 15, 2006, such agreement to take effect as a collateral contract withour company and to become binding when you give the instructions and suchcollateral contract to be in consideration of our company agreeing that we will notoffer any Hong Kong Offer Shares to any person before November 15, 2006, exceptby means of one of the procedures referred to in this prospectus. However, HKSCCNominees may revoke the application before November 15, 2006 if a personresponsible for this prospectus under Section 40 of the Hong Kong CompaniesOrdinance gives a public notice under that section which excludes or limits theresponsibility of that person for this prospectus;

— agree that once the application of HKSCC Nominees is accepted, neither thatapplication nor your electronic application instructions can be revoked, and that

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acceptance of that application will be evidenced by the announcement of the resultsof the Hong Kong Public Offering published by our company;

— agree to the arrangements, undertakings and warranties specified in the participantagreement between you and HKSCC, read with the General Rules of CCASS and theCCASS Operational Procedures, in respect of the giving of electronic applicationinstructions relating to Hong Kong Offer Shares;

— agree with our company, for itself and for the benefit of each of the shareholders ofour company (and so that our company will be deemed by its acceptance in whole orin part of the application by HKSCC Nominees to have agreed, for itself and onbehalf of each of the shareholders of our company, with each CCASS Participantgiving electronic application instructions) to observe and comply with the PRCCompany Law, the Special Regulations and our articles of association; and

— agree with our company, for itself and for the benefit of each of the shareholders ofour company and each director, supervisor, manager and other officer (and so that ourcompany will be deemed by its acceptance in whole or in part of this application tohave agreed, for itself and on behalf of each of the shareholders of our company andeach director, supervisor, manager and other officer, with each CCASS Participantgiving electronic application instructions):

(i) to refer all differences and claims arising from our articles of association or anyrights or obligations conferred or imposed by the PRC Company Law or otherrelevant laws and administrative regulations concerning its affairs to arbitrationin accordance with our articles of association; and

(ii) that any reference to arbitration shall be deemed to authorize the arbitrationtribunal to conduct hearings in open session and to publish its award, whicharbitration shall be final and conclusive.

(d) Our company, the Joint Global Coordinators, the Joint Sponsors, the Joint Bookrunners, theJoint Lead Managers, the underwriters, the eIPO Service Provider and their respective directorsand any other parties involved in the Global Offering are entitled to rely on any warranty,representation or declaration made by you in your application.

(e) All the warranties, representations, declarations and obligations expressed to be made, given orassumed by or imposed on the joint applicants shall be deemed to have been made, given orassumed by or imposed on the applicants jointly and severally.

5. MULTIPLE APPLICATIONS

(a) It will be a term and condition of all applications that by completing and delivering anapplication form or giving electronic application instructions, you:

Š (if the application is made for your own benefit) warrant that this is the only applicationwhich will be made for your benefit on a white or yellow application form or by givingelectronic application instructions to HKSCC or to the eIPO Service Provider throughthe White Form eIPO service;

Š (if you are an agent for another person) warrant that reasonable enquiries have been madeof that other person that this is the only application which will be made for the benefit of

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that other person on a white or yellow application form or by giving electronicapplication instructions to HKSCC or to the eIPO Service Provider through the WhiteForm eIPO service, and that you are duly authorized to sign the application form as thatother person’s agent.

(b) Except where you are a nominee and provide the information required to be provided in yourapplication, all of your applications will be rejected as multiple applications if you, or you andyour joint applicant(s) together:

Š make more than one application (whether individually or jointly) on a white or yellowapplication form or by giving electronic application instructions to HKSCC or to the eIPOService Provider through the White Form eIPO service;

Š both apply (whether individually or jointly) on one white application form and one yellowapplication form or on one white or yellow application form and give electronicapplication instructions to HKSCC or to the eIPO Service Provider through the WhiteForm eIPO service;

Š apply on one white or yellow application form (whether individually or jointly) or bygiving electronic application instructions to HKSCC or to the eIPO Service Providerthrough the White Form eIPO service for more than 50% of the H shares initially beingoffered for public subscription under the Hong Kong Public Offering (that is, 884,775,000H shares), as more particularly described in the section entitled “Structure of the GlobalOffering—The Hong Kong Public Offering;” or

Š have applied for or taken up, or indicated an interest for, or have been or will be placed(including conditionally and/or provisionally) Offer Shares under the InternationalOffering.

(c) All of your applications will also be rejected as multiple applications if more than oneapplication is made for your benefit (including the part of the application made by HKSCCNominees acting on electronic application instructions). If an application is made by an unlistedcompany and

Š the only business of that company is dealing in securities; and

Š you exercise statutory control over that company,

then the application will be treated as being for your benefit.

Unlisted company means a company with no equity securities listed on the Hong Kong StockExchange.

Statutory control means you:

— control the composition of the board of directors of our company; or

— control more than half of the voting power of our company; or

— hold more than half of the issued share capital of our company (not counting any part of itwhich carries no right to participate beyond a specified amount in a distribution of eitherprofits or capital).

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6. CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOTTED HONG KONGOFFER SHARES

You should note the following situations in which Hong Kong Offer Shares will not be allottedto you or your application is liable to be rejected:

(a) If your application is revoked:

By completing and submitting an application form you agree that your application or theapplication made by HKSCC Nominees on your behalf cannot be revoked on or before November 15,2006. This agreement will take effect as a collateral contract with our company, and will becomebinding when you lodge your application form or submit your electronic application instructions toHKSCC or to the eIPO Service Provider. This collateral contract will be in consideration of ourcompany agreeing that we will not offer any Hong Kong Offer Shares to any person on or beforeNovember 15, 2006 except by means of one of the procedures referred to in this prospectus.

Your application or the application made by HKSCC Nominees on your behalf may only berevoked on or before November 15, 2006 if a person responsible for this prospectus under section 40 ofthe Hong Kong Companies Ordinance gives a public notice under that section which excludes or limitsthe responsibility of that person for this prospectus.

If any supplement to this prospectus is issued, applicant(s) who have already submitted anapplication may or may not (depending on the information contained in the supplement) be notifiedthat they can withdraw their applications. If applicant(s) have not been so notified, or if applicant(s)have been notified but have not withdrawn their applications in accordance with the procedure to benotified, all applications that have been submitted remain valid and may be accepted. Subject to theabove, an application once made is irrevocable and applicants shall be deemed to have applied on thebasis of this prospectus as supplemented.

If your application or the application made by HKSCC Nominees on your behalf has beenaccepted, it cannot be revoked. For this purpose, acceptance of applications which are not rejected willbe constituted by notification in the press of the results of allocation, and where such basis ofallocation is subject to certain conditions or provides for allocation by ballot, such acceptance will besubject to the satisfaction of such conditions or results of the ballot respectively.

(b) If our company, the Joint Bookrunners or the eIPO Service Provider (where applicable)or their respective agents exercise their discretion to reject your application:

We and the Joint Bookrunners (as agent for our company) and the eIPO Service Provider(where applicable), or their respective agents and nominees, have full discretion to reject or accept anyapplication, or to accept only part of any application, without having to give any reasons for anyrejection or acceptance.

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(c) If the allotment of Hong Kong Offer Shares is void:

The allotment of Hong Kong Offer Shares to you or to HKSCC Nominees (if you giveelectronic application instructions to HKSCC or apply by a yellow application form) will be void ifthe Listing Committee of the Hong Kong Stock Exchange does not grant permission to list the Hshares either:

Š within 3 weeks from the closing of the application lists; or

Š within a longer period of up to 6 weeks if the Listing Committee of the Stock Exchangenotifies our company of that longer period within 3 weeks of the closing date of theapplication lists.

(d) In the following circumstances:

Š you make multiple applications or suspected multiple applications;

Š you or the person for whose benefit you apply have applied for or taken up, or indicated aninterest for, or have been or will be placed or allocated (including conditionally and/orprovisionally) Offer Shares in the International Offering. By filling in any of theapplication forms or giving electronic instructions to HKSCC or to the eIPO ServiceProvider through the White Form eIPO service, you agree not to apply for Offer Shares inthe International Offering. Reasonable steps will be taken to identify and rejectapplications in the Hong Kong Public Offering from investors who have received OfferShares in the International Offering, and to identify and reject indications of interest in theInternational Offering from investors who have received Hong Kong Offer Shares in theHong Kong Public Offering;

Š you apply for more than 50% of the Hong Kong Offer Shares initially being offered underthe Hong Kong Public Offering (that is, 884,775,000 H shares);

Š your payment is not made correctly or you pay by cheque or banker’s cashier order and thecheque or banker’s cashier order is dishonored upon its first presentation;

Š your application form is not completed correctly and in accordance with the instructions;

Š your electronic application instructions through the White Form eIPO service are notcompleted in accordance with the instructions, terms and conditions set out in thedesignated website at www.eipo.com.hk;

Š either of the Hong Kong underwriting agreement or the international purchase agreementdoes not become unconditional; or

Š either of the Hong Kong underwriting agreement or the international purchase agreementis terminated in accordance with their respective terms.

7. IF YOUR APPLICATION FOR HONG KONG OFFER SHARES IS SUCCESSFUL (INWHOLE OR IN PART)

No temporary document of title will be issued in respect of the H shares.

No receipt will be issued for sums paid on application.

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You will receive one share certificate for all of the Hong Kong Offer Shares issued to youunder the Hong Kong Public Offering (except pursuant to applications made on yellowapplication forms or by electronic application instructions to HKSCC via CCASS, in which caseshare certificates will be deposited in CCASS).

H share certificates will only become valid certificates of title at 8:00 a.m. on Friday,October 27, 2006 provided that the Hong Kong Public Offering has become unconditional in allrespects and the right of termination described in the section entitled “Underwriting—Underwriting Arrangements and Expenses—Hong Kong Public Offering—Hong KongUnderwriting Agreement—Grounds for Termination” has not been exercised.

(a) If you apply using a white application form:

If you apply for 1,000,000 Hong Kong Offer Shares or more on a white application form andhave indicated your intention in your application form to collect your H share certificate(s) and/orrefund cheque (where applicable) from Computershare Hong Kong Investor Services Limited and haveprovided all information required by your application form, you may collect it/them in person fromComputershare Hong Kong Investor Services Limited at Rooms 1712-1716, 17th Floor, HopewellCentre, 183 Queen’s Road East, Wanchai, Hong Kong, from 9:00 a.m. to 1:00 p.m. on Thursday,October 26, 2006 (for H share certificates) or Friday, October 27, 2006 (for refund cheques) or suchother date as notified by our company in the newspapers as the date of despatch/collection of H sharecertificates/refund cheques.

If you are an individual who opts for personal collection, you must not authorize any otherperson to make collection on your behalf. If you are a corporate applicant which opts for personalcollection, you must attend by your authorized representative bearing a letter of authorization fromyour corporation stamped with your corporation’s chop. Both individuals and authorizedrepresentatives (if applicable) must produce, at the time of collection, evidence of identity acceptableto Computershare Hong Kong Investor Services Limited.

If you do not collect your refund cheque(s) and/or H share certificate(s) personally within thetime specified for collection, they will be sent to the address as specified in your application formpromptly thereafter by ordinary post and at your own risk.

If you apply for less than 1,000,000 Hong Kong Offer Shares or if you apply for 1,000,000Hong Kong Offer Shares or more but have not indicated on your application form that you will collectyour refund cheque(s) and/or H share certificate(s) (where applicable) in person, your refund cheque(s)and/or H share certificate(s) (where applicable) will be sent to the address on your application form onThursday, October 26, 2006 (for H share certificates) or Friday, October 27, 2006 (for refund cheques)by ordinary post and at your own risk.

(b) If you apply using a yellow application form:

If you apply for Hong Kong Offer Shares using a yellow application form and your applicationis wholly or partially successful, your H share certificate(s) will be issued in the name of HKSCCNominees and deposited into CCASS for credit to your CCASS Investor Participant stock account orthe stock account of your designated CCASS Participant as instructed by you in your application format the close of business on Thursday, October 26, 2006, or in the event of a contingency, on any otherdate as shall be determined by HKSCC or HKSCC Nominees.

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If you are applying through a designated CCASS Participant (other than a CCASS InvestorParticipant) on a yellow application form for Hong Kong Offer Shares credited to the stock account ofyour designated CCASS Participant (other than a CCASS Investor Participant), you can check thenumber of Hong Kong Offer Shares allocated to you with that CCASS Participant.

If you are applying as a CCASS Investor Participant, our company expects to publish theresults of CCASS Investor Participants’ applications together with the results of the Hong Kong PublicOffering on Thursday, October 26, 2006 in the manner described in “How To Apply For Hong KongOffer Shares—10. Results of Allocations.” You should check such results and report any discrepanciesto HKSCC before 5:00 p.m. on Thursday, October 26, 2006 or such other date as shall be determinedby HKSCC or HKSCC Nominees. Immediately after the credit of the Hong Kong Offer Shares to yourstock account, you can check your new account balance via the CCASS Phone System and the CCASSInternet System (under the procedures contained in HKSCC’s “An Operating Guide for InvestorParticipants” in effect from time to time). HKSCC will also make available to you an activity statementshowing the number of Hong Kong Offer Shares credited to your stock account.

If you apply for 1,000,000 Hong Kong Offer Shares or more and you have elected on youryellow application form to collect your refund cheque (where applicable) in person, please follow thesame procedure, as those for white application form applicants as described above. If you haveapplied for 1,000,000 Hong Kong Offer Shares or above and have not indicated on your applicationform that you will collect your refund cheque (if any) in person, or if you have applied for less than1,000,000 Hong Kong Offer Shares, your refund cheque (if any) will be sent to the address on yourapplication form on Friday, October 27, 2006, by ordinary post and at your own risk.

(c) If you apply through White Form eIPO:

If you apply for 1,000,000 Hong Kong Offer Shares or more through the White Form eIPOservice by submitting an electronic application to the eIPO Service Provider through the designatedwebsite at www.eipo.com.hk and your application is wholly or partially successful, you may collectyour H share certificate(s) and/or refund cheque(s) (where applicable) in person from ComputershareHong Kong Investor Services Limited at Rooms 1712-1716, 17th Floor, Hopewell Centre, 183Queen’s Road East, Wanchai, Hong Kong, from 9:00 a.m. to 1:00 p.m. on Thursday, October 26, 2006(for H share certificates) or Friday, October 27, 2006 (for refund cheques), or such other date asnotified by our company in the newspapers as the date of despatch/collection of H share certificates/refund cheques.

If you do not collect your H share certificate(s) and/or refund cheque(s) personally within thetime specified for collection, they will be sent to the address specified in your application instructionsto the eIPO Service Provider promptly thereafter by ordinary post and at your own risk.

If you apply for less than 1,000,000 Hong Kong Offer Shares, your H share certificate(s) and/orrefund cheque(s) (where applicable) will be sent to the address specified in your applicationinstructions to the eIPO Service Provider on Thursday, October 26, 2006 (for H share certificates) orFriday, October 27, 2006 (for refund cheques) by ordinary post and at your own risk.

Please also note the additional information relating to refund of application monies overpaid,application money underpaid or applications rejected by the eIPO Service Provider set out below in “9.Additional Information for Applicants Applying Through White Form eIPO.”

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8. REFUND OF APPLICATION MONIES

Your application monies, or the appropriate portion thereof, together with the related brokerageof 1%, SFC transaction levy of 0.005% and Hong Kong Stock Exchange trading fee of 0.005%, will berefunded if:

Š your application is rejected, not accepted or accepted in part only or if you do not receiveany Hong Kong Offer Shares for any of the reasons set out above in the section headed“6. Circumstances in which you will not be allotted Hong Kong Offer Shares;”

Š the offer price as finally determined is less than the offer price of HK$3.07 per H share(excluding brokerage, SFC transaction levy and Hong Kong Stock Exchange trading feethereon) initially paid on application;

Š the conditions of the Hong Kong Public Offering are not fulfilled in accordance with thesection headed “Structure of the Global Offering—Conditions of the Hong Kong PublicOffering;”

Š any application is revoked or any allotment pursuant thereto has become void.

No interest will be paid thereon. All interest accrued on such monies prior to the date of refundwill be retained for our benefit.

In a contingency situation involving a substantial over-subscription, at the discretion of ourcompany and the Joint Bookrunners, cheques for applications for certain small denominations of HongKong Offer Shares (apart from successful and reserved applications) may not be cleared.

Refund of your application monies (if any) will be made on Friday, October 27, 2006 inaccordance with the various arrangements as described above. All refunds will be made by a chequecrossed “Account Payee Only” made out to you, or if you are joint applicants, to the first-namedapplicant. Part of your Hong Kong identity card number or passport number, or, if you are jointapplicants, part of the Hong Kong identity card number or passport number of the first-namedapplicant, provided by you may be printed on your refund cheque, if any. Such data would also betransferred to a third party for refund purposes. Your banker may require verification of your HongKong identity card number or passport number before encashment of your refund cheque. Inaccuratecompletion of your Hong Kong identity card number or passport number may lead to delay inencashment of or may invalidate your refund cheque. It is intended that special efforts will be made toavoid any undue delay in refunding application monies where appropriate.

9. ADDITIONAL INFORMATION FOR APPLICANTS APPLYING THROUGH WHITEFORM eIPO

For the purposes of allocating Hong Kong Offer Shares, each applicant giving electronicapplication instructions through the White Form eIPO service to the eIPO Service Provider through thedesignated website will be treated as an applicant.

If your payment of application monies is insufficient, or in excess of the required amount,having regard to the number of Offer Shares for which you have applied, or if your application isotherwise rejected by the eIPO Service Provider, the eIPO Service Provider may adopt alternativearrangements for the refund of monies to you. Please refer to the additional information provided bythe eIPO Service Provider on the designated website www.eipo.com.hk.

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Otherwise, any monies payable to you due to a refund for any of the reasons set out above in“8. Refund of Application Monies” shall be made pursuant to the arrangements described above in“7. If your application for Hong Kong Offer Shares is successful (in whole or in part)—(c) If you applythrough White Form eIPO.”

10. ADDITIONAL INFORMATION FOR APPLICANTS APPLYING BY GIVINGELECTRONIC APPLICATION INSTRUCTIONS TO HKSCC

(a) Allocation of Hong Kong Offer Shares

For the purposes of allocating Hong Kong Offer Shares, HKSCC Nominees will not be treatedas an applicant. Instead, each CCASS Participant who gives electronic application instructions or eachperson for whose benefit each such instructions is given will be treated as an applicant.

(b) Deposit of H Share Certificates into CCASS and Refund of Application Monies

Š No temporary document of title will be issued. No receipt will be issued for sums on paidapplication.

Š If your application is wholly or partially successful, your share certificate(s) will be issuedin the name of HKSCC Nominees and deposited into CCASS for the credit of the stockaccount of the CCASS Participant which you have instructed to give electronic applicationinstructions on your behalf or your CCASS Investor Participant stock account at the closeof business on Thursday, October 26, 2006, or, in the event of a contingency, on any otherdate as shall be determined by HKSCC or HKSCC Nominees Limited.

Š Our company expects to publish the application results of CCASS Participants (and wherethe CCASS Participant is a broker or custodian, our company will include informationrelating to the relevant beneficial owner), your Hong Kong identity card/passport numberor other identification code (Hong Kong business registration number for corporations)and the basis of allotment of the Hong Kong Public Offering on Thursday, October 26,2006 in the manner described in “How To Apply For Hong Kong Offer Shares—9.Results of Allocations.” You should check such results and report any discrepancies toHKSCC before 5:00 p.m. on Thursday, October 26, 2006 or such other date as shall bedetermined by HKSCC or HKSCC Nominees.

Š If you have instructed your broker or custodian to give electronic application instructionson your behalf, you can also check the number of Hong Kong Offer Shares allotted to youand the amount of refund monies (if any) payable to you with that broker or custodian.

Š If you have applied as a CCASS Investor Participant, you can also check the number ofHong Kong Offer Shares allotted to you and the amount of refund monies (if any) payableto you via the CCASS Phone System and the CCASS Internet System (under theprocedures contained in HKSCC’s “An Operating Guide for Investor Participants” ineffect from time to time) on Thursday, October 26, 2006. HKSCC will also make availableto you an activity statement showing the number of Hong Kong Offer Shares credited toyour CCASS Investor Participant stock account and the amount of refund monies (if any)credited to your designated bank account.

Š Refund of your application monies (if any) in respect of wholly and partially unsuccessfulapplications and/or difference between the offer price and the offer price per H share initially

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paid on application, in each case including brokerage of 1%, SFC transaction levy of 0.005%and Hong Kong Stock Exchange trading fee of 0.005%, will be credited to your designatedbank account or the designated bank account of your broker or custodian on Friday,October 27, 2006. No interest will be paid thereon.

11. PERSONAL DATA

The main provisions of the Personal Data (Privacy) Ordinance (Chapter 486 of the Laws ofHong Kong) (the “Ordinance”) came into effect in Hong Kong on December 20, 1996. This PersonalInformation Collection Statement informs the applicant for and holder of our H shares of the policiesand practices of our company and our share registrars in relation to personal data and the Ordinance.

(a) Reasons for the collection of your personal data

From time to time it is necessary for applicants for securities or registered holders of securitiesto supply their latest correct personal data to our company and our H share registrar when applying forsecurities or transferring securities into or out of their names or in procuring the services of theregistrars.

Failure to supply the requested data may result in your application for securities being rejectedor in delay or inability of our company or the H share registrar to effect transfers or otherwise rendertheir services. It may also prevent or delay registration or transfer of the Hong Kong Offer Shareswhich you have successfully applied for and/or the despatch of H share certificate(s), and/or thedespatch or encashment of refund cheque(s) to which you are entitled.

It is important that holders of securities inform us and our H share registrar immediately of anyinaccuracies in the personal data supplied.

(b) Purposes

The personal data of the applicants and the holders of securities may be used, held and/or stored(by whatever means) for the following purposes:

Š processing of your application and refund cheque, where applicable, and verification ofcompliance with the terms and application procedures set out in the application forms andthis prospectus and announcing results of allocations of the Hong Kong Offer Shares;

Š enabling compliance with all applicable laws and regulations in Hong Kong andelsewhere;

Š registering new issues or transfers into or out of the name of holders of securitiesincluding, where applicable, in the name of HKSCC Nominees;

Š maintaining or updating the registrars of holders of securities of our company;

Š conducting or assisting in the conduct of signature verifications, any other verification orexchange of information;

Š establishing benefit entitlements of holders of securities of our company, such asdividends, rights issues and bonus issues;

Š distributing communications from our company and our subsidiaries;

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Š compiling statistical information and shareholder profiles;

Š making disclosures as required by laws, rules or regulations;

Š disclosing relevant information to facilitate claims on entitlements; and

Š any other incidental or associated purposes relating to the above and/or to enable ourcompany and our H share registrar to discharge our obligations to holders of securitiesand/or regulators and/or other purpose to which the holders of securities may from time totime agree.

(c) Transfer of personal data

Personal data held by our company and our H share registrar relating to the applicants and theholders of securities will be kept confidential but our company and our H share registrar, to the extentnecessary for achieving the above purposes or any of them, may make such enquiries as they considernecessary to confirm the accuracy of the personal data and in particular, they may disclose, obtain,transfer (whether within or outside Hong Kong) the personal data of the applicants and the holders ofsecurities to, from or with any and all of the following persons and entities:

Š our company or our respective appointed agents such as financial advisors and receivingbankers;

Š HKSCC and HKSCC Nominees, who will use the personal data for the purposes ofoperating CCASS (in cases where the applicants have requested for the Hong Kong OfferShares to be deposited into CCASS);

Š any agents, contractors or third party service providers who offer administrative,telecommunications, computer, payment or other services to our company and/or our Hshare registrar in connection with the operation of their business;

Š the Hong Kong Stock Exchange, the SFC and any other statutory, regulatory orgovernmental bodies; and

Š any other persons or institutions with which the holders of securities have or propose tohave dealings, such as their bankers, solicitors, accountants or stockbrokers.

By signing an application form or by giving electronic application instructions to HKSCC, youagree to all of the above.

(d) Access to and correction of personal data

The Ordinance provides the holders of securities with rights to ascertain whether our companyor our H share registrar holds their personal data, to obtain a copy of that data, and to correct any datathat is inaccurate.

In accordance with the Ordinance, our company and our H share registrar have the right tocharge a reasonable fee for the processing of any data access request. All requests for access to data orcorrection of data or for information regarding policies and practices and kinds of data held should beaddressed to us, at our registered address disclosed in the “Corporate Information” section in thisprospectus or as notified from time to time in accordance with applicable law, for the attention of thecompany secretary, or our H share registrar for the attention of the privacy compliance officer.

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APPENDIX I ACCOUNTANTS’ REPORT

The following is the text of a report, prepared for the purpose of incorporation in thisprospectus, received from the Company’s reporting accountants, Ernst & Young, Certified PublicAccountants, Hong Kong. As described in “Appendix X—Documents Delivered to the Registrar ofCompanies and Available for Inspection”, a copy of the Accountants’ Report is available forinspection.

18th FloorTwo International Finance Centre8 Finance StreetCentralHong Kong

October 16, 2006The DirectorsIndustrial and Commercial Bank of China LimitedChina International Capital Corporation (Hong Kong) LimitedICEA Capital LimitedMerrill Lynch Far East Limited

Dear Sirs

We set out below our report on the financial information of Industrial and Commercial Bank ofChina Limited (the “Bank”) and its subsidiaries (hereinafter collectively referred to as the “Group”) inSections (I) to (III) below (the “Financial Information”), for inclusion in the prospectus of the Bankdated October 16, 2006 (the “Prospectus”) in connection with the listing of the shares of the Bank onThe Stock Exchange of Hong Kong Limited (the “SEHK”).

Industrial and Commercial Bank of China (“ICBC”) was a wholly-state-owned commercialbank founded on January 1, 1984. Its establishment was authorised by the State Council and thePeople’s Bank of China (the “PBOC”) of the People’s Republic of China (the “PRC”). On October 28,2005, with the approval of the State Council, ICBC was restructured and incorporated as a joint-stocklimited company with a registered capital of RMB248,000 million divided into 248,000 million shareswith a par value of RMB1 each, and accordingly issued 124,000 million shares each to the Ministry ofFinance (the “MOF”) and Central SAFE Investments Limited, a state-owned investment companypreviously known as China SAFE Investments Limited (“Huijin”). ICBC then changed its name toIndustrial and Commercial Bank of China Limited.

All companies now comprising the Group have adopted December 31 as their financial yearend date for statutory reporting purposes.

The statutory consolidated financial statements of the Group for the years ended December 31,2003 and 2004 were prepared in accordance with the Accounting Standards for Business Enterprises,the Accounting System for Financial Institutions (1993 version) and other relevant regulations issuedby the MOF, the PBOC and the China Banking Regulatory Commission (the “CBRC”), and wereaudited by Zhong Tian Hua Zheng CPA Co., Ltd. ( ). The statutory consolidated

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financial statements of the Group for the year ended December 31, 2005 were prepared in accordancewith the Accounting Standards for Business Enterprises, the Accounting System for FinancialInstitutions (2001 version) and other relevant regulations issued by the MOF, the PBOC and the CBRCand were audited by Ernst & Young Hua Ming (“ ”).

The Group also prepared consolidated financial statements for each of the years endedDecember 31, 2003, 2004 and 2005 and for the six months ended June 30, 2006 (the “RelevantPeriods”) based on the International Financial Reporting Standards (“IFRSs”) promulgated by theInternational Accounting Standards Board (the “IFRS Financial Statements”) which were audited by usin accordance with International Standards on Auditing. The Financial Information has been preparedfrom the IFRS Financial Statements and, where appropriate, management accounts of the Bank and ofthe Group after making such adjustments considered appropriate.

The directors of the Bank are responsible for the Financial Information. It is our responsibilityto form an independent opinion, based on our examination, on the Financial Information and to reportour opinion.

Procedures Performed in Respect of the Relevant Periods

For the purpose of this report, we have examined the Financial Information for each of theyears ended December 31, 2003, 2004 and 2005 and for the six months ended June 30, 2006, and havecarried out such additional procedures as we considered necessary in accordance with the AuditingGuideline “Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of CertifiedPublic Accountants (the “HKICPA”).

Procedures Performed in Respect of the Six Months Ended June 30, 2005

For the purpose of this report, we have also performed a review of the Financial Information forthe six months ended June 30, 2005, for which the directors are responsible, in accordance with theStatement of Auditing Standard 700 “Engagements to review interim financial reports” issued by theHKICPA. A review consists principally of making enquiries of management and applying analyticalprocedures to the financial information and, based thereon, assessing whether the accounting policiesand presentation have been consistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets and liabilities and transactions. It issubstantially less in scope than an audit and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an opinion on the Financial Information in respect of the six monthsended June 30, 2005.

Opinion in respect of the Relevant Periods

In our opinion, the Financial Information gives, for the purpose of this report, a true and fairview of the results and cash flows of the Group for each of the years ended December 31, 2003, 2004and 2005 and for the six months ended June 30, 2006 and of the state of affairs of the Bank and of theGroup as at December 31, 2003, 2004 and 2005 and June 30, 2006.

Review conclusion in respect of the six months ended June 30, 2005

On the basis of our review which does not constitute an audit, for the purpose of this report, weare not aware of any material modifications that should be made to the results and cash flows of theGroup for the six months ended June 30, 2005.

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(I) FINANCIAL INFORMATION

Consolidated Income Statements

(Expressed in millions of Renminbi, unless otherwise stated)

GroupYear ended December 31, Six months ended June 30,

Notes 2003 2004 2005 2005 (Unaudited) 2006

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . 3 189,069 204,889 240,202 112,283 129,038Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 3 (66,361) (70,161) (86,599) (40,558) (52,530)

Net interest income . . . . . . . . . . . . . . . . . . . . . 3 122,708 134,728 153,603 71,725 76,508

Fee and commission income . . . . . . . . . . . . . . 4 7,059 9,780 12,376 5,502 8,761Fee and commission expense . . . . . . . . . . . . . . (1,435) (1,572) (1,830) (635) (895)

Net fee and commission income . . . . . . . . . . . 5,624 8,208 10,546 4,867 7,866

Other operating income . . . . . . . . . . . . . . . . . . 5 4,452 5,023 7,471 4,500 1,376

Operating income . . . . . . . . . . . . . . . . . . . . . . . 132,784 147,959 171,620 81,092 85,750

Operating expenses . . . . . . . . . . . . . . . . . . . . . 6 (62,575) (62,639) (81,585) (33,964) (34,696)Provisions for impairment losses on

—Loans and advances to customers . . . . 16 (34,914) (30,511) (26,589) (11,558) (11,645)—Others . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (1,379) (348) (425) (165) (573)

Operating profit . . . . . . . . . . . . . . . . . . . . . . . . 33,916 54,461 63,021 35,405 38,836

Share of profits and losses of associates . . . . . (32) (50) 5 — 5

Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . 33,884 54,411 63,026 35,405 38,841

Income tax expense . . . . . . . . . . . . . . . . . . . . . 10 (11,292) (23,193) (25,007) (9,957) (13,199)

Profit for the year/period . . . . . . . . . . . . . . . . . 22,592 31,218 38,019 25,448 25,642

Attributable to:Equity holders of the Bank . . . . . . . . . . . 22,472 30,863 37,555 25,161 25,399Minority interests . . . . . . . . . . . . . . . . . . . 120 355 464 287 243

22,592 31,218 38,019 25,448 25,642

Earnings per share attributable to equityholders of the Bank

—Basic and diluted (Renminbi) . . . . . . . 12 0.09 0.12 0.15 0.10 0.10

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(I) FINANCIAL INFORMATION (continued)

Consolidated Balance Sheets


GroupDecember 31, June 30,

Notes 2003 2004 2005 2006

ASSETSCash and balances with central banks . . . . . . . . . . . . . . . 13 457,816 508,616 553,873 598,269Due from banks and other financial institutions . . . . . . . 14 66,009 69,430 132,162 131,133Reverse repurchase agreements . . . . . . . . . . . . . . . . . . . . 15 71,239 21,764 89,235 105,542Loans and advances to customers . . . . . . . . . . . . . . . . . . 16 2,766,055 3,109,191 3,205,861 3,375,342Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1,044,730 1,230,416 2,305,689 2,657,819Income tax recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . 427 — — —Investments in associates . . . . . . . . . . . . . . . . . . . . . . . . . 19 274 117 120 125Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 20 77,767 75,579 92,984 88,709Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . 21 27,381 8,805 — —Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 45,253 45,406 76,207 97,686

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,556,951 5,069,324 6,456,131 7,054,625

LIABILITIESDue to a central bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,383 28,402 — —Due to banks and other financial institutions . . . . . . . . . 23 219,009 205,695 232,910 367,218Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 24 16,253 26,339 32,301 11,622Certificates of deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 3,376 3,680 5,704 6,991Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4,706,861 5,176,282 5,736,866 6,119,038Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 2,792 14,641 12,812Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . 21 — — 1,418 270Debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 — 3,294 38,076 37,987Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 118,119 130,885 134,339 169,222

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 5,096,085 5,577,369 6,196,255 6,725,160

EQUITYIssued share capital/paid-up capital . . . . . . . . . . . . . . . . . 28 160,671 160,669 248,000 286,509Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 17,151 15,334 2,559 19,681Retained profits/(accumulated losses) . . . . . . . . . . . . . . . (718,571) (687,716) 5,280 19,183

Equity attributable to equity holders of the Bank . . . . . . (540,749) (511,713) 255,839 325,373Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,615 3,668 4,037 4,092

TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (539,134) (508,045) 259,876 329,465

TOTAL EQUITY AND LIABILITIES . . . . . . . . . . . . 4,556,951 5,069,324 6,456,131 7,054,625

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Balance Sheets


BankDecember 31, June 30,

Notes 2003 2004 2005 2006

ASSETSCash and balances with central banks . . . . . . . . . . . . . . . 13 457,759 508,445 553,572 597,844Due from banks and other financial institutions . . . . . . . 14 76,014 74,834 129,926 112,180Reverse repurchase agreements . . . . . . . . . . . . . . . . . . . . 15 71,239 21,764 89,235 105,542Loans and advances to customers . . . . . . . . . . . . . . . . . . 16 2,720,990 3,040,627 3,131,096 3,301,452Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1,037,645 1,220,987 2,297,831 2,652,785Income tax recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . 427 — — —Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 18 7,098 7,087 7,112 7,063Investments in associates . . . . . . . . . . . . . . . . . . . . . . . . . 19 83 74 74 74Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 20 77,184 75,124 92,615 88,343Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . 21 27,320 8,727 — —Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 42,476 42,096 73,364 94,372

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,518,235 4,999,765 6,374,825 6,959,655

LIABILITIESDue to a central bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,383 28,402 — —Due to banks and other financial institutions . . . . . . . . . 23 225,628 209,835 231,434 372,204Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 24 16,253 27,167 33,109 12,232Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4,668,017 5,115,197 5,671,854 6,036,319Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 2,774 14,627 12,646Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . 21 — — 1,418 286Debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 — — 35,000 35,000Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 116,406 128,675 132,533 166,751

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 5,058,753 5,512,050 6,119,975 6,635,438

EQUITYIssued share capital/paid-up capital . . . . . . . . . . . . . . . . . 28 160,671 160,669 248,000 286,509Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 16,934 14,596 1,955 19,115Retained profits/(accumulated losses) . . . . . . . . . . . . . . . 28 (718,123) (687,550) 4,895 18,593

TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (540,518) (512,285) 254,850 324,217

TOTAL EQUITY AND LIABILITIES . . . . . . . . . . . . 4,518,235 4,999,765 6,374,825 6,959,655

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IXI

AC

CO

UN

TA

NT

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tfor

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asat

Dec

embe

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ngA

sset

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agem

entC

orpo

rati

on(“

Hua

rong

”).

I-6

Global Reports LLC

AP

PE

ND

IXI

AC

CO

UN

TA

NT

S’R

EP

OR

T

(I)

FIN

AN

CIA

LIN

FO

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solid

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....

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114

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——

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tfor

the

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....

....

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....

....

....

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....

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.—

——

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—30

,863

30,8

6335

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Tot

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....

....

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es..

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..—

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e)..

....

....

....

....

....

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....

(2)

——

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——

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)S

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diar

y’s

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ysh

areh

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....

...

—52

1—

——

521

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....

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..16

0,66

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1,92

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,IC

BC

tran

sfer

red

cert

ain

ofit

sca

pita

lto

Hua

rong

.

I-7

Global Reports LLC

AP

PE

ND

IXI

AC

CO

UN

TA

NT

S’R

EP

OR

T

(I)

FIN

AN

CIA

LIN

FO

RM

AT

ION

(con

tinu

ed)

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solid

ated

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emen

tsof

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inE

quit

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onti

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enm

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rwis

est

ated

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up(c

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truc

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37,5

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n(n

ote

1(b)

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.—

—56

7,55

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(vii

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....

....

....

..24

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(587

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.—

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204

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032

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559

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876

I-8

Global Reports LLC

AP

PE

ND

IXI

AC

CO

UN

TA

NT

S’R

EP

OR

T

(I)

FIN

AN

CIA

LIN

FO

RM

AT

ION

(con

tinu

ed)

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solid

ated

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160,

669

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chan

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eof

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labl

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r-sa

lein

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men

ts..

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870

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——

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....

——

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....

..12

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124,

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ote

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(iii

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....

....

....

.—

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567,

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—56

7,55

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min

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mul

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es(n

ote

1(b)

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))..

....

....

....

....

...

(36,

669)

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58)

(14,

731)

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—(1

5,98

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——

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diar

y’s

shar

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toa

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....

....

....

....

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——

——

——

——

—90

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....

..—

——

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——

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(146

)(1

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....

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22,6

974,

359

320

591,

983

(609

,897

)23

0,23

43,

865

234,

099

I-9

Global Reports LLC

AP

PE

ND

IXI

AC

CO

UN

TA

NT

S’R

EP

OR

T

(I)

FIN

AN

CIA

LIN

FO

RM

AT

ION

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tinu

ed)

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solid

ated

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emen

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nges

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Consolidated Cash Flow Statements


Group

Year ended December 31, Six months ended June 30,

Notes 2003 2004 2005 2005 (Unaudited) 2006

CASH FLOWS FROM OPERATING ACTIVITIESProfit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,884 54,411 63,026 35,405 38,841Adjustments for:

Share of profits and losses of associates . . . . . . . 32 50 (5) — (5)Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 8,654 8,977 9,852 4,571 5,053Amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 752 710 712 288 513Provisions for impairment losses on loans and

advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 34,914 30,511 26,589 11,558 11,645Provisions for impairment losses on assets other

than loans and advances . . . . . . . . . . . . . . . . . 9 1,379 348 425 165 573Interest expense on debt issued . . . . . . . . . . . . . . 3 — 40 490 68 616Accretion of impairment provision discount . . . . 16 (9,844) (9,876) (8,349) (5,657) (896)Gain from foreign exchange and foreign

exchange products, net . . . . . . . . . . . . . . . . . . 5 (1,190) (894) (2,255) (1,681) (218)Loss/(gain) on investments in securities, net . . . . 5 (553) (358) (107) (405) 341Loss/(gain) from other dealing activities, net . . . 5 326 (660) (1,207) (662) (410)Gain on disposal of property and equipment and

other assets, net . . . . . . . . . . . . . . . . . . . . . . . . 5 (482) (814) (626) (707) (166)Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . 5 (3) (17) (2) — (3)

67,869 82,428 88,543 42,943 55,884

Net decrease/(increase) in operating assets:Due from central banks . . . . . . . . . . . . . . . . . . . . (63,212) (71,910) (54,454) (27,898) (27,125)Due from banks and other financial

institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,917 (1,172) 4,510 (33,060) (13,154)Reverse repurchase agreements . . . . . . . . . . . . . . 47,980 8,469 (902) (11,803) (5,055)Loans and advances to customers . . . . . . . . . . . . (431,670) (354,970) (244,536) (166,626) (184,174)Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,505) 5,713 (8,268) (16,240) (17,597)

(426,490) (413,870) (303,650) (255,627) (247,105)

Net increase/(decrease) in operating liabilities:Due to a central bank . . . . . . . . . . . . . . . . . . . . . . 19,281 (3,981) (4,865) (4,865) —Due to banks and other financial institutions . . . (46,179) (14,458) 27,215 53,046 134,308Repurchase agreements . . . . . . . . . . . . . . . . . . . . (31,474) 10,086 5,962 (23,359) (20,679)Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . 536,546 447,951 560,584 327,012 382,172Certificates of deposits . . . . . . . . . . . . . . . . . . . . — 304 2,024 (1,057) 1,287Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 41,549 12,574 (5,332) 12,894 39,258

519,723 452,476 585,588 363,671 536,346

Net cash flows from operating activities before tax . . 161,102 121,034 370,481 150,987 345,125Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (218) (270) (2,987) (1,065) (15,770)

Net cash flows generated from operating activities . . 160,884 120,764 367,494 149,922 329,355

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Consolidated Cash Flow Statements (continued)


Group (continued)

Note


2003 2004 2005 2005 (Unaudited) 2006

CASH FLOWS FROM INVESTINGACTIVITIES

Acquisition of a subsidiary, net of cashacquired . . . . . . . . . . . . . . . . . . . . . . . . . . 37(a) — 4,450 — — —

Purchases of property and equipment andother assets . . . . . . . . . . . . . . . . . . . . . . . . (9,236) (8,580) (9,684) (2,851) (1,792)

Proceeds from disposal of property andequipment . . . . . . . . . . . . . . . . . . . . . . . . . 1,354 1,730 5,177 2,447 564

Purchases of investments . . . . . . . . . . . . . . . (346,227) (467,936) (719,996) (320,537) (858,067)Proceeds from sale and redemption of

investments . . . . . . . . . . . . . . . . . . . . . . . 221,982 270,252 327,090 176,174 663,084Dividend received . . . . . . . . . . . . . . . . . . . . 3 17 2 — 3

Net cash flows used in investingactivities . . . . . . . . . . . . . . . . . . . . . . . . . . (132,124) (200,067) (397,411) (144,767) (196,208)

CASH FLOWS FROM FINANCINGACTIVITIES

Proceeds from capital injection . . . . . . . . . . — — 124,148 124,148 40,438

Capital contribution by minorityshareholders . . . . . . . . . . . . . . . . . . . . . . . — 1,467 166 90 —

Repayment of debt issued . . . . . . . . . . . . . . — — (138) — —

Proceeds from debt issued . . . . . . . . . . . . . . — 3,294 35,000 — —

Transfer of capital to Huarong . . . . . . . . . . . — (2) — — —

Interest paid on debt issued . . . . . . . . . . . . . — (40) (490) (68) (616)Dividend paid to minority shareholders . . . (91) (186) (238) (146) (163)

Net cash flows generated from/(used in)financing activities . . . . . . . . . . . . . . . . . . (91) 4,533 158,448 124,024 39,659

NET INCREASE/(DECREASE) IN CASHAND CASH EQUIVALENTS . . . . . . . . 28,669 (74,770) 128,531 129,179 172,806

Cash and cash equivalents at beginning ofthe year/period . . . . . . . . . . . . . . . . . . . . . 213,629 242,620 168,019 168,019 294,424

Effect of exchange rate changes on cashand cash equivalents . . . . . . . . . . . . . . . . 322 169 (2,126) 27 (510)

CASH AND CASH EQUIVALENTS ATEND OF THE YEAR/PERIOD . . . . . . . . 37(b) 242,620 168,019 294,424 297,225 466,720

NET CASH FLOWS GENERATEDFROM OPERATING ACTIVITIESINCLUDE:

Interest received . . . . . . . . . . . . . . . . . . . . . . 176,573 186,957 208,975 96,129 123,441

Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . (63,366) (68,171) (82,274) (33,879) (44,555)

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Notes to the Financial Information

1. CORPORATE INFORMATION AND RESTRUCTURING

(a) Corporate information

The registered office of the Bank is located at No. 55 Fuxingmennei Avenue, Xicheng District,Beijing, the PRC. The Bank has established branches in 35 provinces, autonomous regions andmunicipalities directly under the central government in the PRC, and has also established eightbranches outside Mainland China.

Upon the incorporation of the Bank, the CBRC issued a financial services certificate to theBank (No. B10111000H0001) and the State Administration for Industry and Commerce of the PRCissued a business licence to the Bank (No. 1000001000396).

(b) Restructuring

During the year 2005, pursuant to a restructuring plan (the “Restructuring”) approved by theState Council, ICBC completed a series of restructuring measures as set out below prior to itsreformation into a joint-stock limited company.

(i) Capital injection of US$15,000 million by the PRC government (the “Government”)

In April 2005, the Government injected US$15,000 million of cash into ICBC as capitalthrough Huijin, under the direction of the State Council. ICBC remained as a wholly-state-owned bankafter such capital injection.

(ii) Disposal of impaired loans and advances classified under the loss category and otherimpaired assets of RMB246,000 million in aggregate

In May 2005, with the approval of the MOF, Huarong was designated as an agent of the MOFto purchase certain impaired loans and advances classified under the loss category and other impairedassets from ICBC at book values, before allowance for impairment losses, of RMB176,000 million andRMB70,000 million, respectively. The consideration of RMB246,000 million in aggregate (note 17(a))was accounted for as an amount receivable from the MOF, which will be settled by the MOF in thefollowing five years and bears interest at a fixed rate of 3% per annum.

(iii) Disposal of impaired loans and advances classified under the doubtful category ofRMB459,002 million in aggregate

With the approval and under the arrangement of the PBOC, certain impaired loans andadvances classified under the doubtful category with an aggregate amount, before allowance forimpairment losses, of RMB459,002 million were purchased by Huarong, China Great Wall AssetManagement Corporation, China Orient Asset Management Corporation, and China Cinda AssetManagement Corporation (collectively the “AMCs”) from ICBC. In June 2005, ICBC entered intotransfer agreements with the AMCs. Pursuant to the transfer agreements and instructions from thePBOC, the impaired loans were disposed of at book value before allowance at a consideration ofRMB459,002 million from the AMCs. An amount of RMB430,465 million (note 17(a)) includedtherein was applied to exchange for a non-transferable bill issued by the PBOC. The bill will mature in

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1. CORPORATE INFORMATION AND RESTRUCTURING (continued)

(b) Restructuring (continued)

June 2010 (the “Maturity Date”) and bears a fixed interest rate of 1.89% per annum. The PBOC has theright to redeem the bill prior to the Maturity Date. The remaining balance of the consideration wasused to settle the amount due to the PBOC.

As a result of the disposals mentioned in (ii) and (iii) above, the related aggregate allowance forimpairment losses of RMB567,558 million was reversed and credited to the capital reserve as acontribution of capital, including those attributable to loans and advances and other assets ofRMB503,090 (note 16) million and RMB64,468 million, respectively.

(iv) Injection of land use rights of RMB19,906 million by the Government

During the year 2005, as part of the Restructuring, the Government injected certain land userights into ICBC as capital contribution. The estimated fair value of such land use rights, whichamounted to approximately RMB19,906 million, was credited to the capital reserve and subsequentlycapitalised as share capital of the Bank upon its incorporation.

(v) Repayment of principal and interest of Huarong bonds

Pursuant to a notice issued by the MOF in June 2005, the MOF will provide support for therepayment of principal of the Huarong bonds of RMB312,996 million (note 17(a)), if necessary. Inaddition, with effect from July 1, 2005, should Huarong be unable to make full payment of the bondinterest, the MOF will provide funding in support of the payment.

(vi) Revision of the terms of a special government bond issued by the MOF

A non-negotiable bond with nominal value of RMB85,000 million (note 17(a)) was issued bythe MOF to ICBC in 1998. The bond will mature in 2028 and bore interest at a fixed rate of 7.2% perannum originally. As part of the Restructuring, the interest rate of the bond was revised to a fixed rateof 2.25% per annum, with effect from December 1, 2005.

(vii) Elimination of capital and reserves with accumulated losses

As part of the Restructuring, and in accordance with the instructions of the MOF, ICBCeliminated part of its capital and reserves with the accumulated losses during 2005.

(viii) Reformation into a joint-stock limited company

In accordance with the statutory requirements on the restructuring of state-owned enterprises,ICBC engaged independent qualified asset appraisers to perform a valuation exercise on its assets andliabilities as at June 30, 2005. Based on the valuation report issued by China United Assets AppraisalCo., Ltd, an independent firm of qualified asset appraisers in the PRC, the net assets of ICBC as atJune 30, 2005 were valued at RMB256,028 million. ICBC submitted the valuation report to therelevant regulatory bodies in support of its application for restructuring from a state-owned enterpriseinto a joint-stock limited company.

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(b) Restructuring (continued)

With the approval of the State Council, ICBC was restructured into a joint-stock limitedcompany with a total registered capital of RMB248,000 million on October 28, 2005. The paid-upcapital, reserves and accumulated losses of ICBC, after taking into account the surpluses arising fromthe aforementioned valuation, were converted into issued share capital of the joint-stock limitedcompany upon its incorporation. An aggregate of 248,000 million promoters’ shares at par value ofRMB1 each were issued to the MOF and Huijin, with each holding 124,000 million shares. The excessof the paid-up capital, reserves and accumulated losses of ICBC so converted, as represented by the netasset value of RMB256,028 million over the issued share capital of RMB248,000 million, whichamounted to RMB8,028 million, was accounted for as a payable to the MOF and was included underother liabilities (note 27) as of December 31, 2005.

(c) Principal activities

The principal activities of the Group comprise the provision of banking services, includingRenminbi (“RMB”) and foreign currency deposits, loans, payment and settlement services, and otherservices as approved by the CBRC of the PRC, and the provision of related services by its overseasestablishments as approved by the respective local regulators.

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(d) Details of principal subsidiaries consolidated

During the Relevant Periods and up to the date of this report, the Bank had direct interests inthe following principal subsidiaries. Except for Industrial and Commercial Bank of China (Asia)Limited (“ICBC (Asia)”) whose shares are listed on the SEHK, all of them are private companies (or,if incorporated/registered outside Hong Kong, have substantially similar characteristics to a privatecompany incorporated in Hong Kong). The particulars of the principal subsidiaries are set out below:

Company name

Place anddate of

incorporation/registration and

place ofoperations

Nominalvalue of

issued share/paid-up

capital as atJune 30, 2006

Percentage of equity interests attributableto the Bank as at

PrincipalActivities

December 31, June 30, Date ofthis

report2003 2004 2005 2006

ICBC (Asia) (i) Hong KongNovember 12,1964

HK$2,242.52million

ordinary shares

72.67 57.53 59.72 59.72 59.72 Commercialbanking

Industrial and Commercial International CapitalLimited (“ICIC”) (i)

Hong KongMarch 30, 1973

HK$280million

ordinary shares

100 100 100 100 100 Commercialbanking

ICEA Finance Holdings Limited (“ICEA”) (i) British VirginIslands/HongKongJanuary 22, 1998

US$20 millionordinary shares

75 75 75 75 75 Investmentbanking

ICBC (London) Limited (“ICBC (London)”)(ii)

London,United KingdomOctober 3, 2002

US$100million

ordinary shares


Industrial and Commercial Bank of China(Almaty) JSC (“ICBC (Almaty)”)(iii)

Almaty,KazakhstanMarch 3, 1993

US$10million

ordinary shares


ICBC Credit Suisse Asset Management Co.,Ltd. (“ICBC Credit Suisse AssetManagement”) (iv)

Beijing, ThePRCJune 21, 2005

RMB200million

N/A N/A 55 55 55 Fundmanagement

The above table lists the principal subsidiaries of the Bank in terms of results or net assets. Togive details of other subsidiaries would, in the opinion of the directors, result in particulars of excessivelength.

(i) The respective audited financial statements for each of the years ended December 31, 2003, 2004 and 2005 wereaudited by PricewaterhouseCoopers, Certified Public Accountants, Hong Kong.

(ii) The audited financial statements for each of the years ended December 31, 2003, 2004 and 2005 were audited by Ernst& Young LLP, Registered Auditor, London.

(iii) ICBC (Almaty), previously known as CJSC Industrial and Commercial Bank of China, was re-registered under itscurrent name on May 5, 2005. The audited financial statements for each of the years ended December 31, 2003, 2004 and 2005were audited by Deloitte & Touche, LLP, Almaty.

(iv) The audited financial statements for the period from June 21, 2005 (date of incorporation) to December 31, 2005 wereaudited by Ernst & Young Hua Ming, a firm of professional accountants registered in the PRC.

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2. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES

2.1 BASIS OF PREPARATION

The Financial Information has been prepared in accordance with IFRSs, which comprisestandards and interpretations promulgated by the International Accounting Standards Board.

The Group has not applied the following new and revised IFRSs, that have been issued but arenot yet effective, in the Financial Information.

Š IAS 1 Amendment Capital DisclosuresŠ IFRS 7 Financial Instruments: Disclosure

International Accounting Standard (“IAS”) 1 Amendment shall be applied for annual periodsbeginning on or after January 1, 2007. The revised standard will affect the disclosures regardingqualitative information about the Group’s objective, policies and processes for managing capital;quantitative data about what the Bank regards as capital; and compliance with any capital requirementsand the consequences of any non-compliance.

IFRS 7 will be effective for annual periods beginning on or after January 1, 2007. IFRS 7requires more detailed qualitative and quantitative disclosures primarily of fair value information andrisk management and, accordingly, will affect the level of details in the disclosures of the Group’sfinancial statements.

In connection with the above, the directors do not expect them to have any significant financialimpact on the Group’s financial statements.

Basis of measurement

The Financial Information has been prepared on a historical cost basis, except for certainproperty and equipment, derivative financial instruments, financial assets and liabilities at fair valuethrough profit or loss and available-for-sale financial assets that have been measured at revaluedamounts or fair values, as further detailed in the respective accounting policies below. The carryingvalues of recognised assets and liabilities that are hedged items in fair value hedges, and are otherwisecarried at cost, are adjusted to record changes in the fair values attributable to the risks that are beinghedged. The Financial Information is presented in RMB and all values are rounded to the nearestmillion except when otherwise indicated.

Basis of consolidation

A subsidiary is a company whose financial and operating policies the Bank controls, directly orindirectly, so as to obtain benefits from its activities. The Financial Information of the Groupcomprises the financial statements of the Bank and its subsidiaries. The financial statements ofsubsidiaries for the purpose of preparing the Financial Information are prepared for the same reportingyear/period as the Bank, using consistent accounting policies.

The results of subsidiaries are included in the Bank’s income statement to the extent ofdividends received and receivable. The Bank’s investments in subsidiaries are stated at cost less anyimpairment losses.

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2. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (continued)

2.1 BASIS OF PREPARATION (continued)

Basis of consolidation (continued)

All intra-group balances, transactions, income and expenses and profits and losses resultingfrom intra-group transactions are eliminated in full.

A subsidiary is fully consolidated from the date of acquisition, being the date on which theGroup obtains control, and continues to be consolidated until the date that such control ceases. Wherethere is a loss of control in a subsidiary, the consolidated income statements include the result of thatsubsidiary for the part of the reporting period during which the Bank has control.

Minority interests represent the portion of profit or loss and net assets in subsidiaries not heldby the Group and are presented separately in the consolidated income statement, and within equity inthe consolidated balance sheet separately from the equity attributable to equity holders of the Bank.

2.2 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

In the process of applying the Group’s accounting policies, management has made assumptionsof the effects of uncertain future events on the Financial Information. The key assumptions concerningthe future and other key sources of estimation uncertainty at the balance sheet date that have asignificant risk of causing a material adjustment to the carrying amounts of assets and liabilities withinthe next financial year/period are discussed below. Apart from those assumptions and estimations,judgements are also made and are set out below.

Designation of held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and a fixed maturity areclassified as held-to-maturity investments when the Group has the positive intention and ability to holdthe investments to maturity. Accordingly, in evaluating whether a financial asset shall be classified asheld-to-maturity investment, significant management judgement is required. If the Group fails tocorrectly assess its intention and ability to hold the investments to maturity and the Group sells orreclassifies more than an insignificant amount of held-to-maturity investments before maturity, theGroup shall classify the whole held-to-maturity investment portfolio as available-for-sale.

Impairment losses of loans and advances

The Group determines periodically whether there is any objective evidence that an impairmentloss on loans and advances has incurred. If any such evidence exists, the Group assesses the amount ofimpairment losses. The amount of impairment losses is measured as the difference between thecarrying amount and the present value of estimated future cash flows. Assessing the amount ofimpairment losses requires significant judgement on whether objective evidence for impairment existsand also significant estimates when determining the present value of the expected future cash flows.The carrying amount of loans and advances to customers as at the balance sheet dates are set out innote 16 to the Financial Information.

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2.2 SIGNIFICANT ACCOUNTING JUDGEMENT AND ESTIMATES (continued)

Income tax

Determining income tax provisions requires the Group to estimate the future tax treatment ofcertain transactions. The Group carefully evaluates tax implications of transactions in accordance withprevailing tax regulations and makes tax provisions accordingly. In addition, deferred income taxassets are recognised to the extent that it is probable that future taxable profit will be available againstwhich the deductible temporary differences can be utilised. This requires significant estimation on thetax treatments of certain transactions and also significant assessment on the probability that adequatefuture taxable profits will be available for the deferred income tax assets to be recovered.

Fair value of financial instruments

If the market for a financial instrument is not active, the Group establishes fair value by using avaluation technique. Valuation techniques include using recent arm’s length market transactionsbetween knowledgeable, willing parties, if available, reference to the current fair value of anotherinstrument that is substantially the same, discounted cash flow analysis and option pricing models. Tothe extent practicable, valuation technique makes maximum use of market inputs. However, wheremarket inputs are not available, management needs to make estimates on areas such as credit risk (bothown and counterparty’s), volatility and correlation. Changes in assumptions about these factors couldaffect the reported fair value of financial instruments.

2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Investments in associates

An associate is an entity in which the Group has significant influence and which is neither asubsidiary nor a joint venture. The Group’s investments in associates are accounted for under theequity method of accounting.

Under the equity method, an investment in an associate is carried in the consolidated balancesheet at cost plus post-acquisition changes in the Group’s share of the net assets of the associate, lessany impairment losses. Goodwill relating to an associate is included in the carrying amount of theinvestment and is not amortised. After application of the equity method, the Group determines whetherit is necessary to recognise any additional impairment loss with respect to the Group’s net investmentin the associate. The consolidated income statement reflects the share of the results of operations of theassociate. Where there has been a change recognised directly in the equity of the associate, the Grouprecognises its share of any changes and discloses this, when applicable, in the consolidated statementof changes in equity.

The reporting dates of the associates and the Group are identical and the associates’ accountingpolicies conform to those used by the Group for like transactions and events in similar circumstances.

The results of associates are included in the Bank’s income statement to the extent of dividendsreceived and receivable. The Bank’s investments in associates are stated at cost less any impairment losses.

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2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b) Foreign currency translation

The Financial Information is presented in RMB, being the functional and presentation currencyof the Bank’s operations in Mainland China. Each entity in the Group determines its own functionalcurrency and items included in the financial statements of each entity are measured using thatfunctional currency.

Foreign currency transactions are translated into the functional currency using the exchangerates ruling at the dates of transaction. Monetary assets and liabilities denominated in foreigncurrencies are translated into the functional currency at the applicable exchange rates ruling at thebalance sheet date. Exchange differences arising on the settlement of monetary items or on translatingmonetary items at year/period end rates are recognised in the income statement.

Non-monetary items that are measured at historical cost in a foreign currency are translatedusing the exchange rates ruling at the dates of the initial transaction. Non-monetary items measured atfair value in a foreign currency are translated using the exchange rates ruling at the date when the fairvalue was determined.

At each balance sheet date, the assets and liabilities of the subsidiaries and branches outsideMainland China are translated into the presentation currency of the Group at the exchange rates ruling atthe balance sheet date. Their income statements are translated at the weighted average exchange rates forthe year/period. The exchange differences arising on translation are taken directly to the foreign currencytranslation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equityrelating to that particular foreign operation is recognised in the consolidated income statement.

(c) Financial assets

Financial assets in the scope of IAS 39 are classified as financial assets at fair value throughprofit or loss, held-to-maturity investments, loans and receivables, and available-for-sale financialassets, as appropriate. When financial assets are recognised initially, they are measured at fair value,plus, in the case of financial assets not at fair value through profit or loss, transaction costs that aredirectly attributable to the acquisition of the financial assets.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets which are eitherclassified as held for trading or designated by the Group as fair value through profit or loss upon initialrecognition. Financial assets are classified as held for trading if they are acquired for the purpose ofsale in the near term. Derivatives are also classified as held for trading unless they are designated aseffective hedging instruments.

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(c) Financial assets (continued)

A financial asset, other than one held for trading, may be designated as financial asset at fairvalue through profit or loss upon initial recognition, if it meets the criteria set out below, and is sodesignated by management:

Š eliminates or significantly reduces a measurement or recognition inconsistency that wouldotherwise arise from measuring the financial assets or financial liabilities or recognisingthe gains and losses on them on different bases;

Š applies to a group of financial assets, financial liabilities or both that is managed and itsperformance evaluated on a fair value basis, in accordance with a documented riskmanagement or investment strategy, and where information about that group of financialinstruments is provided internally on that basis to key management personnel; or

Š relates to financial instruments containing one or more embedded derivatives thatsignificantly modify the cash flows resulting from those financial instruments.

After initial recognition, these financial assets are measured at fair value. All related realisedand unrealised gains or losses are included in the income statement.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinablepayments and a fixed maturity that the Group has the positive intention and ability to hold to maturity.These investments are carried at amortised cost using the effective interest method, less any allowancefor impairment in value. Gains and losses are recognised in the income statement when theheld-to-maturity investments are derecognised or impaired, as well as through the amortisation process.

An entity shall not classify any financial assets as held-to-maturity if the entity has, during thecurrent financial year or during the two preceding financial years, sold or reclassified more than aninsignificant amount of held-to-maturity investments before maturity (more than insignificant inrelation to the total amount of held-to-maturity investments) other than sales or reclassifications that:

(i) are so close to maturity or the financial asset’s call date (for example, less than threemonths before maturity) that changes in the market rate of interest would not have a significant effecton the financial asset’s fair value;

(ii) occur after the entity has collected substantially all of the financial asset’s originalprincipal through scheduled payments or prepayments; or

(iii) are attributable to an isolated event that is beyond the entity’s control and is non-recurringand could not have been reasonably anticipated by the entity.

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(c) Financial assets (continued)

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable paymentsthat are not quoted in an active market and the Group has no intention of trading the assets immediatelyor in the near term. Such assets are carried at amortised cost using the effective interest method, lessallowance for impairment losses. Gains and losses are recognised in the income statement when theloans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated asavailable-for-sale or are not classified in any of the three preceding categories. After initial recognition,available-for-sale financial assets are measured at fair value. Premiums and discounts onavailable-for-sale financial assets are amortised using the effective interest method and are taken to theincome statement as interest income. Changes in fair value of available-for-sale financial assets arerecognised as a separate component of equity until the financial asset is derecognised or until thefinancial asset is determined to be impaired at which time the cumulative gains or losses previouslyreported in equity are included in the income statement.

(d) Impairment of financial assets

An assessment is made at each balance sheet date to determine whether there is objectiveevidence of impairment of financial assets as a result of one or more events that occur after the initialrecognition of those assets (“loss event”) and whether the loss event has an impact on the estimatedfuture cash flows of the financial asset or group of financial assets that can be reliably estimated.

Financial assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables orheld-to-maturity investments carried at amortised cost has been incurred, the amount of the loss ismeasured as the difference between the asset’s carrying amount and the present value of estimatedfuture cash flows (excluding future credit losses that have not been incurred) discounted at thefinancial asset’s original effective interest rate. The carrying amount of the asset is reduced through theuse of an impairment allowance account and the amount of the loss is recognised in the incomestatement.

The Group first assesses whether objective evidence of impairment exists individually forfinancial assets that are individually significant, and individually or collectively for financial assets thatare not individually significant. If it is determined that no objective evidence of impairment exists foran individually assessed financial asset, whether significant or not, the asset is included in a group offinancial assets with similar credit risk characteristics and that group of financial assets is collectively

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(d) Impairment of financial assets (continued)

assessed for impairment. Assets that are individually assessed for impairment and for which animpairment loss is or continues to be recognised are not included in a collective assessment ofimpairment.

Future cash flows of a group of financial assets that are collectively evaluated for impairmentare estimated on the basis of historical loss experience for assets with credit risk characteristics similarto those in the group. Historical loss experience is adjusted on the basis of current observable data toreflect the impact of current conditions that did not affect the period on which the historical lossexperience is based and to eliminate the impact of historical conditions that do not exist currently. Themethodology and assumptions used for estimating future cash flows are reviewed regularly by theGroup.

If, in a subsequent period, the amount of an impairment loss decreases and the decrease can beattributed objectively to an event occurring after the impairment was recognised, the previouslyrecognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised inthe income statement, to the extent that the carrying value of the asset does not exceed its amortisedcost at the reversal date.

When a loan and receivable is uncollectible, it is written off against the related allowance forimpairment losses. Such loans and receivables are written off after all the necessary procedures havebeen completed and the amount of the loss has been determined. Subsequent recoveries of the amountspreviously written off decrease the amount of the provision for impairment losses in the incomestatement.

Financial assets carried at cost

If there is objective evidence that an impairment loss on an unquoted equity instrument that isnot carried at fair value because its fair value cannot be reliably measured has incurred, the amount ofimpairment loss is measured as the difference between the carrying amount of that financial asset andthe present value of estimated future cash flows discounted at the current market rate of return for asimilar financial asset. Impairment losses on these assets are not reversed.

Available-for-sale financial assets

If an available-for-sale asset is impaired, an amount comprising the difference between its cost(net of any principal repayment and amortisation) and its current fair value, less any impairment losspreviously recognised in the income statement, is transferred from equity to the income statement.

Reversals in respect of equity instruments classified as available-for-sale are not recognised inthe income statement. Reversals of impairment losses on debt instruments classified asavailable-for-sale are reversed through the income statement, if the increase in fair value of the

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(d) Impairment of financial assets (continued)

instrument can be objectively related to an event occurring after the impairment loss was recognised inthe income statement.

(e) Financial liabilities

Financial liabilities are classified as either financial liabilities at fair value through profit or lossor deposits, debt securities issued or other financial liabilities.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are financial liabilities which are eitherclassified as held for trading or, based on the criteria in note 2.3(c), designated by the Group as fairvalue through profit or loss upon initial recognition. Gains and losses from changes in fair value arerecognised in the income statement.

Deposits, debt securities issued and other financial liabilities

Deposits, debt securities issued other than those designated as trading liabilities or at fair valuethrough profit or loss, and other financial liabilities are carried at amortised cost.

(f) Derecognition of financial assets and liabilities

Financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similarfinancial assets) is derecognised when:

Š the rights to receive cash flows from the assets have expired;

Š the Group retains the right to receive cash flows from the assets, but has assumed anobligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or

Š the Group has transferred its rights to receive cash flows from the asset and either (i) hastransferred substantially all the risks and rewards of ownership of the financial asset; or(ii) has neither transferred nor retained substantially all the risks and rewards of ownershipof the financial asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neithertransferred nor retained substantially all the risks and rewards of the asset nor transferred control of theasset, the asset is recognised to the extent of the Group’s continuing involvement in the asset.Continuing involvement that takes the form of a guarantee over the transferred asset is measured at thelower of the original carrying amount of the asset and the maximum amount of consideration that theGroup could be required to repay.

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(f) Derecognition of financial assets and liabilities (continued)

Where continuing involvement takes the form of a written and/or purchased option (including acash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuinginvolvement is the amount of the transferred asset that the Group may repurchase, except in the case ofa written put option (including a cash-settled option or similar provision) on an asset measured at fairvalue, where the extent of the Group’s continuing involvement is limited to the lower of the fair valueof the transferred asset and the option exercise price.

Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged orcancelled or expires. Where an existing financial liability is replaced by another from the same lenderon substantially different terms, or the terms of an existing liability are substantially modified, such anexchange or modification is treated as a derecognition of the original liability and the recognition of anew liability, and the difference in the respective carrying amounts is recognised in the incomestatement.

(g) Derivatives and hedge accounting

The Group uses derivative financial instruments such as forward currency contracts and interestrate swaps to hedge its risks associated with foreign currency and interest rate fluctuations. Suchderivative financial instruments are initially recognised at fair value on the date on which a derivativecontract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assetswhen the fair value is positive and as liabilities when the fair value is negative.

Certain derivatives embedded in other financial instruments are treated as separate derivativeswhen their economic characteristics and risks are not closely related to those of the host contract andthe hybrid instrument is not carried at fair value through profit or loss. These embedded derivatives aremeasured at fair value with the changes in fair value recognised in the income statement.

Any gains or losses arising from changes in fair value on derivatives that do not qualify forhedge accounting are taken directly to the income statement.

The fair value of forward currency contracts is calculated by reference to current forwardexchange rates for contracts with similar maturity profiles. The fair value of interest rate swapcontracts is determined by reference to market values for similar instruments.

For the purpose of hedge accounting, hedges are classified as fair value hedges when hedgingthe exposure to changes in the fair value of a recognised asset or liability.

At the inception of a hedge relationship, the Group formally designates and documents thehedge relationship to which the Group wishes to apply hedge accounting and the risk management

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(g) Derivatives and hedge accounting (continued)

objective and strategy for undertaking the hedge. The documentation includes identification of thehedging instrument, the hedged item or transaction, the nature of the risk being hedged and how theentity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in thehedged item’s fair value attributable to the hedged risk. Such hedges are expected to be highlyeffective in achieving offsetting changes in fair value and are assessed on an ongoing basis todetermine that they actually have been highly effective throughout the financial reporting periods forwhich they were designated.

Certain derivative transactions, while providing effective economic hedges under the Group’srisk management positions, do not qualify for hedge accounting under the IAS 39 and are thereforetreated as derivatives held for trading with fair value gains or losses recognised in the incomestatement. Hedges which meet the strict criteria for hedge accounting are accounted for in accordancewith the Group’s accounting policy as set out below.

Fair value hedges are hedges of the Group’s exposure to changes in the fair value of arecognised asset or liability or an unrecognised firm commitment, or an identified portion of such anasset, liability or firm commitment, that is attributable to a particular risk and could affect profit orloss. For fair value hedges, the carrying amount of the hedged item is adjusted for gains and lossesattributable to the risk being hedged, the derivative is remeasured at fair value and gains and lossesfrom both are taken to the income statement.

For fair value hedges relating to items carried at amortised cost, the adjustment to carryingvalue is amortised through the income statement over the remaining term to maturity. Any adjustmentto the carrying amount of a hedged financial instrument for which the effective interest method is usedis amortised and charged to the income statement.

Amortisation may begin as soon as an adjustment exists and shall begin no later than when thehedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

When an unrecognised firm commitment is designated as a hedged item, the subsequentcumulative change in the fair value of the firm commitment attributable to the hedged risk isrecognised as an asset or liability with a corresponding gain or loss recognised in the income statement.The changes in the fair value of the hedging instrument are also recognised in the income statement.

The Group discontinues fair value hedge accounting if the hedging instrument expires or issold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Grouprevokes the designation. Any adjustment to the carrying amount of a hedged financial instrument forwhich the effective interest method is used is amortised and charged to the income statement.Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedgeditem ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

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(h) Trade date accounting

All regular way purchases and sales of financial assets are recognised at the trade date, i.e., thedate that the Group commits to purchase the assets. A regular way purchase or sale is the purchase orsale of financial assets that requires delivery of assets within the time frame generally established byregulation or convention in the marketplace.

(i) Offsetting

Financial assets and liabilities are offset and the net amount is reported in the balance sheetonly when the Group has a legally enforceable right to offset such amounts with the same counterpartyand transactions are expected to be settled on a net basis.

(j) Repurchase and reverse repurchase transactions

The Group enters into purchases of assets under agreements to resell and sales of assets underagreements to repurchase. Assets purchased under agreements to resell at a pre-determined price on aspecific future date are treated as loans collateralised by the assets and are included in reverserepurchase agreements. Assets sold under agreements to repurchase at a pre-determined price on aspecific future date continue to be recognised in the balance sheet. The proceeds from the sale of theseassets are treated as liabilities and included in repurchase agreements.

Interest earned on reverse repurchase agreements and interest incurred on repurchaseagreements are recognised as interest income and interest expense, respectively, on a time proportionbasis.

(k) Property and equipment

Prior to June 30, 2005, property and equipment were stated at cost less accumulateddepreciation and any impairment losses. The cost of an item of property and equipment comprises itspurchase price and any directly attributable costs of bringing the asset to its present working conditionand location for its intended use. Expenditure incurred after an item of property and equipment hasbeen put into operation, such as repairs and maintenance, is normally charged to the income statementin the period in which it is incurred. In situations where it can be clearly demonstrated that theexpenditure has resulted in an increase in the future economic benefits expected to be obtained fromthe use of the assets, the expenditure is capitalised as an additional cost of the assets.

In preparation for the Restructuring, ICBC valued its property and equipment at June 30, 2005.The surplus arising therefrom was capitalised as share capital of the joint-stock limited company uponthe incorporation of the Bank. Further details of the valuation are set out in note 20 to the FinancialInformation.

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(k) Property and equipment (continued)

As from June 30, 2005, property and equipment (except for leasehold improvements) arecarried at valuation, less accumulated depreciation and any impairment losses. Fair value is determinedby reference to market-based evidence, which is the amount for which the asset could be exchangedbetween a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s lengthtransaction as at the valuation date. Valuations are performed frequently enough to ensure that the fairvalue of a revalued asset does not differ materially from its carrying amount.

Any revaluation surplus is credited to the asset revaluation reserve, except to the extent that itreverses a revaluation deficit of the same asset previously recognised in the income statement, in whichcase the surplus is recognised in the income statement. A revaluation deficit is recognised in theincome statement, except that a deficit directly offsetting a previous surplus on the same asset isdirectly offset against the surplus in the asset revaluation reserve.

An annual transfer from the asset revaluation reserve to retained profits is made for thedifference between the depreciation amount based on the revalued carrying amount of the assets andthe depreciation amount based on the original cost of the assets. Additionally, accumulateddepreciation as at the revaluation date is eliminated against the gross carrying amount of the asset andthe net amount is restated to the revalued amount of the asset. Upon disposal of an asset, any assetrevaluation reserve relating to the particular asset being sold is transferred to retained profits.

Construction in progress comprises the direct costs of construction during the period ofconstruction and is not depreciated. Construction in progress is reclassified to the appropriate categoryof property and equipment when completed and ready for use.

The carrying values of property and equipment are reviewed for impairment when events orchanges in circumstances indicate that the carrying values may not be recoverable.

Depreciation is calculated on the straight-line basis to write off the cost or valuation of eachasset, less any estimated residual value, over the estimated useful life of each asset as follows:

Estimated useful lives

Properties and buildings 5 to 35 yearsLeasehold improvements Economic useful life or remaining lease terms,

whichever is shorterOffice equipment and computers 3 to 5 yearsMotor vehicles 4 to 6 years

An item of property and equipment is derecognised upon disposal or when no future economicbenefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset(calculated as the difference between the net disposal proceeds and the carrying amount of the asset) isincluded in the income statement in the year/period the asset is derecognised.

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(k) Property and equipment (continued)

Residual values, useful lives and depreciation methods are reviewed, and adjusted ifappropriate, at each year/period end.

(l) Land use rights

Land use rights are recognised at cost, being the fair value at the time of injection from theGovernment (note 1(b)(iv)) or the consideration paid. The rights are amortised using the straight-linebasis over the period of the leases. When the prepaid land lease payments cannot be allocated reliablybetween the land and buildings elements, the entire lease payments are included in the cost of theproperties and buildings as finance leases in property and equipment.

(m) Repossessed assets

Repossessed assets are initially recognised at cost and reviewed at each balance sheet date bythe management of the Group to assess whether they are recorded in excess of their recoverableamount, and if their carrying value exceeds the recoverable amount, the assets are written down.Impairment losses are charged to the income statement.

(n) Goodwill

Goodwill arising from a business combination is initially measured at cost, being the excess ofthe cost of the business combination over the Group’s interest in the net fair value of the identifiableassets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at costless any accumulated impairment losses. Goodwill is reviewed for impairment, annually or morefrequently if events or changes in circumstances indicate that the carrying value may be impaired. Animpairment loss recognised for goodwill is not reversed in a subsequent period.

(o) Impairment of assets

The Group assesses at each reporting date whether there is an indication that an asset may beimpaired. If any such indication exists, or when annual impairment testing for an asset is required, theGroup makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is thehigher of its fair value less costs to sell and its value in use and is determined on an individual basis,unless the asset does not generate cash inflows that are largely independent of those from other assetsor groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset isconsidered to be impaired and is written down to its recoverable amount. In assessing value in use ofan asset, the estimated future cash flows are discounted to their present value using a pre-tax discountrate that reflects current market assessments of the time value of money and the risks specific to theasset. Impairment losses of continuing operations are recognised in the income statement under thoseexpense categories consistent with the function of the impaired assets, unless the asset is carried at arevalued amount, in which case the impairment loss is accounted for in accordance with the relevantaccounting policy for that revalued asset.

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(o) Impairment of assets (continued)

An assessment is made at each reporting date as to whether there is any indication thatpreviously recognised impairment losses may no longer exist or may have decreased. If such indicationexists, the recoverable amount is estimated. A previously recognised impairment loss is reversed onlyif there has been a change in the estimates used to determine the asset’s recoverable amount since thelast impairment loss was recognised. If that is the case the carrying amount of the asset is increased toits recoverable amount. That increased amount cannot exceed the carrying amount that would havebeen determined, net of any depreciation/amortisation, had no impairment loss been recognised for theasset in prior years. Such reversal is recognised in the income statement unless the asset is carried atrevalued amount, in which case the reversal of the impairment loss is accounted for in accordance withthe relevant accounting policy for that revalued asset. After such a reversal, the depreciation/amortisation charge is adjusted in future periods to allocate the asset’s revised carrying amount, lessany residual value, on a systematic basis over its remaining useful life.

(p) Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprisecash on hand, amounts due from central banks with original maturity of three months or less, amountsdue from banks and other financial institutions with original maturity of three months or less, reverserepurchase agreements with original maturity of three months or less, and short term highly liquidinvestments which are readily convertible into known amounts of cash and are subject to aninsignificant risk of changes in value, and which are within three months of maturity when acquired.

(q) Operating leases

Leases where substantially all the risks and rewards of ownership of the assets remain with thelessor are accounted for as operating leases. Rental payments applicable to such operating leases arecharged to the income statement on the straight-line basis over the lease terms.

(r) Related parties

A party is considered to be related to the Group if:

(i) the party, directly or indirectly through one or more intermediaries, (a) controls, iscontrolled by, or is under common control with, the Group; (b) has an interest in the Groupthat gives it significant influence over the Group; or (c) has joint control over the Group;

(ii) the party is an associate of the Group;

(iii) the party is a joint venture in which the Group is a venturer;

(iv) the party is a member of the key management personnel of the Group or its parent;

(v) the party is a close member of the family of any individual referred to in (i) or (iv);

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(r) Related parties (continued)

(vi) the party is an entity that is controlled, jointly controlled or significantly influenced by, orfor which significant voting power in such entity resides with, directly or indirectly, anyindividual referred to in (iv) or (v); or

(vii) the party is a post-employment benefit plan for the benefit of the employees of the Group,or of any entity that is a related party of the Group.

(s) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow tothe Group and when the revenue can be reliably measured. The following specific recognition criteriamust also be met before revenue is recognised:

Interest income

Interest income is recognised as it accrues (using the effective interest method by applying therate that exactly discounts estimated future cash receipts through the expected life of a financialinstrument to the net carrying amount of the financial asset). Once a financial asset or a group ofsimilar financial assets has been written down as a result of an impairment loss, interest income isthereafter recognised using the interest rate used to discount the future cash flows for the purpose ofmeasuring the impairment loss.

Fee and commission income

Fee and commission income is recognised when the services have been rendered and theproceeds can be reasonably estimated.

Dividend income

Dividend income is recognised when the shareholders’ right to receive payment has beenestablished.

(t) Income tax

Current tax

Current tax assets and liabilities for the current and prior periods are measured at the amountexpected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used tocompute the amount are those that are enacted or substantively enacted at the balance sheet date.

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(t) Income tax (continued)

Deferred income tax

Deferred income tax is provided using the liability method on all temporary differences at thebalance sheet date between the tax bases of assets and liabilities and their carrying amounts forfinancial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences, except:

Š where the deferred income tax liability arises from the initial recognition of goodwill or ofan asset or liability in a transaction that is not a business combination and, at the time ofthe transaction, affects neither the accounting profit nor taxable profit or loss; and

Š in respect of taxable temporary differences associated with investments in subsidiaries andassociates where the timing of the reversal of the temporary differences can be controlledand it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences,carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxableprofit will be available against which the deductible temporary differences, and the carryforward ofunused tax credits and unused tax losses can be utilised except:

Š where the deferred income tax asset relating to the deductible temporary difference arisesfrom the initial recognition of an asset or liability in a transaction that is not a businesscombination and, at the time of the transaction, affects neither the accounting profit nortaxable profit or loss; and

Š in respect of deductible temporary differences associated with investments in subsidiariesand associates, deferred income tax assets are recognised only to the extent that it isprobable that the temporary differences will reverse in the foreseeable future and taxableprofit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date andreduced to the extent that it is no longer probable that sufficient taxable profit will be available to allowall or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets arereassessed at each balance sheet date and are recognised to the extent that it has become probable thatfuture taxable profit will allow the deferred income tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected toapply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws)that have been enacted or substantively enacted at the balance sheet date.

Income tax relating to items recognised directly in equity is recognised in equity and not in theincome statement.

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(t) Income tax (continued)

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceableright exists to set off current tax assets against current tax liabilities and the deferred income taxesrelate to the same taxable entity and the same taxation authority.

(u) Employee benefits

Short term employee benefits

Salaries and bonuses, social security contributions and other short term employee benefits areaccrued in the period in which services are rendered by the employees of the Group.

Defined contribution plans

According to the statutory requirements in Mainland China, the Group is required to makecontributions to the pension and insurance schemes that are separately administered by the localgovernment authorities.

In addition, employees in Mainland China can also voluntarily participate in a contributionretirement benefit plan established by the Bank (the “Annuity Plan”).

All eligible employees outside Mainland China participate in local defined contributionschemes. The Group contributes to these defined contribution plans based on a certain percentage ofthe employees’ basic salaries.

Contributions to these plans are recognised in the income statement as incurred.

Supplementary retirement benefits

Certain employees of the Group in Mainland China can enjoy supplementary retirementbenefits after retirement, which include supplementary pension and supplementary medical benefits.These benefits are unfunded. The cost of providing benefits is determined using the projected unitcredit actuarial valuation method. The present value of such benefits is recorded under “otherliabilities” in the balance sheet. Actuarial gains and losses are recognised in the income statement inthe period in which they occur.

(v) Acceptances

Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers.The Group expects most acceptances to be settled simultaneously upon reimbursement fromcustomers. Acceptances are accounted for as off-balance sheet transactions and are disclosed ascommitments.

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(w) Fiduciary activities

Where the Group acts in a fiduciary capacity such as nominee, trustee or agent, assets arisingthereon together with related undertakings to return such assets to customers are excluded from thebalance sheet.

The Group grants entrusted loans on behalf of third-party lenders, which are recordedoff-balance sheet. The Group, as an agent, grants such entrusted loans to borrowers under the directionof those third-party lenders who fund these loans. The Group has been contracted by those third-partylenders to manage the administration and collection of these loans on their behalf. Those third-partylenders determine both the underwriting criteria for and the terms of all entrusted loans including theirpurposes, amounts, interest rates, and repayment schedules. The Group charges a commission relatedto its activities in connection with entrusted loans which is recognised ratably over the period in whichthe service is provided. The risk of loss is borne by those third-party lenders.

(x) Financial guarantee contracts

The Group issues letters of credit and letters of guarantee. These financial guarantee contractsprovide for specified payments to be made to reimburse the holder for a loss it incurs when aguaranteed party defaults under the original or modified terms of a debt instrument, loan or otherobligation.

The Group initially measures all financial contracts at fair value. This amount is recognisedratably over the period of the contract to fee and commission income. Subsequently, the liabilities aremeasured as the higher of the initial fair value less cumulative amortisation and the fair value of theprovision related to the Group’s obligation under the contract. The change in fair value of the provisiondue to impairment is recognised in the income statement as impairment losses.

(y) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodying economic benefits will berequired to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Where the Group expects some or all of a provision to be reimbursed, for example, under aninsurance contract, the reimbursement is recognised as a separate asset but only when thereimbursement is virtually certain. The expenses relating to any provision is presented in the incomestatement net of any reimbursement. If the effect of the time value of money is material, provisions aredetermined by discounting the expected future cash flows at a pre-tax rate that reflects, whereappropriate, the risks specific to the liability. Where discounting is used, the increase in the provisiondue to the passage of time is recognised as an interest expense.

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(z) Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existencewill only be confirmed by the occurrence or non-occurrence of one or more uncertain future events notwholly within the control of the Group. It can also be a present obligation arising from past events thatis not recognised because it is not probable that an outflow of economic resources will be required orthe amount of obligation cannot be measured reliably.

Contingent liabilities are not recognised but are disclosed in the notes to the FinancialInformation. When a change in the probability of an outflow occurs so that outflow is probable, it willthen be recognised as a provision.

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3. NET INTEREST INCOMEYear ended December 31, Six months ended June 30,

2003 2004 2005 2005 (Unaudited) 2006

Interest income on:Loans and advances to customers . . . . . 147,354 160,168 175,285 84,961 89,570Due from central banks . . . . . . . . . . . . . 7,523 8,286 8,967 4,331 4,508Due from banks and other financial

institutions . . . . . . . . . . . . . . . . . . . . . 3,628 2,238 4,470 1,268 3,625Investment securities . . . . . . . . . . . . . . . 30,564 34,197 51,480 21,723 31,335

189,069 204,889 240,202 112,283 129,038

Interest expense on:Due to customers . . . . . . . . . . . . . . . . . . (60,423) (65,821) (80,753) (37,865) (48,415)Due to a central bank . . . . . . . . . . . . . . . (218) (85) (44) (42) —Due to banks and other financial

institutions . . . . . . . . . . . . . . . . . . . . . (5,720) (4,215) (5,312) (2,583) (3,499)Debt issued . . . . . . . . . . . . . . . . . . . . . . . — (40) (490) (68) (616)

(66,361) (70,161) (86,599) (40,558) (52,530)

Net interest income . . . . . . . . . . . . . . . . . . . . . 122,708 134,728 153,603 71,725 76,508

The amounts of accretion of impairment provision discount (note 16) included in interestincome are as follows:


2003 2004 2005 2005 (Unaudited) 2006

Accretion of impairment provisiondiscount . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,844 9,876 8,349 5,657 896

4. FEE AND COMMISSION INCOMEYear ended December 31, Six months ended June 30,

2003 2004 2005 2005 (Unaudited) 2006

Renminbi settlement and clearingbusiness . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,719 2,374 2,824 1,279 2,153

Bank card business . . . . . . . . . . . . . . . . . . . . . 1,001 1,616 2,346 999 1,355Investment banking business . . . . . . . . . . . . . 796 1,234 2,018 974 1,764Wealth management services . . . . . . . . . . . . . 1,446 1,843 1,929 714 1,409Agency services . . . . . . . . . . . . . . . . . . . . . . . 815 963 1,081 454 599Foreign currency intermediary business . . . . 654 778 879 376 493E-banking business . . . . . . . . . . . . . . . . . . . . . 114 235 421 200 335Custody services . . . . . . . . . . . . . . . . . . . . . . . 86 182 263 127 143Guarantee and commitment business . . . . . . . 163 166 261 126 238Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 389 354 253 272

7,059 9,780 12,376 5,502 8,761

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5. OTHER OPERATING INCOMEYear ended December 31, Six months ended June 30,

2003 2004 2005 2005 (Unaudited) 2006

Dividend income from unlistedinvestments . . . . . . . . . . . . . . . . . . . . . . . . . 3 17 2 — 3

Gain from foreign exchange and foreignexchange products, net . . . . . . . . . . . . . . . . . 1,190 894 2,255 1,681 218

Gain/(loss) on investments in securities,net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553 358 107 405 (341)

Gain/(loss) from other dealing activities,net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (326) 660 1,207 662 410

Gain on disposal of property and equipmentand other assets, net . . . . . . . . . . . . . . . . . . . 482 814 626 707 166

Sundry bank charges income . . . . . . . . . . . . . . 893 744 1,309 522 226Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,657 1,536 1,965 523 694

4,452 5,023 7,471 4,500 1,376

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6. OPERATING EXPENSESYear ended December 31, Six months ended June 30,

2003 2004 2005 2005 (Unaudited) 2006

Staff costs (including directors’ and supervisors’emoluments (note 7)):

Salaries and bonuses . . . . . . . . . . . . . . . . . . . . 13,435 14,767 18,975 6,490 9,704Contributions to defined contribution

plans (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,573 1,946 2,413 1,205 1,694Other staff benefits . . . . . . . . . . . . . . . . . . . . . 5,173 5,510 6,602 2,376 3,287

20,181 22,223 27,990 10,071 14,685

Supplementary retirement benefits (note27(iii)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 (2,677) 4,770 2,987 389

Premises and equipment expenses:Depreciation (note 20) . . . . . . . . . . . . . . . . . . 8,654 8,977 9,852 4,571 5,053Minimum lease payments under operating

leases in respect of land and buildings . . . . 1,704 1,698 1,895 792 882Utility expenses . . . . . . . . . . . . . . . . . . . . . . . 1,229 1,247 1,406 625 648Repairs and maintenance charges . . . . . . . . . 1,071 913 1,256 529 670

12,658 12,835 14,409 6,517 7,253

Other administrative expenses (ii) . . . . . . . . . . . . . 10,442 10,383 10,484 4,981 4,564Amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 752 710 712 288 513Business tax and surcharges . . . . . . . . . . . . . . . . . . 7,279 8,270 9,419 4,361 5,368Expenses in relation to special government bond

(note 17(a)(ii)) . . . . . . . . . . . . . . . . . . . . . . . . . . 6,120 6,120 5,610 3,060 —Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,950 4,775 8,191 1,699 1,924

62,575 62,639 81,585 33,964 34,696

(i) Contributions to defined contribution plans mainly include contributions to the state pension andinsurance schemes and the Bank’s Annuity Plan. During the Relevant Periods and the six monthsended June 30, 2005 (unaudited) and at the end of each of the Relevant Periods, the Group’sforfeited contributions available to reduce its contributions to the Annuity Plan in future yearswere not material.

(ii) Included in other administrative expenses are auditors’ remuneration of RMB44 million,RMB50 million and RMB49 million for each of the years ended December 31, 2003, 2004 and2005, respectively, and RMB25 million and RMB70 million for the six months ended June 30,2005 (unaudited) and 2006, respectively.

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7. DIRECTORS’ AND SUPERVISORS’ EMOLUMENTS

Details of the directors’ and supervisors’ emoluments are as follows:

Year ended December 31,Six months

ended June 30,

2003 2004 2005 2005 (Unaudited) 2006

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

Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 365 — 730Other emoluments:

Salaries, allowances and benefits inkind . . . . . . . . . . . . . . . . . . . . . . . . . . — — 329 — 614

Discretionary bonuses . . . . . . . . . . . . . . — — 183 — 2,100Contributions to defined contribution

plans . . . . . . . . . . . . . . . . . . . . . . . . . — — 196 — 250

— — 1,073 — 3,694

The number of directors and supervisors whose emoluments fell within the following band is asfollows:


ended June 30,

2003 2004 2005 2005 (Unaudited) 2006

Nil to RMB1,000,000 . . . . . . . . . . . . . . . . . . — — 17 — 18

The Bank was incorporated on October 28, 2005 and first appointed directors and supervisorson the same day. Accordingly, prior to that date, there were no directors’ and supervisors’ emoluments.Included in the fees are amounts of RMB245,000 and RMB490,000 paid to independent non-executivedirectors for the year ended December 31, 2005 and for the six months ended June 30, 2006,respectively.

Other non-executive directors received no fees and emoluments from the Group for the yearended December 31, 2005 and for the six months ended June 30, 2006.

One of the Bank’s executive directors, who are also a director of a subsidiary of the Bank,waived emoluments amounting to RMB85,288, RMB122,360 and RMB176,953 for the years endedDecember 31, 2003, 2004 and 2005, respectively, which were payable as discretionary bonuses tocertain employees who contribute to the success of operations of the Bank’s subsidiary. Therefore,those emoluments were not included in the directors’ emoluments disclosed above. Save as above,there was no arrangement under which a director or a supervisor waived or agreed to waive anyremuneration during the Relevant Periods and the six months ended June 30, 2005 (unaudited).

During the Relevant Periods and the six months ended June 30, 2005 (unaudited), noemoluments were paid by the Group to any of the persons who are directors or supervisors as aninducement to join or upon joining the Group or as compensation for loss of office.

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8. FIVE HIGHEST PAID INDIVIDUALS

The five highest paid individuals of the Group are employees of the Bank’s overseassubsidiaries/branches. Their emoluments were determined based on the prevailing market rates in therespective countries/regions where the subsidiaries/branches are operating. None of them are directors,supervisors or key management personnel of the Bank whose emoluments are disclosed in note 7 or39(e) to the Financial Information. Details of the emoluments in respect of the five highest paidindividuals are as follows:


ended June 30,

2003 2004 2005 2005 (Unaudited) 2006


Salaries, allowances and benefits in kind . . . 8,738 10,012 13,695 6,190 6,957Discretionary bonuses . . . . . . . . . . . . . . . . . . 5,964 5,929 3,399 — —Contributions to defined contribution

plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 785 955 972 446 595

15,487 16,896 18,066 6,636 7,552

The number of these individuals whose emoluments fell within the following bands is set outbelow. For the six months ended June 30, 2005 (unaudited) and 2006, the corresponding emolumentsof each band represent the amounts attributable to the six months periods only.


2003 2004 2005 2005 (Unaudited) 2006

Nil to RMB1,000,000 . . . . . . . . . . . . . . . . . . — — — 1 —RMB1,000,001 to RMB1,500,000 . . . . . . . . — — — 3 3RMB1,500,001 to RMB2,000,000 . . . . . . . . 1 — — — 1RMB2,000,001 to RMB2,500,000 . . . . . . . . 1 — — 1 1RMB2,500,001 to RMB3,000,000 . . . . . . . . — — 2 — —RMB3,000,001 to RMB3,500,000 . . . . . . . . 1 3 — — —RMB3,500,001 to RMB4,000,000 . . . . . . . . 1 2 1 — —RMB4,000,001 to RMB4,500,000 . . . . . . . . 1 — 2 — —

5 5 5 5 5

During the Relevant Periods and the six months ended June 30, 2005 (unaudited), noemoluments were paid by the Group to any of these non-director and non-supervisor individuals as aninducement to join or upon joining the Group or as compensation for loss of office.

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9. PROVISIONS FOR IMPAIRMENT LOSSES ON ASSETS OTHER THAN LOANSAND ADVANCES


Notes 2003 2004 2005 2005 (Unaudited) 2006

Charge/(reversal) of provision forimpairment losses on:

Nostro accounts . . . . . . . . . . . . . . 14 — — (6) — 4Placements with banks and other

financial institutions . . . . . . . . 14 6 — 28 2 (33)Investment securities . . . . . . . . . . 17(e) 789 — 13 — 15Property and equipment . . . . . . . 20 100 — 289 59 188Repossessed assets . . . . . . . . . . . 22 484 348 101 104 399

1,379 348 425 165 573

10. INCOME TAX EXPENSE

PRC income tax has been provided at the statutory rate of 33% in accordance with the relevanttax laws in Mainland China during the Relevant Periods and the six months ended June 30, 2005(unaudited). Taxes on profits assessable elsewhere have been calculated at the applicable rates of taxprevailing in the countries/regions in which the Group operates, based on existing legislation,interpretations and practices in respect thereof.


2003 2004 2005 2005 (Unaudited) 2006

Current income tax:PRC—Mainland China . . . . . . . . . . . . . . . . . 4 3,141 14,563 1 15,115—Hong Kong and Macau . . . . . . . . . . . 160 207 220 117 151Overseas . . . . . . . . . . . . . . . . . . . . . . . . . 42 57 53 16 34

206 3,405 14,836 134 15,300Overprovision in prior years . . . . . . . . . . . . . — — — — (1,359)

206 3,405 14,836 134 13,941Deferred income tax expense/(credit) . . . . . . 11,086 19,788 10,171 9,823 (742)

Total income tax expense for theyear/period . . . . . . . . . . . . . . . . . . . . . . . . . 11,292 23,193 25,007 9,957 13,199

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10. INCOME TAX EXPENSE (continued)

A reconciliation of income tax expense applicable to profit before tax at the PRC statutoryincome tax rate of 33% to income tax expense at the Group’s effective income tax rate is as follows:


2003 2004 2005 2005 (Unaudited) 2006

Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,884 54,411 63,026 35,405 38,841

Tax at the PRC statutory income tax rate . . . . . . . . 11,182 17,956 20,799 11,684 12,818Non-deductible expenses (i)

Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,983 3,576 5,687 1,723 2,792Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465 3,274 3,506 70 1,256Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,589 3,491 745 91 367

5,037 10,341 9,938 1,884 4,415

Non-taxable incomeIncome arising from bonds exempted from

income tax (ii) . . . . . . . . . . . . . . . . . . . . . . (4,748) (4,934) (5,477) (3,437) (1,801)Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (179) (170) (253) (174) (874)

(4,927) (5,104) (5,730) (3,611) (2,675)

Overprovision in prior years . . . . . . . . . . . . . . . . . — — — — (1,359)

Tax expense at the Group’s effective income taxrate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,292 23,193 25,007 9,957 13,199

(i) The amounts mainly represent staff costs in excess of the statutory deductible threshold for incometax purposes, write-offs not approved by the tax authorities, and entertainment expenses,depreciation and amortisation charges which are not deductible for tax purposes.

(ii) The amounts mainly comprise interest income from the PRC government bonds and Huarongbonds which are exempted from income tax. According to a notice issued by the MOF in 2005,interest income from Huarong bonds is subject to income tax from July 1, 2005 onwards.

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10. INCOME TAX EXPENSE (continued)

Deferred income tax expense/(credit) relates to the following origination and reversal oftemporary differences:


2003 2004 2005 2005 (Unaudited) 2006

Provisions for impairment losses on loans andadvances and other assets (i) . . . . . . . . . . . . . . . . . 6,424 16,063 4,278 5,206 (293)

Adjustment of overdue interest receivables (ii) . . . . 3,719 3,041 954 954 —Provision for housing reform losses (iii) . . . . . . . . . . 1,007 894 2,548 2,548 —Amortisation and interest recognition for short term

debt securities (iv) . . . . . . . . . . . . . . . . . . . . . . . . . 212 685 (486) (1,027) (541)Changes in fair value of financial instruments at fair

value through profit or loss (v) . . . . . . . . . . . . . . . (195) (26) 1,649 464 404Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (81) (869) 1,228 1,678 (312)

Deferred income tax expense/(credit) . . . . . . . . . . . . 11,086 19,788 10,171 9,823 (742)

(i) Provision for impairment losses on loans and advances and other assets are determined based on theexpected recoverable amount of the relevant assets at the balance sheet date for financial reportingpurposes while the amounts deductible for tax purposes are calculated at 1% of the gross carryingamount of qualifying assets together with the write-offs which fulfill the specific write-off criteriaas set out in the PRC tax rules and approved by the tax authorities.

(ii) Pursuant to a notice issued by the MOF in 2001, interest receivable was reversed in the consolidatedincome statement when the interest receivable or the corresponding loan principal becomes overduefor more than 90 days. Adjustment of interest income arising from the change of interest accrualpolicy in 2001 is however allowed to be deducted for tax purposes over five years from 2001 to 2005.

(iii) Pursuant to the one-off housing reform policy in Mainland China in 1998, the Group allocatedcertain staff quarters to eligible employees for nominal consideration. Losses arising from theallocation were recognised in the consolidated income statement prior to 2001 for financialreporting purposes. Such losses were allowed to be deducted for tax purposes over five years from2001 to 2005.

(iv) Amortisation of premium and discount and the interest income for short term debt investments aretaxed upon disposal or maturity of these investments.

(v) Fair value adjustments for other financial instruments at fair value through profit or loss are subjectto income tax only when realised.

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11. DIVIDEND

The proposed final dividend of approximately RMB0.014 per share amounted to RMB3,537million in total for the year ended December 31, 2005 was approved in a meeting of the shareholdersof the Bank held on April 28, 2006.

Pursuant to the arrangement as approved in the meetings of the board of directors andshareholders held on July 28, 2006 and July 31, 2006, respectively, after the appropriation to surplusreserves and general reserve during the six months ended June 30, 2006, a dividend of approximatelyRMB0.065 per share amounted to RMB18,593 million in total was proposed.

12. EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE BANK

The calculation of basic and diluted earnings per share amounts is based on the following:


2003 2004 2005 2005 (Unaudited) 2006

Earnings:Consolidated profit for the year/period

attributable to equity holders of theBank . . . . . . . . . . . . . . . . . . . . . . . . . . 22,472 30,863 37,555 25,161 25,399

Shares:Weighted average number of shares in

issue or deemed to be in issue(million) . . . . . . . . . . . . . . . . . . . . . . . 248,000 248,000 248,000 248,000 256,710

Earnings per share (RMB) . . . . . . . . . . . . . . . 0.09 0.12 0.15 0.10 0.10

On October 28, 2005, with the approval of the State Council, ICBC was restructured andincorporated as a joint-stock limited company with a registered capital of RMB248,000 million dividedinto 248,000 million shares with a par value of RMB1 each. Basic and diluted earnings per shareamounts for each of the years ended December 31, 2003, 2004 and 2005 and for the six months endedJune 30, 2005 (unaudited) have been computed as if the 248,000 million shares had been in issue sinceJanuary 1, 2003.

On April 28, 2006, the Bank issued a total of 24,185 million new shares of RMB1 each to TheGoldman Sachs Group Inc. (“Goldman Sachs”), Dresdner Bank Luxembourg S.A. and AmericanExpress Company. On June 29, 2006, the Bank issued an additional 14,324 million new shares ofRMB1 each to the National Council for Social Security Fund. The above share issues are set out infurther detail in note 28 to the Financial Information.

There was no difference between the basic and diluted earnings per share as there were nodilutive events for the years ended December 31, 2003, 2004 and 2005 and for the six months endedJune 30, 2005 (unaudited) and 2006.

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13. CASH AND BALANCES WITH CENTRAL BANKS


2003 2004 2005 2006

Cash on hand (note 37(b)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,585 29,894 30,085 31,756Balances with central banks other than restricted deposits

(note 37(b)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,457 79,038 69,650 85,250

Unrestricted cash and balances with central banks . . . . . . . . . . 130,042 108,932 99,735 117,006

Mandatory reserve deposits with central banks . . . . . . . . . . . . . 306,678 365,017 414,924 433,408Other restricted deposits with central banks . . . . . . . . . . . . . . . 21,096 34,667 39,214 47,855

Restricted balances with central banks . . . . . . . . . . . . . . . . . . . 327,774 399,684 454,138 481,263

457,816 508,616 553,873 598,269


2003 2004 2005 2006

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,540 29,735 29,905 31,529Balances with central banks other than restricted deposits . . . . 100,446 79,027 69,530 85,055

Unrestricted cash and balances with central banks . . . . . . . . . . 129,986 108,762 99,435 116,584

Mandatory reserve deposits with central banks . . . . . . . . . . . . . 306,677 365,016 414,923 433,405Other restricted deposits with central banks . . . . . . . . . . . . . . . 21,096 34,667 39,214 47,855

Restricted balances with central banks . . . . . . . . . . . . . . . . . . . 327,773 399,683 454,137 481,260

457,759 508,445 553,572 597,844

Mandatory reserve deposits and other restricted deposits with central banks are not available foruse in the Group’s daily operations. The Group is required to place mandatory reserve deposits withthe PBOC and the central banks of overseas countries or regions where it has operations.

The amounts of mandatory reserve deposits placed with the PBOC were calculated based onthe eligible RMB and foreign currency deposits for domestic branches in Mainland China inaccordance with the following percentages:

RMB depositsFrom January 1, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.0%From September 22, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0%From April 25, 2004 onwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5%

Foreign currency depositsFrom January 1, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0%From January 16, 2005 onwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0%

Mandatory reserve deposits placed with central banks in other countries/regions outsideMainland China are determined by the local regulators.

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14. DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS


2003 2004 2005 2006

Nostro accounts:Banks operating in Mainland China . . . . . . . . . . . . . . . . . . . . 4,733 5,649 5,891 7,395Banks operating outside Mainland China . . . . . . . . . . . . . . . 5,885 6,556 10,568 9,321

10,618 12,205 16,459 16,716Less: Allowance for impairment losses . . . . . . . . . . . . . . . . . . . . . (181) (181) (28) (31)

10,437 12,024 16,431 16,685

Placements with banks and other financial institutions:Banks operating in Mainland China . . . . . . . . . . . . . . . . . . . . 2,870 3,362 8,842 13,631Other financial institutions operating in Mainland China . . . 10,004 7,999 1,828 1,288Banks and other financial institutions operating outside

Mainland China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,292 51,797 105,246 99,681

62,166 63,158 115,916 114,600Less: Allowance for impairment losses . . . . . . . . . . . . . . . . . . . . . (6,594) (5,752) (185) (152)

55,572 57,406 115,731 114,448

66,009 69,430 132,162 131,133


2003 2004 2005 2006

Nostro accounts:Banks operating in Mainland China . . . . . . . . . . . . . . . . . . . . 4,591 5,549 5,886 6,918Banks operating outside Mainland China . . . . . . . . . . . . . . . 4,646 4,999 10,237 8,658

9,237 10,548 16,123 15,576Less: Allowance for impairment losses . . . . . . . . . . . . . . . . . . . . . (181) (181) (28) (31)

9,056 10,367 16,095 15,545

Placements with banks and other financial institutions:Banks operating in Mainland China . . . . . . . . . . . . . . . . . . . . 2,208 4,190 8,802 14,438Other financial institutions operating in Mainland China . . . 10,004 7,999 1,828 1,288Banks and other financial institutions operating outside

Mainland China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,340 58,030 103,386 81,061

73,552 70,219 114,016 96,787Less: Allowance for impairment losses . . . . . . . . . . . . . . . . . . . . . (6,594) (5,752) (185) (152)

66,958 64,467 113,831 96,635

76,014 74,834 129,926 112,180

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14. DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS (continued)

Analysed by legal form of counterparty:


2003 2004 2005 2006

Policy banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 — — 1,000State-owned banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,329 8,752 11,869 8,422Joint-stock banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,186 6,808 4,717 6,517Others (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,266 59,803 115,789 115,377

72,784 75,363 132,375 131,316Less: Allowance for impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,775) (5,933) (213) (183)

66,009 69,430 132,162 131,133


2003 2004 2005 2006

Policy banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 — — 1,000State-owned banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,906 7,591 10,736 7,914Joint-stock banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,184 6,804 4,663 5,879Others (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,696 66,372 114,740 97,570

82,789 80,767 130,139 112,363Less: Allowance for impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,775) (5,933) (213) (183)

76,014 74,834 129,926 112,180

(i) Balances included amounts due from banks incorporated outside Mainland China and amounts due from otherfinancial institutions.

Movements of allowance for impairment losses during the Relevant Periods were as follows:

Group and Bank

Year ended December 31,

Six monthsended

June 30,

2003 2004 2005 2006

Nostro accounts:At beginning of the year/period . . . . . . . . . . . . . . . . . . . . . . . . . 189 181 181 28Charge/(reversal) for the year/period (note 9) . . . . . . . . . . . . . . — — (6) 4Disposals/write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) — (147) (1)

At end of the year/period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 181 28 31

Placements with banks and other financial institutions:At beginning of the year/period . . . . . . . . . . . . . . . . . . . . . . . . . 6,588 6,594 5,752 185Charge/(reversal) for the year/period (note 9) . . . . . . . . . . . . . . 6 — 28 (33)Disposals/write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (842) (5,595) —

At end of the year/period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,594 5,752 185 152

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14. DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS (continued)

Included in nostro accounts and placements with banks and other financial institutions arebalances with original maturity of three months or less, which have been included in cash and cashequivalents in the consolidated cash flow statements (note 37(b)), as follows:

Group

December 31, June 30,

2003 2004 2005 2006

Cash equivalents:Nostro accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,814 6,745 8,095 15,601Placements with banks and other financial institutions . . . . . . . 17,883 21,996 88,080 66,362

15. REVERSE REPURCHASE AGREEMENTS

Group and BankDecember 31, June 30,

2003 2004 2005 2006

Analysed by counterparty:Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,859 16,397 76,804 81,980Other financial institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,380 5,367 12,431 23,562

71,239 21,764 89,235 105,542

Analysed by collateral:Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,400 16,173 82,164 89,929Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,280 4,286 5,994 5,696Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,559 1,305 1,077 9,917

71,239 21,764 89,235 105,542

Under certain reverse repurchase agreements, the Group received collaterals that are permittedto be sold or repledged in the absence of default by the owners of the collaterals. The fair value of thecollaterals received on such terms amounted to nil, RMB631 million, RMB565 million and nil as atDecember 31, 2003, 2004 and 2005 and June 30, 2006, respectively.

Included in reverse repurchase agreements are balances with original maturity of three monthsor less, which have been included in cash and cash equivalents in the consolidated cash flowstatements (note 37(b)), as follows:


2003 2004 2005 2006

Cash equivalentsReverse repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,739 14,733 81,302 92,554

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16. LOANS AND ADVANCES TO CUSTOMERS


2003 2004 2005 2006

Corporate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,828,223 2,895,337 2,369,411 2,499,556Personal loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417,440 502,220 527,361 545,125Discounted bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,614 310,191 392,781 416,399

3,402,277 3,707,748 3,289,553 3,461,080Less: Allowance for impairment losses . . . . . . . . . . . . . (636,222) (598,557) (83,692) (85,738)

2,766,055 3,109,191 3,205,861 3,375,342

Included in corporate loans of the Group are amounts of RMB64,157 million, RMB53,480million, RMB33,002 million and RMB24,345 million as at December 31, 2003, 2004 and 2005 andJune 30, 2006, respectively, relating to advances to banks and other financial institutions.


2003 2004 2005 2006

Corporate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,792,305 2,841,143 2,306,434 2,437,319Personal loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407,705 486,982 515,113 533,105Discounted bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,489 310,148 392,717 416,336

3,356,499 3,638,273 3,214,264 3,386,760Less: Allowance for impairment losses . . . . . . . . . . . . . (635,509) (597,646) (83,168) (85,308)

2,720,990 3,040,627 3,131,096 3,301,452

Included in corporate loans of the Bank are amounts of RMB56,050 million, RMB42,260million, RMB21,573 million and RMB10,967 million as at December 31, 2003, 2004, 2005 andJune 30, 2006, respectively, relating to advances to banks and other financial institutions.

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16. LOANS AND ADVANCES TO CUSTOMERS (continued)

The composition of corporate loans by legal form of borrower is as follows:


2003 2004 2005 2006

State-wholly-owned enterprises (i) . . . . . . . . . . . . . . . . 1,189,813 1,193,530 595,685 608,543State-controlled enterprises (i) . . . . . . . . . . . . . . . . . . . . 396,959 424,622 633,459 657,548State-invested enterprises (i) . . . . . . . . . . . . . . . . . . . . . 77,933 80,522 68,654 72,451Joint-stock enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . 284,344 306,738 289,616 330,134Private enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257,913 258,363 272,538 312,818Foreign invested and foreign joint-venture

enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,873 235,418 229,133 240,942Others (ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,388 396,144 280,326 277,120

Total corporate loans 2,828,223 2,895,337 2,369,411 2,499,556


2003 2004 2005 2006

State-wholly-owned enterprises (i) . . . . . . . . . . . . . . . . 1,189,813 1,193,530 595,685 608,543State-controlled enterprises (i) . . . . . . . . . . . . . . . . . . . . 396,959 424,622 633,459 657,548State-invested enterprises (i) . . . . . . . . . . . . . . . . . . . . . 77,933 80,522 68,654 72,451Joint-stock enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . 284,344 306,738 289,616 330,134Private enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257,913 258,363 272,538 312,818Foreign invested and foreign joint-venture

enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,873 235,418 229,133 240,942Others (ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357,470 341,950 217,349 214,883

Total corporate loans 2,792,305 2,841,143 2,306,434 2,437,319

(i) Included in identified impaired loans and advances of the Group and of the Bank are amounts ofRMB549,226 million, RMB509,798 million, RMB72,045 million and RMB61,211 million as atDecember 31, 2003, 2004, 2005 and June 30, 2006, respectively, relating to advances to state-ownedenterprise including state-wholly-owned enterprises, state-controlled enterprises and state-investedenterprises.

(ii) Balances included corporate loans granted to borrowers located outside Mainland China.

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Movements of allowance for impairment losses during the Relevant Periods were as follows:

Group


Six monthsended

June 30,

2003 2004 2005 2006

At beginning of the year/period . . . . . . . . . . . . . . . . . . . . . . . 640,245 636,222 598,557 83,692Charge for the year/period . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,914 30,511 26,589 11,645Accreted interest on impaired loans (note 3) . . . . . . . . . . . . . (9,844) (9,876) (8,349) (896)Transfer in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 226 — —Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,746) (51,076) (27,547) (6,846)Transfer out (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,347) (7,450) (2,468) (1,857)Reversal arising from the Restructuring (ii) . . . . . . . . . . . . . . — — (503,090) —

At end of the year/period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636,222 598,557 83,692 85,738

Bank


Six monthsended

June 30,

2003 2004 2005 2006

At beginning of the year/period . . . . . . . . . . . . . . . . . . . . . . . 639,532 635,509 597,646 83,168Charge for the year/period . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,792 30,521 26,809 11,595Accreted interest on impaired loans . . . . . . . . . . . . . . . . . . . (9,831) (9,868) (8,339) (893)Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,637) (51,066) (27,390) (6,705)Transfer out (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,347) (7,450) (2,468) (1,857)Reversal arising from the Restructuring (ii) . . . . . . . . . . . . . . — — (503,090) —

At end of the year/period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 635,509 597,646 83,168 85,308

(i) The balance of allowance transferred out included the allowance transferred to repossessed assetsand investments held under debt equity swap arrangements.

(ii) Upon the disposal of impaired loans and advances during the Restructuring, the allowance forimpairment losses amounting to RMB503,090 million (note 1(b)) previously made against theseimpaired loans and advances was reversed and credited to the capital reserve during the year endedDecember 31, 2005 as a capital contribution.

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2003 2004 2005 2006

Loans and advances for which allowance forimpairment losses is:

—individually assessed (i) . . . . . . . . . . . . . . . 820,371 777,803 143,506 132,059—collectively assessed . . . . . . . . . . . . . . . . . 2,581,906 2,929,945 3,146,047 3,329,021

3,402,277 3,707,748 3,289,553 3,461,080

Allowance for impairment losses:—individually assessed . . . . . . . . . . . . . . . . . 605,237 564,367 49,396 49,646—collectively assessed . . . . . . . . . . . . . . . . . 30,985 34,190 34,296 36,092

636,222 598,557 83,692 85,738

Net loans and advances for which allowance forimpairment losses is:

—individually assessed . . . . . . . . . . . . . . . . . 215,134 213,436 94,110 82,413—collectively assessed . . . . . . . . . . . . . . . . . 2,550,921 2,895,755 3,111,751 3,292,929

2,766,055 3,109,191 3,205,861 3,375,342

Identified impaired loans and advances (ii) . . . . . . 824,648 784,656 154,417 142,030

Percentage of impaired loans and advances . . . . . . 24.24% 21.16% 4.69% 4.10%

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2003 2004 2005 2006

Loans and advances for which allowance forimpairment losses is:

—individually assessed (i) . . . . . . . . . . . . . . . 819,658 776,989 142,587 131,514—collectively assessed . . . . . . . . . . . . . . . . . 2,536,841 2,861,284 3,071,677 3,255,246

3,356,499 3,638,273 3,214,264 3,386,760

Allowance for impairment losses:—individually assessed . . . . . . . . . . . . . . . . . 604,898 564,005 49,095 49,472—collectively assessed . . . . . . . . . . . . . . . . . 30,611 33,641 34,073 35,836

635,509 597,646 83,168 85,308

Net loans and advances for which allowance forimpairment losses is:

—individually assessed . . . . . . . . . . . . . . . . . 214,760 212,984 93,492 82,042—collectively assessed . . . . . . . . . . . . . . . . . 2,506,230 2,827,643 3,037,604 3,219,410

2,720,990 3,040,627 3,131,096 3,301,452

Identified impaired loans and advances (ii) . . . . . . 823,935 783,842 153,498 141,485

Percentage of impaired loans and advances . . . . . . 24.55% 21.54% 4.78% 4.18%

(i) Loans and advances for which allowance for impairment losses is individually assessed includecorporate loans which are graded as substandard, doubtful or loss.

(ii) Identified impaired loans and advances are defined as those loans and advances having objectiveevidence of impairment as a result of one or more events that occur after initial recognition and thatevent has an impact on the estimated future cash flows of loans and advances that can be reliablyestimated. These loans and advances include corporate loans and personal loans which are graded assubstandard, doubtful or loss.

Included in identified impaired loans and advances of the Group and of the Bank are amountsof RMB906 million, RMB1,058 million, RMB29 million and RMB107 million as at December 31,2003, 2004, 2005 and June 30, 2006, respectively, relating to advances to banks and other financialinstitutions.

Included in individually assessed allowance for impairment losses of the Group and of theBank are amounts of RMB620 million, RMB668 million, RMB29 million and RMB67 million as atDecember 31, 2003, 2004, 2005 and June 30, 2006, respectively, relating to advances to banks andother financial institutions.

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The composition of individually assessed allowance for impairment losses of corporate loansby legal form of borrower is as follows:


2003 2004 2005 2006

State-wholly-owned enterprises . . . . . . . . . . . . . . . . . . 378,737 351,267 17,072 15,433State-controlled enterprises . . . . . . . . . . . . . . . . . . . . . . 22,151 12,117 6,465 6,562State-invested enterprises . . . . . . . . . . . . . . . . . . . . . . . 2,551 4,876 2,333 2,699Joint-stock enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . 76,716 62,012 7,333 7,244Private enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,398 19,951 6,483 7,651Foreign invested and foreign joint-venture

enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,873 18,719 3,466 4,719Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,811 95,425 6,244 5,338

Total individually assessed allowance for impairmentlosses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605,237 564,367 49,396 49,646

CompanyDecember 31, June 30,

2003 2004 2005 2006

State-wholly-owned enterprises . . . . . . . . . . . . . . . . . . 378,737 351,267 17,072 15,433State-controlled enterprises . . . . . . . . . . . . . . . . . . . . . . 22,151 12,117 6,465 6,562State-invested enterprises . . . . . . . . . . . . . . . . . . . . . . . 2,551 4,876 2,333 2,699Joint-stock enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . 76,716 62,012 7,333 7,244Private enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,398 19,951 6,483 7,651Foreign invested and foreign joint-venture

enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,873 18,719 3,466 4,719Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,336 95,063 5,943 5,164

Total individually assessed allowance for impairmentlosses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603,762 564,005 49,095 49,472

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17. INVESTMENT SECURITIES


Notes 2003 2004 2005 2006

Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . (a) 397,996 397,996 1,074,461 1,078,786Held-to-maturity debt securities . . . . . . . . . . . . (b) 363,827 428,229 882,704 1,079,366Available-for-sale investments . . . . . . . . . . . . . (c) 257,290 390,742 330,183 449,202Investments at fair value through profit or

loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (d) 25,617 13,449 18,341 50,465

1,044,730 1,230,416 2,305,689 2,657,819


Notes 2003 2004 2005 2006

Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . (a) 397,996 397,996 1,074,461 1,078,786Held-to-maturity debt securities . . . . . . . . . . . . (b) 359,558 422,859 887,677 1,085,241Available-for-sale investments . . . . . . . . . . . . . (c) 254,474 386,683 319,111 440,622Investments at fair value through profit or

loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (d) 25,617 13,449 16,582 48,136

1,037,645 1,220,987 2,297,831 2,652,785

(a) Receivables

Receivables are unlisted and stated at amortised cost and comprise the following:


2003 2004 2005 2006

Huarong bonds (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,996 312,996 312,996 312,996Special government bond (ii) . . . . . . . . . . . . . . . . . . . . 85,000 85,000 85,000 85,000MOF receivable (iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 246,000 246,000Special PBOC bills (iv) . . . . . . . . . . . . . . . . . . . . . . . . . — — 430,465 434,790

397,996 397,996 1,074,461 1,078,786

(i) Huarong bonds are a series of long term bonds with an aggregate amount ofRMB312,996 million bilaterally issued to ICBC by Huarong in 2000 and 2001. The fundsraised were used to purchase non-performing loans of ICBC. The bonds are non-transferable,have a tenure of 10 years and bear a fixed interest rate of 2.25% per annum. Further details areset out in note 1(b)(v).

(ii) The special government bond represents a non-negotiable bond with a nominal valueof RMB85,000 million issued by the MOF to ICBC in 1998. The bond will mature in 2028 andbore interest at a fixed rate of 7.2% per annum originally. ICBC was required to pay an amount

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17. INVESTMENT SECURITIES (continued)

(a) Receivables (continued)

to the Government that equals the interest income arising from the bond on an annual basis.Such interest income and expenses were offset and no cash settlement was involved. As part ofthe Restructuring, with effect from December 1, 2005, the interest rate of the bond was revisedto a fixed rate of 2.25% per annum, and the aforesaid expenses ceased to be requiredaccordingly.

(iii) Further details of the MOF receivable are set out in notes 1(b)(ii) to the FinancialInformation.

(iv) Special PBOC bills consist of:

Š A non-transferable bill with a nominal value of RMB430,465 million issued by thePBOC in June 2005, details of which are set out in note 1(b)(iii) to the FinancialInformation.

Š A non-transferable bill with a nominal value of RMB4,325 million issued by thePBOC in June 2006 for settlement of the amounts due from Huarong. The bill willmature in June 2011 and bears a fixed interest rate of 1.89% per annum. The PBOChas the right to early redeem the bill prior to the maturity date.

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(b) Held-to-maturity debt securities

Held-to-maturity debt securities are stated at amortised cost and comprise the following:


2003 2004 2005 2006

Governments and central banks . . . . . . . . . . . . . . . . . . . . . . . 175,615 203,386 592,134 726,827Policy banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,938 200,512 246,306 287,662Public sector entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 45 5,223 4,912Banks and other financial institutions . . . . . . . . . . . . . . . . . . 10,690 8,582 29,361 50,403Corporate entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,574 15,868 9,917 9,785

363,827 428,393 882,941 1,079,589Less: Allowance for impairment losses . . . . . . . . . . . . . . . . — (164) (237) (223)

363,827 428,229 882,704 1,079,366

Debt securities analysed into:Listed in Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,168 1,224 1,560 629Listed outside Hong Kong . . . . . . . . . . . . . . . . . . . . . . . 31,066 49,698 88,082 110,697Unlisted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331,593 377,307 793,062 968,040

363,827 428,229 882,704 1,079,366

Market value of listed securities . . . . . . . . . . . . . . . . . . . . . . 32,281 50,887 91,044 112,547


2003 2004 2005 2006

Governments and central banks . . . . . . . . . . . . . . . . . . . . . . . 175,389 201,430 591,942 725,592Policy banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,938 200,512 246,306 287,662Public sector entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 45 4,959 4,691Banks and other financial institutions . . . . . . . . . . . . . . . . . . 11,691 12,656 35,714 58,666Corporate entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,530 8,380 8,993 8,853

359,558 423,023 887,914 1,085,464Less: Allowance for impairment losses . . . . . . . . . . . . . . . . . — (164) (237) (223)

359,558 422,859 887,677 1,085,241

Debt securities analysed into:Listed in Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 34 1,404 629Listed outside Hong Kong . . . . . . . . . . . . . . . . . . . . . . . 27,299 45,121 87,062 109,918Unlisted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332,098 377,704 799,211 974,694

359,558 422,859 887,677 1,085,241

Market value of listed securities . . . . . . . . . . . . . . . . . . . . . . 27,313 44,932 90,168 111,769

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(c) Available-for-sale investments


2003 2004 2005 2006

Debt securities, at fair value:

Governments and central banks . . . . . . . . . . . . . . . . . . . . . . . . 175,745 295,355 212,055 333,548Policy banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,964 59,022 55,765 48,497Public sector entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 1,729 588 1,727Banks and other financial institutions . . . . . . . . . . . . . . . . . . . . 23,344 23,909 45,922 50,572Corporate entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,162 2,750 10,549 9,473

246,824 382,765 324,879 443,817

Equity investments:At fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,257 1,256 761 757At cost (i):

Debt for equity swaps (ii) . . . . . . . . . . . . . . . . . . . . . 10,680 7,680 4,236 4,236Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,545 3,098 347 447

15,482 12,034 5,344 5,440

Less: Allowance for impairment losses of equityinvestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,016) (4,057) (40) (55)

10,466 7,977 5,304 5,385

257,290 390,742 330,183 449,202

Debt securities analysed into:Listed in Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481 474 2,360 3,122Listed outside Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . 17,741 23,057 22,563 33,293Unlisted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,602 359,234 299,956 407,402

246,824 382,765 324,879 443,817

Equity investments analysed into:Listed in Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477 419 437 479Unlisted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,005 11,615 4,907 4,961

15,482 12,034 5,344 5,440

Market value of listed securities:Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,222 23,531 24,923 36,415Equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477 419 437 479

18,699 23,950 25,360 36,894

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(c) Available-for-sale investments (continued)


2003 2004 2005 2006

Debt securities, at fair value:

Governments and central banks . . . . . . . . . . . . . . . . . . . . . . . . . 175,745 295,355 212,055 333,057Policy banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,964 59,022 55,765 48,497Public sector entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 1,729 — 1,161Banks and other financial institutions . . . . . . . . . . . . . . . . . . . . 21,946 21,312 42,560 48,765Corporate entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,364 1,844 4,117 4,495

244,628 379,262 314,497 435,975

Equity investments:At fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 727 827 181 148At cost (i):

Debt for equity swaps (ii) . . . . . . . . . . . . . . . . . . . . . . 10,680 7,680 4,236 4,236Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,455 2,971 237 318

14,862 11,478 4,654 4,702Less: Allowance for impairment losses of equity investments (5,016) (4,057) (40) (55)

9,846 7,421 4,614 4,647

254,474 386,683 319,111 440,622

Debt securities analysed into:Listed in Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327 191 1,745 2,116Listed outside Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . 17,028 21,328 17,541 28,278Unlisted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,273 357,743 295,211 405,581

244,628 379,262 314,497 435,975

Equity investments analysed into:Listed in Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4 4 4Unlisted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,857 11,474 4,650 4,698

14,862 11,478 4,654 4,702

Market value of listed securities:Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,355 21,519 19,286 30,394Equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4 4 4

17,360 21,523 19,290 30,398

(i) Certain available-for-sale unlisted equity investments which do not have any quoted market pricesand whose fair values cannot be measured reliably are stated at cost less any impairment losses.

(ii) Many state-owned banks obtained equity interests in certain enterprises in lieu of repayments ofloans through debts-equity swap arrangements set by the PRC Government in 1999. The Bank infact retains the risks and rewards of ownership and rights to dispose of these equity interests. Bytheir nature, such equity interests are treated as “equity investments” of the Group.

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(d) Investments at fair value through profit or loss

Investments at fair value through profit or loss are stated at fair value and represent investmentswhich are classified as held-for-trading, which comprise the following:


2003 2004 2005 2006

Debt securities:

Governments and central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,367 12,113 11,467 16,071Policy banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,794 1,336 4,279 13,588Public sector entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 — 509 1,833Banks and other financial institutions . . . . . . . . . . . . . . . . . . . . . . . . 203 — 1,259 3,057Corporate entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 827 15,880

25,617 13,449 18,341 50,429

Equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 36

25,617 13,449 18,341 50,465

Analysed into:Listed in Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 164 90 507Listed outside Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,855 198 1,379 1,231Unlisted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,509 13,087 16,872 48,727

25,617 13,449 18,341 50,465


2003 2004 2005 2006

Debt securities:

Governments and central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,367 12,113 11,246 15,863Policy banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,794 1,336 4,279 13,588Public sector entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 — 300 1,619Banks and other financial institutions . . . . . . . . . . . . . . . . . . . . . . . . 203 — 757 2,438Corporate entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 14,628

25,617 13,449 16,582 48,136

Analysed into:Listed in Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 164 — —Listed outside Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,855 198 370 173Unlisted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,509 13,087 16,212 47,963

25,617 13,449 16,582 48,136

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(e) Movements of allowance for impairment losses of held-to-maturity debt securities andavailable-for-sale equity investments during the Relevant Periods were as follows:

Group and Bank

Held-to-maturitydebt securities

Available-for-sale equity

investments Total

At January 1, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 4,483 4,483Charge for the year (note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 789 789Disposals/write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (256) (256)

At December 31, 2003 and at January 1, 2004 . . . . . . . . . . . . . . . — 5,016 5,016Transfer in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 — 164Disposals/write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (959) (959)

At December 31, 2004 and at January 1, 2005 . . . . . . . . . . . . . . . 164 4,057 4,221Charge for the year (note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 — 13Transfer in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 — 60Disposals/write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (4,017) (4,017)

At December 31, 2005 and at January 1, 2006 . . . . . . . . . . . . . . . 237 40 277Charge for the period (note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 15 15Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14) — (14)

At June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 55 278

18. INVESTMENTS IN SUBSIDIARIES


2003 2004 2005 2006

Listed shares, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,946 4,935 5,649 5,554Unlisted investments, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,152 2,152 1,463 1,509

7,098 7,087 7,112 7,063

Market value of the Bank’s investments in a subsidiary whoseshares are listed in Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,884 7,120 6,621 7,980

Particulars of the principal subsidiaries of the Bank are set out in note 1(d) to the FinancialInformation.

Included in the Bank’s balance sheet are balances with subsidiaries as follows:


2003 2004 2005 2006

Due from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,005 18,656 22,286 14,346Due to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,138) (8,382) (5,522) (9,941)Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,511 9,826 9,677 11,915

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18. INVESTMENTS IN SUBSIDIARIES (continued)

The balances with subsidiaries included nostro accounts, placements with banks and otherfinancial institutions, investment securities, other receivables, money market takings, depositswith banks and other financial institutions and repurchase agreements. These balances are ofsimilar terms with those maintained with other customers of the Bank.

19. INVESTMENTS IN ASSOCIATES


2003 2004 2005 2006

Share of net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 117 120 125Goodwill on acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 — — —

274 117 120 125


2003 2004 2005 2006

Unlisted investments, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 74 74 74

The financial information of the Group’s associates extracted from their financial statementsare summarised as follows:


2003 2004 2005 2006

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,236 1,265 1,920 2,297Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (624) (829) (1,373) (1,723)

Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612 436 547 574

For the year endedDecember 31, Six months ended June 30,

2003 2004 2005 2005 (Unaudited) 2006

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638 99 123 59 89Profits/(losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (135) 17 25 5 21

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19. INVESTMENTS IN ASSOCIATES (continued)

Particulars of the Group’s associates are as follows:

Name

Percentage ofownership interest attributable

to the Group as at Place ofincorporation/

registrationPrincipalactivitiesDecember 31, June 30,

2003 2004 2005 2006Directly held by the Bank

Qingdao InternationalBank . . . . . . . . . . . . . . . . . 50.00 27.69 20.83 20.83 Qingdao, the PRC Commercial banking

Indirectly held by the Bank

China Ping An Insurance(Hong Kong) CompanyLimited (i) . . . . . . . . . . . . 18.17 14.38 14.93 14.93 Hong Kong, the PRC General insurance

The Tai Ping InsuranceCompany, Limited (ii) . . . 18.09 N/A N/A N/A Shenzhen, the PRC General insurance

(i) The shareholding of a 25% equity interest in this associate is held through a non-wholly-ownedsubsidiary, ICBC (Asia). Further details of the Bank’s equity interests in ICBC (Asia) are set out innote 1(d). The percentage of ownership interest disclosed represented the effective percentage heldby the Group.

(ii) The shareholding of this associate was held through ICBC (Asia). The percentage of ownershipinterest disclosed represented the effective percentage held by the Group. In November 2004, theequity interests held by ICBC (Asia) were diluted from 24.9% to 12.45% and since then The TaiPing Insurance Company, Limited has ceased to be an associate of the Group.

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20. PROPERTY AND EQUIPMENT

Group

Propertiesand

buildingsConstructionin progress

Leaseholdimprovements

Officeequipment

andcomputers

Motorvehicles Total

Cost or valuation:At January 1, 2003 . . . . . . . . . . . . . . . . . . . . . . . 75,198 4,283 1,156 23,301 6,331 110,269Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,319 1,705 231 4,079 397 8,731Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,751 (2,519) — 914 2 148Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,143) (47) (72) (1,358) (609) (3,229)

At December 31, 2003 and atJanuary 1, 2004 . . . . . . . . . . . . . . . . . . . . . . . . 78,125 3,422 1,315 26,936 6,121 115,919

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,762 1,850 225 3,633 281 7,751Acquisition of a subsidiary (note 37(a)) . . . . . . . — — 18 13 — 31Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,454 (2,528) — 990 10 (74)Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,541) — (99) (1,757) (541) (3,938)


Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,784 2,067 861 3,008 152 8,872Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,021 (1,955) 1 489 12 568Revaluation surplus . . . . . . . . . . . . . . . . . . . . . . . 19,677 61 — 2,131 828 22,697Elimination of accumulated depreciation and

impairment losses on valuation . . . . . . . . . . . . (19,000) (67) — (18,529) (4,271) (41,867)Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,998) — (788) (2,494) (685) (10,965)


Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 765 110 426 26 1,545Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 (500) 2 169 — —Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (268) (181) (171) (73) (43) (736)

At June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 78,563 2,934 1,474 14,942 1,890 99,803

Accumulated depreciation and impairment:At January 1, 2003 . . . . . . . . . . . . . . . . . . . . . . . 15,832 70 529 11,146 4,072 31,649Depreciation charge for the year . . . . . . . . . . . . . 2,796 — 226 4,824 808 8,654Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . 100 — — — — 100Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (324) — (65) (1,303) (559) (2,251)

At December 31, 2003 and atJanuary 1, 2004 . . . . . . . . . . . . . . . . . . . . . . . . 18,404 70 690 14,667 4,321 38,152

Depreciation charge for the year . . . . . . . . . . . . . 2,960 — 245 5,077 695 8,977Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (822) — (88) (1,615) (494) (3,019)

At December 31, 2004 and atJanuary 1, 2005 . . . . . . . . . . . . . . . . . . . . . . . . 20,542 70 847 18,129 4,522 44,110

Depreciation charge for the year . . . . . . . . . . . . . 3,455 — 399 5,211 787 9,852Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . 107 182 — — — 289Elimination of accumulated depreciation and

impairment losses on valuation . . . . . . . . . . . . (19,000) (67) — (18,529) (4,271) (41,867)Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,087) — (494) (2,259) (534) (6,374)

At December 31, 2005 and atJanuary 1, 2006 . . . . . . . . . . . . . . . . . . . . . . . . 2,017 185 752 2,552 504 6,010

Depreciation charge for the period . . . . . . . . . . . 1,811 — 108 2,758 376 5,053Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . 182 4 — 2 — 188Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49) — (66) (11) (31) (157)

At June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 3,961 189 794 5,301 849 11,094

Net carrying amount:At December 31, 2003 . . . . . . . . . . . . . . . . . . . . 59,721 3,352 625 12,269 1,800 77,767

At December 31, 2004 . . . . . . . . . . . . . . . . . . . . 59,258 2,674 612 11,686 1,349 75,579

At December 31, 2005 . . . . . . . . . . . . . . . . . . . . 76,267 2,665 781 11,868 1,403 92,984

At June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 74,602 2,745 680 9,641 1,041 88,709

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20. PROPERTY AND EQUIPMENT (continued)

The Group’s properties and buildings were held under the following lease terms:


2003 2004 2005 2006

Long term leases (over 50 years)—Held in the PRC (other than Hong Kong) . . . . . . . . . . . . . . . 4,972 4,692 6,346 5,645—Held in Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348 235 189 86—Held overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 77 48 49

5,396 5,004 6,583 5,780

Medium term leases (10 to 50 years)—Held in the PRC (other than Hong Kong) . . . . . . . . . . . . . . . 51,888 51,480 67,210 66,772—Held in Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 223 285 281

52,153 51,703 67,495 67,053

Short term leases (less than 10 years)—Held in the PRC (other than Hong Kong) . . . . . . . . . . . . . . . 2,172 2,551 2,189 1,769

59,721 59,258 76,267 74,602

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BankProperties

andbuildings

Constructionin progress

Leaseholdimprovements

Officeequipment and

computersMotor

vehicles Total

Cost or valuation:At January 1, 2003 . . . . . . . . . . . . . . . . . . . . 74,309 4,283 1,072 23,125 6,323 109,112Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,319 1,705 226 4,063 396 8,709Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,751 (2,519) — 913 2 147Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,021) (47) (68) (1,358) (609) (3,103)

At December 31, 2003 and at January 1,2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,358 3,422 1,230 26,743 6,112 114,865

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,762 1,850 205 3,538 281 7,636Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,454 (2,528) — 990 10 (74)Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,175) — (99) (1,757) (541) (3,572)


Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,783 2,067 814 2,970 150 8,784Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,021 (1,955) 1 489 12 568Revaluation surplus . . . . . . . . . . . . . . . . . . . . 19,677 61 — 2,131 828 22,697Elimination of accumulated depreciation and

impairment losses on valuation . . . . . . . . . (19,000) (67) — (18,529) (4,271) (41,867)Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,870) — (774) (2,493) (685) (10,822)


Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 765 98 407 21 1,509Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 (500) 2 169 — —Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . (264) (181) (166) (66) (42) (719)

At June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . 78,293 2,934 1,311 14,592 1,875 99,005

Accumulated depreciation and impairment:At January 1, 2003 . . . . . . . . . . . . . . . . . . . . 15,730 70 471 11,040 4,070 31,381Depreciation charge for the year . . . . . . . . . . 2,621 — 221 4,799 806 8,447Impairment losses . . . . . . . . . . . . . . . . . . . . . 100 — — — — 100Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . (324) — (63) (1,301) (559) (2,247)

At December 31, 2003 and at January 1,2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,127 70 629 14,538 4,317 37,681

Depreciation charge for the year . . . . . . . . . . 2,890 — 213 4,970 694 8,767Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . (520) — (88) (1,615) (494) (2,717)

At December 31, 2004 and at January 1,2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,497 70 754 17,893 4,517 43,731

Depreciation charge for the year . . . . . . . . . . 3,450 — 386 5,179 786 9,801Impairment losses . . . . . . . . . . . . . . . . . . . . . 107 182 — — — 289Elimination of accumulated depreciation and

impairment losses on valuation . . . . . . . . . (19,000) (67) — (18,529) (4,271) (41,867)Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,086) — (482) (2,252) (534) (6,354)

At December 31, 2005 and at January 1,2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,968 185 658 2,291 498 5,600

Depreciation charge for the period . . . . . . . . 1,806 — 101 2,744 376 5,027Impairment losses . . . . . . . . . . . . . . . . . . . . . 182 4 — 2 — 188Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48) — (65) (9) (31) (153)

At June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . 3,908 189 694 5,028 843 10,662

Net carrying amount:At December 31, 2003 . . . . . . . . . . . . . . . . . 59,231 3,352 601 12,205 1,795 77,184

At December 31, 2004 . . . . . . . . . . . . . . . . . 58,902 2,674 582 11,621 1,345 75,124

At December 31, 2005 . . . . . . . . . . . . . . . . . 76,042 2,665 719 11,791 1,398 92,615

At June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . 74,385 2,745 617 9,564 1,032 88,343

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The Bank’s properties and buildings were held under the following lease terms:


2003 2004 2005 2006

Long term leases (over 50 years)—Held in the PRC (other than Hong Kong) . . . . . . . . . . . . . . . 4,924 4,653 6,341 5,629—Held overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 75 47 49

4,997 4,728 6,388 5,678

Medium term leases (10 to 50 years)—Held in the PRC (other than Hong Kong) . . . . . . . . . . . . . . . 51,886 51,463 67,199 66,677—Held in Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 175 267 263

52,080 51,638 67,466 66,940

Short term leases (less than 10 years)—Held in the PRC (other than Hong Kong) . . . . . . . . . . . . . . . 2,154 2,536 2,188 1,767

59,231 58,902 76,042 74,385

In accordance with the relevant rules and regulations, subsequent to the transformation of ICBCinto a joint-stock company, the titleship of properties and buildings previously held under the name ofICBC is to be transferred to the Bank. The aforesaid re-registration process for certain properties andbuildings has not yet been completed up to the date of this report.

ICBC engaged China United Assets Appraisal Co., Ltd., an independent firm of qualified assetappraisers in the PRC, to value its property and equipment (other than leasehold improvements) on adepreciated replacement cost or a comparable market basis as appropriate. The date of valuation wasJune 30, 2005. The valuation was made for the purpose of the Restructuring and to comply with therelevant rules and regulations. The surplus of RMB22,697 million arising from the above valuation hasbeen credited to the asset revaluation reserve and then capitalised as share capital of the Bank upon itsincorporation.

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Had the property and equipment (other than leasehold improvements) been measured using thecost model as at December 31, 2005 and June 30, 2006, the carrying amounts would have been asfollows:

Group

December 31, 2005 Cost

Accumulateddepreciation

and impairment

Netcarryingamount

Properties and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,607 (20,957) 56,650Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,856 (252) 2,604Office equipment and computers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,818 (20,409) 10,409Motor vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,350 (4,416) 934

116,631 (46,034) 70,597

June 30, 2006


117,499 (49,794) 67,705

Bank

December 31, 2005 Cost

Accumulateddepreciation

and impairment

Netcarryingamount


116,008 (45,718) 70,290

June 30, 2006


116,864 (49,459) 67,405

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21. DEFERRED INCOME TAX

Deferred income tax assets and liabilities as at the balance sheet date are related to thefollowing:

Group


2003 2004 2005 2006

Provisions for impairment losses on loans and advances and otherassets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,269 5,206 928 1,221

Provision for overdue interest receivable . . . . . . . . . . . . . . . . . . . . . . 3,995 954 — —Provision for housing reform losses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,442 2,548 — —Amortisation and interest recognition for short term debt

securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (342) (1,027) (541) —Revaluation of available-for-sale investments . . . . . . . . . . . . . . . . . . (2,161) (949) (1,001) (595)Changes in fair value of financial instruments at fair value through

profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369 395 (1,254) (1,658)Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 809 1,678 450 762

Net deferred income tax assets/(liabilities) . . . . . . . . . . . . . . . . . . . . . 27,381 8,805 (1,418) (270)

Bank


2003 2004 2005 2006

Provisions for impairment losses on loans and advances and otherassets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,269 5,206 928 1,221

Provision for overdue interest receivable . . . . . . . . . . . . . . . . . . . . . 3,995 954 — —Provision for housing reform losses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,442 2,548 — —Amortisation and interest recognition for short term debt

securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (342) (1,027) (541) —Revaluation of available-for-sale investments . . . . . . . . . . . . . . . . . . (2,161) (949) (1,001) (595)Changes in fair value of financial instruments at fair value through

profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 347 (1,254) (1,635)Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 799 1,648 450 723

Net deferred income tax assets/(liabilities) . . . . . . . . . . . . . . . . . . . . . 27,320 8,727 (1,418) (286)

Deferred income tax debited/(credited) to equity during the year/period is as follows:

Group and Bank

Year endedDecember 31,

Six monthsended

June 30,

2003 2004 2005 2005 2006

Relating to the revaluation of available-for-sale investments . . . . . . . (921) (1,212) 52 950 (406)

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22. OTHER ASSETS


2003 2004 2005 2006

Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,233 9,289 24,993 29,688Repossessed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,029 13,373 6,395 5,828Positive fair value of financial derivatives (note 29) . . . . . . . . . . 1,623 2,129 9,957 11,260Land use rights (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 19,657 19,408Settlement and clearing accounts . . . . . . . . . . . . . . . . . . . . . . . . . 7,470 7,907 8,115 21,932Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,898 12,708 7,090 9,570

45,253 45,406 76,207 97,686


2003 2004 2005 2006

Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,862 8,668 24,295 29,176Repossessed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,029 13,373 6,395 5,828Positive fair value of financial derivatives (note 29) . . . . . . . . . . 1,196 1,673 9,154 10,352Land use rights (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 19,657 19,408Settlement and clearing accounts . . . . . . . . . . . . . . . . . . . . . . . . . 6,949 7,482 7,679 21,448Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,440 10,900 6,184 8,160

42,476 42,096 73,364 94,372

(i) Land use rights, which are held under medium term leases and are situated in Mainland China,represent the amount of land use rights injected by the Government through capital contribution(note 1(b)(iv)) less accumulated amortisation.

Repossessed assets are analysed as follows:


2003 2004 2005 2006

Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,014 31,036 8,942 8,513Allowance for impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . (17,985) (17,663) (2,547) (2,685)

15,029 13,373 6,395 5,828

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22. OTHER ASSETS (continued)

The movements of allowance for impairment losses of repossessed assets during the RelevantPeriods were as follows:

Group and Bank


Six monthsended

June 30,

2003 2004 2005 2006

At beginning of the year/period . . . . . . . . . . . . . . . . . . . . . . . . . . 19,518 17,985 17,663 2,547Charge for the year/period (note 9) . . . . . . . . . . . . . . . . . . . . . . . 484 348 101 399Transfer in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,348 5,503 2,430 1,857Disposals/write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,365) (6,173) (17,647) (2,118)

At end of the year/period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,985 17,663 2,547 2,685

23. DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS


2003 2004 2005 2006

Money market takings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,200 24,988 31,360 35,691Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,809 180,707 201,550 331,527

219,009 205,695 232,910 367,218


2003 2004 2005 2006

Money market takings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,313 28,715 29,709 39,928Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,315 181,120 201,725 332,276

225,628 209,835 231,434 372,204

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23. DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS (continued)

Analysed by legal form of counterparty


2003 2004 2005 2006

Policy banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661 461 503 464State-owned banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,532 6,774 12,493 8,438Joint-stock banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,808 16,044 12,428 19,731Others (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186,008 182,416 207,486 338,585

219,009 205,695 232,910 367,218


2003 2004 2005 2006

Policy banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661 461 503 464State-owned banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,498 6,734 10,666 7,187Joint-stock banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,438 15,701 10,699 19,319Others (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,031 186,939 209,566 345,234

225,628 209,835 231,434 372,204

(i) Balances included amounts due to banks incorporated outside Mainland China and amounts due toother financial institutions.

24. REPURCHASE AGREEMENTS


2003 2004 2005 2006

Analysed by counterparty:Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,253 26,039 26,913 7,779Other financial institutions . . . . . . . . . . . . . . . . . . . — 300 5,388 3,843

16,253 26,339 32,301 11,622

Analysed by collateral:Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,003 25,000 28,556 8,296Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,720 873 790 —Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,530 466 2,955 3,326

16,253 26,339 32,301 11,622

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24. REPURCHASE AGREEMENTS (continued)


2003 2004 2005 2006

Analysed by counterparty:Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,253 26,867 27,721 8,389Other financial institutions . . . . . . . . . . . . . . . . . . . — 300 5,388 3,843

16,253 27,167 33,109 12,232

Analysed by collateral:Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,003 25,000 28,556 8,296Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,720 873 790 —Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,530 1,294 3,763 3,936

16,253 27,167 33,109 12,232

25. DUE TO CUSTOMERS


2003 2004 2005 2006

Demand depositsCorporate customers . . . . . . . . . . . . . . . . . . . . . . . 1,538,964 1,660,739 1,787,336 1,867,705Personal customers . . . . . . . . . . . . . . . . . . . . . . . . . 780,339 882,431 1,012,876 1,053,394Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,988 68,553 77,944 53,257

Time depositsCorporate customers . . . . . . . . . . . . . . . . . . . . . . . 504,705 612,341 754,968 909,401Personal customers . . . . . . . . . . . . . . . . . . . . . . . . . 1,811,865 1,952,218 2,103,742 2,235,281

4,706,861 5,176,282 5,736,866 6,119,038

The Group’s amounts due to customers included structured deposits amounting to RMB7,316million, RMB26,301 million, RMB33,590 million and RMB32,869 million as at December 31, 2003,2004, 2005 and June 30, 2006, respectively, which are financial liabilities designated at fair valuethrough profit or loss upon initial recognition. The differences between the fair value and the amountthat the Group would be contractually required to pay at maturity to the holders of these financialliabilities amounted to RMB30 million, RMB200 million, RMB629 million and RMB694 million as atDecember 31, 2003, 2004, 2005 and June 30, 2006, respectively. The amount of changes in the fairvalue of the financial liabilities that is attributable to changes in credit risk is considered not significantduring the Relevant Periods and cumulatively at the end of each of the Relevant Periods.

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25. DUE TO CUSTOMERS (continued)


2003 2004 2005 2006

Demand depositsCorporate customers . . . . . . . . . . . . . . . . . . . . . . . 1,533,595 1,655,994 1,779,074 1,854,530Personal customers . . . . . . . . . . . . . . . . . . . . . . . . . 775,395 870,966 1,003,655 1,048,286Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,987 68,544 77,941 53,253

Time depositsCorporate customers . . . . . . . . . . . . . . . . . . . . . . . 481,881 579,755 707,981 848,507Personal customers . . . . . . . . . . . . . . . . . . . . . . . . . 1,806,159 1,939,938 2,103,203 2,231,743

4,668,017 5,115,197 5,671,854 6,036,319

The Bank’s amounts due to customers included structured deposits amounting to RMB7,316million, RMB26,301 million, RMB33,103 million and RMB32,367 million as at December 31, 2003,2004, 2005 and June 30, 2006, respectively, which are financial liabilities designated at fair valuethrough profit or loss upon initial recognition. The differences between the fair value and the amountthat the Bank would be contractually required to pay at maturity to the holders of these financialliabilities amounted to RMB30 million, RMB200 million, RMB611 million and RMB671 million as atDecember 31, 2003, 2004, 2005 and June 30, 2006, respectively. The amount of changes in the fairvalue of the financial liabilities that is attributable to changes in credit risk is considered not significantduring the Relevant Periods and cumulatively at the end of each of the Relevant Periods.

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26. DEBT ISSUED


Notes 2003 2004 2005 2006

Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (a) — 3,294 3,076 2,987Subordinated bonds issued . . . . . . . . . . . . . . . . . (b) — — 35,000 35,000

— 3,294 38,076 37,987


Notes 2003 2004 2005 2006

Subordinated bonds issued . . . . . . . . . . . . . . . . . (b) — — 35,000 35,000

Notes:

(a) In September 2004, ICBCA (C.I.) Limited, an indirectly-held subsidiary of the Bank, issued noteswith an aggregate principal amount of US$400 million, at a coupon rate of 4.125% per annum andmaturing on September 16, 2009. The notes have been designated as liabilities at fair value throughprofit or loss upon initial recognition. The differences between the fair value and the amount thatthe Group would be contractually required to pay at maturity to the holders of these notes amountedto RMB17 million, RMB128 million and RMB153 million as at December 31, 2004 and 2005 andJune 30, 2006, respectively. The amount of changes in the fair value of the financial liabilities thatis attributable to changes in credit risk is considered not significant during the Relevant Periods andcumulatively at the end of each of the Relevant Periods.

(b) As approved by the PBOC and the CBRC, the Bank issued callable subordinated bonds ofRMB35,000 million through open market bidding in 2005. These subordinated bonds included:

(i) 10-year fixed rate subordinated bonds in the amount of RMB13,000 million in aggregatematuring in 2015, bearing a coupon rate of 3.11% per annum. The Bank has the option toredeem all or part of the bonds at face value on August 29, 2010. If the Bank does not exercisethis option, the annual coupon rate will increase by 3% thereafter.

(ii) 15-year fixed rate subordinated bonds in the amount of RMB13,000 million in aggregatematuring in 2020, bearing a coupon rate of 3.77% per annum. The Bank has the option toredeem all or part of the bonds at face value on September 6, 2015. If the Bank does notexercise this option, the annual coupon rate will increase by 3% thereafter.

(iii) 10-year floating rate subordinated bonds in the amount of RMB9,000 million in aggregatematuring in 2015, bearing a coupon rate which is the specific “base rate” plus an interestmargin of 1.05% per annum. The base rate is determined based on the weighted average ofPRC inter-bank money market 7-day repo rates. The Bank has the option to redeem all or partof the bonds at face value on September 14, 2010. If the Bank does not exercise this option, theinterest margin of the bonds will increase by 1% thereafter.

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27. OTHER LIABILITIES


2003 2004 2005 2006

Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,392 34,342 38,177 45,536Supplementary retirement benefits . . . . . . . . . . . . . . . . . . . . . . 31,977 27,261 29,921 29,269Settlement and clearing accounts . . . . . . . . . . . . . . . . . . . . . . . . 19,466 23,462 24,276 40,143Salaries and welfare payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,970 3,637 5,126 5,675Sundry tax payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,167 3,626 4,595 4,288Bank drafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,956 4,545 4,026 7,445Negative fair value of financial derivatives (note 29) . . . . . . . . 2,798 3,556 3,530 4,067Payables for bonds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 16,980 2,346 9,605Allowance for litigation losses (note 33(a)) . . . . . . . . . . . . . . . . 713 745 813 858Dividend Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 3,537Others (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,680 12,731 21,529 18,799

118,119 130,885 134,339 169,222


2003 2004 2005 2006

Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,208 34,032 37,610 45,294Supplementary retirement benefits . . . . . . . . . . . . . . . . . . . . . . 31,977 27,261 29,921 29,269Settlement and clearing accounts . . . . . . . . . . . . . . . . . . . . . . . . 19,460 23,457 24,014 39,393Salaries and welfare payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,957 3,468 5,049 5,615Sundry tax payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,162 3,620 4,592 4,285Bank drafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,952 4,540 3,989 7,411Negative fair value of financial derivatives (note 29) . . . . . . . . 2,222 2,942 2,729 3,040Payables for bonds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 16,980 2,346 9,605Allowance for litigation losses (note 33(a)) . . . . . . . . . . . . . . . . 713 745 813 858Dividend Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 3,537Others (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,755 11,630 21,470 18,444

116,406 128,675 132,533 166,751

(i) Balance as at December 31, 2005 included an amount payable to the MOF of RMB8,028 millionarising from the Restructuring of the Bank (note 1(b)(viii)). The amount was capitalised asequity in June 2006 (note 28(a)).

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27. OTHER LIABILITIES (continued)

The Group provides supplementary retirement benefits, which include supplementary pensionand supplementary medical benefits, for its domestic retirees who retired before June 30, 2005. Theamounts recognised in the consolidated balance sheets represent the present value of unfundedobligations. The Group’s obligations in respect of the supplementary retirement benefits at the balancesheet dates were computed by an independent actuary, Towers, Perrin, Forster & Crosby, Inc., HongKong, whose actuaries are members of the Society of Actuaries of the United States of America, usingthe projected unit credit actuarial cost method. Actuarial gains or losses are recognised in the incomestatement when incurred. The components of net benefit expense recognised in the consolidatedincome statements and the amounts recognised in the consolidated balance sheets are summarisedbelow.

(i) Amount recognised at each balance sheet date:


2003 2004 2005 2006

Unfunded liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,977 27,261 29,921 29,269

(ii) Movements of net benefit liabilities recognised in the balance sheets were as follows:

Group and Bank


Six monthsended

June 30,

2003 2004 2005 2006

Net liabilities at beginning of the year/period . . . . . . . . . . . . . . . . 33,772 31,977 27,261 29,921Benefit paid during the year/period . . . . . . . . . . . . . . . . . . . . . . . . (1,988) (2,039) (2,110) (1,041)Net expense /(income) recognised in the consolidated income

statements (note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 (2,677) 4,770 389

Net liabilities at end of the year/period . . . . . . . . . . . . . . . . . . . . . 31,977 27,261 29,921 29,269

(iii) Net expenses/(income) recognised in the consolidated income statements:

GroupYear ended December 31, Six months ended June 30,

2003 2004 2005 2005 (Unaudited) 2006

Interest cost recognised during the year/period . . . . . . . 1,066 1,084 1,245 622 505Actuarial losses/(gains) recognised during the year/

period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (873) (3,761) 3,525 2,365 (116)

Net expenses /(income) recognised in the consolidatedincome statements (note 6) . . . . . . . . . . . . . . . . . . . . 193 (2,677) 4,770 2,987 389

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27. OTHER LIABILITIES (continued)

(iv) Principal actuarial assumptions


2003 2004 2005 2006

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50% 4.75% 3.50% 3.50%Healthcare cost increase rate . . . . . . . . . . . . . . . . 8.00% 8.00% 8.00% 8.00%Expected annual future benefit increase for

beneficiaries of deceased employees . . . . . . . . 4.50% 4.50% 4.50% 4.50%Average expected future lifetime of current

retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.0 years 16.0 years 15.4 years 15.1 years

28. CAPITAL AND RESERVES

(a) Issued share capital/paid-up capital

On October 28, 2005, with the approval of the State Council, ICBC was restructured andincorporated as a joint-stock limited company with a registered capital of RMB248,000 million dividedinto 248,000 million shares with a par value of RMB1 each, and accordingly issued 124,000 millionshares each to the MOF and Huijin, respectively.

On April 28, 2006, Goldman Sachs, Dresdner Bank Luxembourg S.A. and American ExpressCompany subscribed for 16,476 million shares, 6,433 million shares and 1,276 million shares in theBank for cash consideration of US$2,582 million, Euro825 million and US$200 million, respectively.

On June 29, 2006, the National Council for Social Security Fund subscribed for 14,324 millionshares for a consideration of RMB18,028 million, of which 7,945 million shares were paid by cash andthe remaining 6,379 million shares were settled by capitalising a payable balance of RMB8,028 millionof the Bank (note 27).

Following the above share subscriptions, the Bank’s registered capital increased fromRMB248,000 million to RMB286,509 million, divided into 286,509 million of RMB1 each. Thepremium of consideration over the increase in registered capital was credited to the capital reserve(note 28(b)).

(b) Capital reserve

Pursuant to the Restructuring, the paid-up capital, reserves and accumulated losses of ICBC, asdetermined under the generally accepted accounting principles in the PRC, were converted into theBank’s issued share capital upon its incorporation as described in notes 1(b)(viii) and 28(a) to theFinancial Information. In the preparation of the Financial Information, the paid-up capital and all thethen existing reserves and accumulated losses as determined under IFRS were accordingly eliminated,with the resulting difference dealt with in the capital reserve. Increase in capital reserve during the sixmonths ended June 30, 2006 represented the premium of shares newly issued as described in note 28(a)above.

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28. CAPITAL AND RESERVES (continued)

(c) Surplus reserves

Surplus reserves consist of statutory surplus reserve and discretionary surplus reserve.

(i) Statutory surplus reserve

The Bank is required to appropriate 10% of its profit after incorporating as a joint-stock limitedcompany, determined under the generally accepted accounting principles in the PRC, to the statutorysurplus reserve until the reserve balance reaches 50% of its registered capital.

Subject to the approval of shareholders, statutory surplus reserve may be used to offsetaccumulated losses, if any, and may also be converted into capital, provided that the balance ofstatutory surplus reserve after such capitalisation is not less than 25% of the registered capital.

(ii) Discretionary surplus reserve

After making the appropriation to the statutory reserve, the Bank may also appropriate its profitto the discretionary surplus reserve upon the approval of the shareholders in general meetings. Subjectto the approval of the shareholders, discretionary surplus reserve may be used to offset accumulatedlosses, if any, and may be converted into capital.

(d) Other reserves

The Bank is required to maintain a general reserve within equity, through the appropriation ofprofit, which should not be less than 1% of the year end balance of its risk-bearing assets. As allowedby the MOF, the reserve is to be appropriated over a period of not more than five years, beginning in2005.

Asset revaluation reserve records the revaluation surplus of property and equipment.

Investment revaluation reserve records the fair value changes of available-for-sale investments.

Foreign currency translation reserve is used to record exchange differences arising from thetranslation of financial statements of the subsidiaries and branches incorporated outside MainlandChina.

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(e) Distributable profit

The Bank’s distributable profit is based on the lower of after-tax profit after appropriation tostatutory surplus reserve and general reserve as determined under the generally accepted accountingprinciples in the PRC and IFRSs following the Restructuring of the Bank into a joint-stock limitedcompany on October 28, 2005. The amount that the Bank’s subsidiaries can legally distribute by wayof a dividend is determined by reference to their profits as reflected in their financial statementsprepared in accordance with the accounting regulations and principles promulgated by local regulatorybodies of respective countries/regions. These profits may differ from those dealt with in the FinancialInformation, which is prepared in accordance with IFRSs.

The movements in reserves and retained profits/(accumulated losses) of the Bank during theRelevant Periods are set out below:

Reserves

Capitalreserve

Surplusreserves

Generalreserve

Assetrevaluation

reserve

Investmentrevaluation

reserve

Foreigncurrency

translationreserve Total

Accumulatedlosses

Balance as at January 1,2003 . . . . . . . . . . . . . . . . . . (2,415) 14,805 — — 6,257 29 18,676 (740,618)

Profit for the year . . . . . . . . . . — — — — — — — 22,500Net change in the fair value of

available-for-saleinvestments . . . . . . . . . . . . — — — — (1,557) — (1,557) —

Reserve realised on disposalof available-for-saleinvestments . . . . . . . . . . . . — — — — (313) — (313) —

Foreign currencytranslation . . . . . . . . . . . . . — — — — — 123 123 —

Appropriation to surplusreserves . . . . . . . . . . . . . . . — 5 — — — — 5 (5)

Balance as at December 31,2003 and January 1,2004 . . . . . . . . . . . . . . . . . . (2,415) 14,810 — — 4,387 152 16,934 (718,123)

Profit for the year . . . . . . . . . . — — — — — — — 30,581Net change in the fair value of

available-for-saleinvestments . . . . . . . . . . . . — — — — (2,365) — (2,365) —

Reserve realised on disposalof available-for-saleinvestments . . . . . . . . . . . . — — — — (95) — (95) —

Foreign currencytranslation . . . . . . . . . . . . . — — — — — 114 114 —

Appropriation to surplusreserves . . . . . . . . . . . . . . . — 8 — — — — 8 (8)

Balance as at December 31,2004 and January 1,2005 . . . . . . . . . . . . . . . . . . (2,415) 14,818 — — 1,927 266 14,596 (687,550)

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(e) Distributable profit (continued)Reserves

Capitalreserve

Surplusreserves

Generalreserve

Assetrevaluation

reserve

Investmentrevaluation

reserve

Foreigncurrency

translationreserve Total

Retainedprofits/

(accumulatedlosses)

Balance as at December 31,2004 and January 1, 2005 . . (2,415) 14,818 — — 1,927 266 14,596 (687,550)

Profit for the year . . . . . . . . . . . — — — — — — — 37,004Net change in the fair value of

available-for-saleinvestments . . . . . . . . . . . . . — — — — 3,453 — 3,453 —

Reserve realised on disposal ofavailable-for-saleinvestments . . . . . . . . . . . . . — — — — 480 — 480 —

Foreign currency translation . . — — — — (83) (83) —Asset revaluation surplus

arising from theRestructuring . . . . . . . . . . . . — — — 22,697 — — 22,697 —

Restructuring:Capital injection

(note 1(b)(iv)) . . . . . . . 19,906 — — — — — 19,906 —Equity contribution

arising from thedisposal of impairedassets (notes 1(b)(ii)and (iii)) . . . . . . . . . . . . 567,558 — — — — — 567,558 —

Elimination of capital andreserves withaccumulated losses andtransfer of paid-upcapital, reserves andaccumulated losses toshare capital(notes 1(b)(vii) and(viii)) . . . . . . . . . . . . . . (587,063) (14,818) — (22,697) (3,828) (321) (628,727) 657,516

Appropriation to surplusreserves . . . . . . . . . . . . . . . . — 375 — — — — 375 (375)

Appropriation to generalreserve . . . . . . . . . . . . . . . . . — — 1,700 — — — 1,700 (1,700)

Balance as at December 31,2005 and January 1, 2006 . . (2,014) 375 1,700 — 2,032 (138) 1,955 4,895

Issuance of share capital . . . . . 9,957 9,957Profit for the period . . . . . . . . . — — — — — — — 25,194Net change in the fair value of

available-for-saleinvestments . . . . . . . . . . . . . — — — — (897) — (897) —

Reserve realised on disposal ofavailable-for-saleinvestments . . . . . . . . . . . . . — — — — 59 — 59 —

Foreign currency translation . . — — — — — 82 82 —Appropriation to surplus

reserves (note) . . . . . . . . . . . — 2,657 — — — — 2,657 (2,657)Appropriation to general

reserve . . . . . . . . . . . . . . . . . — — 5,302 — — — 5,302 (5,302)Dividend—2005 final

(note 11) . . . . . . . . . . . . . . . . — — — — — — — (3,537)

Balance as at June 30, 2006 . . . 7,943 3,032 7,002 — 1,194 (56) 19,115 18,593

Note: Includes the appropriation made by an overseas branch in the amount of RMB6 million.

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(e) Distributable profit (continued)

The profit for the year attributable to equity holders of the Bank for the years endedDecember 31, 2003, 2004 and 2005 and for the six months ended June 30, 2005 (unaudited) and 2006dealt with in the financial statements of the Bank, were RMB22,500 million, RMB30,581 million,RMB37,004 million, RMB24,853 million and RMB25,194 million, respectively.

29. DERIVATIVE FINANCIAL INSTRUMENTS

A derivative is a financial instrument, the value of which is derived from the value of another“underlying” financial instrument, an index or some other variables. Typically, an “underlying”financial instrument is a share, commodity or bond price, an index value or an exchange or interestrate. The Group uses such derivative financial instruments as forwards, futures, swaps and options.

The notional amount of a derivative represents the amount of underlying asset upon which thevalue of the derivative is based. It indicates the volume of business transacted by the Group but doesnot reflect the risk.

The fair value is the amount for which an asset could be exchanged, or a liability settled,between knowledgeable and willing parties in an arm’s length transaction.

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29. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The Group and the Bank had derivative financial instruments at each balance sheet date asfollows:

GroupDecember 31, 2003

Notional amounts with remaining life of Fair values

Within3 months

Over 3months

butwithin1 year

Over 1yearbut

within5 years

Over 5years Total Assets Liabilities

Exchange rate contracts:Forward foreign exchange

contracts . . . . . . . . . . . . . . . . 51,731 18,898 3,218 4,066 77,913 413 (324)Currency option contracts

purchased . . . . . . . . . . . . . . . 524 83 — — 607 1 (2)

52,255 18,981 3,218 4,066 78,520 414 (326)

Interest rate contracts:Interest rate swap contracts . . . . 6,128 11,810 24,180 32,904 75,022 1,166 (2,402)Cross-currency swap

contracts . . . . . . . . . . . . . . . . 28 432 563 905 1,928 18 (46)Interest rate option contracts

purchased/written . . . . . . . . . 1,096 1,854 1,673 18 4,641 24 (24)

7,252 14,096 26,416 33,827 81,591 1,208 (2,472)

Other derivative contracts . . . . . . . . . — 107 — — 107 1 —

59,507 33,184 29,634 37,893 160,218 1,623 (2,798)

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BankDecember 31, 2003


Within3 months

Over 3months

butwithin1 year

Over 1yearbut

within5 years


Exchange rate contracts:Forward foreign exchange contracts . . 24,940 14,401 3,218 4,066 46,625 348 (264)Currency option contracts

purchased . . . . . . . . . . . . . . . . . . . . . 94 83 — — 177 — (1)

25,034 14,484 3,218 4,066 46,802 348 (265)

Interest rate contracts:Interest rate swap contracts . . . . . . . . . 6,128 4,840 18,754 27,642 57,364 823 (1,904)Cross-currency swap contracts . . . . . . . 28 432 563 905 1,928 18 (46)Interest rate option contracts

purchased/written . . . . . . . . . . . . . . . 669 234 140 — 1,043 7 (7)

6,825 5,506 19,457 28,547 60,335 848 (1,957)

31,859 19,990 22,675 32,613 107,137 1,196 (2,222)

No derivatives were designated as hedging instruments as at December 31, 2003.



Within3 months

Over 3months

butwithin1 year

Over 1yearbut

within5 years


Exchange rate contracts:Forward foreign exchange contracts . . 58,863 17,825 3,852 6,239 86,779 571 (670)Currency option contracts

purchased . . . . . . . . . . . . . . . . . . . . . 2,193 2,574 65 — 4,832 29 (44)

61,056 20,399 3,917 6,239 91,611 600 (714)

Interest rate contracts:Interest rate swap contracts . . . . . . . . . 12,468 10,293 57,976 43,591 124,328 1,247 (2,476)Cross-currency swap contracts . . . . . . . 276 2,238 1,228 1,690 5,432 181 (270)Forward rate agreements . . . . . . . . . . . — 2,913 24,283 16,934 44,130 65 (65)Interest rate option contracts

purchased/written . . . . . . . . . . . . . . . 446 3,120 3,779 4,835 12,180 19 (30)

13,190 18,564 87,266 67,050 186,070 1,512 (2,841)

Other derivative contracts . . . . . . . . . . . . . . — 1,047 — — 1,047 17 (1)

74,246 40,010 91,183 73,289 278,728 2,129 (3,556)

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Within3 months

Over 3months but

within 1year

Over 1year butwithin5 years



contracts . . . . . . . . . . . . . . . . . . . 34,799 12,227 3,820 6,239 57,085 504 (601)

Interest rate contracts:Interest rate swap contracts . . . . . . . 1,388 4,350 46,027 36,975 88,740 919 (1,994)Cross-currency swap contracts . . . . 276 2,238 1,228 1,690 5,432 181 (270)Forward rate agreements . . . . . . . . . — 2,913 24,283 16,934 44,130 65 (65)Interest rate option contracts

purchased/written . . . . . . . . . . . . 414 746 166 1,426 2,752 4 (12)

2,078 10,247 71,704 57,025 141,054 1,169 (2,341)

36,877 22,474 75,524 63,264 198,139 1,673 (2,942)

No derivatives were designated as hedging instruments as at December 31, 2004.



Within3 months

Over 3months but

within 1year




contracts . . . . . . . . . . . . . . . . . . . 49,240 28,110 1,109 950 79,409 448 (400)Currency option contracts

purchased . . . . . . . . . . . . . . . . . . 2,291 1,068 96,975 — 100,334 7,403 (64)

51,531 29,178 98,084 950 179,743 7,851 (464)

Interest rate contracts:Interest rate swap contracts . . . . . . 10,262 17,601 49,321 45,071 122,255 1,618 (2,883)Cross-currency swap contracts . . . 136 2,296 1,736 909 5,077 418 (113)Forward rate agreements . . . . . . . . 7,174 5,097 22,564 11,525 46,360 67 (67)Interest rate option contracts

purchased/written . . . . . . . . . . . 263 1,562 3,068 3,411 8,304 3 (3)

17,835 26,556 76,689 60,916 181,996 2,106 (3,066)

69,366 55,734 174,773 61,866 361,739 9,957 (3,530)

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Within3 months

Over 3months but

within 1year




contracts . . . . . . . . . . . . . 38,982 24,110 969 950 65,011 389 (370)Currency option contracts

purchased . . . . . . . . . . . . 47 — 96,842 — 96,889 7,335 (1)

39,029 24,110 97,811 950 161,900 7,724 (371)

Interest rate contracts:Interest rate swap

contracts . . . . . . . . . . . . . 9,650 16,272 40,154 42,377 108,453 1,059 (2,182)Cross-currency swap

contracts . . . . . . . . . . . . . 136 2,263 1,579 909 4,887 304 (109)Forward rate agreements . . 7,174 5,097 22,564 11,525 46,360 67 (67)Interest rate option

contracts purchased/written . . . . . . . . . . . . . . . — 167 — 3,256 3,423 — —

16,960 23,799 64,297 58,067 163,123 1,430 (2,358)

55,989 47,909 162,108 59,017 325,023 9,154 (2,729)

Among the above derivative financial instruments, those designated as hedging instruments infair value hedges are set out below:

Group and BankDecember 31, 2005


Within3 months

Over 3months but

within 1year


Over5 years Total Assets Liabilities

Interest rate contracts:Interest rate swap

contracts . . . . . . . . . . . . . — 48 2,600 2,599 5,247 46 (258)Cross-currency swap

contracts . . . . . . . . . . . . . — — — 67 67 — (13)

— 48 2,600 2,666 5,314 46 (271)

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GroupJune 30, 2006


Within3 months

Over 3months but

within 1year




contracts . . . . . . . . . . . . . . . . . 70,909 42,142 6,022 595 119,668 836 (671)Currency option contracts

purchased . . . . . . . . . . . . . . . . 3,323 3,815 98,117 — 105,255 8,149 (24)

74,232 45,957 104,139 595 224,923 8,985 (695)

Interest rate contracts:Interest rate swap contracts . . . . . 11,140 22,034 45,567 44,568 123,309 2,065 (3,133)Cross-currency swap contracts . . 1,328 3,837 601 1,317 7,083 162 (191)Forward rate agreements . . . . . . . 22,397 3,251 21,644 9,297 56,589 41 (42)Interest rate option contracts

purchased/written . . . . . . . . . . 571 786 2,710 3,409 7,476 3 (3)

35,436 29,908 70,522 58,591 194,457 2,271 (3,369)Other derivative contracts . . . . . . . . . . 88 — — — 88 4 (3)

109,756 75,865 174,661 59,186 419,468 11,260 (4,067)

BankJune 30, 2006


Within3 months

Over 3months but

within 1year




contracts . . . . . . . . . . . . . . . . . . 65,996 37,420 5,806 594 109,816 708 (536)Currency option contracts

purchased . . . . . . . . . . . . . . . . . — — 96,842 — 96,842 8,125 —

65,996 37,420 102,648 594 206,658 8,833 (536)

Interest rate contracts:Interest rate swap contracts . . . . . 9,952 19,247 36,739 41,969 107,907 1,321 (2,275)Cross-currency swap contracts . . 1,328 1,499 441 1,317 4,585 156 (186)Forward rate agreements . . . . . . . 22,274 3,147 21,644 9,297 56,362 41 (42)Interest rate option contracts

purchased/written . . . . . . . . . . — 344 47 3,255 3,646 1 (1)

33,554 24,237 58,871 55,838 172,500 1,519 (2,504)

99,550 61,657 161,519 56,432 379,158 10,352 (3,040)

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Among the above derivative financial instruments, those designated as hedging instruments infair value hedges are set out below:

Group and BankJune 30, 2006


Within3 months

Over 3months

butwithin1 year

Over 1yearbut

within5 years


Interest rate contracts:Interest rate swap contracts . . . . . . . . — — 2,519 2,432 4,951 92 (97)Cross-currency swap contracts . . . . . — — — 67 67 — (15)

— — 2,519 2,499 5,018 92 (112)

The replacement costs and credit risk weighted amounts in respect of the above derivatives ofthe Group as at the balance sheet dates, which have taken into account the effects of bilateral nettingarrangements, were as follows:

Replacement costsDecember 31, June 30,

2003 2004 2005 2006

Interest rate derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,208 1,512 2,106 2,271Currency derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414 600 7,851 8,985Other derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 17 — 4

1,623 2,129 9,957 11,260

Credit risk weighted amountsDecember 31, June 30,

2003 2004 2005 2006

Interest rate derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,847 2,954 3,403 3,502Currency derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,592 2,078 1,456 2,471Other derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 80 — 9

3,446 5,112 4,859 5,982

The credit risk weighted amounts refer to the amounts as computed in accordance with the rulespromulgated by the CBRC and depend on the status of the counterparties and the maturitycharacteristics.

In accordance with the rules promulgated by the CBRC, the credit risk weighting assigned toHuijin is zero. Therefore, the credit risk weighted amount of the currency option purchased fromHuijin (note 39(b)) is zero.

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30. CAPITAL AND OPERATING LEASE COMMITMENTS

(i) Capital commitments

At each balance sheet date, the Group and the Bank had capital commitments as follows:


2003 2004 2005 2006

Authorised, but not contracted for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 202 680 6,666Contracted, but not provided for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,004 499 1,370 1,195

1,222 701 2,050 7,861


2003 2004 2005 2006

Authorised, but not contracted for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 202 680 6,655Contracted, but not provided for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 948 486 1,367 1,172

1,166 688 2,047 7,827

(ii) Operating lease commitments

At each balance sheet date, the Group and the Bank leased certain of its premises underoperating lease arrangements. The total future minimum lease payments in respect of non-cancellableoperating leases were as follows:


2003 2004 2005 2006

Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,202 1,298 1,331 1,467Between the second and fifth year, inclusive . . . . . . . . . . . . . . . . . . . . . 2,550 2,828 2,844 2,936After five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,506 1,694 1,665 1,341

5,258 5,820 5,840 5,744


2003 2004 2005 2006

Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,196 1,204 1,219 1,342Between the second and fifth year, inclusive . . . . . . . . . . . . . . . . . . . . . 2,546 2,644 2,649 2,683After five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,506 1,544 1,506 1,210

5,248 5,392 5,374 5,235

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31. CREDIT COMMITMENTS


2003 2004 2005 2006

Letters of credit issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,913 59,674 51,718 57,784Guarantees issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,786 92,573 121,117 146,998Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,511 68,736 92,565 122,390Irrevocable loan commitments with original maturity:

Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,933 55,833 25,665 117,383Over one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,655 116,732 74,566 77,837

346,798 393,548 365,631 522,392


2003 2004 2005 2006

Letters of credit issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,340 56,530 49,075 56,313Guarantees issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,178 91,785 117,291 146,153Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,511 68,736 92,565 122,390Irrevocable loan commitments with original maturity:

Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,785 47,313 11,507 101,149Over one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,545 100,539 63,975 65,381

329,359 364,903 334,413 491,386

Credit risk weighted amount of credit commitments


2003 2004 2005 2006

Credit commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,411 176,195 173,090 209,273


2003 2004 2005 2006

Credit commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,902 167,674 169,020 202,303

The credit risk weighted amounts refer to the amounts computed in accordance with the rulespromulgated by the CBRC and depend on the status of the counterparties and the maturitycharacteristics. The risk weights ranged from 0% to 100% for credit commitments.

The credit risk weighted amounts stated above include the effects of bilateral nettingarrangements.

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32. DESIGNATED DEPOSITS AND LOANS


2003 2004 2005 2006

Designated deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,981 103,208 101,718 114,789

Designated loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,457 102,668 101,212 114,224

Designated deposits represent funds that depositors have instructed the Group or the Bank touse to make loans to third parties as designated by them. The credit risk remains with the depositors.

The difference between designated deposits and designated loans represents the undesignatedamounts of deposits. Such amounts are included in amounts due to customers.

33. CONTINGENT LIABILITIES

(a) Legal proceedings

There were litigation cases of which the Bank and/or its subsidiaries are the defendants, whichare under legal proceedings. The claimed amounts at the end of each of the Relevant Periods are asfollows:


2003 2004 2005 2006

Claimed amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,213 2,387 2,929 3,347


2003 2004 2005 2006

Claimed amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,213 2,365 2,908 3,324

In the opinion of the directors, the Group and the Bank have made adequate allowance for anyprobable losses based on the current facts and circumstances (note 27).

(b) Redemption commitments of government bonds

As an underwriting agent of the Government, the Bank underwrites certain PRC governmentbonds and sells the bonds to the general public. The Bank is obliged to redeem the bonds at thediscretion of the holders at any time prior to maturity. The redemption price for the bonds is based onthe nominal value of the bonds plus any interest accrued up to the redemption date. As atDecember 31, 2003, 2004, 2005 and June 30, 2006, the Bank had underwritten and sold bonds with anaccumulated amount of RMB206,773 million, RMB226,115 million, RMB232,418 million and

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33. CONTINGENT LIABILITIES (continued)

(b) Redemption commitments of government bonds (continued)

RMB250,729 million, respectively, to the general public, and that have not yet matured nor beenredeemed. The directors expect that the amount of redemption of these government bonds through theBank prior to maturity will not be material.

The MOF will not provide funding for the early redemption of these government bonds on aback-to-back basis but is obliged to repay the principal and the respective interest upon maturity.

(c) Underwriting obligations

At each balance sheet date, the unexpired underwriting commitments of the PRC governmentbonds were as follows:


2003 2004 2005 2006

Underwriting obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 14,890 2,370 9,640

34. ASSETS PLEDGED AS SECURITY

As at December 31, 2003, 2004, 2005 and June 30, 2006, the Group’s assets includingsecurities, bills and loans which have been pledged for repurchase agreements amounted toapproximately RMB16,253 million, RMB26,339 million, RMB32,301 million and RMB11,622million, respectively (note 24).

35. FIDUCIARY ACTIVITIES

The Group provides custody, trustee and asset management services to third parties. As atDecember 31, 2003, 2004 and 2005 and June 30, 2006, the balances of assets held in custody accountsamounted to RMB58,132 million, RMB123,009 million, RMB213,240 million and RMB282,869million, respectively.

36. FINANCIAL INSTRUMENTS RISK MANAGEMENT

This section describes the major risks the Group is exposed to and how the Group manages itsrisks.

(a) Credit risk

Credit risk is the risk of loss from the default by an obligor or counterparty when payments falldue. Credit risk is often greater when counterparties are concentrated in a single industry or geographiclocation or have comparable economic characteristics.

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36. FINANCIAL INSTRUMENTS RISK MANAGEMENT (continued)

(a) Credit risk (continued)

The majority of the loans of the Group are for use within Mainland China, and majoroff-balance sheet items such as bank acceptances are also related to the domestic customers inMainland China. However, different areas in Mainland China have their unique characteristics in termsof economic development. Therefore, each area in Mainland China could present a different credit risk.

The Group carries out credit assessment before granting credit to individual customers andmonitors on a regular basis the credit granted. Credit risk is also managed through obtaining collateraland guarantees. In the case of off-balance sheet credit related commitments, guarantee deposits are ingeneral received by the Group to reduce credit risk.

The Group regularly reviews its limits placed on different industry groups and geographicallocations. Details of the industry and geographical concentration of the Group’s credit business are setout below.

The composition of loans and advances by industry is as follows:


2003 2004 2005 2006

Manufacturing . . . . . . . . 1,151,601 34% 1,078,309 29% 673,664 20% 679,478 20%Transportation and

logistics . . . . . . . . . . . 322,795 10% 390,567 11% 379,015 11% 424,771 12%Power generation and

supply . . . . . . . . . . . . . 204,611 6% 279,936 8% 284,935 9% 316,081 9%Retail, wholesale and

catering . . . . . . . . . . . . 351,996 10% 263,728 7% 280,969 9% 301,854 9%Property development . . 216,723 6% 222,502 6% 217,000 7% 238,524 7%Education, hospitals and

other non-profitorganisations . . . . . . . 97,198 3% 121,969 3% 104,890 3% 133,379 4%

Construction . . . . . . . . . . 75,210 2% 83,397 2% 93,864 3% 86,557 2%Others . . . . . . . . . . . . . . . 408,089 12% 454,929 12% 335,074 10% 318,912 9%

Subtotal for corporateloans . . . . . . . . . . . . . . 2,828,223 83% 2,895,337 78% 2,369,411 72% 2,499,556 72%

Personal mortgageloans . . . . . . . . . . . . . . 339,261 10% 427,071 12% 459,248 14% 471,596 14%

Others . . . . . . . . . . . . . . . 78,179 2% 75,149 2% 68,113 2% 73,529 2%

Subtotal for personalloans . . . . . . . . . . . . . . 417,440 12% 502,220 14% 527,361 16% 545,125 16%

3,245,663 95% 3,397,557 92% 2,896,772 88% 3,044,681 88%Discounted bills . . . . . . . 156,614 5% 310,191 8% 392,781 12% 416,399 12%

3,402,277 100% 3,707,748 100% 3,289,553 100% 3,461,080 100%

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(a) Credit risk (continued)


2003 2004 2005 2006

Manufacturing . . . . . . . . . . . . . . . 1,142,560 34% 1,064,316 29% 667,894 21% 673,390 20%Transportation and logistics . . . . 314,821 10% 386,534 11% 369,059 12% 413,848 12%Power generation and supply . . . 202,277 6% 268,880 8% 283,974 9% 314,840 9%Retail, wholesale and catering . . . 347,976 10% 257,326 7% 269,044 8% 289,568 9%Property development . . . . . . . . . 210,783 6% 211,769 6% 199,993 6% 224,954 7%Education, hospitals and other

non-profit organisations . . . . . 96,747 3% 121,164 3% 104,017 3% 133,378 4%Construction . . . . . . . . . . . . . . . . 70,962 2% 79,243 2% 89,688 3% 83,705 2%Others . . . . . . . . . . . . . . . . . . . . . 406,179 12% 451,911 12% 322,765 10% 303,636 9%

Subtotal for corporate loans . . . . 2,792,305 83% 2,841,143 78% 2,306,434 72% 2,437,319 72%

Personal mortgage loans . . . . . . . 330,115 10% 412,449 11% 447,302 14% 459,726 14%Others . . . . . . . . . . . . . . . . . . . . . 77,590 2% 74,533 2% 67,811 2% 73,379 2%

Subtotal for personal loans . . . . . 407,705 12% 486,982 13% 515,113 16% 533,105 16%

3,200,010 95% 3,328,125 91% 2,821,547 88% 2,970,424 88%Discounted bills . . . . . . . . . . . . . . 156,489 5% 310,148 9% 392,717 12% 416,336 12%

3,356,499 100% 3,638,273 100% 3,214,264 100% 3,386,760 100%

The geographical segment of loans and advances of the Group is analysed as follows:


2003 2004 2005 2006

Head office . . . . . . . . . . . . . . . . . 121,317 4% 140,324 4% 263,117 8% 267,865 8%Yangtze River Delta . . . . . . . . . . 687,872 20% 757,085 20% 791,990 24% 856,732 25%Pearl River Delta . . . . . . . . . . . . . 475,848 14% 509,229 14% 453,773 14% 484,358 14%Bohai Rim . . . . . . . . . . . . . . . . . . 586,009 17% 628,580 17% 574,513 17% 599,742 17%Central China . . . . . . . . . . . . . . . . 524,733 16% 580,275 15% 424,628 13% 445,232 13%Western China . . . . . . . . . . . . . . . 552,112 16% 593,686 16% 484,134 15% 503,658 15%North-eastern China . . . . . . . . . . 377,969 11% 399,326 11% 193,000 6% 192,066 5%Overseas . . . . . . . . . . . . . . . . . . . 76,417 2% 99,243 3% 104,398 3% 111,427 3%

3,402,277 100% 3,707,748 100% 3,289,553 100% 3,461,080 100%

The Bank level geographical segment of loans and advances is not presented since the relevantbalances attributable to the subsidiaries are considered insignificant to the Group and are mainlyincluded in the overseas segment above.

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(b) Liquidity risk

Liquidity risk is the risk that funds will not be available to meet liabilities as they fall due. Thismay arise from amount or maturity mismatches of assets and liabilities.

The Group manages its liquidity risk through the Asset and Liability Management Departmentand aims at:

Š optimising the assets and liabilities structure;

Š maintaining the stability of the deposit base;

Š projecting cash flows and evaluating the level of current assets; and

Š in terms of liquidity of the branches, maintaining an efficient internal fund transfermechanism.

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(b) Liquidity risk (continued)

The tables below summarise the maturity analysis of assets and liabilities of the Group and theBank at each balance sheet date.


Overdue/repayable

on demandLess than3 months

3 monthsto 1 year

1 to 5years

More than5 years Undated Total

Assets:

Cash and balances with centralbanks . . . . . . . . . . . . . . . . . . . . . . . 130,042 — — — — 327,774 457,816

Due from banks and other financialinstitutions (i) . . . . . . . . . . . . . . . . 11,310 104,613 19,591 — — 1,734 137,248

Loans and advances to customers . . . 2,844 449,169 990,413 560,355 642,874 120,400 2,766,055Investments

—Receivables . . . . . . . . . . . . . . — — — — 397,996 — 397,996—Held-to-maturity

securities . . . . . . . . . . . . . . — 9,552 46,889 138,937 168,449 — 363,827—Available-for-sale

investments . . . . . . . . . . . . — 48,529 54,308 96,789 47,198 10,466 257,290—Investments at fair value

through profit or loss . . . . — 1,933 10,154 3,297 10,233 — 25,617—Investments in associates . . . — — — — — 274 274

Property and equipment . . . . . . . . . . — — — — — 77,767 77,767Others . . . . . . . . . . . . . . . . . . . . . . . . 11,919 3,926 4,196 32,066 3,575 17,379 73,061

Total assets . . . . . . . . . . . . . . . . . . . . 156,115 617,722 1,125,551 831,444 1,270,325 555,794 4,556,951

Liabilities:

Due to banks and other financialinstitutions (ii) . . . . . . . . . . . . . . . . 133,640 91,200 38,366 4,439 — — 267,645

Due to customers (iii) . . . . . . . . . . . . 2,390,291 873,388 1,145,286 297,593 3,679 — 4,710,237Others . . . . . . . . . . . . . . . . . . . . . . . . 90,821 10,596 13,196 3,550 40 — 118,203

Total liabilities . . . . . . . . . . . . . . . . . 2,614,752 975,184 1,196,848 305,582 3,719 — 5,096,085

Net liquidity gap . . . . . . . . . . . . . . . . (2,458,637) (357,462) (71,297) 525,862 1,266,606 555,794 (539,134)

(i) Includes reverse repurchase agreements.

(ii) Includes due to a central bank and repurchase agreements.

(iii) Includes certificates of deposits.

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Overdue/repayable


3 monthsto 1 year

1 to 5years


Assets:

Cash and balances with centralbanks . . . . . . . . . . . . . . . . . . . . . 129,986 — — — — 327,773 457,759

Due from banks and other financialinstitutions (i) . . . . . . . . . . . . . . . 9,929 120,379 15,211 — — 1,734 147,253

Loans and advances tocustomers . . . . . . . . . . . . . . . . . . 2,844 443,730 985,995 539,344 629,209 119,868 2,720,990

Investments—Receivables . . . . . . . . . . . . — — — — 397,996 — 397,996—Held-to-maturity

securities . . . . . . . . . . . . — 9,481 45,899 133,936 170,242 — 359,558—Available-for-sale

investments . . . . . . . . . . — 48,511 54,811 94,753 46,553 9,846 254,474—Investments at fair value

through profit or loss . . . — 1,933 10,154 3,297 10,233 — 25,617—Investments in

associates . . . . . . . . . . . . — — — — — 83 83—Investments in

subsidiaries . . . . . . . . . . . — — — — — 7,098 7,098Property and equipment . . . . . . . . . — — — — — 77,184 77,184Others . . . . . . . . . . . . . . . . . . . . . . . 10,893 3,742 3,991 32,066 3,575 15,956 70,223

Total assets . . . . . . . . . . . . . . . . . . 153,652 627,776 1,116,061 803,396 1,257,808 559,542 4,518,235

Liabilities:

Due to banks and other financialinstitutions (ii) . . . . . . . . . . . . . . 156,903 80,153 32,769 4,439 — — 274,264

Due to customers . . . . . . . . . . . . . . 2,379,977 846,586 1,142,680 295,101 3,673 — 4,668,017Others . . . . . . . . . . . . . . . . . . . . . . . 89,319 10,367 13,196 3,550 40 — 116,472

Total liabilities . . . . . . . . . . . . . . . 2,626,199 937,106 1,188,645 303,090 3,713 — 5,058,753

Net liquidity gap . . . . . . . . . . . . . . (2,472,547) (309,330) (72,584) 500,306 1,254,095 559,542 (540,518)



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Overdue/repayable


3 monthsto 1 year

1 to 5years


Assets:

Cash and balances with centralbanks . . . . . . . . . . . . . . . . . . . . 108,932 — — — — 399,684 508,616

Due from banks and otherfinancial institutions (i) . . . . . . 7,743 62,935 19,495 — — 1,021 91,194

Loans and advances tocustomers . . . . . . . . . . . . . . . . . 19,097 477,293 971,886 781,003 628,690 231,222 3,109,191

Investments—Receivables . . . . . . . . . . . — — — — 397,996 — 397,996—Held-to-maturity

securities . . . . . . . . . . . . — 4,570 51,547 211,630 160,482 — 428,229—Available-for-sale

investments . . . . . . . . . . — 99,606 123,424 119,496 40,239 7,977 390,742—Investments at fair value

through profit or loss . . — — 11,605 1,561 283 — 13,449—Investments in

associates . . . . . . . . . . . — — — — — 117 117Property and equipment . . . . . . . . — — — — — 75,579 75,579Others . . . . . . . . . . . . . . . . . . . . . . 10,228 4,833 7,095 11,984 — 20,071 54,211

Total assets . . . . . . . . . . . . . . . . . 146,000 649,237 1,185,052 1,125,674 1,227,690 735,671 5,069,324

Liabilities:

Due to banks and other financialinstitutions (ii) . . . . . . . . . . . . . 168,225 76,359 15,217 595 40 — 260,436

Due to customers (iii) . . . . . . . . . . 2,611,723 991,887 1,239,422 333,025 3,905 — 5,179,962Debt issued . . . . . . . . . . . . . . . . . . — — — 3,294 — — 3,294Others . . . . . . . . . . . . . . . . . . . . . . 102,585 12,023 15,009 4,013 47 — 133,677

Total liabilities . . . . . . . . . . . . . . 2,882,533 1,080,269 1,269,648 340,927 3,992 — 5,577,369

Net liquidity gap . . . . . . . . . . . . . . (2,736,533) (431,032) (84,596) 784,747 1,223,698 735,671 (508,045)




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Overdue/repayable


3 monthsto 1 year

1 to 5years


Assets:Cash and balances with

central banks . . . . . . . . . 108,762 — — — — 399,683 508,445Due from banks and other

financialinstitutions (i) . . . . . . . . 9,125 67,468 18,984 — — 1,021 96,598

Loans and advances tocustomers . . . . . . . . . . . 19,097 466,936 964,520 752,568 608,637 228,869 3,040,627

Investments—Receivables . . . . . . — — — — 397,996 — 397,996—Held-to-maturity

securities . . . . . . — 3,704 54,235 205,358 159,562 — 422,859—Available-for-sale

investments . . . . — 99,439 123,167 117,186 39,470 7,421 386,683—Investments at fair

value throughprofit or loss . . . — — 11,605 1,561 283 — 13,449

—Investments inassociates . . . . . . — — — — — 74 74

—Investments insubsidiaries . . . . — — — — — 7,087 7,087

Property and equipment . . — — — — — 75,124 75,124Others . . . . . . . . . . . . . . . . 10,228 3,164 6,490 11,984 — 18,957 50,823

Total assets . . . . . . . . . . . . 147,212 640,711 1,179,001 1,088,657 1,205,948 738,236 4,999,765

Liabilities:

Due to banks and otherfinancialinstitutions (ii) . . . . . . . . 168,224 80,265 16,279 596 40 — 265,404

Due to customers . . . . . . . . 2,595,504 948,836 1,236,429 330,532 3,896 — 5,115,197Others . . . . . . . . . . . . . . . . 100,357 12,023 15,009 4,013 47 — 131,449

Total liabilities . . . . . . . . . 2,864,085 1,041,124 1,267,717 335,141 3,983 — 5,512,050

Net liquidity gap . . . . . . . . (2,716,873) (400,413) (88,716) 753,516 1,201,965 738,236 (512,285)



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Overdue/repayable


3 monthsto 1 year

1 to 5years




financialinstitutions (i) . . . . . . . . 25,331 161,437 34,484 145 — — 221,397


Investments—Receivables . . . . . . — — — 989,461 85,000 — 1,074,461—Held-to-maturity

securities . . . . . . — 79,606 328,393 323,469 151,236 — 882,704—Available-for-sale


value throughprofit or loss . . . — — 877 15,374 2,090 — 18,341


Property and equipment . . — — — — — 92,984 92,984Others . . . . . . . . . . . . . . . . 11,875 17,053 7,774 4,643 2,122 32,740 76,207

Total assets . . . . . . . . . . . . 180,562 847,791 1,445,625 2,287,160 1,008,443 686,550 6,456,131

Liabilities:Due to banks and other

financialinstitutions (ii) . . . . . . . . 174,781 65,759 24,186 485 — — 265,211

Due to customers (iii) . . . . 2,878,156 1,098,275 1,357,413 403,898 4,828 — 5,742,570Debt issued . . . . . . . . . . . . — — — 3,076 35,000 — 38,076Others . . . . . . . . . . . . . . . . 112,221 14,656 18,102 5,352 67 — 150,398


Net liquidity gap . . . . . . . . (2,984,596) (330,899) 45,924 1,874,349 968,548 686,550 259,876


(ii) Includes repurchase agreements.


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Overdue/repayable


3 monthsto 1 year

1 to 5years



central banks . . . . . . . . . . 99,435 — — — — 454,137 553,572Due from banks and other

financialinstitutions (i) . . . . . . . . . 15,330 162,303 41,383 145 — — 219,161

Loans and advances tocustomers . . . . . . . . . . . . 40,751 509,245 986,700 801,558 693,993 98,849 3,131,096

Investments—Receivables . . . . . . . — — — 989,461 85,000 — 1,074,461—Held-to-maturity

securities . . . . . . . — 79,182 327,579 324,410 156,506 — 887,677—Available-for-sale

investments . . . . . — 70,996 75,691 118,330 49,480 4,614 319,111—Investments at fair

value throughprofit or loss . . . . — — 877 14,652 1,053 — 16,582


—Investments insubsidiaries . . . . . — — — — — 7,112 7,112

Property and equipment . . . — — — — — 92,615 92,615Others . . . . . . . . . . . . . . . . . 9,970 16,909 7,244 4,643 2,002 32,596 73,364

Total assets . . . . . . . . . . . . 165,486 838,635 1,439,474 2,253,199 988,034 689,997 6,374,825


financialinstitutions (ii) . . . . . . . . 173,051 66,451 24,556 485 — — 264,543

Due to customers . . . . . . . . 2,860,671 1,052,375 1,353,874 400,117 4,817 — 5,671,854Debt issued . . . . . . . . . . . . . — — — — 35,000 — 35,000Others . . . . . . . . . . . . . . . . . 110,401 14,656 18,102 5,352 67 — 148,578


Net liquidity gap . . . . . . . . . (2,978,637) (294,847) 42,942 1,847,245 948,150 689,997 254,850



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GroupJune 30, 2006

Overdue/repayable


3 monthsto 1 year

1 to 5years




financial institutions(i) . . . . . . . . . . . . . . . . . . 29,824 155,136 51,605 110 — — 236,675

Loans and advances tocustomers . . . . . . . . . . . 45,412 573,034 1,001,223 887,210 772,421 96,042 3,375,342


securities . . . . . . — 98,627 452,692 352,765 175,282 — 1,079,366—Available-for-sale


value throughprofit or loss . . . — 7,029 20,330 19,480 3,590 36 50,465



Total assets . . . . . . . . . . . . 207,464 1,024,484 1,620,860 2,383,046 1,105,243 713,528 7,054,625


financial institutions(ii) . . . . . . . . . . . . . . . . . 242,006 101,155 35,007 672 — — 378,840

Due to customers (iii) . . . . 2,974,356 1,094,353 1,508,173 543,266 5,881 — 6,126,029Debt issued . . . . . . . . . . . . — — — 2,987 35,000 — 37,987Others . . . . . . . . . . . . . . . . 136,029 17,765 21,942 6,487 81 — 182,304


Net liquidity gap . . . . . . . . (3,144,927) (188,789) 55,738 1,829,634 1,064,281 713,528 329,465




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BankJune 30, 2006

Overdue/repayable


3 monthsto 1 year

1 to 5years



central banks . . . . . . . . . 116,584 — — — — 481,260 597,844Due from banks and

other financialinstitutions (i) . . . . . . . . 15,906 149,097 52,609 110 — — 217,722



securities . . . . . . — 98,502 450,912 355,213 180,614 — 1,085,241—Available-for-sale


value throughprofit or loss . . . — 6,817 19,965 18,912 2,442 — 48,136


—Investments insubsidiaries . . . . — — — — — 7,063 7,063


Total assets . . . . . . . . . . . . 192,600 1,006,009 1,611,177 2,351,481 1,080,683 717,705 6,959,655

Liabilities:Due to banks and

other financialinstitutions (ii) . . . . . . . . 245,292 102,722 35,741 681 — — 384,436

Due to customers . . . . . . . . 2,956,069 1,032,841 1,502,473 539,065 5,871 — 6,036,319Debt issued . . . . . . . . . . . . — — — — 35,000 — 35,000Others . . . . . . . . . . . . . . . . 134,072 17,510 21,627 6,394 80 — 179,683


Net liquidity gap . . . . . . . . (3,142,833) (147,064) 51,336 1,805,341 1,039,732 717,705 324,217



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(c) Market risk

The Group’s market risk mainly arises from open positions in interest rate and currencyproducts. The management of these specific risks is summarised in note 36(d) and 36(e), respectively.

(d) Currency risk

The Group conducts it business mainly in RMB, with certain transactions denominated in US$,HK$ and, to a much lesser extent, other currencies. These transactions arise from the Group’s treasuryexposures and foreign operations.

The exchange rate of RMB to US$ was set by the PBOC and had fluctuated within a narrowband prior to July 2005. Since then, a managed-floating exchange rate system has been used and US$exchange rate has gradually declined against the RMB. The HK$ exchange rate has been pegged to theUS$ and therefore the exchange rate of RMB to HK$ has fluctuated in line with the changes inexchange rate of RMB to US$.

The Group has used the capital injection of US$15,000 million in 2005 to invest in debtinvestments and money market instruments denominated in U.S. dollars. In April 2005, the Bankpurchased from Huijin an option to sell to Huijin a maximum of US$12,000 million in exchange forRMB at a pre-determined exchange rate of US$1 to RMB8.2765. Details of this option are set out innote 39(b)(ii).

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(d) Currency risk (continued)

A breakdown of relevant assets and liabilities analysed by currency is as follows:


RMB US$ HK$ Others Total

Assets:Cash and balances with central banks . . . . . . . . . . . . . . . . . 449,337 6,192 1,174 1,113 457,816Due from banks and other financial institutions (i) . . . . . . . 77,233 49,095 5,438 5,482 137,248Loans and advances to customers . . . . . . . . . . . . . . . . . . . . 2,568,115 117,296 64,073 16,571 2,766,055Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980,122 45,725 7,338 11,819 1,045,004Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,486 589 692 — 77,767Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,405 8,407 3,091 158 73,061

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,212,698 227,304 81,806 35,143 4,556,951

Liabilities:Due to banks and other financial institutions (ii) . . . . . . . . 232,073 18,507 15,638 1,427 267,645Due to customers (iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,475,314 165,234 60,763 8,926 4,710,237Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,780 10,023 7,119 28,281 118,203

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,780,167 193,764 83,520 38,634 5,096,085

Net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (567,469) 33,540 (1,714) (3,491) (539,134)





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Assets:Cash and balances with central banks . . . . . . . . . . . . . . . . . 449,337 6,192 1,145 1,085 457,759Due from banks and other financial institutions (i) . . . . . . 77,265 55,477 7,122 7,389 147,253Loans and advances to customers . . . . . . . . . . . . . . . . . . . . 2,568,114 109,580 34,399 8,897 2,720,990Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980,126 44,872 9,344 10,484 1,044,826Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,485 589 110 — 77,184Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,767 7,106 1,264 86 70,223

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,213,094 223,816 53,384 27,941 4,518,235

Liabilities:Due to banks and other financial institutions (ii) . . . . . . . . 232,072 23,253 14,082 4,857 274,264Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,475,314 148,967 37,906 5,830 4,668,017Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,141 8,806 6,929 27,596 116,472


Net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (567,433) 42,790 (5,533) (10,342) (540,518)




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Assets:Cash and balances with central banks . . . . . . . . . . . . . . . . 500,059 6,156 978 1,423 508,616Due from banks and other financial institutions (i) . . . . . . 29,368 43,445 12,229 6,152 91,194Loans and advances to customers . . . . . . . . . . . . . . . . . . . 2,887,664 125,078 85,694 10,755 3,109,191Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,162,210 46,389 7,256 14,678 1,230,533Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,404 705 470 — 75,579Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,329 6,084 203 595 54,211

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,701,034 227,857 106,830 33,603 5,069,324

Liabilities:Due to banks and other financial institutions (ii) . . . . . . . . 219,438 22,690 12,259 6,049 260,436Due to customers (iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,923,306 174,672 71,361 10,623 5,179,962Debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3,294 — — 3,294Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,674 11,841 6,537 3,625 133,677

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,254,418 212,497 90,157 20,297 5,577,369

Net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (553,384) 15,360 16,673 13,306 (508,045)





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Assets:Cash and balances with central banks . . . . . . . . . . . . . . . . . 500,059 6,156 837 1,393 508,445Due from banks and other financial institutions (i) . . . . . . . 29,422 47,080 8,048 12,048 96,598Loans and advances to customers . . . . . . . . . . . . . . . . . . . . 2,887,664 114,107 34,523 4,333 3,040,627Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,162,212 45,399 9,218 11,319 1,228,148Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,304 705 115 — 75,124Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,328 3,024 120 351 50,823

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,700,989 216,471 52,861 29,444 4,999,765

Liabilities:Due to banks and other financial institutions (ii) . . . . . . . . . 220,267 25,894 3,061 16,182 265,404Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,923,182 148,741 37,460 5,814 5,115,197Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,672 10,236 6,138 3,403 131,449


Net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (554,132) 31,600 6,202 4,045 (512,285)

Off-balance sheet credit commitments . . . . . . . . . . . . . . . . . 246,638 97,971 16,660 3,634 364,903



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Assets:Cash and balances with central banks . . . . . . . . . . . . . . . . 544,796 5,652 2,083 1,342 553,873Due from banks and other financial institutions (i) . . . . . . 97,977 100,676 9,883 12,861 221,397Loans and advances to customers . . . . . . . . . . . . . . . . . . . 2,971,018 132,304 82,450 20,089 3,205,861Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,192,798 91,349 7,934 13,728 2,305,809Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,182 253 261 288 92,984Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,601 8,577 1,812 1,217 76,207

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,963,372 338,811 104,423 49,525 6,456,131

Liabilities:Due to banks and other financial institutions (ii) . . . . . . . . 215,081 31,644 10,531 7,955 265,211Due to customers (iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,502,327 145,597 69,450 25,196 5,742,570Debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 3,076 — — 38,076Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,334 7,256 6,536 6,272 150,398


Net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,630 151,238 17,906 10,102 259,876





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Bank

December 31, 2005


Assets:Cash and balances with central banks . . . . . . . . . . . . . . . . . 544,782 5,635 1,936 1,219 553,572Due from banks and other financial institutions (i) . . . . . . . 97,746 98,354 10,020 13,041 219,161Loans and advances to customers . . . . . . . . . . . . . . . . . . . . 2,971,826 115,944 25,824 17,502 3,131,096Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,192,892 89,544 10,390 12,191 2,305,017Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,074 252 4 285 92,615Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,885 8,483 1,792 1,204 73,364

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,961,205 318,212 49,966 45,442 6,374,825

Liabilities:Due to banks and other financial institutions (ii) . . . . . . . . . 233,919 17,093 8,540 4,991 264,543Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,502,119 121,102 31,267 17,366 5,671,854Debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 — — — 35,000Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,576 4,980 7,666 7,356 148,578


Net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,591 175,037 2,493 15,729 254,850




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GroupJune 30, 2006


Assets:Cash and balances with central banks . . . . . . . . . . . . . . . . 589,487 5,611 1,719 1,452 598,269Due from banks and other financial institutions (i) . . . . . 115,087 99,796 4,756 17,036 236,675Loans and advances to customers . . . . . . . . . . . . . . . . . . . 3,149,983 120,088 88,866 16,405 3,375,342Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,524,442 115,472 6,930 11,100 2,657,944Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 87,917 340 259 193 88,709Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,809 10,994 2,323 1,560 97,686

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,549,725 352,301 104,853 47,746 7,054,625

Liabilities:Due to banks and other financial institutions (ii) . . . . . . . 312,779 48,171 8,714 9,176 378,840Due to customers (iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,867,087 156,254 81,902 20,786 6,126,029Debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 2,987 — — 37,987Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,984 8,795 7,923 7,602 182,304


Net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,875 136,094 6,314 10,182 329,465

Off-balance sheet credit commitments . . . . . . . . . . . . . . . 366,699 99,926 31,266 24,501 522,392




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Bank

June 30, 2006


Assets:Cash and balances with central banks . . . . . . . . . . . . . . . . . 589,466 5,603 1,534 1,241 597,844Due from banks and other financial institutions (i) . . . . . . . 115,071 80,675 7,737 14,239 217,722Loans and advances to customers . . . . . . . . . . . . . . . . . . . . 3,149,983 104,424 33,412 13,633 3,301,452Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,524,513 116,063 10,032 9,314 2,659,922Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,899 252 3 189 88,343Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 10,621 2,244 1,507 94,372

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,546,932 317,638 54,962 40,123 6,959,655

Liabilities:Due to banks and other financial institutions (ii) . . . . . . . . . 312,872 53,542 8,264 9,758 384,436Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,866,854 123,123 31,018 15,324 6,036,319Debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 — — — 35,000Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,712 8,669 7,809 7,493 179,683


Net position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,494 132,304 7,871 7,548 324,217




(e) Interest rate risk

The Group’s interest rate risk arises from the differences in timing between contractualmaturities and repricing of interest-bearing assets and liabilities. The Group’s interest-bearing assetsand liabilities are mainly denominated in RMB. The PBOC establishes RMB benchmark interest rateswhich have a cap for RMB deposit rates and a floor for RMB loan rates.

The Group manages its interest rate risk by:

Š regularly monitoring the macro economic factors that may impact on the PBOCbenchmark rates;

Š optimising the differences in timing between contractual maturities and repricing ofinterest-bearing assets and liabilities; and

Š managing the deviation of the pricing of interest-bearing assets and liabilities from thePBOC benchmark rates.

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(e) Interest rate risk (continued)

The table below summarises the contractual repricing or maturity date, whichever is earlier, ofthe Group’s and the Bank’s financial assets and liabilities:


Effectiveinterest rate (i)

Less than3 months

3 monthsto 1 year

1 to 5years

Morethan

5 yearsNon-interest-

bearing Total

Assets:Cash and balances with central

banks . . . . . . . . . . . . . . . . . . 1.93% 428,231 — — — 29,585 457,816Due from banks and other

financial institutions (ii) . . . 1.86% 117,657 19,591 — — — 137,248Loans and advances to

customers . . . . . . . . . . . . . . . 4.58% 1,076,772 1,689,283 — — — 2,766,055Investments . . . . . . . . . . . . . . . 3.24% 84,845 236,537 184,848 528,034 10,740 1,045,004Property and equipment . . . . . N/A — — — — 77,767 77,767Others . . . . . . . . . . . . . . . . . . . N/A — — — — 73,061 73,061

Total assets . . . . . . . . . . . . . . . 3.98% 1,707,505 1,945,411 184,848 528,034 191,153 4,556,951


financial institutions (iii) . . . 1.71% 222,781 16,094 4,439 — 24,331 267,645Due to customers (iv) . . . . . . . 1.36% 3,192,691 1,145,286 297,593 3,679 70,988 4,710,237Others . . . . . . . . . . . . . . . . . . . N/A — — — — 118,203 118,203

Total liabilities . . . . . . . . . . . . 1.39% 3,415,472 1,161,380 302,032 3,679 213,522 5,096,085

Interest rate mismatch . . . . . . . 2.59% (1,707,967) 784,031 (117,184) 524,355 N/A N/A

(i) Effective interest rate represents the ratio of interest income/expense to average balance of interest bearingassets/liabilities.

(ii) Includes reverse repurchase agreements.

(iii) Includes due to a central bank and repurchase agreements.

(iv) Includes certificates of deposits.

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Less than3 months

3 monthsto 1 year

1 to 5years

Morethan

5 yearsNon-interest-

bearing Total


banks . . . . . . . . . . . . . . . . . . 1.93% 428,220 — — — 29,539 457,759Due from banks and other

financial institutions (ii) . . . 1.88% 125,345 21,908 — — — 147,253Loans and advances to

customers . . . . . . . . . . . . . . . 4.61% 1,058,745 1,662,245 — — — 2,720,990Investments . . . . . . . . . . . . . . . 3.27% 83,864 240,139 178,592 525,204 17,027 1,044,826Property and equipment . . . . . N/A — — — — 77,184 77,184Others . . . . . . . . . . . . . . . . . . . N/A — — — — 70,223 70,223

Total assets . . . . . . . . . . . . . . . 4.01% 1,696,174 1,924,292 178,592 525,204 193,973 4,518,235


financial institutions (iii) . . . 1.76% 228,802 16,692 4,439 — 24,331 274,264Due to customers . . . . . . . . . . . 1.39% 3,155,576 1,142,680 295,101 3,673 70,987 4,668,017Others . . . . . . . . . . . . . . . . . . . N/A — — — — 116,472 116,472

Total liabilities . . . . . . . . . . . . 1.41% 3,384,378 1,159,372 299,540 3,673 211,790 5,058,753

Interest rate mismatch . . . . . . . 2.60% (1,688,204) 764,920 (120,948) 521,531 N/A N/A




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Less than3 months

3 monthsto 1 year

1 to 5years

More than5 years

Non-interest-bearing Total


central banks . . . . . . . . . 1.84% 478,722 — — — 29,894 508,616Due from banks and other

financialinstitutions (ii) . . . . . . . . 1.61% 71,699 19,495 — — — 91,194

Loans and advances tocustomers . . . . . . . . . . . 4.48% 1,156,737 1,951,763 195 496 — 3,109,191

Investments . . . . . . . . . . . . 3.08% 131,491 314,864 266,817 509,267 8,094 1,230,533Property and equipment . . N/A — — — — 75,579 75,579Others . . . . . . . . . . . . . . . . N/A — — — — 54,211 54,211

Total assets . . . . . . . . . . . 3.88% 1,838,649 2,286,122 267,012 509,763 167,778 5,069,324


financialinstitutions (iii) . . . . . . . 1.59% 220,482 15,217 595 40 24,102 260,436

Due to customers (iv) . . . . 1.32% 3,535,057 1,239,422 333,025 3,905 68,553 5,179,962Debt issued . . . . . . . . . . . . 4.12% — — 3,294 — — 3,294Others . . . . . . . . . . . . . . . . N/A — — — — 133,677 133,677

Total liabilities . . . . . . . . . 1.34% 3,755,539 1,254,639 336,914 3,945 226,332 5,577,369

Interest rate mismatch . . . . 2.54% (1,916,890) 1,031,483 (69,902) 505,818 N/A N/A





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Less than3 months

3 monthsto 1 year

1 to 5years

More than5 years



banks . . . . . . . . . . . . . . . . . . . 1.84% 478,710 — — — 29,735 508,445Due from banks and other

financial institutions (ii) . . . . . 1.89% 75,260 21,338 — — — 96,598Loans and advances to

customers . . . . . . . . . . . . . . . . 4.50% 1,118,824 1,921,112 195 496 — 3,040,627Investments . . . . . . . . . . . . . . . . 3.10% 129,809 318,626 259,274 505,857 14,582 1,228,148Property and equipment . . . . . . . N/A — — — — 75,124 75,124Others . . . . . . . . . . . . . . . . . . . . . N/A — — — — 50,823 50,823

Total assets . . . . . . . . . . . . . . . . 3.91% 1,802,603 2,261,076 259,469 506,353 170,264 4,999,765

Liabilities:Due to banks and other financial

institutions (iii) . . . . . . . . . . . . 1.80% 224,698 15,969 595 40 24,102 265,404Due to customers . . . . . . . . . . . . 1.34% 3,475,796 1,236,429 330,532 3,896 68,544 5,115,197Others . . . . . . . . . . . . . . . . . . . . . N/A — — — — 131,449 131,449

Total liabilities . . . . . . . . . . . . . 1.37% 3,700,494 1,252,398 331,127 3,936 224,095 5,512,050

Interest rate mismatch . . . . . . . . 2.54% (1,897,891) 1,008,678 (71,658) 502,417 N/A N/A




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Less than3 months

3 monthsto 1 year

1 to 5years

More than5 years



central banks . . . . . . . . . . . 1.68% 523,788 — — — 30,085 553,873Due from banks and other

financialinstitutions (ii) . . . . . . . . . 2.51% 186,768 34,484 145 — — 221,397

Loans and advances tocustomers . . . . . . . . . . . . . 5.11% 1,263,116 1,942,207 289 249 — 3,205,861

Investments . . . . . . . . . . . . . 2.94% 212,131 524,125 1,341,246 222,883 5,424 2,305,809Property and equipment . . . . N/A — — — — 92,984 92,984Others . . . . . . . . . . . . . . . . . . N/A — — — — 76,207 76,207

Total assets . . . . . . . . . . . . . 4.08% 2,185,803 2,500,816 1,341,680 223,132 204,700 6,456,131


financialinstitutions (iii) . . . . . . . . . 1.92% 240,540 24,186 485 — — 265,211

Due to customers (iv) . . . . . . 1.48% 3,898,487 1,357,413 403,898 4,828 77,944 5,742,570Debt issued . . . . . . . . . . . . . . 3.41% 9,000 — 16,076 13,000 — 38,076Others . . . . . . . . . . . . . . . . . . N/A — — — — 150,398 150,398

Total liabilities . . . . . . . . . . 1.50% 4,148,027 1,381,599 420,459 17,828 228,342 6,196,255

Interest rate mismatch . . . . . 2.58% (1,962,224) 1,119,217 921,221 205,304 N/A N/A

(i) Effective interest rate represents the ratio of interest income/expense to average balance of interestbearing assets/liabilities.




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Less than3 months

3 monthsto 1 year

1 to 5years

More than5 years



central banks . . . . . . . 1.68% 523,667 — — — 29,905 553,572Due from banks and

other financialinstitutions (ii) . . . . . . 2.58% 181,427 37,589 145 — — 219,161

Loans and advances tocustomers . . . . . . . . . 5.11% 1,233,659 1,896,912 282 243 — 3,131,096

Investments . . . . . . . . . . 2.91% 198,489 530,006 1,341,073 223,649 11,800 2,305,017Property and

equipment . . . . . . . . . N/A — — — — 92,615 92,615Others . . . . . . . . . . . . . . N/A — — — — 73,364 73,364

Total assets . . . . . . . . . . 4.06% 2,137,242 2,464,507 1,341,500 223,892 207,684 6,374,825


financialinstitutions (iii) . . . . . 1.98% 243,463 20,553 527 — — 264,543

Due to customers . . . . . . 1.46% 3,835,105 1,353,874 400,117 4,817 77,941 5,671,854Debt issued . . . . . . . . . . 3.19% 9,000 — 13,000 13,000 — 35,000Others . . . . . . . . . . . . . . N/A — — — — 148,578 148,578

Total liabilities . . . . . . . 1.49% 4,087,568 1,374,427 413,644 17,817 226,519 6,119,975

Interest ratemismatch . . . . . . . . . . 2.57% (1,950,326) 1,090,080 927,856 206,075 N/A N/A

(i) Effective interest rate represents the ratio of interest income/expense to average balance of interestbearing assets/liabilities.



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GroupJune 30, 2006


Less than3 months

3 monthsto 1 year

1 to 5years

More than5 years


Assets:Cash and balances

with centralbanks . . . . . . . . . . . 1.72% 566,513 — — — 31,756 598,269

Due from banks andother financialinstitutions (ii) . . . . 3.27% 184,960 51,605 110 — — 236,675

Loans and advancesto customers . . . . . 5.28% 1,240,046 2,134,849 198 249 — 3,375,342

Investments . . . . . . . . 2.64% 340,501 670,342 1,386,302 255,253 5,546 2,657,944Property and

equipment . . . . . . . N/A — — — — 88,709 88,709Others . . . . . . . . . . . . N/A — — — — 97,686 97,686

Total assets . . . . . . . . 3.96% 2,332,020 2,856,796 1,386,610 255,502 223,697 7,054,625


other financialinstitutions (iii) . . . 2.03% 343,161 35,007 672 — — 378,840

Due to customers(iv) . . . . . . . . . . . . . 1.63% 4,015,452 1,508,173 543,266 5,881 53,257 6,126,029

Debt issued . . . . . . . . 3.24% 9,000 — 15,987 13,000 — 37,987Others . . . . . . . . . . . . N/A — — — — 182,304 182,304

Total liabilities . . . . . 1.66% 4,367,613 1,543,180 559,925 18,881 235,561 6,725,160

Interest ratemismatch . . . . . . . . 2.30% (2,035,593) 1,313,616 826,685 236,621 N/A N/A

(i) Effective interest rate represents the ratio of interest income/expense to average balance of interestbearing assets/liabilities, based on annualised figures.


(iii) Includes repurchase agreements.


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BankJune 30, 2006


Less than3 months

3 monthsto 1 year

1 to 5years

More than5 years


Assets:Cash and balances

with centralbanks . . . . . . . . . . . 1.72% 566,315 — — — 31,529 597,844

Due from banks andother financialinstitutions (ii) . . . . 3.31% 165,003 52,609 110 — — 217,722

Loans and advancesto customers . . . . . 5.28% 1,170,243 2,130,762 198 249 — 3,301,452

Investments . . . . . . . . 2.64% 338,107 672,784 1,381,801 255,446 11,784 2,659,922Property and

equipment . . . . . . . N/A — — — — 88,343 88,343Others . . . . . . . . . . . . N/A — — — — 94,372 94,372

Total assets . . . . . . . . 3.96% 2,239,668 2,856,155 1,382,109 255,695 226,028 6,959,655


other financialinstitutions (iii) . . . 2.00% 347,954 35,801 681 — — 384,436

Due to customers . . . . 1.60% 3,935,657 1,502,473 539,065 5,871 53,253 6,036,319Debt issued . . . . . . . . 3.15% 9,000 — 13,000 13,000 — 35,000Others . . . . . . . . . . . . N/A — — — — 179,683 179,683

Total liabilities . . . . . 1.64% 4,292,611 1,538,274 552,746 18,871 232,936 6,635,438

Interest ratemismatch . . . . . . . . 2.32% (2,052,943) 1,317,881 829,363 236,824 N/A N/A

(i) Effective interest rate represents the ratio of interest income/expense to average balance of interestbearing assets/liabilities, based on annualised figures.


(iii) Includes repurchase agreements.

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(f) Fair value of financial instruments

Fair value is the amount for which an asset could be exchanged, or a liability settled, betweenknowledgeable and willing parties at an arm’s length transaction. Subject to the existence of an activemarket, such as an authorised securities exchange, the market value is the best reflection of the fairvalues of financial instruments. As there is no available market value for part of the financial assetsand liabilities held and issued by the Group, the discounted cash flow method or other valuationmethods described below are adopted to determine the fair value of these assets and liabilities.However, the value determined by such methods is subject to the impact of future cash flows, timeassumption and discount rates used.

Financial assets

The Group’s financial assets mainly include cash, amounts due from central banks, banks andother financial institutions, loans and advances to customers, and investments.

Amounts due from central banks, banks and other financial institutions

Amounts due from central banks, banks and other financial institutions are mainly priced atmarket interest rates and mature within one year. Accordingly, their carrying values approximate theirfair values.

Loans and advances to customers

Loans and advances to customers are mostly priced at floating rates close to the PBOCbenchmark rates. Accordingly, their carrying values approximate their fair values.

Investments

Other than certain equity investments (note 17(c)) which are carried at cost, available-for-saleinvestments and investment securities at fair value through profit or loss are stated at fair value in thefinancial statements.

Financial liabilities

The Group’s financial liabilities mainly include amounts due to a central bank, banks and otherfinancial institutions, amounts due to customers, and subordinated bonds issued.

Amounts due to a central bank, banks and other financial institutions

Amounts due to a central bank, banks and other financial institutions are mainly priced atmarket interest rates and due within one year. Accordingly, their carrying values approximate their fairvalues.

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(f) Fair value of financial instruments (continued)

Amounts due to customers

Amounts due to customers are mostly either savings or short term in nature. Accordingly, theircarrying values approximate their fair values.

The following table summarises the carrying values and the fair values of receivables, held-to-maturity debt securities and subordinated bonds for which fair values are not presented or previouslydisclosed.

Group Bank



December 31, 2003Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,996 397,996 397,996 397,996Held-to-maturity debt securities . . . . . . . . . . . . . . 363,827 363,299 359,558 359,533

December 31, 2004Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,996 397,996 397,996 397,996Held-to-maturity debt securities . . . . . . . . . . . . . . 428,229 436,400 422,859 430,806

December 31, 2005Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,074,461 1,074,461 1,074,461 1,074,461Held-to-maturity debt securities . . . . . . . . . . . . . . 882,704 887,584 887,677 892,856Subordinated bonds . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,037 35,000 35,037

June 30, 2006Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,078,786 1,078,786 1,078,786 1,078,786Held-to-maturity debt securities . . . . . . . . . . . . . . 1,079,366 1,082,834 1,085,241 1,088,608Subordinated bonds . . . . . . . . . . . . . . . . . . . . . . . . 35,000 36,073 35,000 36,073

The following methods and assumptions have been used in estimating fair values:

(i) Financial assets at fair values through profit or loss and available-for-sale investments aremeasured and stated at fair value by reference to the quoted market prices when available.If quoted market prices are not available, then fair values are estimated on the basis ofpricing models or discounted cash flows.

(ii) The fair values of held-to-maturity debt securities are determined with reference to theavailable market prices. If quoted market prices are not available, then fair values areestimated on the basis of pricing models or discounted cash flows.

(iii) The fair values of liquid assets and assets maturing within 12 months are assumed to beapproximately equal to their carrying amounts. This assumption is applicable to liquidassets and the short term elements of all other financial assets.

(iv) The fair values of fixed rate loans are estimated by comparing the market interest ratesoffered when the loans are granted, with the current market rates offered on similar loans.The fair values approximate their carrying amounts because the fixed rate loan rate issubject to renew annually with reference to current market rate. Changes in the credit

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(f) Fair value of financial instruments (continued)

quality of loans within the portfolio are not taken into account in determining the gross fairvalues as the impact of credit risk is recognised separately by deducting the amount ofimpairment provision from both the carrying amount and the fair value.

(v) The interest rate for customer deposits can be fixed or floating, depending on the types ofproducts. The fair values of saving accounts and deposits without maturity are the amountspayable to customers on demand. The fair value of fixed-term deposits approximates totheir carrying amount due to the short term nature of most fixed-term deposits.

(vi) The receivables relating to the Restructuring of the Bank as set out in note 1(b) are non-transferrable. The fair value of these receivables is estimated on the basis of the statedinterest rate and consideration of the relevant special clauses of the instrument evaluated inthe absence of any other relevant observable market data, and approximate to theircarrying amounts.

All of the above-mentioned assumptions and methods provide a consistent basis for thecalculation of fair value of the Group’s assets and liabilities. However, other institutions may usedifferent assumptions and methods. Therefore, the fair values disclosed by different financialinstitutions may not be entirely comparable.

37. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS

(a) Acquisition of a subsidiary, net of cash acquiredYear ended December 31, Six months ended June 30,

2003 2004 2005 2005 (Unaudited) 2006

Net assets acquired:Cash, balances with banks and other financial

institutions and certificates of deposits held . . . . . . . — 7,099 — — —Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,563 — — —Loans and advances to customers . . . . . . . . . . . . . . . . . — 15,602 — — —Property and equipment (note 20) . . . . . . . . . . . . . . . . . — 31 — — —Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 614 — — —Due to banks and other financial institutions . . . . . . . . . — (1,144) — — —Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (21,470) — — —Other liabilities and provisions . . . . . . . . . . . . . . . . . . . — (426) — — —

— 2,869 — — —

Satisfied by:Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,900 — — —Shares issued by a subsidiary to a minority

shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 938 — — —Direct cost incurred for the acquisition . . . . . . . . . . . . . — 23 — — —Investment cost payable . . . . . . . . . . . . . . . . . . . . . . . . . — 8 — — —

— 2,869 — — —

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37. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS (continued)

(a) Acquisition of a subsidiary, net of cash acquired (continued)

An analysis of the net inflow of cash and cash equivalents in respect of the acquisition of asubsidiary is as follows:


2003 2004 2005 2005 (Unaudited) 2006

Cash consideration paid . . . . . . . . . . . . . . . . . . . — (1,900) — — —Direct cost incurred for the acquisition . . . . . . . — (23) — — —Cash and balances with banks and other

financial institutions acquired . . . . . . . . . . . . — 1,238 — — —Certificates of deposits held with original

maturity within three months acquired . . . . . — 5,135 — — —

Net inflow of cash and cash equivalents inrespect of the acquisition of a subsidiary . . . — 4,450 — — —

(b) Analysis of balances of cash and cash equivalentsDecember 31, June 30,

Notes 2003 2004 2005 2005 (Unaudited) 2006

Cash on hand . . . . . . . . . . . . . . . . . . 13 29,585 29,894 30,085 31,489 31,756Balances with central banks other

than restricted deposits . . . . . . . . . 13 100,457 79,038 69,650 121,026 85,250Nostro accounts with banks with

original maturity of three monthsor less . . . . . . . . . . . . . . . . . . . . . . 14 8,814 6,745 8,095 10,563 15,601

Placements with banks and otherfinancial institutions with originalmaturity of three months orless . . . . . . . . . . . . . . . . . . . . . . . . 14 17,883 21,996 88,080 33,062 66,362

Reverse repurchase agreements withoriginal maturity of three monthsor less . . . . . . . . . . . . . . . . . . . . . . 15 55,739 14,733 81,302 27,181 92,554

Investments (i) . . . . . . . . . . . . . . . . . 30,142 15,613 17,212 73,904 175,197

242,620 168,019 294,424 297,225 466,720

(i) Investments included in cash and cash equivalents are analysed as follows:


Notes 2003 2004 2005 2005 (Unaudited) 2006

Debt securities at fair value throughprofit or loss . . . . . . . . . . . . . . . . . 17(d) 25,617 13,449 18,341 21,831 50,429

Available-for-sale debt securities . . 17(c) 246,824 382,765 324,879 487,940 443,817

272,441 396,214 343,220 509,771 494,246Balances with original maturity over

three months . . . . . . . . . . . . . . . . . (242,299) (380,601) (326,008) (435,867) (319,049)

30,142 15,613 17,212 73,904 175,197

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37. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS (continued)

(c) Significant non-cash transactionsYear ended December 31, Six months ended June 30,

2003 2004 2005 2005 (Unaudited) 2006

Disposal of loss category loans and otherimpaired assets (note 1(b)(ii)) . . . . . . . . . . . . — — 246,000 246,000 —

Disposal of doubtful category loans andsubscription of a special PBOC bill (note1(b)(iii)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 430,465 430,465 —

Capitalisation of amount payable to MOF . . . . — — — — 8,028Disposal of doubtful category loans for

settlement of amount due to a centralbank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 23,537 23,537 —

Revaluation of property and equipment . . . . . . — — 22,697 22,697 —Capital injection in the form of land use rights

(note 1(b)(iv)) . . . . . . . . . . . . . . . . . . . . . . . . — — 19,906 — —Interest income and expense in relation to

special government bond (note 17(a)(ii)) . . . 6,120 6,120 5,610 3,060 —Transfer of capital to Huarong . . . . . . . . . . . . . 64 — — — —

38. SEGMENT INFORMATION

Segment information is presented in respect of the Group’s business and geographicalsegments. Historically, the Group managed its business primarily along geographical locations. Duringthe Relevant Periods, the Group entered into a transitional phase of reorganisation in which it managedits business both along business segments, which include corporate banking, personal banking andtreasury operations, and geographical segments. Accordingly, both business segment information andgeographical segment information are presented as the Group’s primary segment reporting formats.

The measurement of segment assets and liabilities and segment revenues and results is based onthe Group’s accounting policies.

Transactions between segments are mainly provision of funding to and from individualsegments. These transactions are conducted on terms determined with reference to the average cost offunding and have been reflected in the performance of each segment. Net interest income and expensesarising on internal charges and transfer pricing adjustments are referred to as “internal net interestincome/expense”. Interest income and expenses earned from third parties are referred to as “externalnet interest income/expense”.

Segment revenues, results, assets and liabilities include items directly attributable to a segmentas well as those that can be allocated on a reasonable basis.

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38. SEGMENT INFORMATION (continued)

(a) Business segments

The Group comprises the following main business segments:

Corporate banking

Corporate banking segment covers the provision of financial products and services tocorporations, government agencies and financial institutions. The products and services includecorporate loans, trade financing, deposit-taking activities and various types of corporate intermediaryservices.

Personal banking

Personal banking segment covers the provision of financial products and services to individualcustomers. The products and services include personal loans, deposit-taking activities, card business,personal wealth management services and various types of personal intermediary services.

Treasury operations

Treasury operations segment covers the Group’s treasury operations. The treasury conductsmoney market or repurchase transactions, debt instruments investments, and holding of derivativepositions, for its own accounts or on behalf of customers.

Others

This represents equity investments and head office assets, liabilities, income and expenses thatare not directly attributable to a segment or cannot be allocated on a reasonable basis.

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(a) Business segments (continued)Corporatebanking

Personalbanking

Treasuryoperations Others Total

Year ended December 31, 2003External net interest income/(expense) . . . . . 105,956 (20,785) 37,537 — 122,708Internal net interest income/(expense) . . . . . . (31,839) 49,965 (18,126) — —Net fee and commission income . . . . . . . . . . 2,324 3,389 (89) — 5,624Other operating income . . . . . . . . . . . . . . . . . 452 86 1,244 2,670 4,452

Operating income . . . . . . . . . . . . . . . . . . . . . . 76,893 32,655 20,566 2,670 132,784Operating expenses . . . . . . . . . . . . . . . . . . . . (25,816) (22,210) (12,795) (1,754) (62,575)Provisions for impairment losses on—Loans and advances to customers . . . . . . . (34,395) (519) — — (34,914)—Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (484) — (795) (100) (1,379)

Operating profit . . . . . . . . . . . . . . . . . . . . . . . 16,198 9,926 6,976 816 33,916Share of profits and losses of associates . . . . — — — (32) (32)

Profit before tax . . . . . . . . . . . . . . . . . . . . . . . 16,198 9,926 6,976 784 33,884Income tax expense . . . . . . . . . . . . . . . . . . . . (11,292)

Profit for the year . . . . . . . . . . . . . . . . . . . . . . 22,592

Other segment information:Depreciation . . . . . . . . . . . . . . . . . . . . . . 3,845 3,754 950 105 8,654Amortisation . . . . . . . . . . . . . . . . . . . . . 403 264 81 4 752Capital expenditure . . . . . . . . . . . . . . . . 3,998 3,903 988 110 8,999

December 31, 2003Segment assets . . . . . . . . . . . . . . . . . . . . . . . . 2,432,462 458,144 1,624,961 41,110 4,556,677Investments in associates . . . . . . . . . . . . . . . . — — — 274 274

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,432,462 458,144 1,624,961 41,384 4,556,951

Segment liabilities . . . . . . . . . . . . . . . . . . . . . 2,153,880 2,618,627 275,364 48,214 5,096,085

Credit commitments . . . . . . . . . . . . . . . . . . . . 346,798 — — — 346,798

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Personalbanking


Year ended December 31, 2004External net interest income/(expense) . . . . . 107,023 (16,109) 43,814 — 134,728Internal net interest income/(expense) . . . . . . (31,211) 51,381 (20,170) — —Net fee and commission income . . . . . . . . . . 3,445 4,860 (97) — 8,208Other operating income . . . . . . . . . . . . . . . . . 1,762 137 766 2,358 5,023

Operating income . . . . . . . . . . . . . . . . . . . . . . 81,019 40,269 24,313 2,358 147,959Operating expenses . . . . . . . . . . . . . . . . . . . . (26,427) (21,816) (12,448) (1,948) (62,639)Provisions for impairment losses on— Loans and advances to customers . . . . . . . (29,500) (1,011) — — (30,511)— Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . (348) — — — (348)

Operating profit . . . . . . . . . . . . . . . . . . . . . . . 24,744 17,442 11,865 410 54,461Share of profits and losses of associates . . . . — — — (50) (50)

Profit before tax . . . . . . . . . . . . . . . . . . . . . . . 24,744 17,442 11,865 360 54,411Income tax expense . . . . . . . . . . . . . . . . . . . . (23,193)


Other segment information:Depreciation . . . . . . . . . . . . . . . . . . . . . . 4,033 3,849 986 109 8,977Amortisation . . . . . . . . . . . . . . . . . . . . . 380 249 77 4 710Capital expenditure . . . . . . . . . . . . . . . . 3,760 3,589 919 102 8,370


Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,683,392 544,365 1,816,645 24,922 5,069,324



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Personalbanking


Year ended December 31, 2005External net interest income/(expense) . . . . . 112,255 (21,157) 62,505 — 153,603Internal net interest income/(expense) . . . . . . (33,275) 68,710 (35,435) — —Net fee and commission income . . . . . . . . . . 4,666 5,993 (113) — 10,546Other operating income . . . . . . . . . . . . . . . . . 3,836 135 1,339 2,161 7,471

Operating income . . . . . . . . . . . . . . . . . . . . . . 87,482 53,681 28,296 2,161 171,620Operating expenses . . . . . . . . . . . . . . . . . . . . (35,360) (29,657) (13,974) (2,594) (81,585)Provisions for impairment losses on— Loans and advances to customers . . . . . . . (24,649) (1,940) — — (26,589)— Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . (95) — (41) (289) (425)

Operating profit/(loss) . . . . . . . . . . . . . . . . . . 27,378 22,084 14,281 (722) 63,021Share of profits and losses of associates . . . . — — — 5 5

Profit/(loss) before tax . . . . . . . . . . . . . . . . . . 27,378 22,084 14,281 (717) 63,026Income tax expense . . . . . . . . . . . . . . . . . . . . (25,007)


Other segment information:Depreciation . . . . . . . . . . . . . . . . . . . . . . 4,377 4,273 1,082 120 9,852Amortisation . . . . . . . . . . . . . . . . . . . . . 381 249 77 5 712Capital expenditure . . . . . . . . . . . . . . . . 4,078 3,981 1,008 111 9,178


Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,772,700 566,087 3,086,874 30,470 6,456,131



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Personalbanking


Six months ended June 30, 2005 (unaudited)External net interest income/(expense) . . . . . . . . . . . . . . . . 55,186 (10,286) 26,825 — 71,725Internal net interest income/(expense) . . . . . . . . . . . . . . . . . (18,948) 34,150 (15,202) — —Net fee and commission income . . . . . . . . . . . . . . . . . . . . . 2,427 2,479 (39) — 4,867Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,349 74 2,497 580 4,500

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,014 26,417 14,081 580 81,092Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,482) (13,940) (6,168) (1,374) (33,964)Provisions for impairment losses on . . . . . . . . . . . . . . . . . .—Loans and advances to customers . . . . . . . . . . . . . . . . . . (11,422) (136) — — (11,558)—Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (104) — (2) (59) (165)

Operating profit/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,006 12,341 7,911 (853) 35,405Share of profits and losses of associates . . . . . . . . . . . . . . . — — — — —

Profit/(loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,006 12,341 7,911 (853) 35,405

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,957)

Profit for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,448

Other segment information:Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,864 2,172 411 124 4,571Amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 151 22 8 288Capital expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,077 1,255 237 72 2,641

Corporatebanking

Personalbanking


Six months ended June 30, 2006External net interest income/(expense) . . . . . . . . . . . . . . . . 56,612 (16,133) 36,029 — 76,508Internal net interest income/(expense) . . . . . . . . . . . . . . . . . (17,727) 41,555 (23,828) — —Net fee and commission income . . . . . . . . . . . . . . . . . . . . . 3,685 4,186 (5) — 7,866Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,047 71 (291) 549 1,376

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,617 29,679 11,905 549 85,750Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,116) (14,763) (3,017) (800) (34,696)Provisions for impairment losses on . . . . . . . . . . . . . . . . . .—Loans and advances to customers . . . . . . . . . . . . . . . . . . (10,663) (982) — — (11,645)—Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (400) — 29 (202) (573)

Operating profit/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,438 13,934 8,917 (453) 38,836Share of profit and losses of associates . . . . . . . . . . . . . . . . — — — 5 5

Profit/(loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,438 13,934 8,917 (448) 38,841Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,199)

Profit for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,642

Other segment information:Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,153 2,344 460 96 5,053Amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 215 37 9 513Capital expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . 745 812 159 33 1,749

June 30, 2006Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,925,266 591,919 3,493,439 43,876 7,054,500Investments in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 125 125

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,925,266 591,919 3,493,439 44,001 7,054,625

Segment liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,950,439 3,311,084 415,968 47,669 6,725,160

Credit commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522,392 — — — 522,392

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(b) Geographical segments

The Group operates principally in the PRC with branches located in 35 provinces, autonomousregions and municipalities directly under the central government of the PRC. The Group also hasbranches and subsidiaries operating outside Mainland China in Hong Kong, Macau, Singapore,Frankfurt, Luxemburg, Seoul, Busan, Tokyo, London and Almaty.

In presenting information on the basis of geographical segments, operating income and expenseare based on the location of the branches that generated the revenue and incurred the expense. Segmentassets and capital expenditure are allocated based on the geographical locations of the underlyingassets.

The geographical segment report is based on the following geographical segments:

(i) Head Office: including the head office business division;

(ii) Yangtze River Delta: including Shanghai, Zhejiang, Jiangsu and Ningbo;

(iii) Pearl River Delta: including Guangdong, Shenzhen, Fujian and Xiamen;

(iv) Bohai Rim: including Beijing, Tianjin, Hebei, Shandong and Qingdao;

(v) Central China: including Shanxi, Henan, Hubei, Hunan, Anhui, Jiangxi and Hainan;

(vi) Western China: including Chongqing, Sichuan, Guizhou, Yunnan, Guangxi, Shaanxi,Gansu, Qinghai, Ningxia, Xinjiang and Inner Mongolia;

(vii) Northeastern China: including Liaoning, Heilongjiang, Jilin and Dalian; and

(viii) Overseas and others: branches located outside Mainland China including Hong Kong,Macau, Singapore, Seoul, Busan, Tokyo, Frankfurt, Luxemburg; and subsidiariesincluding ICBC (Asia), ICIC, ICEA, ICBC (London), ICBC (Almaty) and ICBC CreditSuisse Asset Management.

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(b) Geographical segments (continued)

HeadOffice

YangtzeRiverDelta

PearlRiverDelta

BohaiRim

CentralChina

WesternChina

North-easternChina Overseas Eliminations Total

Year ended December31, 2003

External net interestincome . . . . . . . . . . . 43,350 18,907 13,086 9,128 14,056 15,745 7,312 1,124 — 122,708

Internal net interestincome/(expense) . . . (28,123) 5,399 3,730 15,795 1,433 2,351 (115) (470) — —

Net fee and commissionincome . . . . . . . . . . . 142 1,010 677 1,074 967 774 404 576 — 5,624

Other operatingincome . . . . . . . . . . . 708 1,106 779 391 558 569 215 126 — 4,452

Operating income . . . . . 16,077 26,422 18,272 26,388 17,014 19,439 7,816 1,356 — 132,784Operating expenses . . . . (8,573) (9,040) (7,473) (10,029) (9,813) (11,819) (6,132) 304 — (62,575)Provisions for

impairment losses on—Loans and advances

to customers . . . . . . . (136) (4,939) (2,896) (11,835) (1,576) (6,810) (6,369) (353) — (34,914)—Others . . . . . . . . . . . — (794) (109) (194) (58) (172) (48) (4) — (1,379)

Operatingprofit/(loss) . . . . . . . 7,368 11,649 7,794 4,330 5,567 638 (4,733) 1,303 — 33,916

Share of profits andlosses ofassociates . . . . . . . . . 2 — — — — — — (34) — (32)

Profit/(loss) beforetax . . . . . . . . . . . . . . 7,370 11,649 7,794 4,330 5,567 638 (4,733) 1,269 — 33,884

Income tax expense . . . (11,292)

Profit for the year . . . . . 22,592

Other segmentinformation:

Depreciation . . . . 674 1,153 1,084 1,456 1,488 1,795 958 46 — 8,654Amortisation . . . . 164 94 69 91 123 83 83 45 — 752Capital

expenditure . . . 707 1,363 890 1,738 1,619 1,811 830 41 — 8,999

December 31, 2003Segment assets . . . . . . . 1,577,396 977,919 638,682 1,215,966 600,822 667,930 321,383 140,317 (1,611,546) 4,528,869Investments in

associates . . . . . . . . . 102 — — — — — — 172 — 274Unallocated assets . . . . 27,808

Total assets . . . . . . . . . . 4,556,951

Segment liabilities . . . . 1,497,893 1,006,075 726,036 1,304,695 752,940 789,220 492,509 138,179 (1,611,546) 5,096,001Unallocated

liabilities . . . . . . . . 84

Total liabilities . . . . . 5,096,085

Credit commitments . . . 35,486 97,039 31,967 40,081 36,005 44,718 11,318 50,184 — 346,798

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HeadOffice

YangtzeRiverDelta

PearlRiverDelta

BohaiRim

CentralChina

WesternChina


Year ended December 31,2004External net interest income . . 47,337 23,337 14,141 10,587 13,944 16,539 7,281 1,562 — 134,728Internal net interest income/

(expense) . . . . . . . . . . . . . . (33,355) 5,666 4,178 17,257 2,929 3,354 369 (398) — —Net fee and commission

income . . . . . . . . . . . . . . . . 312 1,323 1,130 1,677 1,319 1,213 576 658 — 8,208Other operating income . . . . . . 419 776 1,317 555 595 670 507 184 — 5,023

Operating income . . . . . . . . . . 14,713 31,102 20,766 30,076 18,787 21,776 8,733 2,006 — 147,959Operating expenses . . . . . . . . . (9,463) (9,398) (7,845) (9,676) (9,765) (10,905) (5,575) (12) — (62,639)Provisions for impairment

losses on—Loans and advances to

customers . . . . . . . . . . . . . . (488) (1,102) (4,576) (5,776) (2,998) (7,923) (7,410) (238) — (30,511)—Others . . . . . . . . . . . . . . . . — (67) (81) (44) (41) (78) (34) (3) — (348)

Operating profit/(loss) . . . . . . . 4,762 20,535 8,264 14,580 5,983 2,870 (4,286) 1,753 — 54,461Share of profits and losses of

associates . . . . . . . . . . . . . . (6) — — — — — — (44) — (50)

Profit/(loss) before tax . . . . . . 4,756 20,535 8,264 14,580 5,983 2,870 (4,286) 1,709 — 54,411Income tax expense . . . . . . . . (23,193)

Profit for the year . . . . . . . . . . 31,218

Other segment information:Depreciation . . . . . . . . . . 900 1,139 1,202 1,446 1,513 1,785 929 63 — 8,977Amortisation . . . . . . . . . 165 92 62 92 135 83 71 10 — 710Capital expenditure . . . . 1,451 1,198 742 1,346 1,331 1,469 599 234 — 8,370

December 31, 2004Segment assets . . . . . . . . . . . . 1,782,816 1,085,369 693,732 1,371,658 687,556 758,846 326,848 163,375 (1,809,798) 5,060,402Investments in associates . . . . 87 — — — — — — 30 — 117Unallocated assets . . . . . . . . . 8,805

Total assets . . . . . . . . . . . . . . . 5,069,324

Segment liabilities . . . . . . . . . 1,948,871 1,059,474 757,619 1,384,485 782,481 826,385 468,050 157,010 (1,809,798) 5,574,577Unallocated liabilities . . . . . . . 2,792

Total liabilities . . . . . . . . . . . . 5,577,369

Credit commitments . . . . . . . . 68,093 128,023 36,855 24,959 19,415 66,723 12,077 37,403 — 393,548

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HeadOffice

YangtzeRiverDelta

PearlRiverDelta

BohaiRim

CentralChina

WesternChina


Year ended December 31,2005External net interest income . . 65,703 27,110 14,259 8,939 13,776 16,029 5,297 2,490 — 153,603Internal net interest income/

(expense) . . . . . . . . . . . . . . (49,391) 7,267 6,168 22,256 5,504 6,105 2,708 (617) — —Net fee and commission

income . . . . . . . . . . . . . . . . 531 2,194 1,514 2,125 1,494 1,538 526 624 — 10,546Other operating income . . . . . . 1,985 1,719 619 1,061 249 1,067 64 707 — 7,471

Operating income . . . . . . . . . . 18,828 38,290 22,560 34,381 21,023 24,739 8,595 3,204 — 171,620Operating expenses . . . . . . . . . (10,658) (11,838) (8,734) (12,418) (13,908) (15,657) (7,035) (1,337) — (81,585)Provisions for impairment

losses on—Loans and advances to

customers . . . . . . . . . . . . . . (20) 60 (4,065) (8,735) (6,549) (3,078) (4,528) 326 — (26,589)—Others . . . . . . . . . . . . . . . . — 159 (307) 105 (306) 15 (91) — — (425)

Operating profit/(loss) . . . . . . . 8,150 26,671 9,454 13,333 260 6,019 (3,059) 2,193 — 63,021Share of profits and losses of

associates . . . . . . . . . . . . . . 5 — — — — — — — — 5

Profit/(loss) before tax . . . . . . 8,155 26,671 9,454 13,333 260 6,019 (3,059) 2,193 — 63,026Income tax expense . . . . . . . . (25,007)

Profit for the year . . . . . . . . . . 38,019

Other segment information:Depreciation . . . . . . . . . . 1,016 1,436 1,135 1,580 1,720 1,864 1,039 62 — 9,852Amortisation . . . . . . . . . 129 88 58 88 157 72 68 52 — 712Capital expenditure . . . . 727 1,692 820 2,194 1,554 1,354 685 152 — 9,178

December 31, 2005Segment assets . . . . . . . . . . . . 3,272,655 1,280,370 840,838 1,643,236 838,312 902,276 492,761 180,498 (2,994,935) 6,456,011Investments in associates . . . . 90 — — — — — — 30 — 120

Total assets . . . . . . . . . . . . . . . 3,272,745 1,280,370 840,838 1,643,236 838,312 902,276 492,761 180,528 (2,994,935) 6,456,131

Segment liabilities . . . . . . . . . 3,057,010 1,250,263 841,208 1,622,781 838,001 898,225 498,946 168,697 (2,994,935) 6,180,196Unallocated liabilities . . . . . . . 16,059

Total liabilities . . . . . . . . . . . . 6,196,255

Credit commitments . . . . . . . . 37,473 73,571 52,094 50,767 27,004 49,847 8,913 65,962 — 365,631

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HeadOffice

YangtzeRiverDelta

PearlRiverDelta

BohaiRim

CentralChina

WesternChina


Six months ended June 30, 2005(unaudited)External net interest income . . . . . . . . . . 27,825 12,233 6,809 5,892 7,161 7,610 3,043 1,152 — 71,725Internal net interest income/(expense) . . . (19,209) 3,187 2,354 9,496 1,920 2,185 339 (272) — —Net fee and commission income . . . . . . . 282 960 660 904 779 708 268 306 — 4,867Other operating income . . . . . . . . . . . . . . 1,889 433 509 514 (36) 362 110 719 — 4,500

Operating income . . . . . . . . . . . . . . . . . . 10,787 16,813 10,332 16,806 9,824 10,865 3,760 1,905 — 81,092Operating expenses . . . . . . . . . . . . . . . . . (5,418) (4,961) (3,603) (5,299) (5,358) (5,766) (2,575) (984) — (33,964)Provisions for impairment losses on—Loans and advances to customers . . . . (158) 949 (913) (5,705) (2,933) (2,066) (1,029) 297 — (11,558)—Others . . . . . . . . . . . . . . . . . . . . . . . . — (75) (28) 10 83 (133) (22) — — (165)

Operating profit . . . . . . . . . . . . . . . . . . . 5,211 12,726 5,788 5,812 1,616 2,900 134 1,218 — 35,405Share of profits and losses of

associates . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — —

Profit before tax . . . . . . . . . . . . . . . . . . . 5,211 12,726 5,788 5,812 1,616 2,900 134 1,218 — 35,405Income tax expense . . . . . . . . . . . . . . . . (9,957)

Profit for the period . . . . . . . . . . . . . . . . 25,448

Other segment information:Depreciation . . . . . . . . . . . . . . . . . . 581 679 524 781 715 833 433 25 — 4,571Amortisation . . . . . . . . . . . . . . . . . 52 37 23 35 64 29 28 20 — 288Capital expenditure . . . . . . . . . . . . 297 417 252 722 527 230 136 60 — 2,641

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HeadOffice

YangtzeRiverDelta

PearlRiverDelta

BohaiRim

CentralChina

WesternChina


Six months endedJune 30, 2006External net interest

income . . . . . . . . . . 36,999 13,122 5,855 2,724 6,222 7,208 2,095 2,283 — 76,508Internal net interest

income/(expense) . . (30,637) 4,070 3,748 13,103 3,870 4,074 2,286 (514) — —Net fee and

commissionincome . . . . . . . . . . 375 1,713 1,112 1,371 1,229 1,149 535 382 — 7,866

Other operatingincome . . . . . . . . . . 857 178 (24) (21) 260 (52) 3 175 — 1,376

Operating income . . . . 7,594 19,083 10,691 17,177 11,581 12,379 4,919 2,326 — 85,750Operating expenses . . . (3,723) (5,909) (4,097) (5,581) (5,670) (6,135) (2,867) (714) — (34,696)Provisions for

impairment losseson

—Loans and advancesto customers . . . . . . (202) (344) (1,002) (2,898) (3,541) (2,609) (967) (82) — (11,645)

—Others . . . . . . . . . . — (13) (57) (46) (211) (172) (60) (14) — (573)

Operating profit . . . . . 3,669 12,817 5,535 8,652 2,159 3,463 1,025 1,516 — 38,836Share of profits and

losses ofassociates . . . . . . . . 4 — — — — — — 1 — 5

Profit before tax . . . . . 3,673 12,817 5,535 8,652 2,159 3,463 1,025 1,517 — 38,841Income tax expense . . . (13,199)

Profit for the period . . . 25,642

Other segmentinformation:

Depreciation . . . . 425 769 610 830 859 973 558 29 — 5,053Amortisation . . . 158 49 21 68 84 78 28 27 — 513Capital

expenditure . . 544 252 71 283 261 232 58 48 — 1,749

June 30, 2006Segment assets . . . . . . 3,717,335 1,392,699 903,721 1,772,173 887,294 940,106 509,267 192,494 (3,260,589) 7,054,500Investments in

associates . . . . . . . . 96 — — — — — — 29 — 125

Total assets . . . . . . . . . 3,717,431 1,392,699 903,721 1,772,173 887,294 940,106 509,267 192,523 (3,260,589) 7,054,625

Segment liabilities . . . 3,399,288 1,382,976 901,525 1,767,281 892,555 947,147 515,379 166,516 (3,260,589) 6,712,078Unallocated

liabilities . . . . . . . . 13,082

Total liabilities . . . . . . 6,725,160

Credit commitments . . 36,910 152,004 70,467 124,205 36,207 48,812 13,896 39,891 — 522,392

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39. RELATED PARTY DISCLOSURES

In addition to those disclosed elsewhere in the Financial Information, the Group had thefollowing transactions with related parties during the Relevant Periods.

(a) The MOF

During the year 2005, ICBC completed the Restructuring under the direction of the StateCouncil as detailed in note 1(b) to the Financial Information. As at December 31, 2005 and June 30,2006, the MOF directly owned 50% and 43.28%, respectively, of the issued share capital of the Bank.

The Group enters into banking transactions with the MOF in its normal course of business,including the subscription and redemption of investment securities issued by the MOF, as follows:


2003 2004 2005 2006

Balances outstanding at end of the year/period:The PRC government bonds and special government

bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339,200 344,497 365,823 371,475MOF receivable (note 17(a)(iii)) . . . . . . . . . . . . . . . . . . . — — 246,000 246,000Payable to MOF (note 27) . . . . . . . . . . . . . . . . . . . . . . . . — — 8,028 —


2003 2004 2005 2005 (Unaudited) 2006

Transactions during the year/period:Subscription of PRC government

bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,669 115,638 86,445 46,756 60,475Redemption of PRC government bonds . . 15,714 25,805 24,184 8,802 19,070Interest income on bonds (Note) . . . . . . . . 14,310 14,228 15,165 7,278 5,473Expenses relating to special government

bond (notes 6 and 17(a)(ii)) . . . . . . . . . 6,120 6,120 5,610 3,060 —Interest income from MOF receivable

(note 17(a)(iii)) . . . . . . . . . . . . . . . . . . . — — 3,895 145 3,690

Note: The interest rates on the bonds issued by the MOF ranged approximately from 1.58% to11.83% per annum during the Relevant Periods.

The MOF is a ministry under the State Council, primarily responsible for, among others, statefiscal revenues and expenditures, and taxation policies. Enterprises or legal entities under the control orsupervision of the MOF are mainly financial institutions, government departments or agencies. Thedirectors are of the view that transactions with enterprises or legal entities under the control orsupervision of the MOF are conducted in the ordinary course of business. With due regard to thesubstance of the relationship, the directors are of the opinion that none of these transactions areconsidered material related party transactions that require separate disclosure.

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39. RELATED PARTY DISCLOSURES (continued)

(b) Huijin

Huijin was incorporated on December 16, 2003 as a wholly state-owned investment companywith the approval of the State Council. It was established for the purpose of holding certain equityinvestments on behalf of the State Council, and to represent the Government in exercising its investor’srights and obligations in certain financial institutions. As at December 31, 2005 and June 30, 2006,Huijin directly owned 50% and 43.28%, respectively, of the issued share capital of the Bank.

The Group entered into the following transactions with Huijin in relation to the Restructuring:

(i) In April 2005, the Government injected US$15,000 million of cash into the Bank throughHuijin under the direction of the State Council (note 1(b)(i)).

(ii) In April 2005, the Bank entered into an agreement with Huijin, pursuant to which theBank purchased from Huijin an option to sell to Huijin a maximum of US$12,000 millionin exchange for RMB at a pre-determined exchange rate of US$1 to RMB8.2765. Theoption is exercisable in 2008 in 12 equal monthly instalments. The Group will pay a totaloption premium of RMB2,979 million to Huijin by 12 equal monthly instalments in 2008.The purpose of the option is to economically hedge against the Bank’s currency riskarising from part of the aforementioned capital injection.

The Bank values the option using the Garman Kohlhagen Option model, which iscommonly used by market participants to value currency options. The parameters used forthe valuation include relevant market interest rates of RMB and US$, the spot exchangerates of RMB against US$ sourced from the PBOC, and average historical foreignexchange volatility.

The fair values of the option as at December 31, 2005 and June 30, 2006 were RMB7,335million and RMB8,125 million, respectively, which are included in other assets as set outin note 22 to the Financial Information. The premium payable in respect of the option wasstated at its discounted value of RMB2,767 million and RMB2,808 million as atDecember 31, 2005 and June 30, 2006, respectively, and is included under other liabilitiesas set out in note 27 to the Financial Information. The related impact on the consolidatedincome statements was RMB4,226 million, RMB656 million and RMB749 million for theyear ended December 31, 2005 and for the six months ended June 30, 2005 (unaudited)and 2006, respectively.

In addition, the Group also entered into banking transactions with Huijin in the normal courseof business under normal commercial terms and at the market rates. The balances outstanding at thebalance sheet dates with Huijin are as follows:


2003 2004 2005 2006

Deposits from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 5,627

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(b) Huijin (continued)

The interest rate ranges for the year/period are as follows:


2003 2004 2005 2005 (Unaudited) 2006

% % % % %

Deposits from customers . . . . . . . . . . . . . . . . . . — — — — 0-0.7

Huijin has controlling equity interests in certain other banks and financial institutions. TheGroup enters into transactions with these banks and financial institutions in the ordinary course of itsbusiness on normal commercial terms. The directors consider that these banks and financial institutionsare competitors of the Group. Significant transactions during the Relevant Periods with these banksand financial institutions subsequent to Huijin becoming a shareholder of the Bank, and thecorresponding balances outstanding as at the respective balance sheet dates are as follows:


2003 2004 2005 2006

Balance outstanding at end of the year/period:Debt securities issued by these banks and financial

institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 7,497 10,369

Due from these banks and financial institutions . . . . . . . . . . . . — — 13,591 11,889

Due to these banks and financial institutions . . . . . . . . . . . . . . — — 12,055 26,903

The interest rate ranges for the year/period are as follows:


2003 2004 2005 2005 (Unaudited) 2006

% % % % %

Interest rate ranges for the year/period:Debt securities issued by these banks

and financial institutions . . . . . . . . . — — 4.3-8.3 — 2.5-8.3

Due from these banks and financialinstitutions . . . . . . . . . . . . . . . . . . . . — — 0-4.7 — 0-5.8

Due to these banks and financialinstitutions . . . . . . . . . . . . . . . . . . . . — — 0-5.0 — 0-5.4

Interest rates included in the above ranges vary across product groups and transactionsdepending on maturity, credit risk of counterparty and currency. In particular, given local marketconditions, the spread of certain significant or long dated transactions can vary across the market.

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(c) Shareholder with significant influence

As at June 30, 2006, Goldman Sachs directly owned 5.75% of the issued share capital of theBank. In the opinion of the directors, Goldman Sachs is considered to have significant influence overthe Bank because of its nominated representative serving on the Bank’s board of directors.

The Bank has entered into a strategic cooperation agreement with Goldman Sachs. The term ofthis agreement is five years, beginning on January 27, 2006. The strategic cooperation with GoldmanSachs aims to leverage the respective strengths of Goldman Sachs and the Bank to enhance theGroup’s businesses in seven areas, including corporate governance, risk management, treasurybusiness, asset management, corporate and investment banking, non-performing loan disposal andtraining.

In the opinion of the directors, other than the above mentioned strategic cooperation, there is nosignificant transaction conducted between Goldman Sachs and the Bank for the period from April 28,2006 to June 30, 2006 and no material balances as at June 30, 2006 required separate disclosures.

(d) Associates

Balances with associates are as follows:


2003 2004 2005 2006

Due to associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 37 76 22

(e) Key management personnel

Key management personnel are those persons who have the authority and responsibility to plan,direct and control the activities of the Group, directly or indirectly, including members of the board ofdirectors, supervisory board and executive officers.

The aggregate of the compensation in respect of the directors and supervisors is disclosed innote 7 to the Financial Information. The executive officers’ annual compensation during the RelevantPeriods and the six months ended June 30, 2005 (unaudited) is as follows:


2003 2004 2005 2005 (Unaudited) 2006


Salaries and other emoluments . . . . . . . . . . 414 913 2,956 577 674Discretionary bonuses . . . . . . . . . . . . . . . . . 1,609 2,371 2,999 1,495 1,833Contributions to defined contribution

plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 388 1,315 264 240

2,330 3,672 7,270 2,336 2,747

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(e) Key management personnel (continued)

Further details of directors’ and supervisors’ emoluments are included in note 7 to the FinancialInformation.

Companies or corporations in which the key management of the Group, or their close relatives,are shareholders or key management personnel who are able to exercise control or significantinfluence, are also considered as related parties of the Group.

In the opinion of the directors, the transactions between the Group and the aforementionedparties were conducted on terms and conditions similar to those offered to other unrelated customers.Since the transaction volume was not significant, and the transactions were not material, no furtherdisclosure has been made.

(f) Transactions with other state-owned entities in Mainland China

The Group operates in an economic environment predominated by enterprises directly orindirectly owned and/or controlled by the Government through its numerous authorities, affiliates orother organisations (collectively “state-owned entities”). During the Relevant Periods and the sixmonths ended June 30, 2005 (unaudited), the Group has transactions with state-owned entitiesincluding, but not limited to, lending and deposit taking, taking and placing of inter-bank balances,entrusted lending, provision of intermediary services, the sale, purchase, underwriting and redemptionof bonds issued by other state-owned entities, and the sale, purchase, and leasing of property and otherassets.

These transactions are conducted in the ordinary course of the Group’s banking business onterms similar to those that would have been entered into with non-state-owned entities. The Group hasalso established pricing policy for products and services and such pricing policies do not depend onwhether or not the customers are state-owned entities. Having due regard to the substance of therelationship, the directors are of the opinion that none of these transactions are considered materialrelated party transactions that require separate disclosure.

40. POST BALANCE SHEET EVENTS

Subsequent to June 30, 2006, the following significant events occurred:

(a) Profit appropriation

Pursuant to the resolutions passed in the extraordinary general meetings of shareholdersheld on July 31, 2006 and September 22, 2006 respectively, the arrangement of profitappropriation was approved as follows:

(i) in respect of the six months ended June 30, 2006, a dividend would be distributed tothe existing shareholders based on the lower of the distributable profit (after anyappropriations to the statutory surplus reserve and general reserve) of the Bank as

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40. POST BALANCE SHEET EVENTS (continued)

determined under the accounting principles generally accepted in the PRC and IFRS.Accordingly, a dividend in the aggregate amount of RMB18,593 million is proposed.

(ii) in respect of the period from July 1, 2006 to the date immediately preceding thecompletion of the Bank’s proposed H shares offering on SEHK (the “GlobalOffering”) or A shares offering on the Shanghai Stock Exchange (the “A ShareOffering”), whichever is earlier, (the “Special Dividend Period”), a cash dividendwould be declared to the existing shareholders, in an aggregate amount equal to thedistributable profits (after appropriations to the statutory surplus reserve and generalreserve) of the Bank for the Special Dividend Period, as determined under thegenerally accepted accounting principles in the PRC or IFRS, whichever is lower.Such amount will be determined through a special audit of the Bank’s results for theperiod from July 1, 2006 to the end of the month in which the Global Offering or theA Share Offering is completed, whichever is earlier, (“Special Audit Period”)prorated to the actual number of days in the Special Dividend Period. The chairmanof the board of directors or the president of the Bank may, individually or jointly,make adjustment to the ending date of the Special Audit Period.

(b) Share appreciation rights plan

Pursuant to the resolution of an extraordinary general meeting of shareholders dated July 31,2006, the Bank has adopted a share appreciation rights plan. It provides that eligibleparticipants including directors, supervisors, senior management and other key personneldesignated by the board will be granted share appreciation rights, 25% of which willbecome exercisable each year after the third anniversary from the date of the grant with allexercisable after seven years from the date of the grant. Share appreciation rights will bevalid for ten years from the date of grant. Share appreciation rights will be granted andexercised based on price of the Bank’s H shares. The price of shares represented by shareappreciation rights granted for the first time shall be determined pursuant to fair marketprice after the 30th trading day following the completion of the Global Offering of the Bank.Eligible participants will be entitled to receive an amount equal to the difference, if any,between (i) the market price of the Bank’s H shares on the date of exercise and (ii) a pricethat is not lower than the closing market price of the Bank’s H shares on the date of grant(trading day) or the average closing market price of the Bank’s H shares during the fivetrading days immediately preceding the date of grant. Share appreciation rights will begranted for the first time in the first six months following the completion of Global Offeringof the Bank. Total shares represented by share appreciation rights granted for the first timein the first six months after the Global Offering of the Bank will not exceed 0.5% of theBank’s total share capital and the total shares represented by all share appreciation rightsgranted will be limited in the amount stated in the relevant regulations of the State.

Save as aforesaid, no other significant events took place subsequent to June 30, 2006.

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(II) DIRECTOR’S AND SUPERVISORS’ REMUNERATION

Save as disclosed in the Financial Information, no remuneration has been paid or is payable inrespect of any of the Relevant Periods and the six months ended June 30, 2005 (unaudited) by theBank, or any of the other companies now comprising the Group, to the directors and supervisors of theBank. Under the arrangements currently in force, the estimated amount of directors’ and supervisors’fees and other emoluments payable to the directors and supervisors of the Bank for the year endingDecember 31, 2006 will be approximately RMB7,650,000, excluding discretionary bonuses payableunder the directors’ and supervisors’ service contracts.

(III) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Bank or any of the companies nowcomprising the Group in respect of any period subsequent to June 30, 2006.

Yours faithfully,

Ernst & YoungCertified Public Accountants

Hong Kong

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APPENDIX II UNAUDITED SUPPLEMENTARY FINANCIAL INFORMATION

The information set out below does not form part of the Accountants’ Report prepared by thereporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, as set out inAppendix I, and is included herein for information purposes only.

(a) Significant differences between the financial statements prepared under IFRS and thoseprepared in accordance with the PRC GAAP

Our bank prepared a set of financial statements for the years ended December 31, 2003, 2004and 2005 and for the six months ended June 30, 2006 for the purpose of application to the CSRC for AShare Offering (“A Share financial statements”). The A Share financial statements have been preparedby the Directors in accordance with the PRC GAAP.

An analysis of the differences between the A Share financial statements and the financialstatements prepared in accordance with IFRSs are set out below.


Six monthsended

June 30,

Notes 2003 2004 2005 2006(in millions of RMB)

Net profit shown in the A Share financial statements . . . . . . 22,374 30,763 37,405 25,143Reversal of amortisation of goodwill . . . . . . . . . . . . . . . . . . (i) 98 100 150 103Recognition of revaluation surplus on disposed assets . . . . . (iii) — — — 153

Profit attributable to equity holders of the Bank underIFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,472 30,863 37,555 25,399


Notes 2003 2004 2005 2006


Owner’s equity attributable to equity holders of the Bankshown in the A Share financial statements . . . . . . . . . . . . (537,099) (508,163) 256,947 326,225

Reversal of amortisation of goodwill . . . . . . . . . . . . . . . . . . (i) 21 121 271 374Reversal of revaluation surplus . . . . . . . . . . . . . . . . . . . . . . . (ii) (3,671) (3,671) (1,379) (1,379)Recognition of revaluation surplus on disposed assets . . . . . (iii) — — — 153

Owner’s equity attributable to equity holders of the Bankunder IFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (540,749) (511,713) 255,839 325,373

Notes:(i) Reversal of amortisation of goodwill

In accordance with the PRC GAAP, goodwill is amortised.

In accordance with the relevant provisions under IFRS, goodwill is assessed for impairment annually and isnot amortised. Accordingly, the amortisation of goodwill under the PRC GAAP is reversed in the financialstatements prepared in accordance with IFRS.

(ii) Reversal of revaluation surplus

In the A Share financial statements, the Group performed revaluation on certain assets (including equityinvestments, repossessed assets and intangible assets, etc.) pursuant to the relevant requirements, with therevaluation surplus recognised in the capital reserve. Under IFRS, such assets are carried at cost and therevaluation surplus was reversed accordingly.

(iii) Recognition of revaluation surplus on disposed assets

In relation to the disposal of assets as mentioned in note (ii) above, adjustments on reversal of recognitionof valuation surplus were made accordingly.

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(b) Liquidity ratiosDecember 31, June 30,

2003 2004 2005 2006

RMB current assets to RMB current liabilities . . . . . . . . . . . . . . . . . . 45.47% 45.17% 48.89% 50.80%

Foreign currency current assets to foreign currency currentliabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81.81% 75.22% 83.42% 72.97%

The above liquidity ratios are calculated in accordance with the formula promulgated by thePBOC and the CBRC and based on the financial information prepared in accordance with AccountingStandards for Business Enterprises, the Accounting System for Financial Institutions (2001 version)and other relevant regulations for the years ended December 31, 2003, 2004 and 2005. In addition, theratios as at June 30, 2006 are calculated based on the financial information prepared in accordance withthe PRC GAAP.

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(c) Capital adequacy ratio

The Group calculates and reports the capital adequacy ratios in accordance with the guideline“Regulation Governing Capital Adequacy of Commercial Banks” (Order (2004) No. 2) which werepromulgated by the CBRC on February 23, 2004, and implemented on March 1, 2004, together withthe “Notice from China Banking Regulatory Commission on Guidance for the Calculation of CapitalRequirement of Market Risks for Commercial Banks”, issued by the CBRC on December 30, 2004.The requirements pursuant to these guidelines may have significant differences compared to thoseapplicable in Hong Kong or other countries.

The capital adequacy ratios and the related components of the Group as at December 31, 2005are arrived at using the financial data and information in the statutory financial statements of the Groupand do not reflect the impact of Caikuai (2005) No. 14 “Provisional Guidelines on Recognition andMeasurement of Financial Instruments” issued by the MOF. The capital adequacy ratios and the relatedcomponents of the Group as of June 30, 2006 are computed in accordance with the PRC GAAP.


2005 2006


Core capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.11% 8.97%

Capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.89% 10.74%

Components of capital base (in millions of RMB)Core capital:

Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,000 286,509Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,444 19,916Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,037 4,092

Total core capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257,481 310,517

Supplementary capital:General provisions for doubtful debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,846 26,111Reserve for net change in the fair value of available-for-sale investments . . . . . . . — 604Subordinated bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000

Total supplementary capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,846 61,715

Total capital base before deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314,327 372,232Deductions:

Unconsolidated equity investments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,176) (1,416)Goodwill(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,307) (1,265)

Net capital base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,844 369,551

Core capital base after deductions(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255,586 308,544

Risk weighted assets and market risk capital adjustment . . . . . . . . . . . . . . . . . . . . . . . . . 3,152,206 3,439,547

(1) Pursuant to the relevant regulations, the core capital base after deductions was derived by applying 50%and 100% of deductions in the unconsolidated equity investments and goodwill, respectively.

The capital adequacy ratios as of December 31, 2003 and 2004 reported by the Bank to thePBOC and the CBRC were calculated using the financial information prepared in accordance with theAccounting System for Financial Institutions (1993 version) and, therefore, are not comparable to thecapital adequacy ratios presented above. Such ratios are not presented as the directors are of theopinion that the presentation of such ratios provides no real value to the shareholders.

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(d) Currency concentrations other than RMBUS$ HK$ Others Total


As of December 31, 2003Spot assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226,711 81,114 35,143 342,968Spot liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (193,764) (83,520) (38,634) (315,918)Forward purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,182 14,916 7,359 79,457Forward sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,550) (34,081) (12,753) (73,384)Net option position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (183) 125 52 (6)

Net long/(short) position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,396 (21,446) (8,833) 33,117

Net structural position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593 692 — 1,285

As of December 31, 2004Spot assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,165 106,360 33,603 367,128Spot liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (212,497) (90,157) (20,297) (322,951)Forward purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,406 6,496 13,594 90,496Forward sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,633) (24,874) (23,938) (80,445)Net option position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388 (32) (340) 16

Net long/(short) position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,829 (2,207) 2,622 54,244

Net structural position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 692 470 — 1,162

As of December 31, 2005Spot assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338,484 104,162 49,237 491,883Spot liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (187,573) (86,517) (39,423) (313,513)Forward purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,263 6,205 13,015 74,483Forward sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,459) (21,156) (19,931) (70,546)Net option position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (96,925) 6 31 (96,888)

Net long position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,790 2,700 2,929 85,419

Net structural position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327 261 288 876

As of June 30, 2006Spot assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351,872 104,564 47,553 503,989Spot liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (216,207) (98,539) (37,564) (352,310)Forward purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,201 8,763 20,160 105,124Forward sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51,532) (16,311) (29,895) (97,738)Net option position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (96,591) 3 (225) (96,813)

Net long/(short) position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,743 (1,520) 29 62,252

Net structural position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429 289 193 911

The net option position is calculated using the delta equivalent approach required by the HongKong Monetary Authority. The net structural position of the Group includes the structural positions ofthe Bank’s overseas branches, banking subsidiaries and other subsidiaries substantially involved inforeign exchange. Structural assets and liabilities include:

Š Investments in fixed assets and premises, net of depreciation charges;

Š Capital and statutory reserves of overseas branches; and

Š Investments in overseas subsidiaries and related companies.

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(e) Cross-border claims

The Group is principally engaged in business operations within Mainland China, and regardsall claims on third parties outside Mainland China as cross-border claims.

Cross-border claims include loans and advances, balances with central banks, balances andplacements with banks and other financial institutions, and investment securities.

Cross-border claims have been disclosed by different countries or geographical areas. Acountry or geographical area is reported where it constitutes 10% or more of the aggregate amount ofcross-border claims, after taking into account any risk transfers. Risk transfers are only made if theclaims are guaranteed by a party in a country which is different from that of the counterparty or if theclaims are on an overseas branch of a bank whose head office is located in another country.

Banksand otherfinancial

institutions

Publicsectorentities Others Total


As of December 31, 2003Asia Pacific excluding Mainland China . . . . . . . . . . . . . . . . . . . . . . 37,042 3,387 45,897 86,326—of which attributed to Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . 9,843 261 39,430 49,534Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,332 317 6,115 40,764North and South America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,064 — 7,093 20,157

84,438 3,704 59,105 147,247

As of December 31, 2004Asia Pacific excluding Mainland China . . . . . . . . . . . . . . . . . . . . . . 42,900 2,192 50,721 95,813—of which attributed to Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . 16,911 272 43,768 60,951Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,577 275 8,051 50,903North and South America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,600 — 6,255 17,855

97,077 2,467 65,027 164,571

As of December 31, 2005Asia Pacific excluding Mainland China . . . . . . . . . . . . . . . . . . . . . . 51,106 1,599 72,182 124,887—of which attributed to Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . 8,829 1,203 61,313 71,345Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,471 162 6,068 82,701North and South America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,766 119 7,207 40,092

160,343 1,880 85,457 247,680

As of June 30, 2006Asia Pacific excluding Mainland China . . . . . . . . . . . . . . . . . . . . . . 74,785 2,965 81,860 159,610—of which attributed to Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . 35,246 1,896 72,780 109,922Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,799 378 5,571 65,748North and South America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,941 5 8,869 68,815

194,525 3,348 96,300 294,173

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(f) Overdue Assets

(i) Overdue loans and advances to customers


2003 2004 2005 2006


Gross loans and advances to customers which have been overduewith respect to either principal or interest for periods of:

—between 3 and 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,776 82,230 36,284 22,993—between 6 and 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,137 81,385 36,478 27,391—over 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 597,727 592,892 80,989 91,166

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730,640 756,507 153,751 141,550

As a percentage of total gross loans and advances to customers:—between 3 and 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9% 2.2% 1.1% 0.7%—between 6 and 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0% 2.2% 1.1% 0.8%—over 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6% 16.0% 2.5% 2.6%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.5% 20.4% 4.7% 4.1%

Note: The above analysis includes loans and advances overdue for more than 90 days.

Loans and advances with a specific repayment date are classified as overdue when the principal orinterest is overdue.

For loans and advances repayable by regular instalments, if part of the instalments is overdue, the wholeamount of these loans would be classified as overdue.

(ii) Overdue placements with banks and other financial institutions


2003 2004 2005 2006


Gross placements with banks and other financial institutions whichhave been overdue with respect to either principal or interest forperiods of:

—between 3 and 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368 — 65 ——between 6 and 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . — 26 — ——over 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500 6,347 332 317

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,868 6,373 397 317

As a percentage of total gross placements with banks and otherfinancial institutions:

—between 3 and 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6% — 0.1% ——between 6 and 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — ——over 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1% 10.1% 0.3% 0.3%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.7% 10.1% 0.4% 0.3%

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(g) Overdue loans and advances to customers by geographical segmentsDecember 31, June 30,

2003 2004 2005 2006


Yangtze River Delta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,499 44,761 12,401 10,616Pearl River Delta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,388 102,068 23,601 23,270Bohai Rim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,250 113,747 28,882 28,593Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,794 165,639 20,827 18,382Western . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,836 128,339 28,847 25,627Northeastern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,358 191,225 37,353 33,735Head Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,090 9,100 616 497Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,425 1,628 1,224 830

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730,640 756,507 153,751 141,550

Note: The above analysis includes loans and advances overdue for more than 90 days.

Loans and advances with a specific repayment date are classified as overdue when the principal orinterest is overdue.

For loans and advances repayable by regular instalments, if part of the instalments is overdue, the wholeamount of these loans would be classified as overdue.

(h) Rescheduled loans and advances to customersDecember 31, June 30,

2003 2004 2005 2006

% of totalloans andadvances





Rescheduled loans andadvances . . . . . . . . . . . . . . . 334,212 9.8% 341,372 9.2% 70,988 2.2% 61,557 1.8%

Less:—rescheduled loans and

advances overdue morethan 3 months . . . . . . . . . . . 248,760 7.3% 309,223 8.3% 58,625 1.8% 55,517 1.6%

Rescheduled loans andadvances overdue less than3 months . . . . . . . . . . . . . . . 85,452 2.5% 32,149 0.9% 12,363 0.4% 6,040 0.2%

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APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION

The information set forth in this appendix does not form part of the Accountants’ Reportprepared by the reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, asset forth in Appendix I to this prospectus, and is included herein for illustrative purposes only. For thepurpose of this Appendix III, Industrial and Commercial Bank of China Limited is referred to as the“Bank” and, together with its subsidiaries, the “Group.”

The following unaudited pro forma financial information prepared in accordance with Rule4.29 of the Listing Rules is for illustrative purposes only, and is set out here to provide investors withfurther information about (i) how the proposed listing might have affected the consolidated net tangibleassets after completion of the Global Offering; and (ii) how the proposed listing might have affectedthe forecast earnings per share of the Group for the year ending December 31, 2006 as if the GlobalOffering had taken place on January 1, 2006. Although reasonable care has been exercised in preparingthe said information, prospective investors who read the information should bear in mind that thesefigures are inherently subject to adjustments and may not give a complete picture of the Group’sfinancial results and positions of the financial periods concerns.

(A) UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

The following unaudited pro forma adjusted consolidated net tangible assets have beenprepared based on the consolidated net tangible assets as at June 30, 2006 as extracted from theAccountants’ Report, the text of which is set out in Appendix I to this prospectus, and is adjusted asdescribed below.

The unaudited pro forma adjusted consolidated net tangible assets have been prepared forillustrative purposes only and, because of their nature, they may not give a true picture of the financialposition of the Group.

The following unaudited pro forma adjusted consolidated net tangible assets have beenprepared to show the effect on the consolidated net tangible assets as at June 30, 2006 as if the GlobalOffering had occurred on June 30, 2006.

Consolidated nettangible assetsattributable to

equity holders ofthe Bank as atJune 30, 2006(1)

Estimatednet proceeds

from theGlobal

Offering(2)

Unauditedpro forma adjusted

consolidated nettangible assetsattributable to

equity holders ofthe Bank(3)

Unauditedpro forma adjusted

consolidated nettangible assets

per share(4)

RMB million RMB million RMB million RMB HK$

Based on the offer price of HK$2.56 for eachOffer Share . . . . . . . . . . . . . . . . . . . . . . . . . 322,700 71,440 394,140 1.25 1.23

Based on the offer price of HK$3.07 for eachOffer Share . . . . . . . . . . . . . . . . . . . . . . . . . 322,700 85,771 408,471 1.30 1.28

Notes:(1) The consolidated net tangible assets attributable to equity holders of the Bank as of June 30, 2006 is

compiled based on the Accountants’ Report set out in Appendix I to the prospectus, which is based on theaudited consolidated net assets attributable to equity holders of the Bank as of June 30, 2006 ofRMB325,373 million with an adjustment for intangible assets of RMB2,673 million as of June 30, 2006.

(2) The estimated net proceeds from the Global Offering are based on the offer price of HK$2.56 per share andHK$3.07 per share after deduction of the underwriting fees and other related expenses payable by the Bank,and do not take into account of any shares which may be issued upon the exercise of the over-allotmentoption.

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(3) The unaudited pro forma adjusted consolidated net tangible assets attributable to equity holders of the Bankdo not take into account the effect of the profit for the period from and including July 1, 2006 to the dateimmediately preceding the date of the Global Offering and the distribution of such profit to theshareholders.

(4) The unaudited pro forma adjusted consolidated net tangible assets per share are arrived at after theadjustments referred to in note (2) above on the basis that 314,821,930,026 shares are issued andoutstanding following the completion of the Global Offering and that the over-allotment option is notexercised. If the over-allotment option is exercised in full, these per share values will increase. Had effectbeen given to the A Share Offering in this calculation, our unaudited pro forma adjusted consolidated nettangible assets per share would have been HK$1.28 or RMB1.30 based on the offer prices of HK$2.56 perH share and RMB2.60 per A share and HK$1.35 or RMB1.37 based on the offer prices of HK$3.07 per Hshare and RMB3.12 per A share. This calculation is based on the assumption that there were13,000,000,000 newly issued A shares in the A Share Offering (assuming the over-allotment option for the AShare Offering is not exercised) and the resulting net proceeds (after deduction of the estimatedunderwriting fees and other related expenses payable by us) of RMB33.0 billion (based on the offer price ofRMB2.60 per A share) and RMB39.6 billion (based on the offer price of RMB3.12 per A share) from the AShare Offering.

(5) Details of the valuation of the Group’s properties as at August 31, 2006 are set out in Appendix V to thisprospectus. The unaudited net book value of the Group’s properties as at August 31, 2006 was notsubstantially different from the valuation of the Group’s properties as included in Appendix V to thisprospectus.

(6) The translation of Renminbi into Hong Kong dollars has been made at the rate of RMB1.0154 to HK$1.00,the PBOC rate prevailing on September 29, 2006. No representation is made that the Hong Kong dollaramounts have been, could have been or could be converted to Renminbi, or vice versa, at that rate or at anyother rates or at all.

A dividend of RMB18,593 million from the Group’s distributable profits at June 30, 2006 wasproposed and subsequently approved in the extraordinary general meeting of shareholders on July 31,2006. Had it been permissible to include this dividend in the above calculation, the unaudited proforma adjusted consolidated net tangible assets per share would have been reduced to HK$1.17 orRMB1.19 based on the offer price of HK$2.56 per Offer Share and HK$1.22 or RMB1.24 based on theoffer price of HK$3.07 per Offer Share.

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(B) UNAUDITED PRO FORMA FORECAST EARNINGS PER SHARE

The following unaudited pro forma forecast earnings per share for the year endingDecember 31, 2006 have been prepared in accordance with Rule 4.29 of the Listing Rules on the basisset out in the notes below for the purpose of illustrating the effect of the Global Offering, as if it hadtaken place on January 1, 2006. The unaudited pro forma forecast earnings per share has been preparedfor illustrative purposes only and, because of its nature, it may not give a true picture of the financialresults of the Group following the Global Offering.

Forecast forthe year ending December 31, 2006

Forecast consolidated profit attributable to equity holders of the Bank(1) . . . . . not less than RMB47,200 millionUnaudited pro forma forecast earnings per share(2) . . . . . . . . . . . . . . . . . . . . . . RMB0.16 (HK$0.16)

Notes:(1) The forecast consolidated profit attributable to equity holders of the Bank for the year ending December 31,

2006 is extracted from the profit forecast as set out in the subsection headed “Profit Forecast for the YearEnding December 31, 2006” under the section headed “Financial Information”. The bases and assumptionson which the above profit forecast for the year ending December 31, 2006 has been prepared aresummarised in “Appendix IV—Profit Forecast”.

(2) The calculation of the unaudited pro forma forecast earnings per share is based on the forecast consolidatedprofit attributable to equity holders of the Bank for the year ending December 31, 2006, and a weightedaverage of 300,044,723,024 shares assumed to be issued and outstanding during the year endingDecember 31, 2006. The weighted average of 300,044,723,024 shares is calculated based on the248,000,000,000 shares issued and outstanding as of December 31, 2005, the 24,184,737,403 shares issuedin aggregate on April 28, 2006 upon completion of the investment by Goldman Sachs, Allianz and AmericanExpress, the 14,324,392,623 shares issued on June 29, 2006 upon completion of the investment by the SSFand the 28,312,800,000 H shares to be issued pursuant to the Global Offering on the assumption that theGlobal Offering had been completed on January 1, 2006. This calculation assumes that the over-allotmentoption will not be exercised. Had effect been given to the A Share Offering in this calculation, the unauditedpro forma forecast earnings per share would have been RMB0.15 (HK$0.15), based on the assumption thatthe 13,000,000,000 A shares newly issued in the A Share Offering had been issued on January 1, 2006(assuming the over-allotment option for the A Share Offering is not exercised).

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(C) LETTER ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a letter from the reporting accountants, Ernst & Young, CertifiedPublic Accountants, Hong Kong in respect of the unaudited pro forma financial information.


October 16, 2006

The DirectorsIndustrial and Commercial Bank of China LimitedChina International Capital Corporation (Hong Kong) LimitedICEA Capital LimitedMerrill Lynch Far East Limited

Dear Sirs,

We report on the unaudited pro forma financial information of adjusted consolidated nettangible assets and forecast earnings per share (the “Unaudited Pro Forma Financial Information”) setout in Parts (A) and (B) of Appendix III to the prospectus dated October 16, 2006 (the “Prospectus”) inconnection with the Global Offering of Industrial and Commercial Bank of China Limited (the“Bank”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has beenprepared by the directors of the Bank (the “Directors”), for illustrative purposes only, to provideinformation about how the Global Offering might have affected the relevant financial information ofthe Group presented.

Responsibilities

It is the responsibility solely of the Directors to prepare the Unaudited Pro Forma FinancialInformation in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on TheStock Exchange of Hong Kong Limited (the “Listing Rules”) and Accounting Guideline 7 “Preparationof Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong KongInstitute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the ListingRules, on the Unaudited Pro Forma Financial Information and to report our opinion solely to you. Wedo not accept any responsibility for any reports previously given by us on any financial informationused in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to thoseto whom those reports were addressed by us at the dates of their issue.

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Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment CircularReporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in InvestmentCirculars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financialinformation with the source documents, considering the evidence supporting the adjustments, anddiscussing the Unaudited Pro Forma Financial Information with the Directors. This engagement did notinvolve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations weconsidered necessary in order to provide us with sufficient evidence to give reasonable assurance thatthe Unaudited Pro Forma Financial Information has been properly compiled by the Directors on thebasis stated, that such basis is consistent with the accounting policies of the Group and that theadjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information asdisclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Our work has not been carried out in accordance with the auditing standards or other standardsand practices generally accepted in the United States of America or auditing standards of the PublicCompany Accounting Oversight Board and, accordingly, should not be relied upon as if it has beencarried out in accordance with those standards.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on thejudgements and assumptions of the Directors and, because of its hypothetical nature, does not provideany assurance or indication that any event will take place in the future and may not be indicative of:

Š the financial position of the Group as at June 30, 2006 or any future dates; or

Š the earnings per share of the Group for the year ending December 31, 2006 or any futureperiods.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by theDirectors on the basis stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the adjustments are appropriate for the purpose of the Unaudited Pro Forma FinancialInformation as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,


Hong Kong

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APPENDIX IV PROFIT FORECAST

The forecast consolidated profit attributable to equity holders of our bank for the year endingDecember 31, 2006 is set out in the section headed “Financial Information—Profit Forecast for theYear Ending December 31, 2006”.

(A) BASES AND ASSUMPTIONS

Our Directors have prepared the forecast consolidated profit attributable to equity holders ofour Bank for the year ending December 31, 2006 on the basis of the audited consolidated results of theGroup for the six months ended June 30, 2006 and a forecast of the consolidated results of the Groupfor the remaining six months ending December 31, 2006. The forecast has been prepared on a basisconsistent in all material respects with the accounting policies currently adopted by our Group as setout in the Accountants’ Report dated October 16, 2006, the text of which is set out in Appendix I tothis prospectus, and on the following principal bases and assumptions:

Š There will be no material changes in the existing political, legal, fiscal, market, oreconomic conditions in Mainland China, Hong Kong, or any other countries or territoriesin which the Group currently operates or which are otherwise material to the Group’soperations and business.

Š There will be no changes in the legislation, regulations, or rules in Mainland China, HongKong, or any other countries or territories in which the Group operates or with which theGroup has arrangements or agreements, which may materially adversely affect theGroup’s operations and business.

Š There will be no material changes in inflation rates, interest rates or foreign currencyexchange rates from those currently prevailing, which may materially affect the Group’soperations and business.

Š There will be no material changes in the applicable rates of income tax, business tax,surcharges or other government levies in Mainland China, Hong Kong, or any othercountries or territories in which the Group operates, except as otherwise disclosed in theprospectus.

Š The Ministry of Finance and the State Administration of Taxation will approve the Bank’sproposed tax treatment regarding the determination of the amount of deductible salariesfor the purpose of corporate income tax computation. Bank of China Limited and ChinaConstruction Bank Corporation had obtained approval on similar taxation policies.

Š There will be no material adverse changes in the property market in Mainland China,Hong Kong, or any other countries or territories in which the Group currently operates,which may materially adversely affect the carrying value of the properties owned by theGroup, and the loans and advances to customers secured by real estate.

Š The Group’s operations and business will not be severely interrupted by any force majeureevents or any unforeseeable factors that are beyond the control of the Directors, including,but not limited to, the occurrence of wars, military incidents, natural disasters orcatastrophes (such as floods and typhoons), epidemics, or serious accidents.

Š The Group’s operations and business will not be adversely affected by occurrences such aslabor shortages and disputes, or any other factors outside the control of management. Inaddition, the Group will be able to recruit enough employees to meet its operatingrequirements during the forecast period.

Š The PRC Government will adopt moderately tight macroeconomic policies in order tomaintain a consistent rate of economic growth.

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(B) Letter from the reporting accountants

Set out below is the text of a letter from the reporting accountants, Ernst & Young, CertifiedPublic Accountants, Hong Kong, for the purpose of incorporation in this prospectus in connection withthe profit forecast for the year ending December 31, 2006.


October 16, 2006

The DirectorsIndustrial and Commercial Bank of China LimitedChina International Capital Corporation (Hong Kong) LimitedICEA Capital LimitedMerrill Lynch Far East Limited

Dear Sirs,

We have reviewed the calculations of and accounting policies adopted in arriving at theforecast of the consolidated profit attributable to equity holders of Industrial and Commercial Bank ofChina Limited (the “Bank”) for the year ending December 31, 2006 (the “Forecast”) as set out in thesubsection headed “Profit Forecast for the Year Ending December 31, 2006” under the section headed“Financial Information” in the prospectus of the Bank dated October 16, 2006 (the “Prospectus”), forwhich you as directors of the Bank (the “Directors”) are solely responsible.

The Forecast has been prepared by the Directors based on the audited consolidated results ofthe Bank and its subsidiaries (hereinafter collectively referred to in this letter as the “Group”) for thesix months ended June 30, 2006 and a forecast of the consolidated results of the Group for theremaining six months ending December 31, 2006.

In our opinion, the Forecast, so far as the calculations and accounting policies are concerned,has been properly compiled in accordance with the bases and assumptions made by the Directors as setout in Part (A) of Appendix IV to the Prospectus, and is presented on a basis consistent in all materialrespects with the accounting policies currently adopted by the Group as set out in our Accountants’Report dated October 16, 2006, the text of which is set out in Appendix I to the Prospectus.

Yours faithfully,


Hong Kong

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(C) Letter from the Joint Sponsors

The following is the text of a letter, prepared for inclusion in this prospectus by ChinaInternational Capital Corporation (Hong Kong) Limited, ICEA Capital Limited and Merrill Lynch FarEast Limited in connection with the profit forecast for the year ending December 31, 2006.

China International CapitalCorporation (Hong Kong) LimitedSuite 2307, 23rd FloorOne International Finance Centre1 Harbour View StreetCentral, Hong Kong



October 16, 2006The DirectorsIndustrial and Commercial Bank of China Limited

Dear Sirs,

We refer to the forecast of the consolidated net profit attributable to the equity holders ofIndustrial and Commercial Bank of China Limited (the “Bank”) for the year ending December 31,2006 (the “Forecast”) as set out in the section headed “Financial Information—Profit forecast for theyear ending December 31, 2006” in the prospectus of the Bank dated October 16, 2006 (the“Prospectus”).

We have discussed with you the bases and assumptions made by the Directors of the Bank asset out in Part A of Appendix IV to the Prospectus upon which the Forecast has been made. We havealso considered the letter dated October 16, 2006 addressed to yourselves and ourselves from Ernst &Young regarding the accounting policies and calculations upon which the Forecast has been made.

On the basis of the information comprising the Forecast and on the basis of the accountingpolicies and calculations adopted by you and reviewed by Ernst & Young, we are of the opinion thatthe Forecast, for which you as Directors of the Bank are solely responsible, has been made after dueand careful enquiry.

Yours faithfully,

For and on behalf ofChina InternationalCapital Corporation(Hong Kong) Limited

Huang ZhaohuiManaging Director

For and on behalf ofICEA Capital Limited

Gary ChanDeputy Chief Executive Officer

For and on behalf ofMerrill Lynch Far East

LimitedBing Wang

Director

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APPENDIX V PROPERTY VALUATION

The following is the text of a letter, summary of values and valuation certificates, prepared forthe purpose of incorporation in this prospectus received from Sallmanns (Far East) Limited, anindependent valuer, in connection with its valuation as at 31 August 2006 of the property interests ofthe Group. As described in section “Documents Available For Inspection” in Appendix X, a copy ofthe full valuation report will be made available for public inspection.

16 October 2006

The Board of DirectorsIndustrial and Commercial Bank of China LimitedNo. 55 Fuxingmennei AvenueXicheng DistrictBeijingThe PRC

Dear Sirs,

In accordance with your instructions to value the properties in which Industrial andCommercial Bank of China Limited (the “Company”) and its subsidiaries (hereinafter together referredto as the “Group”) have interests, we confirm that we have carried out inspections, made relevantenquiries and searches and obtained such further information as we consider necessary for the purposeof providing you with our opinion of the capital values of the property interests as at 31 August 2006(the “date of valuation”).

We have categorized the property interests of the Group into 6 main groups and 44 sub-groupswhere properties in Group I (sub-groups 1-39) are classified according to the branches they belong to.The remaining properties are classified according to the nature or location of the properties of theGroup.

Our valuations of the property interests represent the market value which we would define asintended to mean “the estimated amount for which a property should exchange on the date of valuationbetween a willing buyer and a willing seller in an arm’s-length transaction after proper marketingwherein the parties had each acted knowledgeably, prudently, and without compulsion”.

Land

The concept of freehold and leasehold land does not exist in China. Private land ownership inChina was abolished in the collectivization movement during the 1950’s. Since then, the only form ofownership in land has been “socialist public ownership” of which there are two generic types: state-owned and collectively owned. Land was “allocated” free of charge by the state to the designated users

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(commonly state-owned enterprises) for an indefinite period (“allocated land”). The users in returncould not in any way transfer the land to other parties. Normally, when dealing with the valuation ofsuch land, we will deem it to have “no commercial value”.

In January 1995, the “PRC, Administration of Urban Real Property Law” came into effect,reinforcing previous legislation and establishing land as a commodity. By possessing “land use rights”,users, including state-owned enterprises, could assign, lease or mortgage land. Normally, to obtainsuch land use rights, a premium had to be paid whereupon the allocated land could be reclassified as“granted” land. The land is granted by the State and the premium is based upon the standard landprices (which are periodically reviewed) set by the Land Administration Bureau. Such land can bevalued by reference to the standard land prices in each locality and prices paid in the market for it.

In occasional cases on a discretionary basis, allocated land occupied by certain state-ownedenterprises can be injected by the State to those enterprises as capital investment for incorporation intoa joint stock company in return for shares. Such land we have termed “state-capital-injection land”( ). After the injection, the land use rights of the state-capital-injection land of specifiedtenure terms will be held by the joint stock company and a new relevant Land Use Rights Certificatewill be issued to the joint stock company. The joint stock company may transfer, lease and mortgagethe land use rights in accordance with the relevant land regulations and laws of the PRC in relation togranted land use rights.

We have valued the property interests in Groups I and III by the direct comparison approachassuming sale of the property interests in their existing state with the benefit of immediate vacantpossession and by making reference to comparable sale transactions as available in the relevant market.

In valuing the property interests in Group II which are currently under construction, we haveassumed that they will be developed and completed in accordance with the Group’s latest developmentproposal provided to us. In arriving at our opinion of value, we have taken into account theconstruction costs and professional fees relevant to the stage of construction as at the date of valuationand the remainder of the costs and fees to be expended to complete the developments.

We have attributed no commercial value to the property interests in Group IV, which have notbeen assigned to the Group and thus the title of the properties is not vested in the Group at the date ofvaluation.

We have attributed no commercial value to the property interests in Groups V and VI, whichare rented by the Group, due either to the short-term nature of the leases or the prohibition againstassignment or sub-letting or otherwise due to the lack of substantial profit rents.

As at the date of valuation, the Group held 25,393 properties with an aggregate gross floor areaof approximately 25,249,839 sq.m. in the PRC, of which 22,731 are commercial properties, 2,443 areresidential properties and 219 are ancillary properties. These properties are located on 5,276 parcels ofgranted land, 11,768 parcels of state-capital-injection land, 275 parcels of allocated land and 852parcels of land in respect of which relevant land use rights certificates have not been obtained or theland use rights are unknown. The Group held 76 properties which were under construction with anaggregate gross floor area of approximately 686,953 sq.m. upon completion in the PRC. The Groupalso held 31 properties in Hong Kong, Macau and overseas countries with an aggregate floor area ofapproximately 14,333 sq.m. and these properties were used for commercial and residential purposes.

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In addition to the above properties, the Group had entered into sale and purchase agreements topurchase 58 commercial and residential properties with an aggregate gross floor area of approximately118,938 sq.m.. Owing to the fact that some of them were still under construction and not all therequired payments had been fully paid as at the date of valuation, the properties had not been assignedto the Group and thus the titles of the properties were not vested in the Group. Therefore, we have notattributed any commercial value to these properties.

As at the date of valuation, the Group rented 7,616 properties in the PRC with an aggregategross floor area of approximately 2,052,642 sq.m. and 61 properties in Hong Kong, Macau andoverseas countries with an aggregate floor area of approximately 34,620 sq.m. from variousindependent third parties.

For the 22,731 commercial properties held by the Group in the PRC, the Group has obtainedLand Use Rights Certificates (“LURCs”) and Building Ownership Certificates (“BOCs”) or RealEstate Title Certificates (“RETCs” (RETC is the title certificate used in some cities in the PRC whichis equivalent to a combination of LURC and BOC. For the sake of consistency, a RETC is counted as aLURC plus a BOC in the relevant valuation certificates)) for 21,094 of them representing a total grossfloor area of approximately 22,785,369 sq.m.. For the remaining 1,637 commercial properties with atotal gross floor area of approximately 1,407,114 sq.m., the Group has not obtained all the relevant titlecertificates.

For the 2,662 residential and other ancillary properties held by the Group in the PRC, the Grouphas obtained LURCs and BOCs or RETCs for 2,498 of them representing a total gross floor area ofapproximately 918,290 sq.m.. For the remaining 164 residential and other ancillary propertiesrepresenting a total gross floor area of approximately 139,066 sq.m., the Group has not obtained all therelevant title certificates.

For the 76 properties under construction held by the Group in the PRC, the Group has obtainedLURCs and the relevant construction permits for 56 of them with a total gross floor area ofapproximately 631,809 sq.m. upon completion and they are legally in compliance with the relevant lawand regulations. For the remaining 20 properties with a total gross floor area of approximately 55,144sq.m. upon completion, the Group has not obtained the LURCs and the relevant construction permits.

Among the 25,393 properties held by the Group in the PRC, the Group has obtained thebuilding ownership rights for 464 properties and relevant land use rights by way of administrativeallocation. For those properties located on allocated land, the Group has rights to use, occupy and willhave the rights to transfer, lease or mortgage them upon obtaining the granted LURCs.

For the 7,616 leased properties in the PRC, the relevant lessors or landlords of 2,387 propertieshave provided either the BOCs or RETCs representing a total gross floor area of approximately732,973 sq.m.. For the remaining 5,229 leased properties, the Group has not been provided with therelevant BOCs or RETCs. Among them, the lessors of 2,342 properties with a total floor area ofapproximately 494,079 sq.m. have provided the confirmation letters which undertake to compensatefor all the loss of the Group arising from any defect of their legal rights to lease the properties.

Our valuations have been made on the assumption that the seller sells the property interests inthe market without the benefit of a deferred term contract, leaseback, joint venture, managementagreement or any similar arrangement, which could serve to affect the values of the property interests.

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No allowance has been made in our report for any charges, mortgages or amounts owing on anyof the property interests valued nor for any expenses or taxation which may be incurred in effecting asale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictionsand outgoings of an onerous nature, which could affect their values.

In valuing those property interests of the Group in Hong Kong held under the GovernmentLeases expiring before 30 June 1997, we have taken account of the stipulations contained in Annex IIIof the Joint Declaration of the Government of the United Kingdom and the Government of the People’sRepublic of China on the question of Hong Kong and the New Territories Leases (Extension)Ordinance 1988 that such leases have been extended without premium until 30 June 2047 and that arent of three per cent of the then rateable value is charged per annum from the date of extension.

In valuing the property interests, we have complied with all the requirements contained inChapter 5 and Practice Note 12 to the Rules Governing the Listing of Securities issued by The StockExchange of Hong Kong Limited except for those in respect of which a waiver has been applied andgranted in respect of Rule 5.01, Rule 5.06, Rule 19A.27(4) and Paragraph 3(a) of Practice Note 16 ofthe Hong Kong Listing Rules governing the Listing of Securities on the Stock Exchange of Hong KongLimited; the RICS Appraisal and Valuation Standards (5th Edition May 2003) published by the RoyalInstitution of Chartered Surveyors and the HKIS Valuation Standards on Properties (1st EditionJanuary 2005) published by the Hong Kong Institute of Surveyors.

As the Company is in compliance with paragraph 3(b) of Practice Note 16 to the RulesGoverning the Listing of Securities issued by The Stock Exchange of Hong Kong Limited, theCompany has obtained a waiver to exclude the full details of the individual leased properties from thevaluation certificates in our valuation report in this prospectus. A summary of the property interestscovered by this exemption is included in the Summary of Values and the Valuation Certificates forLeased Properties.

We have relied to a very considerable extent on the information given by the Group and haveaccepted advices given to us on such matters as tenure, planning approvals, statutory notices,easements, particulars of occupancy, lettings, and all other relevant matters.

We have been, in some instances, provided by the Group with extracts of the title documentsrelating to the properties in the PRC and have caused searches to be made at the Hong Kong LandRegistry in respect of Hong Kong properties and have caused searches on the title ownership in respectof overseas properties if available. Where possible, we have searched the original documents to verifythe existing titles to the property interests in the PRC and any material encumbrances that might beattached to the properties or any lease amendments which may not appear on the copies handed to us.We have relied considerably on the advices given by the Company’s legal advisors – King & Wood(PRC) and Salans (Kazakhstan), concerning the validity of the Group’s titles to the property interests inthe PRC and in Almaty of Kazakhstan, respectively.

We have not carried out detailed site measurements to verify the correctness of the site areas inrespect of the properties but have assumed that the site areas shown on the documents and official siteplans handed to us are correct. All documents and contracts have been used as reference only and alldimensions, measurements and areas are approximations. No on-site measurement has been taken.

We have inspected the exterior and, where possible, the interior of the properties. However, nostructural survey has been made, but in the course of our inspection, we did not note any serious

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defects. We are not, however, able to report whether the properties are free of rot, infestation or anyother structural defects. No tests were carried out on any of the services.

We have had no reason to doubt the truth and accuracy of the information provided to us by theGroup. We have also sought confirmation from the Group that no material factors have been omittedfrom the information supplied. We consider that we have been provided with sufficient information toreach an informed view, and we have no reason to suspect that any material information has beenwithheld.

Unless otherwise stated, all monetary figures stated in this report are in Renminbi (RMB). Invaluing property interests in Group III, we have adopted exchange rates of SGD1 to RMB5.03, HK$1to RMB1.02, MOP1 to RMB0.99 and US$1 to RMB7.94 which were prevailing as at the date ofvaluation.

Our valuations are summarised below and the valuation certificates are attached.

Yours faithfully,

for and on behalf ofSallmanns (Far East) LimitedPaul L. BrownB.Sc. FRICS FHKISDirector

Note: Paul L. Brown is a Chartered Surveyor who has 23 years’ experience in the valuation of properties in the PRC and 26 years ofproperty valuation experience in Hong Kong, the United Kingdom and the Asia-Pacific region.

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SUMMARY OF VALUES

GROUP I—PROPERTY INTERESTS HELD BY THE GROUP IN THE PRC

No. Property

Capital valuein existing state

as at31 August 2006

RMB

1. Various properties of Anhui Province Branch of the Company located in Anhui ProvinceThe PRC

2,238,120,000

2. Various properties of Beijing Branch of the Company located in Beijing and HebeiProvinceThe PRC

1,275,488,000

3 Various properties of Dalian Branch of the Company located in Dalian City, LiaoningProvinceThe PRC

1,038,479,000

4. Various properties of Chongqing Branch of the Company located in ChongqingThe PRC

1,420,175,000

5. Various properties of Fujian Province Branch of the Company located in Fujian ProvinceThe PRC

2,241,662,000

6. Various properties of Gansu Province Branch of the Company located in Gansu ProvinceThe PRC

1,046,135,000

7. Various properties of Guangdong Province Branch of the Company located in GuangdongProvinceThe PRC

4,771,617,000

8. Various properties of Guangxi Zhuang Autonomous Region Branch of the Companylocated in Guangxi Zhuang Autonomous RegionThe PRC

2,765,972,000

9. Various properties of Guangzhou Branch of the Company located in Guangdong ProvinceThe PRC

1,800,247,000

10. Various properties of Guizhou Province Branch of the Company located in GuizhouProvinceThe PRC

1,196,317,000

11. Various properties of Hainan Province Branch of the Company located in Hainan ProvinceThe PRC

593,895,000

12. Various properties of Hebei Province Branch of the Company located in Hebei ProvinceThe PRC

3,156,539,000

13 Various properties of Henan Province Branch of the Company located in Henan ProvinceThe PRC

3,102,586,000

14 Various properties of Heilongjiang Province Branch of the Company located inHeilongjiang ProvinceThe PRC

3,699,001,000

15. Various properties of Hubei Province Branch of the Company located in Hubei ProvinceThe PRC

2,345,925,000

16. Various properties of Hunan Province Branch of the Company located in Hunan ProvinceThe PRC

2,983,282,000

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No. Property


as at31 August 2006

RMB

17. Various properties of Jilin Province Branch of the Company located in Jilin ProvinceThe PRC

2,108,031,000

18. Various properties of Jiangsu Province Branch of the Company located in JiangsuProvince and Guangdong ProvinceThe PRC

5,130,510,000

19. Various properties of Jiangxi Province Branch of the Company located in Jiangxi ProvinceThe PRC

2,182,192,000

20. Various properties of Liaoning Province Branch of the Company located in LiaoningProvinceThe PRC

3,622,648,000

21. Various properties of Inner Mongolia Autonomous Region Branch of the Company locatedin Inner Mongolia Autonomous RegionThe PRC

1,139,223,000

22. Various properties of Ningbo Branch of the Company located in Ningbo City, ZhejiangProvinceThe PRC

1,489,564,000

23. Various properties of Ningxia Hui Autonomous Region Branch of the Company located inNingxia Hui Autonomous RegionThe PRC

322,343,000

24. Various properties of Qingdao Branch of the Company located in Qingdao City, ShandongProvinceThe PRC

703,607,000

25. Various properties of Qinghai Province Branch of the Company located in QinghaiProvinceThe PRC

352,630,000

26. Various properties of Sanxia Branch of the Company located in Sanxia City, HubeiProvinceThe PRC

238,300,000

27. Various properties of Shandong Province Branch of the Company located in ShandongProvinceThe PRC

3,985,194,000

28. Various properties of Shaanxi Province Branch of the Company located in ShaanxiProvinceThe PRC

1,572,982,000

29. Various properties of Shanxi Province Branch of the Company located in Shanxi ProvinceThe PRC

1,799,209,000

30. Various properties of Shanghai Branch of the Company located in Shanghai and JiangsuProvinceThe PRC

6,467,565,000

31. Various properties of Shenzhen Branch of the Company located in Shenzhen City andZhongshan City, Guangdong ProvinceThe PRC

872,118,000

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No. Property


as at31 August 2006

RMB

32. Various properties of Sichuan Province Branch of the Company located in SichuanProvinceThe PRC

2,577,892,000

33. Various properties of Suzhou Branch of the Company located in Suzhou City, JiangsuProvinceThe PRC

1,766,301,000

34. Various properties of Tianjin Branch of the Company located in TianjinThe PRC

2,029,193,000

35. Various properties of Xiamen Branch of the Company located in Xiamen City, FujianProvinceThe PRC

418,826,000

36. Various properties of Xinjiang Uygur Autonomous Region Branch of the Companylocated in Xinjiang Uygur Autonomous Region and Hainan ProvinceThe PRC

1,449,895,000

37. Various properties of Yunan Province Branch of the Company located in YunnanProvinceThe PRC

2,209,190,000

38. Various properties of Zhejiang Province Branch of the Company located in ZhejiangProvinceThe PRC

6,469,636,000

39. Various properties of the head office of the Company located in Beijing, Shanghai,Guangdong Province, Shandong Province, Zhejiang Province and Jilin ProvinceThe PRC

4,631,132,000

Sub-total: 89,213,621,000

GROUP II—PROPERTY INTERESTS HELD UNDER DEVELOPMENT BY THE GROUP INTHE PRC

No. Property


as at31 August 2006

RMB

40. Various properties under development located in the PRC 1,357,058,000

Sub-total: 1,357,058,000

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GROUP III—PROPERTY INTERESTS HELD BY THE GROUP IN HONG KONG, MACAUAND OVERSEAS COUNTRIES

No. Property

Capital valuein existingstate as at

31 August 2006

Capital valueattributable to

the Groupas at

31 August2006

RMB RMB

41. 31 properties located in Hong Kong, Singapore, Macau and Almaty 587,568,000 482,635,000

Sub-total : 482,635,000

GROUP IV—PROPERTY INTERESTS CONTRACTED TO BE ACQUIRED BY THEGROUP IN THE PRC

No. Property


as at31 August 2006

RMB

42. Various properties located in the PRC No commercial value

Sub-total : Nil

GROUP V—PROPERTY INTERESTS RENTED AND OCCUPIED BY THE GROUP IN THEPRC

No. Property


as at31 August 2006

RMB

43. Various properties located in the PRC No commercial value

Sub-total: Nil

GROUP VI—PROPERTY INTERESTS RENTED AND OCCUPIED BY THE GROUP INHONG KONG, MACAU AND OVERSEAS COUNTRIES

No. Property


as at31 August 2006

RMB

44. 61 properties located in Almaty, Frankfurt, Hong Kong, London, Luxembourg,New York, Sydney, Singapore, Macau, Busan, Moscow, Seoul and Tokyo

No commercial value

Sub-total: Nil

Capital valueattributable to the

Group as at31 August 2006

RMB

Total: 91,053,314,000

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VALUATION CERTIFICATE

GROUP I—PROPERTY INTERESTS HELD BY THE GROUP IN THE PRC

Property Description and tenure Particulars of occupancy


as at31 August 2006

RMB

1. Various propertiesof Anhui ProvinceBranch of theCompany locatedin Anhui ProvinceThe PRC

The properties comprise 779commercial buildings or units, 89residential units and 2 ancillary unitsmainly completed between 1949 and2005.

The properties have a total gross floorarea of approximately 749,559.08sq.m. and the approximate gross floorareas of the properties for each use areshown as follows:

The properties arecurrently occupiedby the Group forcommercial,residential orancillary purposes.

2,238,120,000

Use Gross Floor Area

(sq.m.)

Commercial 731,757.36Residential 17,729.99Ancillary 71.73

Total . . . . . . . . 749,559.08

Notes:1. According to 851 properties’ BOCs and 594 LURCs held under the name of either Industrial and Commercial Bank of China (the

predecessor of the Company, “ICBC”) or the Company, relevant title certificates of 851 items of the properties representing a totalgross floor area of approximately 741,993.29 sq.m. have been obtained. These LURCs are either for granted land or state-capital-injection land. According to the opinion of the Company’s PRC legal adviser, the title to such properties is vested in the Group, which isentitled to occupy, lease, transfer or mortgage the properties with BOCs and LURCs of granted land or of state-capital-injection land,and is entitled to occupy and lease the properties with BOCs and LURCs of allocated land in respect of which approval has beenobtained for conversion into state-capital injection land. The Company should apply and is applying for changing the registered nameson the title certificates to its name and changing the LURCs of allocated land to LURCs of state-capital-injection land. There is noimpediment for the applications. After obtaining the LURCs of state-capital-injection land, the Group will be entitled to transfer andmortgage the relevant properties.

2. For the remaining 19 items of the properties with a total gross floor area of approximately 7,565.79 sq.m., we have not been providedwith the relevant LURCs and/or BOCs. According to the opinion of the Company’s PRC legal adviser, the Company has no legal rightsto transfer, mortgage and dispose of these properties before obtaining all the proper title certificates. As such, we have attributed nocommercial value to them. However, for reference purpose, we are of the opinion that capital value of these properties as at the date ofvaluation would be RMB21,427,000 assuming all the relevant title certificates of these properties have been obtained.

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as at31 August 2006

RMB

2. Various propertiesof Beijing Branchof the Companylocated in Beijingand Hebei ProvinceThe PRC

The properties comprise 577commercial buildings or units, 7residential units and an ancillarybuilding mainly completed between1978 and 2005.



1,275,488,000


(sq.m.)


Total . . . . . . . . 654,198.90


predecessor of the Company, “ICBC”) or the Company, relevant title certificates of 63 items of the properties representing a total grossfloor area of approximately 103,312.86 sq.m. have been obtained. These LURCs are all for granted land. According to the opinion of theCompany’s PRC legal adviser, the title to such properties is vested in the Group, which is entitled to occupy, lease, transfer or mortgagethe properties with BOCs and LURCs of granted land.

2. For the remaining 522 items of the properties with a total gross floor area of approximately 550,886.04 sq.m., we have not beenprovided with the valid LURCs and/or BOCs. According to the opinion of the Company’s PRC legal adviser, the Company has no legalrights to transfer, mortgage and dispose of these properties before obtaining all the proper title certificates. As such, we have attributedno commercial value to them. However, for reference purpose, we are of the opinion that capital value of these properties as at the dateof valuation would be RMB4,464,309,000 assuming all the relevant title certificates of these properties have been obtained.

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as at31 August 2006

RMB

3. Various propertiesof Dalian Branch ofthe Companylocated in DalianCity, LiaoningProvinceThe PRC

The properties comprise 125commercial buildings or units and aresidential unit mainly completedbetween 1971 and 2004.


The properties arecurrently occupiedby the Group forcommercial orresidential purposes.

1,038,479,000


(sq.m.)

Commercial 124,211.89Residential 117.23

Total . . . . . . . . 124,329.12


predecessor of the Company, “ICBC”) or the Company, relevant title certificates of 118 items of the properties representing a totalgross floor area of approximately 115,499.94 sq.m. have been obtained. These LURCs are either for granted land or state-capital-injection land. According to the opinion of the Company’s PRC legal adviser, the title to such properties is vested in the Group, which isentitled to occupy, lease, transfer or mortgage the properties with BOCs and LURCs of granted land or of state-capital-injection land,and is entitled to occupy and lease the properties with BOCs and LURCs of allocated land in respect of which approval has beenobtained for conversion into state-capital-injection land. The Company should apply and is applying for changing the registered nameson the title certificates to its name and changing the LURCs of allocated land to LURCs of state-capital-injection land. There is noimpediment for the applications. After obtaining the LURCs of state-capital-injection land, the Group will be entitled to transfer andmortgage the relevant properties.


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as at31 August 2006

RMB

4. Various propertiesof ChongqingBranch of theCompany locatedin ChongqingThe PRC

The properties comprise 586commercial buildings or units, 86residential units and 11 ancillarybuildings or units mainly completedbetween 1964 and 2004.



1,420,175,000


(sq.m.)

Commercial 440,425.70Residential 27,437.62Ancillary 8,243.13

Total . . . . . . . . 476,106.45


predecessor of the Company, “ICBC”) or the Company, relevant title certificates of 638 items of the properties representing a totalgross floor area of approximately 457,404.64 sq.m. have been obtained. These LURCs are either for granted land or state-capital-injection land. According to the opinion of the Company’s PRC legal adviser, the title to such properties is vested in the Group, which isentitled to occupy, lease, transfer or mortgage the properties with BOCs and LURCs of granted land or of state-capital-injection land,and is entitled to occupy and lease the properties with BOCs and LURCs of allocated land in respect of which approval has beenobtained for conversion into State-capital injection land. The Company should apply and is applying for changing the registered nameson the title certificates to its name and changing the LURCs of allocated land to LURCs of state-capital-injection land. There is noimpediment for the applications. After obtaining the LURCs of state-capital-injection land, the Group will be entitled to transfer andmortgage the relevant properties.


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as at31 August 2006

RMB

5. Various propertiesof Fujian ProvinceBranch of theCompany locatedin Fujian ProvinceThe PRC




2,241,662,000


(sq.m.)


Total . . . . . . . . 726,556.79




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as at31 August 2006

RMB

6. Various propertiesof Gansu ProvinceBranch of theCompany locatedin Gansu ProvinceThe PRC




1,046,135,000


(sq.m.)


Total . . . . . . . . 491,844.74




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as at31 August 2006

RMB

7. Various propertiesof GuangdongProvince Branch ofthe Companylocated inGuangdongProvinceThe PRC

The properties comprise 1,231commercial buildings or units and 360residential units mainly completedbetween 1950 and 2005.

The properties have a total gross floorarea of approximately 1,278,694.39sq.m. and the approximate gross floorareas of the properties for each use areshown as follows:


4,771,617,000


(sq.m.)

Commercial 1,195,651.92Residential 83,042.47

Total . . . . . . . . 1,278,694.39

Notes:1. According to 1,404 properties’ BOCs and 1,212 LURCs held under the name of either Industrial and Commercial Bank of China (the

predecessor of the Company, “ICBC”) or the Company, relevant title certificates of 1,404 items of the properties representing a totalgross floor area of approximately 1,101,730.43 sq.m. have been obtained. These LURCs are either for granted land or state-capital-injection land. According to the opinion of the Company’s PRC legal adviser, the title to such properties is vested in the Group, which isentitled to occupy, lease, transfer or mortgage the properties with BOCs and LURCs of granted land or of state-capital-injection land,and is entitled to occupy and lease the properties with BOCs and LURCs of allocated land in respect of which approval has beenobtained for conversion into State-capital injection land. The Company should apply and is applying for changing the registered nameson the title certificates to its name and changing the LURCs of allocated land to LURCs of state-capital-injection land. There is noimpediment for the applications. After obtaining the LURCs of state-capital-injection land, the Group will be entitled to transfer andmortgage the relevant properties.

2. For the remaining 187 items of the properties with a total gross floor area of approximately 176,963.96 sq.m., we have not beenprovided with the relevant LURCs and/or BOCs. According to the opinion of the Company’s PRC legal adviser, the Company has nolegal rights to transfer, mortgage and dispose of these properties before obtaining all the proper title certificates. As such, we haveattributed no commercial value to them. However, for reference purpose, we are of the opinion that capital value of these properties asat the date of valuation would be RMB485,384,000 assuming all the relevant title certificates of these properties have been obtained.

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as at31 August 2006

RMB

8. Various propertiesof Guangxi ZhuangAutonomousRegion Branch ofthe Companylocated in GuangxiZhuangAutonomousRegionThe PRC

The properties comprise 692commercial buildings, 2 ancillarybuildings and 367 residential unitsmainly completed between 1955 and2006.



2,765,972,000


(sq.m.)


Total . . . . . . . . 927,591.84



2. For the remaining 90 items of the properties with a total gross floor area of approximately 88,707.62 sq.m., we have not been providedwith the valid LURCs and/or BOCs. According to the opinion of the Company’s PRC legal adviser, the Company has no legal rights totransfer, mortgage and dispose of these properties before obtaining all the proper title certificates. As such, we have attributed nocommercial value to them. However, for reference purpose, we are of the opinion that capital value of these properties as at the date ofvaluation would be RMB337,099,000 assuming all the relevant title certificates of these properties have been obtained.

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as at31 August 2006

RMB

9. Various propertiesof GuangzhouBranch of theCompany locatedin GuangdongProvinceThe PRC




1,800,247,000


(sq.m.)


Total . . . . . . . . 296,793.49




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as at31 August 2006

RMB

10. Various propertiesof GuizhouProvince Branch ofthe Companylocated in GuizhouProvinceThe PRC




1,196,317,000


(sq.m.)


Total . . . . . . . . 383,284.20




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as at31 August 2006

RMB

11. Various propertiesof Hainan ProvinceBranch of theCompany locatedin Hainan ProvinceThe PRC

The properties comprise 173commercial buildings or units and 12residential units mainly completedbetween 1955 and 2005.



593,895,000


(sq.m.)

Commercial 221,434.19Residential 7,244.61

Total . . . . . . . . 228,678.80




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as at31 August 2006

RMB

12. Various propertiesof Hebei ProvinceBranch of theCompany locatedin Hebei ProvinceThe PRC




3,156,539,000


(sq.m.)

Commercial 1,414,973.85Residential 9,979.52Ancillary 6,780.58

Total . . . . . . . . 1,431,733.95


predecessor of the Company, “ICBC”) or the Company, relevant title certificates of 883 items of the properties representing a totalgross floor area of approximately 1,318,827.33 sq.m. have been obtained. These LURCs are either for granted land or state-capital-injection land. According to the opinion of the Company’s PRC legal adviser, the title to such properties is vested in the Group, which isentitled to occupy, lease, transfer or mortgage the properties with BOCs and LURCs of granted land or of state-capital-injection land,and is entitled to occupy and lease the properties with BOCs and LURCs of allocated land in respect of which approval has beenobtained for conversion into State-capital injection land. The Company should apply and is applying for changing the registered nameson the title certificates to its name and changing the LURCs of allocated land to LURCs of state-capital-injection land. There is noimpediment for the applications. After obtaining the LURCs of state-capital-injection land, the Group will be entitled to transfer andmortgage the relevant properties.


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as at31 August 2006

RMB

13. Various propertiesof Henan ProvinceBranch of theCompany locatedin Henan ProvinceThe PRC

The properties comprise 1,041commercial buildings or units, 19residential units and 17 ancillarybuildings or units mainly completedbetween 1960 and 2004.



3,102,586,000


(sq.m.)


Total . . . . . . . . 1,350,469.66

Notes:1. According to 1,022 properties’ BOCs and 676 LURCs held under the name of either Industrial and Commercial Bank of China (the



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as at31 August 2006

RMB

14. Various propertiesof HeilongjiangProvince Branch ofthe Companylocated inHeilongjiangProvinceThe PRC

The properties comprise 947commercial buildings or units, aresidential unit and 5 ancillarybuildings or units mainly completedbetween 1950 and 2005.



3,699,001,000


(sq.m.)

Commercial 919,850.27Residential 197.94Ancillary 831.75

Total . . . . . . . . 920,879.96




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as at31 August 2006

RMB

15. Various propertiesof Hubei ProvinceBranch of theCompany locatedin Hubei ProvinceThe PRC




2,345,925,000


(sq.m.)


Total . . . . . . . . 1,028,234.68




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as at31 August 2006

RMB

16. Various propertiesof Hunan ProvinceBranch of theCompany locatedin Hunan ProvinceThe PRC




2,983,282,000


(sq.m.)


Total . . . . . . . . 1,091,270.68


predecessor of the Company, “ICBC”) or the Company, relevant title certificates of 1,116 items of the properties representing a totalgross floor area of approximately 1,075,449.40 sq.m. have been obtained. These LURCs are either for granted land or state-capital-injection land. According to the opinion of the Company’s PRC legal adviser, the title to such properties is vested in the Group, which isentitled to occupy, lease, transfer or mortgage the properties with BOCs and LURCs of granted land or of state-capital-injection land,and is entitled to occupy and lease the properties with BOCs and LURCs of allocated land in respect of which approval has beenobtained for conversion into state-capital injection land. The Company should apply and is applying for changing the registered nameson the title certificates to its name and changing the LURCs of allocated land to LURCs of state-capital-injection land. There is noimpediment for the applications. After obtaining the LURCs of state-capital-injection land, the Group will be entitled to transfer andmortgage the relevant properties.


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as at31 August 2006

RMB

17. Various propertiesof Jilin ProvinceBranch of theCompany locatedin Jilin ProvinceThe PRC

The properties comprise 579commercial buildings or units, 2residential units and 2 ancillarybuildings mainly completed between1954 and 2006.



2,108,031,000


(sq.m.)

Commercial 671,520.37Residential 733.29Ancillary 238.00

Total . . . . . . . . 672,491.66




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as at31 August 2006

RMB

18. Various propertiesof Jiangsu ProvinceBranch of theCompany locatedin Jiangsu Provinceand GuangdongProvinceThe PRC

The properties comprise 1,055commercial buildings or units and 51residential units mainly completedbetween 1975 and 2005.



5,130,510,000


(sq.m.)

Commercial 1,168,373.06Residential 13,333.86

Total . . . . . . . . 1,181,706.92




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as at31 August 2006

RMB

19. Various propertiesof Jiangxi ProvinceBranch of theCompany locatedin Jiangxi ProvinceThe PRC




2,182,192,000


(sq.m.)


Total . . . . . . . . 901,226.13




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as at31 August 2006

RMB

20. Various propertiesof LiaoningProvince Branch ofthe Companylocated in LiaoningProvinceThe PRC




3,622,648,000


(sq.m.)


Total . . . . . . . . 990,527.73




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as at31 August 2006

RMB

21. Various propertiesof Inner MongoliaAutonomousRegion Branch ofthe Companylocated in InnerMongoliaAutonomousRegionThe PRC




1,139,223,000


(sq.m.)

Commercial 586,945.12Residential 787.55Ancillary 6,262.18

Total . . . . . . . . 593,994.85




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as at31 August 2006

RMB

22. Various propertiesof Ningbo Branchof the Companylocated in NingboCity, ZhejiangProvinceThe PRC




1,489,564,000


(sq.m.)


Total . . . . . . . . 215,862.67




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as at31 August 2006

RMB

23. Various propertiesof Ningxia HuiAutonomousRegion Branch ofthe Companylocated in NingxiaHui AutonomousRegionThe PRC

The properties comprise 169commercial buildings or units mainlycompleted between 1979 and 2004.

The properties have a total gross floorarea of approximately 137,030.58sq.m..

The properties arecurrently occupiedby the Group forcommercialpurposes.

322,343,000



2. For the remaining 2 items of the properties with a total gross floor area of approximately 504.95 sq.m., we have not been provided withthe relevant LURCs and/or BOCs. According to the opinion of the Company’s PRC legal adviser, the Company has no legal rights totransfer, mortgage and dispose of these properties before obtaining all the proper title certificates. As such, we have attributed nocommercial value to them. However, for reference purpose, we are of the opinion that capital value of these properties as at the date ofvaluation would be RMB703,000 assuming all the relevant title certificates of these properties have been obtained.

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as at31 August 2006

RMB

24. Various propertiesof Qingdao Branchof the Companylocated in QingdaoCity, ShandongProvinceThe PRC

The properties comprise 85commercial buildings or units and 7ancillary buildings or units mainlycompleted between 1976 and 2005.


The properties arecurrently occupiedby the Group forcommercial orancillary purposes.

703,607,000


(sq.m.)

Commercial 138,391.13Ancillary 882.07

Total . . . . . . . . 139,273.20


predecessor of the Company, “ICBC”) or the Company, relevant title certificates of 80 items of the properties representing a total grossfloor area of approximately 123,528.58 sq.m. have been obtained. These LURCs are either for granted land or state-capital-injectionland. According to the opinion of the Company’s PRC legal adviser, the title to such properties is vested in the Group, which is entitledto occupy, lease, transfer or mortgage the properties with BOCs and LURCs of granted land or of state-capital-injection land, and isentitled to occupy and lease the properties with BOCs and LURCs of allocated land in respect of which approval has been obtained forconversion into State-capital injection land. The Company should apply and is applying for changing the registered names on the titlecertificates to its name and changing the LURCs of allocated land to LURCs of state-capital-injection land. There is no impediment forthe applications. After obtaining the LURCs of state-capital-injection land, the Group will be entitled to transfer and mortgage therelevant properties.


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as at31 August 2006

RMB

25. Various propertiesof QinghaiProvince Branch ofthe Companylocated in QinghaiProvinceThe PRC




352,630,000


(sq.m.)


Total . . . . . . . . 134,401.24



2. For the remaining 3 items of the properties with a total gross floor area of approximately 704.00 sq.m., we have not been provided withthe relevant LURCs and/or BOCs. According to the opinion of the Company’s PRC legal adviser, the Company has no legal rights totransfer, mortgage and dispose of these properties before obtaining all the proper title certificates. As such, we have attributed nocommercial value to them. However, for reference purpose, we are of the opinion that capital value of these properties as at the date ofvaluation would be RMB1,856,000 assuming all the relevant title certificates of these properties have been obtained.

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as at31 August 2006

RMB

26. Various propertiesof Sanxia Branchof the Companylocated in SanxiaCity, HubeiProvinceThe PRC


The properties have a total gross floorarea of approximately 96,293.54 sq.m.and the approximate gross floor areasof the properties for each use areshown as follows:


238,300,000


(sq.m.)


Total . . . . . . . . 96,293.54

Note:According to 99 properties’ BOCs and 71 LURCs held under the name of either Industrial and Commercial Bank of China (thepredecessor of the Company, “ICBC”) or the Company, relevant title certificates of 99 items of the properties representing a total grossfloor area of approximately 96,293.54 sq.m. have been obtained. These LURCs are either for granted land or state-capital-injectionland. According to the opinion of the Company’s PRC legal adviser, the title to such properties is vested in the Group, which is entitledto occupy, lease, transfer or mortgage the properties with BOCs and LURCs of granted land or of state-capital-injection land, and isentitled to occupy and lease the properties with BOCs and LURCs of allocated land in respect of which approval has been obtained forconversion into state-capital injection land. The Company should apply and is applying for changing the registered names on the titlecertificates to its name and changing the LURCs of allocated land to LURCs of state-capital-injection land. There is no impediment forthe applications. After obtaining the LURCs of state-capital-injection land, the Group will be entitled to transfer and mortgage therelevant properties.

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as at31 August 2006

RMB

27. Various propertiesof ShandongProvince Branch ofthe Companylocated inShandong ProvinceThe PRC




3,985,194,000


(sq.m.)

Commercial 1,194,222.68Residential 7,682.01Ancillary 407.05

Total . . . . . . . . 1,202,311.74




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as at31 August 2006

RMB

28. Various propertiesof ShaanxiProvince Branch ofthe Companylocated in ShaanxiProvinceThe PRC




1,572,982,000


(sq.m.)


Total . . . . . . . . 796,395.69




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as at31 August 2006

RMB

29. Various propertiesof Shanxi ProvinceBranch of theCompany locatedin Shanxi ProvinceThe PRC




1,799,209,000


(sq.m.)


Total . . . . . . . . 801,138.83




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as at31 August 2006

RMB

30. Various propertiesof Shanghai Branchof the Companylocated in Shanghaiand JiangsuProvinceThe PRC

The properties comprise 174commercial buildings or units, 9residential units and an ancillary unitmainly completed between 1960 and2006.



6,467,565,000


(sq.m.)


Total . . . . . . . . 523,322.38




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as at31 August 2006

RMB

31. Various propertiesof ShenzhenBranch of theCompany locatedin Shenzhen Cityand ZhongshanCity GuangdongProvinceThe PRC

The properties comprise 115commercial buildings or units, 127residential units and an ancillary unitmainly completed between 1989 and2004.



872,118,000


(sq.m.)


Total . . . . . . . . 163,376.53




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as at31 August 2006

RMB

32. Various propertiesof SichuanProvince Branch ofthe Companylocated inSichuan ProvinceThe PRC




2,577,892,000


(sq.m.)


Total . . . . . . . . 1,074,560.29




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as at31 August 2006

RMB

33. Various propertiesof Suzhou Branchof the Companylocated inSuzhou CityJiangsu ProvinceThe PRC




1,766,301,000


(sq.m.)


Total . . . . . . . . 235,247.72




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as at31 August 2006

RMB

34. Various propertiesof Tianjin Branchof the Companylocated in TianjinThe PRC




2,029,193,000


(sq.m.)


Total . . . . . . . . 336,782.92




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as at31 August 2006

RMB

35. Various propertiesof Xiamen Branchof the Companylocated inXiamen City FujianProvinceThe PRC


The properties have a total gross floorarea of approximately 91,066.30 sq.m.and the approximate gross floor areasof the properties for each use areshown as follows:


418,826,000


(sq.m.)


Total . . . . . . . . 91,066.30




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as at31 August 2006

RMB

36. Various propertiesof Xinjiang UygurAutonomousRegion Branch ofthe Companylocated in XinjiangUygur AutonomousRegion and HainanProvinceThe PRC




1,449,895,000


(sq.m.)


Total . . . . . . . . 465,264.85




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as at31 August 2006

RMB

37. Various propertiesof YunnanProvince Branch ofthe Companylocated inYunnan ProvinceThe PRC




2,209,190,000


(sq.m.)


Total . . . . . . . . 799,746.72




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as at31 August 2006

RMB

38. Various propertiesof ZhejiangProvince Branch ofthe Companylocated in ZhejiangProvinceThe PRC




6,469,636,000


(sq.m.)


Total . . . . . . . . 1,081,086.93


predecessor of the Company, “ICBC”) or the Company, relevant title certificates of 1,113 items of the properties representing a totalgross floor area of approximately 989,262.95 sq.m. have been obtained. These LURCs are either for granted land or state-capital-injection land. According to the opinion of the Company’s PRC legal adviser, the title to such properties is vested in the Group, which isentitled to occupy, lease, transfer or mortgage the properties with BOCs and LURCs of granted land or of state-capital-injection land,and is entitled to occupy and lease the properties with BOCs and LURCs of allocated land in respect of which approval has beenobtained for conversion into State-capital injection land. The Company should apply and is applying for changing the registered nameson the title certificates to its name and changing the LURCs of allocated land to LURCs of state-capital-injection land. There is noimpediment for the applications. After obtaining the LURCs of state-capital-injection land, the Group will be entitled to transfer andmortgage the relevant properties.


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as at31 August 2006

RMB

39. Various propertiesof the head officeof the Companylocated in Beijing,Shanghai,GuangdongProvince,ShandongProvince, ZhejiangProvince and JilinProvinceThe PRC




4,631,132,000


(sq.m.)


Total . . . . . . . . 456,502.76




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GROUP II—PROPERTY INTERESTS HELD UNDER DEVELOPMENT BY THE GROUP INTHE PRC



as at31 August 2006

RMB

40. Various propertiesunder developmentlocated in the PRC

The property comprises 76developments under constructionwhich are scheduled to be completedbetween 2006 and 2008.

The total planned gross floor area ofthe developments upon completionwhich are currently under constructionfor commercial purpose will beapproximately 686,953 sq.m..

The properties arecurrently vacant.

1,357,058,000

The total investment is estimated to beapproximately RMB1,721,372,000, ofwhich the construction cost paid up tothe date of valuation is estimated to beapproximately RMB1,534,705,000.

The land use rights of the propertieswere granted for various terms from35 years to 70 years with latest expirydate on 2 June 2073.

Notes:1. Pursuant to 57 LURCs and 5 Land Use Rights Grant Contracts, the land use rights of 62 parcels of land with a total site area of

approximately 358,365 sq.m. were granted or injected by the State to ICBC (the predecessor of the Company) or the Company forvarious terms from 35 years to 70 years with latest expiry date on 2 June 2073.

2. Pursuant to 50 Construction Land Planning Permits, permission towards the planning of the subject land with a site area ofapproximately 333,873 sq.m. are issued to ICBC or the Company.

3. Pursuant to 56 Construction Work Planning Permits are issued to ICBC or the Company, 56 buildings with a total gross floor area ofapproximately 573,875 sq.m. upon completion have been approved for construction.

4. Pursuant to 49 Construction Commencement Permits, permission by the relevant local authority was given to commence theconstruction on the property.

5. According to the opinion given by the Company’s PRC legal advisor, the Group has obtained LURCs and the relevant constructionpermits for 56 properties with a total gross floor area of approximately 631,809 sq.m. upon completion and the properties are legally incompliance with the relevant law and regulations. For the remaining 20 properties with a total gross floor area of approximately 55,144sq.m., the Group has not yet obtained the LURCs and the necessary construction permits. We have taken this into account in the abovevaluation (and attributed no commercial value to these 20 properties which have not obtained LURC and construction permit.)

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GROUP III—PROPERTY INTERESTS HELD BY THE GROUP IN HONG KONG, MACAUAND OVERSEAS COUNTRIES



as at31 August 2006

RMB

41. 31 propertieslocated inHong Kong,Singapore, Macauand Almaty

The properties comprise 25commercial properties and 5residential properties and one lot ofcarparking spaces completed between1963 and 1997.

The properties have a total floor areaof approximately 14,333 sq.m. and theapproximate floor areas of theproperties for each use are shown asfollows:

The properties arecurrently occupiedby the Group forcommercial,training, dormitoryor car parkingpurposes.

587,568,000Interest

attributable tothe Group

482,635,000

Use Floor Area

(sq.m.)

Commercial 12,375Residential 1,958

Total . . . . . . . . 14,333

Notes:1. The registered owners of the properties in Hong Kong, Macau and Singapore are Industrial and Commercial Bank of China (the

predecessor of the Company), or the Company’s subsidiaries or their predecessors.

2. According to the legal opinion provided by the Company’s Kazakhstan legal advisor, Joint Stock Company The Industrial andCommercial Bank of China in Almaty, a 100% owned subsidiary of the Company, has perfected title to the properties in Almaty.

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GROUP IV—PROPERTY INTERESTS CONTRACTED TO BE ACQUIRED BY THEGROUP IN THE PRC



as at31 August 2006

RMB

42. Various propertieslocated inThe PRC

The properties comprise 46 commercialand residential buildings or unitscompleted between 1999 and 2005.They have a total gross floor area ofapproximately 100,707.50 sq.m.. Theproperties also comprise 12 commercialbuildings or units which were underconstruction as at the date of valuation(the “CIP Properties”). The total grossfloor area of the CIP Properties will beapproximately 18,230 sq.m. uponcompletion and they are scheduled to becompleted between 2006 and 2008.

The properties arecurrentlyunoccupied orunderconstruction.

No commercialvalue

Notes:1. Except for a property with a gross floor area of approximately 644.91 sq.m., which was purchased by the Company through auction, 57

properties with a total gross floor area of approximately 118,292.59 sq.m. were purchased by the Company by entering into varioussales and purchase agreements with various real estate developers. The total purchase price of these properties was in the amount ofapproximately RMB978,428,000.

2. As at the date of valuation, the properties have not been assigned to the Group and thus the titles of the properties are not vested in theGroup. Therefore we have not attributed any commercial value to these properties. For reference purpose, we are of the opinion that thecapital value of the properties is in the amount of RMB978,428,000, on condition that the properties are completed, the relevant titlecertificates have been obtained by the Group and the Group is entitled to freely transfer or mortgage the properties.

3. As informed by the Group, a sum of approximately RMB503,023,000 has been paid by the Group in purchasing the properties.

4. According to the opinion given by the Company’s PRC legal advisor, the relevant agreements to purchase these 58 properties are notillegal under the PRC laws. After fully paying the contracted purchase price, there would not be any legal impediment for the Group toobtain the ownership of these properties.

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GROUP V—PROPERTY INTERESTS RENTED AND OCCUPIED BY THE GROUP IN THEPRC



as at31 August 2006

RMB

43. Variouspropertieslocated in thePRC

The properties comprise 7,269commercial properties, 134 residentialproperties and 213 ancillary propertieswith a total gross floor area ofapproximately 2,052,642.07 sq.m. invarious cities in the PRC completedbetween 1955 and 2005.

The approximate gross floor areas ofthe totalling 7,616 properties for eachuse are shown as follows:

The properties arecurrently occupiedby the Group foroffice, commercial,residential orancillary purposes.

No commercialvalue


(sq.m.)


Total . . . . . . . . 2,052,642.07

Notes:

According to the opinion provided by the Company’s PRC legal advisor:

1. The Group has rented a total of 7,616 properties with a total gross floor area of approximately 2,052,642.07 sq.m. in the PRC.

2. For 2,387 properties out of the 7,616 leased properties with a total gross floor area of approximately 732,972.73 sq.m., the lessors haveprovided the Group with the relevant BOCs, real estate title certificates, or property owner’s consent to sublet, evidencing their legalrights to lease the properties to the Group. The relevant tenancy agreements are legally binding and enforceable.

3. For the remaining 5,229 properties with a total gross floor area of approximately 1,319,669.33 sq.m., the Group has not been providedwith the relevant BOCs, real estate title certificates, or property owner’s consent to sublet. Among them, the lessors of 2,342 propertieswith a total gross floor area of approximately 494,079.11 sq.m. have provided the Group with confirmation letters which undertake tocompensate for the loss of the Group arising from any defect of their legal rights to lease the properties. The lessors of 2,887 propertieswith a total gross floor area of approximately 825,590.22 sq.m. have not provided the Group with the confirmation letters. The lessorshave no right to lease the properties without the relevant BOCs, real estate title certificates, or property owner’s consent to sublet. Itmay be subject to the risk that the Group could not occupy the properties legally in case of any dissent from any third parties. However,the Group has the right to claim any loss from the lessors in accordance with the tenancy agreements.

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GROUP VI—PROPERTY INTERESTS RENTED AND OCCUPIED BY THE GROUP INHONG KONG, MACAU AND OVERSEAS COUNTRIES



as at31 August 2006

RMB

44. 61 propertieslocated in Almaty,Frankfurt, HongKong, London,Luxembourg, NewYork, Sydney,Singapore, Macau,Busan, Moscow,Seoul and Tokyo

The properties comprise 55 commercialproperties and 6 residential propertiescompleted between 1944 and 2004.

The properties have a total floor area ofapproximately 34,620 sq.m..

The properties are subject to varioustenancy agreements for various termswith the latest expiry date on 21 April2018 at a total annual rent beingequivalent to approximatelyRMB143,349,389.

The properties arecurrently occupiedby the Group foroffice, commercialor residentialpurposes.

No commercialvalue

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APPENDIX VI TAXATION AND FOREIGN EXCHANGE

TAXATION OF SECURITY HOLDERS

The taxation of income and capital gains of holders of H shares is subject to the laws andpractices of China and of jurisdictions in which holders of H shares are resident or otherwise subject totax. The following summary of certain relevant taxation provisions is based on current law andpractice, is subject to change and does not constitute legal or tax advice. The discussion does notaddress all possible tax consequences relating to an investment in the H shares. Accordingly, youshould consult your own tax advisor regarding the tax consequences of an investment in the H shares.This discussion is based upon laws and relevant interpretations in effect as of the date of thisprospectus, all of which are subject to change.

PRC

The following is a discussion of certain PRC tax provisions relating to the ownership anddisposition of H shares purchased in connection with the Global Offering and held by the investors ascapital assets. This summary does not purport to address all material tax consequences of theownership of H shares, and does not take into account the specific circumstances of any particularinvestor. This summary is based on the PRC tax laws as in effect on the date of this prospectus, as wellas on the Agreement between the United States of America and the People’s Republic of China for theAvoidance of Double Taxation (the “Treaty”), all of which are subject to change (or changes ininterpretation), possibly with retroactive effect.

This discussion does not address any aspects of PRC taxation other than income taxation,capital tax, stamp duty and estate duty. Prospective investors are urged to consult their tax advisorsregarding PRC, Hong Kong and other tax consequences of owning and disposing of H shares.

Taxation of dividends

Individual investors. According to the Provisional Regulations of China Concerning Questionsof Taxation on Enterprises Experimenting with the Share System (the “Provisional Regulations”), andthe Individual Income Tax Law of the PRC, as amended on October 31, 1993 and effective January 1,1994, amended on August 30, 1999 and further amended on October 27, 2005 and effective onJanuary 1, 2006, dividends paid by PRC companies are ordinarily subject to a PRC withholding taxlevied at a flat rate of 20%. For a foreign individual who is not a PRC resident, the receipt of dividendsfrom a PRC company is normally subject to a withholding tax of 20% unless reduced by an applicabletax treaty. However, the State Administration of Taxation (the “SAT”), the PRC central governmenttax authority which succeeded the State Tax Bureau, issued, on July 21, 1993, a Notice of the ChineseAdministration of Taxation Concerning the Taxation of Gains on Transfer and Dividends from Share(Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals(the “Tax Notice”), which states that dividends paid by a PRC company to individuals with respect toshares listed on an overseas stock exchange (the “Overseas Shares”), such as H shares, are not subjectto Chinese withholding tax.

The Amendments to the Individual Income Tax Law of China (the “Amendments”) werepromulgated on October 31, 1993 and became effective on January 1, 1994. The Amendments statethat they shall supersede the provisions of any contradictory prior administrative regulationsconcerning individual income tax. Under the requirements of the Amendments and the amendedIndividual Income Tax Law, foreign individuals are subject to withholding tax on dividends paid by a

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PRC company at a rate of 20% unless specifically exempted by the tax authority of the State Council.However, in a letter dated July 26, 1994 to the former State Commission for Restructuring theEconomic System, the former State Council Securities Commission and the China SecuritiesRegulatory Commission, the SAT reiterated the temporary tax exemption stated in the Tax Notice fordividends received from a PRC company listed overseas. In the event that this letter is withdrawn, a20% tax may be withheld on dividends in accordance with the Provisional Regulations, theAmendments and the Individual Income Tax Law. The withholding tax may be reduced under anapplicable double taxation treaty. To date, the relevant tax authorities have not collected withholdingtax from dividend payments on the shares exempted under the Tax Notice.

Enterprises. According to the Income Tax Law of China Concerning Foreign InvestmentEnterprises and Foreign Enterprises, dividends paid by PRC companies to enterprises are ordinarilysubject to a PRC withholding tax levied at a rate of 20%. However, according to the Tax Notice, for atemporary period, foreign enterprises with no permanent establishment in China receiving dividendspaid with respect to a PRC company’s Overseas Shares will not be subject to the 20% withholding tax.If the withholding tax becomes applicable in the future, the rate may be reduced under an applicabledouble-taxation treaty.

Tax treaties. Investors who do not reside in the PRC but reside in countries that have enteredinto treaties for the avoidance of double taxation with the PRC may be entitled to a reduction of anywithholding tax imposed on the payment of dividends by a PRC company. China currently has treatiesfor the avoidance of double taxation with a number of countries, which include Australia, Canada,France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the UnitedStates.

Under the Treaty, China may tax a dividend paid by us to an Eligible U.S. Holder up to amaximum of 10% of the gross amount of the dividend. For the purposes of this Appendix, an “EligibleU.S. Holder” is a U.S. holder that (i) is a resident of the United States for the purposes of the Treaty,(ii) does not maintain a permanent establishment or fixed base in China to which H shares areattributable and through which the beneficial owner carries on or has carried on business (or, in thecase of an individual, performs or has performed independent personal services) and (iii) is nototherwise ineligible for benefits under the Treaty with respect to income and gains derived inconnection with the H shares.

Taxation of capital gains

The Tax Notice provides that, for a temporary period, gains realized by foreign enterprises(excluding domestic institutions established by them) that are holders of Overseas Shares will not besubject to capital gains taxes. With respect to individual holders of H shares, the Provisions forImplementation of Individual Income Tax Law of China (the “Provisions”), issued on January 28,1994, stipulated that gains realized on the sale of equity shares would be subject to income tax at a rateof 20% on the gains, and empowered the Ministry of Finance to draft and implement after approval ofthe State Council detailed tax rules on the mechanism for collecting such tax. However, no income taxon gains realized on the sale of equity shares has been collected. Gains on the sale of shares byindividuals were temporarily exempted from individual income tax pursuant to notice issued by theSAT dated March 30, 1998. In the event this temporary exemption is withdrawn or ceases to beeffective, individual holders of H shares may be subject to capital gains tax at the rate of 20% unlesssuch tax is reduced or eliminated by an applicable double taxation treaty. If tax on capital gains from

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the sale of H shares become applicable, it is arguable that under the Treaty, China may only tax gainsfrom the sale or disposition by an Eligible U.S. Holder of H shares representing an interest in us of25% or more, but this position is uncertain and the Chinese authorities may take a different position.

On November 18, 2000, the State Council issued a notice entitled “State Council Notice on theIncome Tax Reduction for Interest and Other Income that Foreign Enterprises Derive in China” (the“Tax Reduction Notice”). Under the Tax Reduction Notice, since January 1, 2000, enterprise incometax at a reduced rate of 10% has applied to interest, rental, license fee and other income obtained inChina by foreign enterprises without agencies or establishment in China, or by foreign enterpriseswithout any substantive relationship with their agency or establishment in China. If the exemption asdescribed in the preceding paragraph does not apply or is not renewed, and the Tax Reduction Noticeis found not to apply, a foreign enterprise shareholder may be subject to a 20% tax on capital gains,unless reduced by an applicable double-taxation treaty.

Additional PRC tax considerations

PRC stamp duty. The PRC stamp duty imposed on the transfer of shares of PRC publicly tradedcompanies under the Provisional Regulations should not apply to the acquisition and disposal bynon-Chinese investors of H shares outside of China by virtue of the Provisional Regulations of ChinaConcerning Stamp Duty, which became effective on October 1, 1988 and which provide that PRCstamp duty is imposed only on documents executed or received within China that are legally binding inChina and are protected under PRC law.

Estate duty. No liability for estate duty under PRC law will arise from non-Chinese nationalsholding H shares.

Hong Kong

Taxation of dividends

Under the current practice of the Hong Kong Inland Revenue Department, no tax is payable inHong Kong in respect of dividends paid by us.

Taxation on gains from sale

No tax is imposed in Hong Kong in respect of capital gains from the sale of property such asthe H shares. However, trading gains from the sale of property by persons carrying on a trade,profession or business in Hong Kong where the gains are derived from or arise in Hong Kong from thetrade, profession or business will be chargeable to Hong Kong profits tax, which is currently imposedat the rate of 17.5% on corporations and at a maximum rate of 16% on individuals. Certain categoriesof taxpayers are likely to be regarded as deriving trading gains rather than capital gains (for example,financial institutions, insurance companies and securities dealers) unless these taxpayers can prove thatthe investment securities are held for long-term investment.

Trading gains from sales of H shares effected on the Hong Kong Stock Exchange will beconsidered to be derived from or arising in Hong Kong. Liability for Hong Kong profits tax would thusarise in respect of trading gains from sales of H shares effected on the Hong Kong Stock Exchangerealized by persons carrying on a business of trading or dealing in securities in Hong Kong.

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Stamp duty

Hong Kong stamp duty, currently charged at the ad valorem rate of 0.1% on the higher of theconsideration for, or the market value of, the H shares, will be payable by the purchaser on everypurchase and by the seller on every sale of H shares (in other words, a total of 0.2% is currentlypayable on a typical sale and purchase transaction involving H shares). In addition, a fixed duty ofHK$5.00 is currently payable on any instrument of transfer of H shares. Where one of the parties to atransfer is resident outside Hong Kong and does not pay the ad valorem duty due by it, the duty notpaid will be assessed on the instrument of transfer (if any) and will be payable by the transferee. Ifstamp duty is not paid on or before the due date, a penalty of up to ten times the duty payable may beimposed.

Estate duty

The Revenue (Abolition of Estate Duty) Ordinance 2005 came into effect on 11 February 2006in Hong Kong, pursuant to which estate duty ceased to be chargeable in Hong Kong in respect of theestates of persons dying on or after that date. No Hong Kong estate duty is payable and no estate dutyclearance papers are needed for an application for a grant of representation in respect of holders of Hshares whose deaths occur on or after 11 February 2006.

FOREIGN EXCHANGE CONTROLS

The lawful currency of the PRC is the Renminbi, which is subject to foreign exchange controlsand is not freely convertible into foreign exchange. The SAFE, under the authority of the PBOC, isempowered to administer all matters relating to foreign exchange, including the enforcement of foreignexchange control regulations.

In 1994, the conditional convertibility of Renminbi in current account items was implementedand the official Renminbi exchange rate and the market rate for Renminbi was unified. On January 29,1996, the State Council promulgated new Regulations of the People’s Republic of China for theControl of Foreign Exchange (“Control of Foreign Exchange Regulations”) which became effectivefrom April 1, 1996. The Control of Foreign Exchange Regulations classify all international paymentsand transfers into current account items and capital account items. Current account items are notsubject to SAFE approval while capital account items are. The Control of Foreign ExchangeRegulations were subsequently amended on January 14, 1997, to affirmatively state that the State shallnot restrict international current account payments and transfers.

On June 20, 1996, the PBOC promulgated the Regulations for Administration of Settlement,Sale and Payment of Foreign Exchange (the “Settlement Regulations”) which became effective onJuly 1, 1996. The Settlement Regulations abolish the remaining restrictions on convertibility of foreignexchange in respect of current account items while retaining the existing restrictions on foreignexchange transactions in respect of capital account items.

On January 1, 1994, the former dual exchange rate system for Renminbi was abolished andreplaced by a controlled floating exchange rate system, which was determined by demand and supply.The PBOC set and published daily the Renminbi-U.S. dollar base exchange rate. This exchange ratewas determined with reference to the transaction price for Renminbi-U.S. dollar in the inter-bankforeign exchange market on the previous day. The PBOC also, with reference to exchange rates in the

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international foreign exchange market, announced the exchange rates of Renminbi against other majorcurrencies. In foreign exchange transactions, designated foreign exchange banks could, within aspecified range, freely determine the applicable exchange rate in accordance with the exchange rateannounced by the PBOC.

The PBOC recently announced that, beginning from July 21, 2005, China will implement aregulated and managed floating exchange rate system based on market supply and demand and byreference to a basket of currencies. The Renminbi exchange rate is no longer pegged to the U.S. dollar.The PBOC will announce the closing price of a foreign currency such as the U.S. dollar traded againstthe Renminbi in the inter-bank foreign exchange market after the closing of the market on eachworking day, setting the central parity for trading the Renminbi on the following working day.

Since January 4, 2006, the PBOC improved the method to generate the central parity of theRenminbi exchange rate by introducing an enquiry system while keep the match-making system in theinter-bank spot foreign exchange market. In addition, the PBOC provided liquidity in the market byintroducing a market maker system in the inter-bank foreign exchange market. After the introductionof the enquiry system, the Formation of the central parity of the Renminbi against the U.S. dollar wastransformed from the previous arrangement based on the closing price determined by price matchingtransactions in the inter-bank foreign exchange market to a mechanism under which the PBOCauthorized the China Foreign Exchange Trading System to determine and announce the central parityof the Renminbi against the U.S. dollar, based on the enquiry system, at 9:15am of each business day.

All foreign exchange income (except such amount of foreign exchange income which ispermitted to be retained and deposited into foreign exchange accounts at the designated foreignexchange banks) generated from current account transactions of Chinese enterprises (includingforeign-invested enterprises) is sold to designated foreign exchange banks. Foreign exchange incomefrom loans issued by organizations outside the territory or from the issuance of bonds and shares (forexample foreign exchange income by us from the sale of shares overseas) is not required to be sold todesignated foreign exchange banks, but instead may be deposited into foreign exchange accounts at thedesignated foreign exchange banks.

Chinese enterprises (including foreign-invested enterprises) which require foreign transactionsrelating to current account items, may, without the approval of SAFE, effect payment into foreignexchange accounts at the designated foreign exchange banks, on the strength of valid proof of suchrequirements. Foreign-invested enterprises which require foreign exchange for the distribution ofprofits to their shareholders, and Chinese enterprises which in accordance with regulations are requiredto pay dividends to shareholders in foreign exchange (like us), may on the strength of shareholders’general meeting resolutions on the distribution of profits, effect payment from their foreign exchangeaccounts or convert and pay at the designated foreign exchange banks.

Convertibility of foreign exchange in respect of capital account items, including directinvestments and capital contributions, is still subject to restrictions, and prior approval from SAFEmust be obtained.

Dividends to holders of H shares are declared in Renminbi but must be paid in Hong Kongdollars.

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APPENDIX VII SUMMARY OF PRINCIPAL LEGALAND REGULATORY PROVISIONS

This appendix sets out summaries of certain aspects of PRC laws and regulations, whichare relevant to our operations and business. Laws and regulations relating to taxation in the PRCare discussed separately in Appendix VI of this prospectus. This appendix also contains asummary of certain Hong Kong legal and regulatory provisions, including summaries of certainmaterial differences between PRC and Hong Kong company law, certain requirements of theHong Kong Listing Rules and additional provisions required by the Hong Kong Stock Exchangefor inclusion in the articles of association of PRC issuers.

PRC LEGAL SYSTEM

The PRC legal system is based on the PRC Constitution and comprises of laws, rules,regulations, directives, laws of the Special Administrative Regions and laws resulting frominternational treaties entered into by the PRC government. Court case verdicts do not constitutebinding precedents.

The National People’s Congress (the “NPC”) is the highest organ of state power. Its permanentbody is the Standing Committee of the NPC. The NPC and its Standing Committee exercise thelegislative power of the state. The NPC has the power to amend the PRC Constitution and enact andamend basic laws governing civil and criminal matters, State agencies and other matters. The StandingCommittee of the NPC is empowered to enact and amend all laws except for the laws that are requiredto be enacted and amended by the NPC.

The State Council is the highest organ of the State administration and has the power to enactadministrative rules and regulations. The ministries and commissions under the State Council are alsovested with the power to issue regulations within the jurisdiction of their respective departments. Alladministrative rules, regulations, decisions and orders promulgated by the State Council and itsministries and commissions must be consistent with the PRC Constitution and the national lawsenacted by the NPC. In the event that a conflict arises, the Standing Committee of the NPC has thepower to annul administrative rules, regulations, directives and orders.

At the regional level, the congress of province, autonomous region and municipality directlyunder the central government (the provincial and municipal congresses) and their respective standingcommittees may enact local rules and regulations and the people’s governments may promulgateadministrative rules and directives applicable to their own administrative areas. These local laws andregulations must be consistent with the PRC Constitution, the national laws and the administrativerules and regulations promulgated by the State Council.

The State Council may also enact or issue rules, regulations or directives within authorizationby the NPC and the Standing Committee of the NPC for experimental purposes. After gainingsufficient experience with experimental measures, the State Council shall submit legislative proposalsto be considered by the NPC and the Standing Committee of the NPC for enactment at the nationallevel.

The PRC Constitution vests the power to interpret laws in the Standing Committee of the NPC.According to the Decision of the Standing Committee of the NPC Regarding the Strengthening ofInterpretation of Laws passed on June 10, 1981, the Supreme People’s Court has the power to give

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general interpretation on the application of laws and acts in judicial proceedings. The State Council andits ministries and commissions are also vested with the power to interpret rules and regulations thatthey have promulgated. At the regional level, the power to interpret local laws is vested in the regionallegislative and administrative bodies which promulgate such laws.

PRC JUDICIAL SYSTEM

Under the PRC Constitution and the Law of Organization of the People’s Courts and otherbinding legal documents, the judicial system is made up of the Supreme People’s Court, the localpeople’s courts, military courts and other special people’s courts. The local people’s courts arecomprised of the basic people’s courts, the intermediate people’s courts and the higher people’s courts.The basic people’s courts are generally organized into civil, criminal and administrative divisions. Theorganization of the higher People’s Courts and the intermediate people’s courts are similar with thebasic People’s Courts and could establish other special divisions as circumstances demand, such asintellectual property division. The higher level people’s courts supervise the basic and intermediatepeople’s courts. The Supreme People’s Court is the highest judicial body in the PRC. It supervises theadjudicative work of the local people’s courts and special people’s courts.

The people’s courts employ a “second instance as final” appellate system regarding civildisputes. A party may appeal against a judgment or order of the people’s court of first instance to thepeople’s court at the next higher level. Second judgments or orders given at the next higher level arefinal. First judgments or orders of the Supreme People’s Court are also final. If, however, the SupremePeople’s Court or a people’s court at a higher level finds an error in a judgment which has been givenin any people’s court at a lower level, or the presiding judge of a people’s court finds an error in ajudgment which has been given in the court over which he presides, the case may then be retriedaccording to the judicial supervision procedures.

The Civil Procedure Law of the PRC (the “PRC Civil Procedure Law”), which was adopted onApril 9, 1991, sets forth the criteria for instituting a civil action, the jurisdiction of the people’s courts,the procedures to be followed for conducting a civil action and the procedures for enforcement of acivil judgment or order. All parties to a civil action conducted within the PRC must comply with theCivil Procedure Law. Generally, a civil case is initially heard by a local court of the place where thedefendant resides. The parties to a contract may, by written agreement, select a jurisdiction where civilactions may be brought, provided that the jurisdiction is either the plaintiff’s or the defendant’s placeof residence, the place of execution or implementation of the contract or the object of the action.However, such selection can not violate the stipulations of grade jurisdiction and exclusive jurisdictionin any case.

A foreign individual or enterprise generally has the same litigation rights and obligations as acitizen or legal person of the PRC. If a foreign country’s judicial system limits the litigation rights ofPRC citizens and enterprises, the PRC courts may apply the same limitations to the citizens andenterprises of that foreign country within the PRC. If any party to a civil action refuses to comply witha judgment or order made by a people’s court or an award granted by an arbitration panel in the PRC,the aggrieved party may apply to the people’s court to request for enforcement of the judgment, orderor award. There are time limits imposed on the right to apply for such enforcement.

If at least one of the parties to the dispute is an individual, the time limit is one year. If bothparties to the dispute are legal persons or other institutions, the time limit is six months.

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A party seeking to enforce a judgment or order of a people’s court against a party who is notlocated within the PRC or does not own any property in the PRC, may apply to a foreign court withproper jurisdiction for recognition and enforcement of the judgment or order. A foreign judgment orruling may also be recognized and enforced by the people’s court according to the PRC enforcementprocedures if the PRC has entered into, or acceded to, an international treaty with the relevant foreigncountry, which provides for such recognition and enforcement, or if the judgment or ruling satisfies thecourt’s examination according to the principle of reciprocity, unless the people’s court finds that therecognition and enforcement of such judgment or ruling will result in a violation of the sovereignty ofthe PRC, or security, or for reasons of social and public interests.

THE PRC COMPANY LAW, SPECIAL REGULATIONS AND MANDATORY PROVISIONS

As a joint stock limited liability company incorporated in the PRC, and seeking a listing on theHong Kong Stock Exchange, we are primarily subject to the following three PRC laws and regulations:

Š The PRC Company Law, which was promulgated by the Standing Committee of the NPCon December 29, 1993, took effect on July 1, 1994 and was revised as of December 25,1999, August 28, 2004 and October 27, 2005;

Š Special provision of the state council concerning the Floatation and Listing Abroad ofStocks by Limited Stock Company (the “Special Regulations”), which were passed by theState Council on August 4, 1994; and

Š The Mandatory Provisions Regarding Companies Listing Overseas (the “MandatoryProvisions”), which were jointly promulgated by the Securities Committee of the StateCouncil and the State Restructuring Commission on August 27, 1994, and which we, as ajoint stock limited liability company seeking an overseas listing, must incorporate into ourarticles of association.

Set out below is a summary of the provisions of the PRC Company Law, the SpecialRegulations and the Mandatory Provisions applicable to us.

Incorporation

A company limited by shares may be incorporated by a minimum of two and a maximum oftwo hundred promoters, and at least half of the promoters must have domicile within the PRC.According to the Special Regulations, if a state-owned enterprise or an enterprise with state-ownedproperty occupying a dominant position is to be converted into a limited stock company and issues andlists its stocks abroad according to the relevant regulations of the state, the number of promoters maybe less than five if it is incorporated by way of promotion. We are incorporated under the PRCCompany Law as a joint stock limited liability company. This means that we are a legal entity and thatour registered capital is divided into shares of equal par value. The liability of our shareholders islimited to the amount of shares held by them and we are liable to our creditors for an amount equal tothe total value of our assets.

The promoters shall convene an inaugural meeting within 30 days after the issued shares havebeen fully paid up, and shall give notice to all subscribers or make an announcement of the date of theinaugural meeting 15 days before the meeting. The inaugural meeting may be convened only with thepresence of shareholders holding shares representing more than 50% of the total shared issued by the

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company. At the inaugural meeting, matters including the adoption of draft articles of associationproposed by the promoter(s) and the election of the board of directors and the board of supervisors ofthe company will be dealt with. All resolutions of the meeting require the approval of subscribers withmore than half of the voting rights present at the meeting.

Within 30 days after the conclusion of the inaugural meeting, the board of directors shall applyto the registration authority for registration of the establishment of the company. A company isformally established, and has the status of a legal person, after the business license has been issued bythe relevant administration bureau for industry and commerce.

A company’s promoters shall be liable for: (i) the payment of all expenses and liabilitiesincurred in the incorporation process jointly and severally if the company cannot be incorporated;(ii) the repayment of subscription monies to the subscribers, together with interest, at bank rates for adeposit of the same term jointly and severally if the company cannot be incorporated; and (iii) damagessuffered by the company as a result of the default of the promoters in the course of incorporation of thecompany. According to the Provisional Regulations Concerning the Issuance and Trading of Sharespromulgated by the State Council on April 22, 1993 (which is only applicable to issuance and tradingof shares in the PRC and their related activities) (the “Securities Provisional Regulations”), if acompany is established by means of public subscription, the promoters of such company are requiredto assume joint responsibility for the accuracy of the contents of the prospectus and to ensure that theprospectus does not contain any misleading statement or omit any material information.

Registered Capital

Our registered capital is equal to the amount of our paid-in capital as recorded at the StateAdministration of Industry and Commerce. According to PRC Company Law, where a joint stocklimited company is established by promotion, its registered capital equals to the total capital stocksubscribed by all promoters as registered in the company registration authority. The minimum amountof initial capital contributions to be made by all promoters shall be not less than 20% of the totalregistered capital, while the remaining amount shall be paid by the promoters within 2 years from theday when the company is established. For investment companies, the remaining amount shall be paidwithin 5 years. The minimum registered capital of a joint stock limited liability company isRMB5,000,000.

Allotment and Issue of Shares

All of our share issues are based on the principles of equality and fairness. The same class ofshares must carry equal rights. For each share issue of the same class, the terms and the subscriptionprice must be identical. We may issue shares at par value or at a premium, but we may not issue sharesbelow the par value.

We must obtain the approval of the CSRC to offer our shares to the overseas public. Under theSpecial Regulations, upon approval of the CSRC, the company may agree, in the underwritingagreement with respect to an issue of overseas listed foreign invested shares, to retain not more than15% of the aggregate number of overseas listed foreign invested shares proposed to be issued afteraccounting for the number of underwritten shares.

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Registered or Bearer Shares

The promoters may make capital contributions in cash, in kind of injection of assets,intellectual property rights, land use rights or any other properties which could be legally transferredand be appraised in cash based on their appraised value. The amount of investment made in cash maynot be less than 30% of the registered capital of the company. Shares that we issue to foreign investorsand shares that are listed overseas must be in registered form, denominated in Renminbi andsubscribed for in a foreign currency. Shares that are purchased by investors from overseas includingHong Kong, Macau and Taiwan and listed in Hong Kong are known as “overseas listed foreignshares”. Within the PRC, all shares that we issue to a Promoter or legal person must be in registeredform. Shares that we issue to the public in China, however, may be in either registered or bearer form.

We are required to maintain a register of shareholders for all shares issued in registered form.Information such as our shareholders’ particulars, number of Shares held by each shareholder and thedates on which the shareholders become holders of the relevant shares are required to be entered intothe register.

We are also required to record the amount of bearer shares issued, the number designated toeach bearer share and the date of issue of each bearer share.

Increase of Share Capital

We may increase our share capital by issuing new shares with approval of our shareholders’general meeting on the following things:

Š number and types of the new shares;

Š offer price;

Š commencing and ending date of the new offering; and

Š number and types of new shares to be offered to existing shareholders.

If we carry out a public offering of shares as approved by the relevant securities administrativeauthority, we must publish a prospectus and financial report, and made a subscription book. After wecomplete a subscription of new shares, we must register the increase in registered capital with the StateAdministration of Industry and Commerce and issue a public notice.

Reduction of Share Capital

Subject to minimum registered capital requirements under the PRC Company Law, we mayreduce our registered capital in accordance with the following procedures:

Š we must prepare a current balance sheet and a list of its assets;

Š our shareholders must approve the reduction of registered capital in a general meeting;

Š once the resolution approving the reduction has been passed, we must inform our creditorsof the reduction in capital within 10 days and publish an announcement of the reduction ina newspaper within 30 days;

Š our creditors may, within the statutory prescribed time limit, require us to pay our debts orprovide guarantees covering such debts;

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Š we must register the reduction in registered capital with the State Administration ofIndustry and Commerce; and we must obtain necessary approvals from all relevantsupervisory authorities.

Repurchase of Shares

We may only repurchase our Shares to (i) reduce our registered share capital, (ii) to merge withanother company that holds our Shares, (iii) to grant our shares to employees as an encouragement or(iv) shareholders require us to do so, if vote against a resolution approving our merger or division. TheMandatory Provisions stipulate that we must act in accordance with our articles of association and thatwe must obtain necessary approvals from any relevant supervisory authorities. We may repurchase ourshares by making a general offer to our shareholders, by purchasing our shares on a stock exchange orby purchasing our shares through an off-market contract.

If the repurchase of our shares is carried out as a result of the above (i), we are required tocancel the portion of our shares that have been repurchased within ten days; if the repurchase is causedby reason of above (ii) or (iv), we are required to transfer or cancel the portion of our shares within sixmonths. When we repurchase our shares for the reason of above (iii), the shares bought back by usshall not exceed 5% of our total issued shares and shall be transferred to employees within one year.

Transfer of Shares

Our shares may be transferred in accordance with any applicable laws and regulations, such asthe PRC Company Law, the PRC Securities Laws and the Special Regulations.

Our Directors, Supervisors and senior officers must declare to us the shares held by them andthe changes thereof. During the term of office, the shares transferred by any of them each year shall notexceed 25% of total shares they hold. Any shares that are held by the aforesaid persons shall not betransferred within one year from the day when the Shares are listed and traded on the Hong KongStock Exchange. Within half year after any of the aforesaid persons is removed from his or her post, heor she shall not transfer the shares.

The PRC Company Law does not limit the shareholding percentage of an individualshareholder.

Transfers of shares may not be entered in the register of shareholders within 20 days before thedate of a shareholders’ meeting or within five days before the record date set for the purpose ofdistribution of dividends according to the PRC Company Law, unless otherwise provided by relevantlaws.

Shareholders

Under the PRC Company Law and the Mandatory Provisions, our shareholders are entitled tothe following rights:

Š to attend and vote in person or to appoint a proxy to attend and vote on his or her behalf ata general meeting;

Š to receive dividends and distributable benefits in other forms in proportion to his or hershareholding;

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Š to inspect our articles of association, minutes of shareholders’ meetings and financialreports and to put forward proposals and to ask questions relating to our operations;

Š to receive surplus assets of the company upon its termination or liquidation in proportionto his or her shareholding; and

Š any other shareholders’ rights specified in the company’s articles of association.

The obligations of a shareholder include (i) the obligation to abide by the company’s articles ofassociation, (ii) to pay the subscription monies in respect of the shares subscribed for, (iii) to be liablefor the company’s debts and liabilities to the extent of the amount of shares subscribed by suchshareholder and (iv) any of the shareholders’ obligations specified in the company’s articles ofassociation.

Our shareholder’s liability is limited to the amount of shares each shareholder holds.

Shareholders’ General Meetings

Our shareholders may exercise the following powers in a general meeting:

Š determine our business policies and investment plans;

Š elect or remove our Directors who are not employee representatives and fix theremuneration of our Directors;

Š elect or remove our Supervisors who are not employee representatives and fix theremuneration of our Supervisors;

Š consider and approve the reports of our Board and our Board of Supervisors;

Š consider and approve our proposed annual financial budget and final accounts;

Š consider and approve our profit distribution plan and plans for recovery of losses;

Š approve an increase or reduction in our share capital;

Š approve an issue of bonds;

Š approve a merger, division, dissolution, liquidation or transformation;

Š approve the appointment and removal of our auditors;

Š consider and approve proposals submitted by shareholders holding 3% or more of ourshares, separately and aggregately;

Š approve amendments to our articles of association.

Shareholders’ general meetings are divided into annual general meetings and extraordinarygeneral meetings. An annual general meeting must be held once every year. Our Board is required toconvene an extraordinary general meeting of shareholders within two months after the occurrence ofany of the following circumstances:

Š the number of Directors on our Board is less than two-thirds of the number required underthe PRC Company Law or our articles of association;

Š our accumulated losses amount to one-third of the total paid-up share capital;

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Š upon a request by holders of not less than 10% of our shares separately or aggregately;

Š the Board or the Board of Supervisors considers such a meeting necessary; or

Š other circumstances stipulated in our Article of Association.

A shareholders’ general meeting is convened by the Board and presided over by the chairmanof the Board. Under the Special Regulations and the Mandatory Provisions, we are required to give 45days’ notice of a shareholders’ general meeting and this notice must specify the matters to beconsidered and the date and place of the meeting. If we have bearer shares in issue, we must make apublic announcement of the shareholders’ general meeting at least 45 days prior to the meeting beingheld. Under the Special Regulations and the Mandatory Provisions, shareholders who plan to attend ashareholders’ general meeting are required to provide us with a written confirmation of their intentions20 days prior to the meeting. Shareholders holding 3% or more of our total shares separately oraggregately are entitled, under the PRC Company Law, to submit written temporary proposals to beconsidered at the shareholders’ general meeting. The matters of such resolutions which should bediscussed by shareholders’ general meeting ought to be included in the agenda of that meeting.Nonetheless, only shareholders holding 5% or more of our total shares are entitled to submit aresolution for the nomination of a director or supervisor (other than an independent director or anexternal supervisor) under our articles of association. Pursuant to our articles of association,shareholders holding 1% or more of our shares have the right to nominate our independent directorsand external supervisors.

The Special Regulations and the Mandatory Provisions provide that a general meeting of ourshareholders may be held if shareholders holding 50% or more of the voting rights in respect of all ofour Shares have confirmed in writing 20 days prior to the proposed date of the meeting that they intendto attend the meeting. If this 50% minimum is not attained, a shareholders’ general meeting may onlybe held if, within five days after the deadline for confirming attendance, we notify the shareholders bypublic announcement of the matters to be considered and the date and place of the meeting.

Each shareholder present at a shareholders’ general meeting is entitled to one vote for eachshare held. A shareholder may appoint a proxy to attend and vote on his behalf at a shareholders’general meeting. Ordinary resolutions proposed at a shareholders’ general meeting generally must bepassed by more than half of the affirmative votes cast by shareholders present in person or by proxy.

However, special resolutions and the following actions must be approved by no less two-thirdsof the affirmative votes cast by shareholders present in person or by proxy: (i) amendments to ourarticles of association; (ii) a merger, division, dissolution, liquidation or transformation; (iii) anincrease or reduction of capital; (iv) the issue of any class of shares, bonds and securities;(v) repurchase of our shares; and (vi) other matters which the shareholders’ general meeting has passedby way of ordinary resolution as having a potential material effect on us as a company and should beapproved by special resolution.

In the event of a variation or abrogation of the rights of a particular class of shareholders, theMandatory Provisions require us to hold a special class meeting. Holders of our Domestic Shares andholders of our H Shares are deemed to be different classes of shareholders.

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Board

A company shall have a board of directors, which shall consist of 5 to 19 members. Under thePRC Company Law, the term of office of a director shall not exceed three years. A director may serveconsecutive terms if re-elected. Under the PRC Company Law, the board of directors may exercise thefollowing powers:

Š convene shareholders’ meetings and report to the shareholders;

Š implement resolutions passed by the shareholders’ general meetings;

Š decide on our business plans and investment plans;

Š formulate proposed annual budgets and final accounts;

Š formulate profit distribution plans and plans for recovery of losses;

Š formulate plans for a merger, demerger, dissolution or transformation;

Š formulate plans for the increase or decrease in our registered capital or plans for the issueof bonds;

Š decide on our internal management structure;

Š appoint or dismiss our managers, and at the recommendation of a manager, employ ordismiss deputy managers and financial controllers and to fix their remuneration; andformulate a management control system of the company.

In addition, the Mandatory Provisions provide that our Board is also responsible forformulating proposals for amending our articles of association.

Board Meetings

Under PRC Company Law, our Board is required to hold regular meetings at least twice everyyear. Notice of the regular board meetings is given at least 10 days before the date of the meeting. OurBoard may determine the notice period and manner for extraordinary Board meetings.

The Mandatory Provisions require that more than half of our Directors must be present toconvene a meeting. A Director may attend a Board meeting personally or may appoint another Directorto attend on his behalf. All Board resolutions must be passed by the affirmative votes of more than halfof the Directors. All resolutions passed at a board meeting must be recorded in the minutes of therelevant meeting and the minutes must be signed by the Directors in attendance at the meeting and theperson who recorded the minutes. If a Board resolution contravenes any applicable laws or regulationsor our articles of association or resolutions of shareholders’ General Meeting and results in substantialdamages to us as a company, the Directors who participated in passing the resolution (except thosewho voted against the resolution and whose dissenting vote was recorded in the relevant minutes) arepersonally liable to us.

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Chairman of our Board

Our chairman is elected by a vote of our Board and must be approved by more than half of theDirectors. The chairman is our legal representative and may exercise the following powers:

Š preside over shareholders’ general meetings and convene and preside over the Boardmeetings;

Š examine the implementation of resolutions of the Board; and

Š sign share certificates and bonds issued by us.

Qualification of Directors

The PRC Company Law provides that the following persons may not serve as one of ourDirectors:

Š a person who is unable or has limited ability to undertake any civil liability;

Š a person who has been convicted of an offence relating to bribery, corruption,appropriation of property, or the destruction of social economic order, where less than fiveyears have elapsed since the date of completion of the sentence;

Š a person who has been deprived of his political rights, where less than five years haveelapsed since the completion of such deprivation;

Š a person who is a Director, factory manager or manager of a company or enterprise thathas become bankrupt and has been liquidated, and who is personally liable for thebankruptcy of such company or enterprise, where less than three years have elapsed sincethe date of the completion of the bankruptcy and liquidation of the company or enterprise;

Š a person who has been a legal representative of a company or enterprise that has had itsbusiness license revoked and this company or enterprise was ordered to terminate becauseof unlawful operations and who is personally responsible, where less than three years haselapsed since the date of such revocation; or

Š a person who is liable for a relatively large amount of debt which has not been repaidwhen due.

Other circumstances under which a person is disqualified from acting as a Director are set outin our articles of association and the Mandatory Provisions.

Board of Supervisors

We are required to establish a board of supervisors comprised of at least three members. Theboard of supervisors is responsible for the following matters:

Š examining our financial affairs;

Š supervising our Directors and senior management and dismissing Directors and seniormanagement in violation of the relevant laws and regulations, our articles of associationand resolutions passed by the shareholders’ meeting;

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Š requiring our Directors and senior officers to rectify any action which adversely affectsour interests;

Š proposing the convening of extraordinary general meetings of shareholders;

Š submitting proposals to the shareholders’ general meeting;

Š filing a lawsuit against Directors or senior officers if the acts of the Directors or seniorofficers are in violation of laws, regulations or our articles of association; and

Š carrying out other duties as specified in our articles of association.

Members of the board of supervisors include representatives elected by our workers andrepresentatives elected by our shareholders in a general meeting. Our Directors and managementpersonnel may not serve as a Supervisor. The term of office for our Supervisors is three years and aSupervisor may serve consecutive terms if re-elected. The circumstances under which a person isdisqualified from acting as a Director under the PRC Company Law and the Mandatory Provisions alsoapply to a Supervisor.

Manager and Officers

The company is required to have a manager who is appointed, and may be removed, by theBoard. Our manager is accountable to the Board and may exercise the following powers:

Š take charge of production, business and administration of the company and implementresolutions of the Board;

Š organize the implementation of our annual business and investment plans;

Š draft plans for the establishment of the internal management structure;

Š draft the basic administration system;

Š formulate the concrete bylaws;

Š recommend the appointment and dismissal of deputy managers and the financial controllerand appoint or dismiss other administrative officers (other than those required to beappointed or dismissed by the Board); and

Š other powers conferred by the Board or the articles of association.

The Special Regulations require the company to employ other corporate officers, including afinancial controller and company secretary.

The circumstances under which a person is disqualified from acting as a Director under thePRC Company Law and the Mandatory Provisions also apply to our manager and other managementpersonnel.

The articles of association of a company shall have binding effect on the company,shareholders, directors, supervisors, managers and other senior management of the company. Suchpersons shall be entitled to make claims regarding our bank according to the articles of association ofthe company. The provisions of the Mandatory Provisions regarding the senior management of acompany have been incorporated in the articles of association (a summary of which is set out inAppendix VIII).

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Duties of Directors, Supervisors and Senior Management

Our Directors, Supervisors, managers and other senior management are required under the PRCCompany Law to comply with the relevant laws and regulations, to comply with our articles ofassociation, and to bear duty of loyalty and duty of care to us. The Special Regulations and theMandatory Provisions provide that our Directors, Supervisors, managers and other senior managementowe a fiduciary duty and a due diligence duty to us. Our Directors, Supervisors and senior managementare also under a duty of confidentiality and are prohibited from divulging certain information unlessrequired by applicable laws or regulations or by our shareholders.

If a Director, Supervisor, senior management contravenes any law, regulation or our articles ofassociation in the performance of his duties and such contravention results in a loss to us, therespective individual will be held personally liable to us for such loss.

Finance and Accounting

We are required to establish a financial and accounting system which must comply withrelevant laws and regulations as well as rules stipulated by the State Council and the Ministry ofFinance.

We are also required to prepare financial statements at the end of each financial year. We arerequired to make our financial statements available for inspection by our shareholders at least 20 daysprior to our annual general meeting. We must also publish our financial statements by way of publicannouncement.

We are required by PRC law and regulations to make the following transfers from our after-taxprofit before we distribute any profits to our shareholders:

Š 10% of our after-tax profit must be transferred to our statutory surplus reserve, providedthat no transfer is required if our accumulated statutory surplus reserve exceeds 50% ofour registered capital;

Š subject to our shareholders’ approval in a general meeting and after transfer of therequisite amount to the statutory surplus reserve, a discretionary amount from our after-taxprofit may be transferred to the discretionary surplus reserve; and

Š a general reserve not less than 1% of our risk-bearing assets.

Any balance of the after-tax profit after making-up losses and transfers to the common reserveand general reserves may be distributed to our shareholders in proportion to their respectiveshareholdings.

If the amount in our statutory surplus reserve fund is insufficient to make up for losses from theprevious year, our profits in the current year must be applied to make up for such losses before wemake allocations to the statutory surplus reserve fund.

Our common reserve consists of the statutory surplus reserve fund, discretionary surplusreserve and the capital reserve. Our capital common reserve is made up of the premium over thenominal value of our shares. Other amounts required by the relevant financial authority of StateCouncil are to be treated as the capital reserve.

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Our common reserve must be applied for the following purposes:

Š to make up for any losses, (except capital reserve);

Š to expand our business operations; and

Š to pay up our registered share capital by new Share, provided that if the statutory surplusreserve is converted into registered capital, the balance of the statutory surplus reserveafter such conversion may not be less than 25% of our registered capital before suchconversion.

Appointment and Retirement of Auditors

The Special Regulations require us to employ an independent PRC qualified firm ofaccountants to audit our annual financial statements and review certain other financial reports.

The auditors are to be appointed for a term commencing from their appointment at an annualgeneral meeting to the close of the next annual general meeting.

If we remove or fail to renew the appointment of our existing auditors, we are required by theSpecial Regulations to give prior notice to the auditors and the auditors are entitled to makerepresentations before our shareholders in a general meeting. If our auditors resign, they are obligatedto make a statement to the shareholders stating whether or not we have undertaken any inappropriatetransactions. The appointment, removal or non-renewal of appointment of auditors is decided by ourshareholders’ general meeting and must be recorded with the CSRC.

Distribution of Profits

The Special Regulations provide that dividends and other distributions payable to holders ofour H Shares must be declared and calculated in Renminbi and paid in a foreign currency. Under theMandatory Provisions, the payment of dividends and other distributions in foreign currency to theseshareholders must be made through a receiving agent appointed by us for holders of H Shares.

Amendments to Articles of Association

Our articles of association may only be amended by an affirmative vote of not less thantwo-thirds of our shareholders at a general meeting. An amendment to our articles of association willonly take effect after we have obtained any necessary approvals from relevant regulatory andadministrative agencies. If an amendment to our articles of association affects the information in ourbusiness registration, we must apply to the related government department to change the relevantdetails in the license.

Merger and Division

All mergers and divisions must be approved by an affirmative vote of not less than two-thirdsof our shareholders at a general meeting. We may also need to seek government approval for a mergeror division. In the PRC, a merger may be effected either by way of absorption followed by thedissolution of the company being absorbed or by the establishment of a new entity followed by thedissolution of the original entities.

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If our shareholders’ general meeting approve a proposed merger, we are required to sign amerger agreement and to prepare our balance sheet and an inventory of assets under the PRC CompanyLaw. We must notify our creditors of the merger within 10 days after the resolution approving themerger has been passed and publicly announce the merger in newspapers within 30 days after theresolution approving the merger has been passed. Our creditors are entitled, within a certain timeperiod, to request us to repay any outstanding indebtedness or provide guarantees covering suchindebtedness.

In the case of a division, we are likewise required to prepare our balance sheet and an inventoryof assets, to notify our creditors and to make a public announcement.

Dissolution and Liquidation

Under the PRC Company Law and Mandatory Provisions, we will be dissolved and liquidatedif any of the following events occur:

(i) our term of operations (if any) as stipulated in our articles of association has expired;

(ii) the occurrence of any event in our articles of association which specifically triggers ourdissolution;

(iii) our shareholders in a general meeting agree to our dissolution by special resolution;

(iv) a merger or division that requires our dissolution;

(v) the people’s court rules to dissolve our bank pursuant to application of shareholdersholding not less than 10% of voting rights when we experience any serious difficulty inthe operations or management so that the interests of the shareholders will face heavy lossif our bank continues to exist and such difficulty cannot be resolved by any other means;and

(vi) we have been ordered to close down as a result of a violation of the law or administrativeregulations.

If we are dissolved in the circumstances referred to in (i), (ii), (iii), (v) and (vi) above, aliquidation committee must be organized within 15 days of the occurrence of the event. If theliquidation committee is not established within the specified time, our creditors may apply to thepeople’s court to appoint the members of the liquidation committee.

The people’s court will then organize a liquidation committee to conduct the liquidation.

Under the PRC Company Law, a liquidation committee is required to notify our creditors of ourdissolution within 10 days after its establishment and issue a public announcement of our dissolutionwithin 60 days after its establishment. A creditor is required to lodge its claim with the liquidationcommittee within the statutory time limit.

The liquidation committee shall exercise the following powers during the liquidation period:

Š sort out the company’s assets and to prepare a balance sheet and an inventory of the assets;

Š notify creditors or issue public notices;

Š dispose of any unfinished businesses of the company related to the liquidation;

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Š pay all outstanding taxes and taxes arising from liquidation;

Š clear off credits and debts;

Š deal with the surplus assets of the company after its debts have been paid off; and

Š represent the company in civil lawsuits.

In the event of a dissolution, our assets will be applied to pay all expenses incurred inconnection with the liquidation, employee wages, employees’ insurance and statutory compensation,principals and interests of individual deposits, tax overdue and our general indebtedness. Any surplusassets will be distributed to our shareholders in proportion to their respective shareholdings. If ourassets are insufficient to repay or discharge our indebtedness, the liquidation committee will apply tothe people’s court for a declaration of insolvency and will transfer the liquidation proceedings to thepeople’s court.

During liquidation, we will not be allowed to engage in any business operations irrelevant toliquidation.

Upon completion of the liquidation process, the liquidation committee is required to submit aliquidation report to our shareholders in a general meeting or to the people’s court for confirmation.The liquidation committee is also required to apply to the Administration of Industry and Commercefor the cancellation of our registration and to make a public announcement of our dissolution followingsuch cancellation.

Members of the liquidation committee are required to discharge their duties in good faith andcompliance with laws. A member of the liquidation committee is liable to us and our creditors inrespect of any loss arising from his deliberate intention or gross negligence.

The procedure of our dissolution and liquidation also should follow the Commercial BankingLaw.

Overseas Listing

We must obtain the approval of the CSRC to list our shares overseas. An overseas listing of ourshares must comply with the Special Regulations.

According to the Special Regulations and the Mandatory Provisions, our Board mustimplement our plan to issue the H Shares and Domestic Shares within 15 months after the CSRC hasapproved our application.

Loss of Share Certificates

If a share certificate in registered form of our domestic shares is either lost, stolen or destroyed,the respective shareholder may apply, in accordance with the relevant provisions set out in the PRCCivil Procedure Law, to a people’s court for a declaration that such certificate will no longer be valid.After obtaining the declaration, the shareholder may apply to us for a replacement certificate.

A separate procedure regarding the loss of H Share certificates is provided for in the MandatoryProvisions, which has been incorporated into our articles of association, a summary of which is set outin Appendix VIII to this prospectus.

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Independence of Listed Company

In order to further promote strict compliance of “companies listed outside China” (“ListedCompanies”) with the relevant domestic and foreign laws and regulations, the conscientiousperformance of their continuing obligations toward investors and the establishment of a good corporateimage on domestic and foreign capital markets, the State Economic and Trade Commission and theCSRC jointly issued “Further Standardizing Operations and Reform of Companies Listed OutsideChina Opinion” (“Standardizing Opinion”) on March 29, 1999. The Standardizing Opinion sets outregulations governing the relationship between the Listed Companies and their controlling entities(hereafter “controlling entities” refers to corporates or non-corporate entities with legal person statusthat have a controlling interest in a Listed Company) and the operations of the administrativeorganizations of the Listed Companies.

Restrictions imposed by the Standardizing Opinion to ensure the independence of the ListedCompany from its controlling entity include:

Š no more than two members of the senior management of the controlling entity may serveas chairman, vice chairman or executive director of the Listed Company, no member ofthe executive management of the controlling entity may serve as the listed company’smanager, deputy manager, chief financial officer, chief marketing officer or boardsecretary;

Š the Listed Company must terminate any relationship with government authorities in assets,financial affairs and personnel;

Š the supervisory board of the Listed Company must have at least two independentsupervisors.

The Standardizing Opinion, although is not law in its strict sense, nonetheless have bindingeffect on all overseas listed companies in China, as the PRC Government must be satisfied with thecompliance with the Standardizing Opinion before it approves the application for overseas listing byany PRC company.

SECURITIES LAW AND REGULATIONS

The PRC has promulgated a number of regulations that relate to the issue and trading of ourshares and disclosure of information by us.

On April 22, 1993, the State Council promulgated Provisional Regulations on the Managementof the Issuing and Trading of Stocks (hereinafter called Securities provisional Regulations). Theseregulations deal with the application and approval procedures for public offerings of equity securities,trading in equity securities, the acquisition of listed companies, deposit, settlement, clearing andtransfer of listed equity securities, the disclosure of information with respect to a listed company,investigation and penalties and dispute settlement. According to these regulations, we must obtain theapproval of the Securities Committee to offer our shares outside the PRC. In addition, if we propose toissue Renminbi denominated ordinary shares as well as special Renminbi denominated shares, we mustcomply with the Securities Provisional Regulations.

On September 2, 1993, the Securities Committee promulgated the Provisional MeasuresProhibiting Fraudulent Conduct Relating to Securities. The prohibitions imposed by these measures

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include the use of insider information in connection with the issuance of, or trading in, securities(insider information being defined to include undisclosed material information known to any insider,which may affect the market price of securities); the use of funds or information or through an abuse ofpower in creating a false or disorderly market or influencing the market price of securities or inducinginvestors to make investment decisions without knowledge of actual circumstances; and the making ofany statement in connection with the issue of, and trading in, securities which is false or materiallymisleading, or in respect of which there is any material omission. Penalties imposed for contraveningany of the provisions of the measures include fines, confiscation of profits and suspension of trading.In serious cases, criminal liability may be imposed.

On December 25, 1995, the State Council promulgated the Regulations of the State CouncilConcerning Domestic Listed Foreign Shares of Joint Stock Limited Liability Companies. Theseregulations deal mainly with the issue, subscription, trading and declaration of dividends and otherdistributions of domestic listed foreign shares and disclosure of information of joint stock limitedliability companies having domestic listed foreign shares.

The Securities Law took effect on July 1, 1999 and was revised as of August 28, 2004 andOctober 27, 2005 respectively. This is the first national securities law in the PRC, and it is divided into12 chapters and 240 articles regulating, among other things, the issue and trading of securities,takeovers by listed companies, securities exchanges, securities companies and the duties andresponsibilities of the State Council’s securities regulatory authorities. The Securities Lawcomprehensively regulates activities in the PRC securities market. Article 238 of the Securities Lawprovides that we must obtain prior approval from the State Council’s regulatory authorities to issue orlist our Shares outside the PRC. Currently, the issue and trading of foreign issued shares (including HShares) are mainly governed by the rules and regulations promulgated by the State Council and theCSRC.

ARBITRATION AND ENFORCEMENT OF ARBITRAL AWARDS

The Arbitration Law of the People’s Republic of China (the “Arbitration Law”) was enacted bythe Standing Committee of the NPC on August 31, 1994 and became effective on September 1, 1995.It is applicable to contract disputes and other property disputes between natural person, legal personand other organizations where the parties have entered into a written agreement to refer the matter toarbitration before an arbitration committee constituted in accordance with the Arbitration Law. Wherethe parties have by agreement provided arbitration as the method for dispute resolution, the people’scourt will refuse to handle the case except when the arbitration agreement is void.

The Hong Kong Listing Rules and the Mandatory Provisions require an arbitration clause to beincluded in our articles of association and, in the case of the Hong Kong Listing Rules, also incontracts with each of our Directors and Supervisors, to the effect that whenever any disputes or claimsarise between holders of our H Shares and us; holders of our H Shares and our Directors, Supervisors,manager or other senior officers; or holders of our H Shares and holders of Domestic Shares, in respectof any disputes or claims in relation to our affairs or as a result of any rights or obligations arisingunder our articles of association, the PRC Company Law or other relevant laws and administrativeregulations, such disputes or claims shall be referred to arbitration.

Where a dispute or claim of rights referred to in the preceding paragraph is referred toarbitration, the entire claim or dispute must be referred to arbitration, and all persons who have a cause

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of action based on the same facts giving rise to the dispute or claim or whose participation is necessaryfor the resolution of such dispute or claim, shall comply with the arbitration. Disputes in respect of thedefinition of shareholders and disputes in relation to our register of shareholders need not be resolvedby arbitration.

A claimant may elect for arbitration to be carried out at either the China International Economicand Trade Arbitration Commission in accordance with its Rules or the Hong Kong InternationalArbitration Center in accordance with its Securities Arbitration Rules. Once a claimant refers a disputeor claim to arbitration, the other party must submit to the arbitral body elected by the claimant. If theclaimant elects for arbitration to be carried out at the Hong Kong International Arbitration Center, anyparty to the dispute or claim may apply for a hearing to take place in Shenzhen in accordance with theSecurities Arbitration Rules of the Hong Kong International Arbitration Center.

Under the Arbitration Law and PRC Civil Procedure Law, an arbitral award is final and bindingon the parties. If a party fails to comply with an award, the other party to the award may apply to thepeople’s court for enforcement. A people’s court may refuse to enforce an arbitral award made by anarbitration commission if there is any procedural or membership irregularity specified by law or theaward exceeds the scope of the arbitration agreement or is outside the jurisdiction of the arbitrationcommission.

A party seeking to enforce an arbitral award of PRC arbitration panel against a party who, orwhose property, is not within the PRC, may apply to a foreign court with jurisdiction over the case forenforcement. Similarly, an arbitral award made by a foreign arbitration body may be recognized andenforced by the PRC courts in accordance with the principles of reciprocity or any international treatyconcluded or acceded to by the PRC. The PRC acceded to the Convention on the Recognition andEnforcement of Foreign Arbitral Awards (the “New York Convention”) adopted on June 10, 1958pursuant to a resolution of the Standing Committee of the NPC passed on December 2, 1986.

The New York Convention provides that all arbitral awards made in a state which is a party tothe New York Convention shall be recognized and enforced by other parties to the New YorkConvention, subject to their right to refuse enforcement under certain circumstances, including wherethe enforcement of the arbitral award is against the public policy of the state to which the applicationfor enforcement is made. It was declared by the Standing Committee of the NPC simultaneously withthe accession of the PRC that (i) the PRC will only recognize and enforce foreign arbitral awards onthe principle of reciprocity and (ii) the PRC will only apply the New York Convention in disputesconsidered under PRC laws to arise from contractual and non-contractual mercantile legal relations. OnJune 18, 1999, an arrangement was made between Hong Kong and the Supreme People’s Court of thePRC for the mutual enforcement of arbitral awards. This new arrangement was approved by theSupreme People’s Court of the PRC and the Hong Kong Legislative Council, and became effective onFebruary 1, 2000. The arrangement is made in accordance with the spirit of the New York Conventionon the Recognition and Enforcement of Foreign Arbitral Awards 1958. Under the arrangement, awardsmade by PRC arbitral authorities recognized under the Arbitration Ordinance of Hong Kong can beenforced in Hong Kong. Hong Kong arbitration awards are also enforceable in China.

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SUMMARY OF MATERIAL DIFFERENCES BETWEEN HONG KONG AND PRCCOMPANY LAW

The Hong Kong law applicable to a company incorporated in Hong Kong is based on theCompanies Ordinance and supplemented by common law and the rules of equity that apply to HongKong. As a joint stock limited liability company established in the PRC that is seeking a listing ofH Shares on the Hong Kong Stock Exchange, we are governed by the PRC Company Law and all otherrules and regulations promulgated pursuant to the PRC Company Law.

In the following sections, we summarize certain material differences between Hong Kongcompany law applicable to a company incorporated in Hong Kong and the PRC Company Lawapplicable to a joint stock limited liability company incorporated and existing under the PRC CompanyLaw. This summary is, however, not intended to be an exhaustive comparison.

Share Capital

Under Hong Kong law, the authorized share capital of a Hong Kong company is the amount ofshare capital that the company is authorized to issue. A company is not bound to issue the entireamount of its authorized share capital. The authorized share capital of a Hong Kong company may belarger than the issued share capital. Hence, the directors of a Hong Kong company may, with the priorapproval of the shareholders if required, cause the company to issue new shares. The PRC CompanyLaw does not provide for authorized share capital. Our registered capital is the amount of our issuedshare capital. Any increase in our registered capital must be approved by our shareholders in a generalmeeting and the relevant PRC governmental and regulatory authorities.

Under the PRC Company Law, the shares subscribed for in the form of currency may not lessthan 30% of a joint stock limited company’s registered capital. There is no such restriction on a HongKong company under Hong Kong law.

Restrictions on Shareholding and Transfer of Shares

Under PRC law, our A shares, which will be denominated and subscribed for in Renminbi, mayonly be subscribed for or traded by the State, PRC legal persons, natural persons, Qualified ForeignInstitutional Investors and qualified foreign strategic investors. Our H shares, which will bedenominated in Renminbi and subscribed for in a currency other than Renminbi, may only besubscribed for, and traded by Qualified Domestic Institutional Investors of China, investors from HongKong, Macau and Taiwan or any country and territory outside the PRC.

Under the PRC Company Law, shares in a joint stock limited company held by its promoterscannot be transferred within one year after the date of establishment of the company. Shares in issueprior to the company’s public offering cannot be transferred within one year from the day when theshares are listed and traded on the stock exchange. Shares in a joint stock limited company held by itsdirectors, supervisors and senior managers and transferred each year during their term of office shallnot exceed 25% of the total shares they held in the company. Moreover, the shares they held in thecompany cannot be transferred within one year from the listing date of the shares, or within six monthsafter such personnel leave the post. There are no such restrictions on shareholdings and transfer ofshares under Hong Kong company law. See “Underwriting—Undertakings to the Hong Kong StockExchange pursuant to the Hong Kong Listing Rules” for information relating to restrictions on transferunder the Hong Kong Listing Rules.

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Financial Assistance for Acquisition of Shares

Although the PRC Company Law does not prohibit or restrict us or our subsidiaries fromproviding financial assistance for the purpose of an acquisition of our shares, the Mandatory Provisionscontain restrictions on a company and its subsidiaries providing such financial assistance similar tothose under the Hong Kong company law.

Variation of Class Rights

The PRC Company Law makes no specific provision relating to variation of class rights.However, the PRC Company Law states that the State Council can promulgate regulations relating toother kinds of shares. The Mandatory Provisions contain elaborate provisions relating to thecircumstances which are deemed to be variations of class rights and the approval procedures requiredto be followed in respect thereof. These provisions have been incorporated in the articles ofassociation, which are summarized in Appendix VIII.

Under the Companies Ordinance, no rights attached to any class of shares can be varied except(i) with the approval of a special resolution of the holders of the relevant class at a separate meeting,(ii) with the consent in writing of the holders of three-fourths in nominal value of the issued shares ofthe class in question, (iii) by agreement of all the members of the company or (iv) if there areprovisions in the articles of association relating to the variation of those rights, then in accordance withthose provisions.

We (as required by the Hong Kong Listing Rules and the Mandatory Provisions) have adoptedin the articles of association provisions protecting class rights in a similar manner to those found inHong Kong law. Holders of overseas listed shares and domestic listed shares are defined in the articlesof association as different classes, except where (i) the company issues and allots, either separately orconcurrently in any 12-month period, pursuant to a shareholders’ special resolution, not more than 20%of each of the existing issued overseas listed shares and the domestic listed shares; (ii) the plan for theissue of domestic listed shares and overseas listed shares upon its establishment is implemented within15 months following the date of approval by the CSRC; and (iii) the transfer by the promoters of ourshares held by them to overseas listed shares upon receiving the approval of the CSRC or theauthorized securities approval authorities of the State Council. The Mandatory Provisions containdetailed provisions relating to circumstances which are deemed to constitute a variation of class rights.

Directors

The PRC Company Law, unlike Hong Kong company law, does not contain, other thanconnected transactions related, any requirements relating to the declaration of directors’ interests inmaterial contracts, restrictions on directors’ authority in making major dispositions, restrictions oncompanies providing certain benefits, to directors and guarantees in respect of directors’ liability andprohibitions against compensation for loss of office without shareholders’ approval. The MandatoryProvisions, however, contain certain restrictions on major dispositions and specify the circumstancesunder which a director may receive compensation for loss of office, all of which provisions have beenincorporated in the articles of association, a summary of which is set out in Appendix VIII.

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Under the PRC Company Law, our directors and managers are subject to the supervision of aboard of supervisors. There is no mandatory requirement for the establishment of a board ofsupervisors for a company incorporated in Hong Kong. The Mandatory Provisions provide that eachsupervisor owes a duty, in the exercise of his powers, to act in good faith and honestly in what heconsiders to be our best interests and to exercise the care, diligence and skill that a reasonably prudentperson would exercise in comparable circumstances.

Derivative Action by Minority Shareholders

Hong Kong law permits minority shareholders to start a derivative action on behalf of allshareholders against directors who have committed a breach of their fiduciary duties to the company ifthe directors control a majority of votes at a general meeting, thereby effectively preventing a companyfrom suing the directors in breach of their duties in its own name. Although the PRC Company Lawgives our shareholders the right to initiate proceedings in the people’s court to restrain theimplementation of any resolution passed by our shareholders in a general meeting, or by the board, thatviolates any law, administrative rules or articles of association or if the directors or managementpersonnel violate laws, administrative rules or articles of association when performing their duties andcause losses to the company, there is no form of proceedings equal to a derivative action. TheMandatory Provisions, however, provide us with certain remedies against the directors, supervisors andofficers who breach their duties to us. In addition, as a condition to the listing of our H Shares on theHong Kong Stock Exchange and in accordance with our articles of association, each of our directorsand supervisors is required to give an undertaking in favor of us acting as agent for each of ourshareholders. This allows minority shareholders to act against our directors and supervisors in default.

Protection of Minorities

Under Hong Kong law, a shareholder who complains that the affairs of a company incorporatedin Hong Kong are conducted in a manner unfairly prejudicial to his interests may petition to the courtto either wind up the company or make an appropriate order regulating the affairs of the company. Inaddition, on the application of a specified number of members, the Financial Secretary may appointinspectors who are given extensive statutory powers to investigate the affairs of a companyincorporated in Hong Kong. There is no specific provision in the PRC Company Law to guard againstoppression by the majority shareholders of minority shareholders’ but the Company, as required by theMandatory Provisions, has adopted in its articles of association minority protection provisions similarto (though not as comprehensive as) those available under the Hong Kong law.

These provisions state that a controlling shareholder may not exercise its voting rights in amanner prejudicial to the interests of our shareholders, may not relieve a director or supervisor of hisduty to act honestly in our best interests or may not approve the expropriation by a director orsupervisor of our assets or the individual rights of other shareholders.

Notice of Shareholders’ Meetings

Under the PRC Company Law, notice of a shareholders’ annual general meeting must be givennot less than 20 days while notice of an extraordinary general meeting of shareholders must be givennot less than 15 days before the meeting. Under the Special Regulations and the Mandatory Provisions,

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45 days’ written notice must be given to all our shareholders and shareholders who wish to attend themeeting must reply in writing 20 days before the date of the meeting. For a Hong Kong limitedcompany, the minimum period of notice of a general meeting where convened for the purpose ofconsidering ordinary resolutions is 14 days and where convened for the purpose of considering specialresolutions, is 21 days. The notice period for an annual general meeting is also 21 days.

Quorum for Shareholders’ Meetings

Under Hong Kong law, the quorum for a meeting of a company is provided for in the articles ofassociation of a company, but must be at least two members. The PRC Company Law does not specifyany quorum requirement for a shareholders’ general meeting, but the Special Regulations and theMandatory Provisions provide that our general meeting may only be convened when replies to thenotice of that meeting have been received from shareholders whose Shares represent 50% of the votingrights at least 20 days before the proposed date of the meeting, or if that 50% level is not achieved, wemust within five days notify our shareholders by way of a public announcement and we may hold theshareholders’ general meeting thereafter.

Voting

Under Hong Kong law, an ordinary resolution is passed by a simple majority of affirmativevotes cast by members present in person or by proxy at a general meeting and a special resolution ispassed by a majority of not less than three quarters of votes cast by members present in person or byproxy at a general meeting. Under the PRC Company Law, the passing of any resolution requires morethan one-half of the affirmative votes held by our shareholders present in person or by proxy at ashareholders’ general meeting except in cases such as proposed amendments to our articles ofassociation, merger, division, dissolution or transformation, which require two-thirds of the affirmativevotes cast by shareholders present in person or by proxy at a shareholders’ general meeting.

Financial Disclosure

We are required under the PRC Company Law to make available at our office for inspection byshareholders our annual financial report 20 days before our shareholders’ annual general meeting. Inaddition, we must publish our financial statements and our annual balance sheet must be verified byregistered accountants. The Companies Ordinance requires a company incorporated in Hong Kong tosend to every shareholder a copy of its balance sheet, auditors’ report and directors’ report, which areto be laid before the company in its annual general meeting, not less than 21 days before such meeting.

We are required under PRC law to prepare our financial statements in accordance with PRCaccounting standards. The Mandatory Provisions require that we must, in addition to preparing ouraccounts according to PRC standards, have our accounts prepared and audited in accordance withinternational or Hong Kong accounting standards and our financial statements must also contain astatement of the financial effect of the material differences (if any) from the financial statementsprepared in accordance with the PRC accounting standards. The Company is required to publish itsinterim and annual accounts within 60 days from the end of the first six months of a financial year andwithin 120 days from the end of a financial year, respectively.

The Special Regulations require that there should not be any inconsistency between theinformation disclosed within and outside the PRC and that, to the extent that there are differences in

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the information disclosed in accordance with the relevant PRC and overseas laws, regulations andrequirements of the relevant stock exchanges, such differences should also be disclosed simultaneouslyin the relevant stock exchanges.

Information on Directors and Shareholders

The PRC Company Law gives shareholders the right to inspect the articles of association,minutes of the shareholders’ general meetings and financial and accounting reports. Under our Articlesof Association, shareholders have the right to inspect and copy (at reasonable charges) certaininformation on shareholders and on directors similar to that available to shareholders of Hong Kongcompanies under Hong Kong law.

Receiving Agent

Under the PRC Company Law and Hong Kong law, dividends once declared are debts payableto shareholders. The limitation period for debt recovery action under Hong Kong law is six years,while under the PRC law this limitation period is two years. The Mandatory Provisions require us toappoint a trust company registered under the Hong Kong Trustee Ordinance (Chapter 29 of the Lawsof Hong Kong) as a receiving agent to receive on behalf of holders of H Shares dividends declared andall other monies owed by us in respect of our shares.

Corporate Reorganization

Corporate reorganizations involving a company incorporated in Hong Kong may be effected ina number of ways, such as a transfer of the whole or part of the business or property of the company toanother company in the course of being wound up voluntarily, pursuant to section 237 of theCompanies Ordinance or a compromise or arrangement between the company and its creditors orbetween the company and its members pursuant to section 166 of the Companies Ordinance, whichrequires the sanction of the court. For PRC companies, such reorganizations are administrativelyconsidered and sanctioned under the PRC Company Law.

Dispute Arbitration

In Hong Kong, disputes between shareholders on the one hand, and a company incorporated inHong Kong or its directors on the other, may be resolved through the courts. The MandatoryProvisions provide that such disputes should be submitted to arbitration at either the Hong KongInternational Arbitration Centre (“HKIAC”) or the China International Economic and TradeArbitration Commission (“CIETAC”), at the claimant’s choice.

Mandatory Deductions

Under the PRC Company Law, after-tax profits of a company are subject to deductions ofcontributions to the statutory surplus reserve reserve of a company before they can be distributed toshareholders. There are prescribed limits under the PRC Company Law for such deductions. There areno corresponding provisions under the Companies Ordinance.

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Remedies of the Company

Under the PRC Company Law, if a director, supervisor or manager in carrying out his dutiesinfringes any law, administrative regulation or the articles of association of a company, which resultsin damage to the company, that director, supervisor or manager should be liable to the company forsuch damages. In addition, in compliance with the Hong Kong Listing Rules, remedies of theCompany similar to those available under the Hong Kong law (including rescission of the relevantcontract and recovery of profits made by a director, supervisor or officer) have been set out in thearticles of association.

Dividends

The articles of association empower the Company to withhold, and pay to the relevant taxauthorities, any tax payable under PRC law on any dividends or other distributions payable to ashareholder. Under Hong Kong law, the limitation period for an action to recover a debt (including therecovery of dividends) is six years, whereas under PRC laws, the relevant limitation period is twoyears. The Company shall not exercise its powers to forfeit any unclaimed dividend in respect ofH Shares until after the expiry of the applicable limitation period.

Fiduciary Duties

Hong Kong law recognizes the common law concept of the fiduciary duty of directors. Underthe PRC Company Law and the Special Regulations, directors, supervisors, managers and othermanagement personnel owe a fiduciary duty and a due diligence duty towards their company and arenot permitted to engage in any activities which compete with or damage the interests of their company.

Closure of Register of Shareholders

The Companies Ordinance requires that the register of shareholders of a company must notgenerally be closed for the registration of transfers of shares for more than 30 days (extendable to 60days in certain circumstances) in a year, whereas the Company’s articles of association provide, asrequired by the Mandatory Provisions, that share transfers may not be registered within 30 days beforethe date of a shareholders’ meeting or within five days before the record date set for the purpose ofdistribution of dividends.

HONG KONG LISTING RULES

The Hong Kong Listing Rules provide additional requirements which apply to us as an issuerincorporated in the PRC as a joint stock limited liability company and seeking a primary listing orwhose primary listing is on the Hong Kong Stock Exchange. Set out below is a summary of theprincipal provisions containing the additional requirements which apply to us.

Compliance Advisor

We are required to retain until we publish our financial results for the first full financial yearcommencing after our listing, or such shorter period as the Hong Kong Stock Exchange may in itsabsolute discretion permit, the services of a compliance advisor which is acceptable to the Hong KongStock Exchange, to provide us with professional advice on continuous compliance with the Hong Kong

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Listing Rules, and to act at all times, in addition to our two authorized representatives, as our principalchannel of communication with the Hong Kong Stock Exchange. The appointment of the complianceadvisor may not be terminated until a replacement acceptable to the Hong Kong Stock Exchange hasbeen appointed.

If the Hong Kong Stock Exchange is not satisfied that the compliance advisor is fulfilling itsresponsibilities adequately, it may require us to terminate the compliance advisor’s appointment andappoint a replacement.

The compliance advisor must keep the Company informed on a timely basis of changes in theHong Kong Listing Rules and any new or amended law, regulation or code in Hong Kong applicable tothe Company. It must act as the Company’s principal channel of communication with the Hong KongStock Exchange if the authorized representatives of the Company are expected to be frequently outsideHong Kong.

Accountants’ Report

An accountants’ report will not normally be regarded as acceptable by the Hong Kong StockExchange unless the relevant accounts have been audited to a standard comparable to that required inHong Kong. Such a report will normally be required to conform to either Hong Kong accountingstandards or the International Financial Reporting Standards.

Process Agent

We are required to appoint and maintain a person authorized to accept service of process andnotices on our behalf in Hong Kong throughout the period during which our securities are listed on theHong Kong Stock Exchange and must notify the Hong Kong Stock Exchange of his, her or itsappointment, the termination of his, her or its appointment and his, her or its contact particulars.

Public Shareholding

Under the Hong Kong Listing Rules, securities which are listed on the Hong Kong StockExchange and held by the public must constitute not less than 25% of our issued share capital unless awaiver from the Hong Kong Stock Exchange is obtained.

Independent Non-Executive Directors and Supervisors

Independent non-executive directors are required to demonstrate an acceptable standard ofcompetence and adequate commercial or professional expertise to ensure that the interests of ourgeneral body of shareholders will be adequately represented. Supervisors must have the character,expertise and integrity and be able to demonstrate a standard of competence commensurate with theirposition as supervisors.

Restrictions on Purchase of its Own Securities

Subject to governmental approvals and the articles of association, we may repurchase our ownH Shares on the Hong Kong Stock Exchange in accordance with the provisions of the Hong KongListing Rules. Approval by way of special resolution of the holders of A shares and the holders of

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H shares at separate class meetings conducted in accordance with the articles of association is requiredfor share repurchases. In seeking approvals, we are required to provide information on any proposed oractual purchases of all or any of our equity securities, whether or not listed or traded on the Hong KongStock Exchange. We must also state the consequences of any purchases which will arise under eitheror both of the Hong Kong Takeovers Code and any similar PRC law of which directors are aware, ifany. Any general mandate given to directors to repurchase H shares must not exceed 10% of the totalnumber of our existing issued H shares.

Redeemable Shares

We must not issue any redeemable shares unless the Hong Kong Stock Exchange is satisfiedthat the relative rights of the holders of our H Shares are adequately protected.

Pre-emptive Rights

Except in the circumstances mentioned below, directors are required to obtain the approval by aspecial resolution of shareholders in general meeting, and the approvals by special resolutions of theholders of A shares and H shares (each being otherwise entitled to vote at general meetings) at separateclass meetings conducted in accordance with the articles of association, prior to authorizing, allotting,issuing or granting shares or securities convertible into shares, options, warrants or similar rights tosubscribe for any shares or such convertible securities.

Such approval will be required, except to the extent that our existing shareholders have byspecial resolution in general meeting given a mandate to directors, either unconditionally or subject tosuch terms and conditions as may be specified in the resolution, to authorize, allot or issue, eitherseparately or concurrently, every 12 months, not more than 20% of each of the existing issueddomestic listed shares and overseas listed shares or, such shares as are part of our plan at the time ofour establishment, to issue domestic listed shares and overseas listed shares and which plan isimplemented within 15 months from the date of approval by the CSRC.

Amendment to Articles of Association

We may not permit or cause any amendment to our articles of association which would causethem to cease to comply with the PRC Company Law, the Mandatory Provisions or the Hong KongListing Rules.

Documents for Inspection

We are required to make available at a place in Hong Kong for inspection by the public and ourshareholders free of charge, and for copying by our shareholders at reasonable charges the following:

Š complete duplicate register of shareholders;

Š report showing the state of our issued share capital;

Š our latest audited financial statements and the reports of the directors, auditors and (if any)supervisors, if any, thereon;

Š special resolutions;

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Š reports showing the number and nominal value of securities repurchased by us since theend of the last financial year, the aggregate amount paid for such securities and themaximum and minimum prices paid in respect of each class of securities repurchased(with a breakdown between domestic shares (including A shares) and H shares);

Š copy of the latest annual return filed with the PRC State Administration for Industry andCommerce or other competent PRC authority; and

Š for shareholders only, copies of minutes of meetings of shareholders.

Receiving Agents

Under Hong Kong law, we are required to appoint one or more receiving agents in Hong Kongand pay to such agents dividends declared and other monies owed in respect of the H shares to be held,pending payment, in trust for the holders of such H shares.

Statements in Share Certificates

We are required to ensure that all our listing documents and share certificates include thestatements stipulated below and to instruct and cause each of our share registrars not to register thesubscription, purchase or transfer of any of our shares in the name of any particular holder unless anduntil such holder delivers to the share registrar a signed form in respect of those shares bearingstatements to the following effect, that the acquirer of shares:

Š agrees with us and each shareholder, and we agree with each shareholder, to observe andcomply with the PRC Company Law, the Special Regulations and our articles ofassociation;

Š agrees with us, each shareholder, director, supervisor, manager and other officer and weacting both for the company and for each director, supervisor, manager and other officer,agree with each shareholder to refer all differences and claims arising from the articles ofassociation or any rights or obligations conferred or imposed by the PRC Company Law orother relevant laws and administrative regulations concerning our affairs to arbitration inaccordance with our articles of association. Any reference to arbitration will be deemed toauthorize the arbitration tribunal to conduct its hearing in open session and to publish itsaward. Such arbitration will be final and conclusive;

Š agrees with us and each shareholder that shares are freely transferable by the holderthereof; and

Š authorizes us to enter into a contract on his behalf with each director and officer wherebysuch directors and officers undertake to observe and comply with their obligations toshareholders as stipulated in the articles of association.

COMPLIANCE WITH THE PRC COMPANY LAW, THE SPECIAL REGULATIONS ANDTHE ARTICLES OF ASSOCIATION

We are required to observe and comply with the PRC Company Law, the Special Regulationsand the articles of association.

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Contract between Us and Directors, Officers and Supervisors

We are required to enter into a contract in writing with every director and officer containing atleast the following provisions:

Š an undertaking by the director or officer to us to observe and comply with the PRCCompany Law, the Special Regulations, the articles of association, the Hong KongTakeovers Code and an agreement that we shall have the remedies provided in the articlesof association and that neither the contract nor his office is capable of assignment;

Š an undertaking by the director or officer to us acting as agent for each shareholder toobserve and comply with his obligations to our shareholders as stipulated in the articles ofassociation; and

Š an arbitration clause which provides that whenever any differences or claims arise fromthe contract, our articles of association or any rights or obligations conferred or imposedby the PRC Company Law or other relevant law and administrative regulations concerningaffairs between us and our directors or officers and between a holder of H shares and adirector or officer, such differences or claims will be referred to arbitration at either theCIETAC in accordance with its Rules or the HKIAC in accordance with its SecuritiesArbitration Rules, at the election of the claimant and that once a claimant refers a disputeor claim to arbitration, the other party must submit to the arbitral body elected by theclaimant. Such arbitration will be final and conclusive.

We are also required to enter into a contract in writing with every supervisor containing termssubstantially similar to those for directors.

If the party seeking arbitration elects to arbitrate the dispute or claim at HKIAC, then eitherparty may apply to have such arbitration conducted in Shenzhen, according to the SecuritiesArbitration Rules of HKIAC.

PRC laws shall govern the arbitration of disputes or claims referred to above, unless otherwiseprovided by law or administrative regulations.

The award of the arbitral body is final and shall be binding on the parties thereto.

Disputes over who is a shareholder and over the share register do not have to be resolvedthrough arbitration.

Subsequent Listing

We must not apply for the listing of our H shares on a PRC stock exchange unless the HongKong Stock Exchange is satisfied that the relative rights of the holders of our H shares are adequatelyprotected.

GENERAL

If any change in the PRC law or market practices materially alters the validity or accuracy ofany basis upon which the additional requirements have been prepared, the Hong Kong Stock Exchangemay impose additional requirements or make listing of our H shares subject to special conditions as the

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Hong Kong Stock Exchange may consider appropriate. Whether or not any such changes in the PRClaw or market practices occur, the Hong Kong Stock Exchange retains its general power under theHong Kong Listing Rules to impose additional requirements and make special conditions in respect ofour listing. Upon our listing on the Hong Kong Stock Exchange, the provisions of the Hong KongSecurities and Futures Ordinance, the Hong Kong Takeovers Code and such other relevant ordinancesand regulations as may be applicable to companies listed on the Hong Kong Stock Exchange will applyto us.

SECURITIES ARBITRATION RULES

The articles of association provide that certain claims arising from the articles of association orthe PRC Company Law shall be arbitrated at either the CIETAC or the HKIAC in accordance withtheir respective rules.

The Securities Arbitration Rules of the HKIAC contain provisions allowing, upon applicationby any party, an arbitral tribunal to conduct a hearing in Shenzhen for cases involving the affairs ofcompanies incorporated in the PRC and listed on the Hong Kong Stock Exchange so that PRC partiesand witnesses may attend. Where any party applies for a hearing to take place in Shenzhen, the tribunalshall, where satisfied that such application is based on bona fide grounds, order the hearing to takeplace in Shenzhen conditional upon all parties, including witnesses and the arbitrators, being permittedto enter Shenzhen for the purpose of the hearing. Where a party, other than a PRC party or any of itswitnesses or any arbitrator, is not permitted to enter Shenzhen, then the tribunal shall order that thehearing be conducted in any practicable manner, including the use of electronic media. For the purposeof the Securities Arbitration Rules, a PRC party means a party domiciled in the PRC other than theterritories of Hong Kong, Macau and Taiwan.

PRC LEGAL MATTERS

King & Wood PRC Lawyers, our legal advisor on PRC law, has sent to us a legal opinion datedSeptember 8, 2006 confirming that it has reviewed the summaries of PRC laws and regulations ascontained in this Appendix and that, in its opinion, such summaries are correct summaries relevant toPRC laws and regulations. This legal opinion is available for inspection as referred to in the Sectionheaded “Documents Delivered to the Registrar of Companies and Available for Inspection” inAppendix X to this prospectus.

Any person wishing to have detailed advice on PRC law and the laws of any jurisdiction isrecommended to seek independent legal advice.

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APPENDIX VIII SUMMARY OF ARTICLES OF ASSOCIATION

Set out below is a summary of the principal provisions of our articles of association ofICBC (the “Articles ”), the principal objective of which is to provide investors with an overviewof the Articles . As the information contained below is in summary form, it does not contain allthe information that may be important to potential investors. Copies of the full English andChinese texts of the Articles are available for inspection as mentioned in “Appendix X—Documents Delivered to the Registrar of Companies and Available for Inspection”.

The Articles were adopted by our shareholders’ general meeting on July 31, 2006, andshall enter into force on the day on which the Bank’s overseas-listed foreign shares becometradable on Stock Exchange of Hong Kong Limited (the “HK Stock Exchange”) upon theapproval by the CBRC on September 5, 2006.

General Provisions

The Bank is a perpetually existing joint stock limited company.

The legal representative of the Bank shall be the chairman of its board of directors.

The Articles shall be binding upon the Bank, its shareholders, directors, supervisors, Presidentsand other senior management members. The aforesaid personnel may present their proposalsconcerning the issues of the Bank in accordance with the Articles.

According to the Articles, the shareholders shall have the right to take legal proceedings againstthe Bank; the Bank shall have the right to take legal proceedings against its shareholders; and theshareholders shall have the right to take legal proceedings against other shareholders or directors,supervisors, presidents and other senior management members of the Bank according to the Articles.

The “legal proceedings” referred to in the previous item shall include filing suits to a court orapplying for arbitration to an arbitration organization.

Increase the Bank’s Registered Capital

Upon the demands of operation and business development and in accordance with relevant lawsand regulations, the Bank may, subject to resolutions of the shareholders’ general meeting andapproval of the relevant authorities, increase its registered capital in the following ways:

Š offering new shares to non-specific investors;

Š offering new shares to specific investors;

Š allotting new shares to existing shareholders;

Š transferring capital reserve funds;

Š other methods permitted by relevant competent authorities or by laws and administrativeregulations.

The Bank’s increase of its capital by issuing new shares shall be conducted in accordance withthe procedures provided in relevant laws and administrative regulations after being approved accordingto the Articles.

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Reduce the Bank’s Registered Capital

The Bank may reduce its registered capital in accordance with the provisions of the Articles.

The Bank must prepare a balance sheet and an inventory of assets when it is to reduce itsregistered capital.

The Bank shall notify its creditors within ten (10) days of adopting the resolution to reduce itsregistered capital and shall publish an announcement of the resolution in a newspaper at least three (3)times within thirty (30) days. Creditors shall, within 30 days of receiving a written notice or within 90days since the date of the first public announcement for those who have not received a written notice,be entitled to require the Bank to pay its debts in full or to provide a corresponding guarantee forrepayment.

The registered capital of the Bank after reduction may not be less than the statutory minimum.

Repurchase the Bank’s Shares

After being approved under the procedures stipulated by the Articles and obtaining approvalsfrom relevant competent authorities of the State, the Bank may repurchase its shares in the followingcircumstances:

Š cancelling the shares for the purpose of reducing the registered capital of the Bank;

Š merging with any other companies holding the shares of the Bank;

Š giving the shares to employees of the Bank as a reward;

Š being requested to repurchase the shares of the Bank by the shareholders who object to theresolutions adopted at the shareholders’ general meeting concerning consolidation anddivision of the Bank;

Š other circumstances permitted by laws and administrative regulations and rules.

Where the Bank repurchases its shares under circumstance (1), it shall cancel the shares within10 days from the date of redemption. Where the Bank repurchases its shares under circumstances (2)and (4), the Bank shall transfer or cancel the shares within 6 months.

The shares repurchased by the Bank in accordance with (3) of above paragraph 1 shall notexceed five percent (5%) of the total issued shares of the Bank. The funds for repurchase shall be paidfrom the after-tax profits of the Bank. The shares redeemed shall be transferred to the employeeswithin one (1) year.

The Bank may repurchase its shares in any of the following ways after being approved byrelevant competent authorities of the state:

Š making a repurchase offer pro rata to all shareholders;

Š repurchasing by means of open transaction at a stock exchange;

Š repurchasing by means of contractual agreement outside a stock exchange;

Š other methods as permitted by relevant competent authorities or by laws andadministrative regulations.

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Power for Our Subsidiaries to Own Shares in the Bank

There are no provisions in the Articles restricting the ownership of shares in us by any of oursubsidiaries.

Transfer of Shares

Unless otherwise specified by laws, administrative regulations, rules and regulations of thesecurities regulatory authorities in the locality where the shares of the Bank are listed, the shares of theBank may be transferred freely without any lien attached. To transfer the overseas-listed shares listedin Hong Kong, the transferor shall entrust, at the Bank, the local stock registration organization inHong Kong to deal with the registration procedures.

All fully paid overseas-listed shares listed in SEHK may be freely transferred in accordancewith the Articles. However, the board may refuse to recognize any transfer documents without statingany reason unless the conditions stipulated in the Articles are met.

For all transfer of the overseas-listed shares that are listed in Hong Kong, the written transferdocuments that are in general or ordinary form or in a form acceptable to the board shall be adopted.The written transfer document may be signed by hand. If the shareholders are the recognized clearinghouse as defined in Hongkong Securities and Futures Rules or its proxy, then the written transferdocument may be signed in the machine printing form.

The Bank shall not accept any pledge with its own shares as the objectives.

Financial Aid for Purchase of Shares of the Bank

The Bank or the bank subsidiaries (subsidiary companies) shall not offer any financial aid atany time by any means to purchasers or prospective purchasers of the Bank’s shares. Such purchasersof the Bank’s shares as mentioned above shall include those who directly or indirectly assume theobligations due to purchase of the shares of the Bank.

The Bank or the bank subsidiaries (subsidiary companies) shall not offer any financial aid atany time by any means in order to reduce or relieve the obligations of the aforesaid obligator due totheir purchase or intention of purchase of the shares of the Bank.

The acts listed below are not prohibited:

Š where the Bank provides the relevant financial aid truthfully for the interests of the Bankand the main purpose of the financial aid is not to purchase shares of the Bank, or thefinancial aid is an incidental part of an overall plan of the Bank;

Š lawful distribution of the Bank’s property in the form of dividends;

Š distribution of dividends in the form of shares;

Š reduction of registered capital, buy-back of shares, shareholding structuring, etc., inaccordance with the Articles of the Bank;

Š provision of a loan by the Bank within its scope of business and in the ordinary course ofits business (provided that the same does not lead to a reduction in the net assets of theBank or that if the same constitutes a reduction, the financial assistance is deducted fromthe Bank’s distributable profits); and

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Š the provision of money by the Bank for an employee shareholding scheme (provided thatthe same does not lead to a reduction in the net assets of the Bank or that if the sameconstitutes a reduction, the financial assistance is deducted from the Bank’s distributableprofits).

For these purposes,

Financial aid shall include but not be limited to the following means:

Š donation;

Š guarantee (including the guarantor bearing responsibility or offering property in order toguarantee the obligator’s performance of obligations), compensation (but excluding thecompensation arising out of the Bank’s fault), relief or waiver of rights;

Š providing loans or entering into a contract in which the Bank performs its obligations priorto other parties; change of the parties to such loans and contracts as well as transfer ofrights in such contract;

Š financial aid provided by the Bank in any other form when the Bank is insolvent or has nonet assets or such financial aid will lead to a substantial reduction of net assets.

The obligations referred to shall include the obligations of the obligator by signing a contract ormaking an arrangement or changing its financial status in any other way, regardless of whether or notthe aforesaid contract or arrangement is enforceable, or whether or not such obligations are assumed bythe obligator individually or jointly with any other person.

Shares of the Bank

The shares of the Bank shall be in registered form.

The share certificates shall be signed by the chairman of the board. Where the signatures of thepresident or other senior management members of the Bank are required by the securities exchange(s)on which the Bank’s shares are listed, the share certificates shall also be signed by the president orsuch other senior management members. The signature of the chairman of the board, the president orother senior management members on the share certificates may also be in printed form.

The share certificates of the Bank shall come into force after the Bank seal is affixed thereto orprinted thereon. Affixing the seal of the Bank on the share certificates shall be authorized by the board.

Stipulations applicable to the securities regulatory organs of the locality where the shares of theBank are listed shall be separately defined in case the shares of the Bank are issued and transacted in apaperless manner.

Rights of Shareholders (including inspection of register)

Shareholders of the Bank’s ordinary shares shall enjoy the following rights:

Š collecting dividends and other forms of benefits distributed on the basis of the number ofshares held by them;

Š attending or entrusting proxy to attend meetings of shareholders and exercise the votingrights;

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Š supervising business operations of the Bank and raising suggestions and inquiriesaccordingly;

Š transferring shares held by the shareholders in accordance with laws, administrativeregulations, relevant regulations of the securities regulatory organs of the locality whereshares of the Bank are listed and the Articles;

Š obtaining relevant information in accordance with the Articles, including:

Š obtaining the Articles after paying relevant costs;

Š reviewing and making copies of the following documents after paying reasonablecosts:

Š register of all parts of shareholders;

Š personal information of the director, supervisor, President and other seniormanagement members of the Bank,

Š status of equity capital of the Bank;

Š report on the aggregate par value, quantity, highest price and lowest price ofcategory of share bought back by the Bank since the last fiscal year, as well asall the expenses paid by the Bank therefor;

Š minutes of shareholders’ general meeting.

Š participating in the distribution of the Bank’s remaining property in proportion to thenumber of shares held by the shareholders when the Bank is terminated or liquidated; and

Š other rights conferred by laws, administrative regulations as well as the Articles.

Responsibility of Shareholders

Shareholders of ordinary shares shall undertake the following obligations:

Š to abide by the Articles;

Š to pay subscription fees according to the number of shares subscribed by them and themethod of capital injection;

Š shareholders who have received loans from the Bank shall repay the loans dueimmediately and shall repay those undue ahead of schedule when the Bank is likely tosuffer liquidity difficulties. Regarding the criterion used to determine such liquiditydifficulties referred to herein, the relevant regulations of the banking regulatory authoritiesof the State Council concerning the payment risks of commercial banks shall apply;

Š shareholders shall support the reasonable measures suggested by the board to raise theratio when the capital adequacy ratio of the Bank is lower than the legal standard;

Š other obligations imposed by laws and administrative regulations as well as the Articles.

Shareholders shall not assume any responsibility for further contribution to share capital otherthan the conditions agreed to by the subscriber of the relevant shares on subscription.

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Loans to Shareholders

The conditions of loans that the Bank offers to the shareholders shall not be superior to thosethat the Bank offers to other borrowers of the same type of loan.

The balance of loans granted to one shareholder of the Bank shall not exceed ten percent (10%)of the balance of the capital of the Bank.

Shareholders who hold more than five percent (5%) of voting shares of the Bank and oweoverdue loans to the Bank shall be disqualified from exercising voting rights during the overdue periodand the shares held by them shall not be included in the total voting shares of the shareholders presentat the shareholders’ general meeting. The Bank shall have the right to withhold the dividends of suchshareholders as repayment of their overdue loans. Any assets to be distributed to such shareholders inthe Bank’s liquidation process shall also be used in priority for repayment of their outstanding loans tothe Bank.

Duties and Powers of the Shareholder’s General Meeting

The shareholders’ general meeting is the organization of power of the Bank and shall legallyexercise the following duties and powers:

Š deciding on the business policies and significant investment plans of the Bank;

Š electing and replacing directors and deciding on matters concerning their remunerations;

Š electing and replacing supervisors appointed from the shareholder representatives andexternal supervisors, and deciding on matters concerning supervisors’ remuneration;

Š examining and approving operational reports of the board;

Š examining and approving operational reports of the Supervisory board;

Š examining and approving the Bank’s annual financial budget and final account proposals;

Š examining and approving the Bank’s plans for profit distribution and loss make-up;

Š adopting resolutions concerning the increase or decrease of the Bank’s registered capital;

Š adopting resolutions on matters such as merger, division, dissolution, liquidation andchange of corporate form etc. of the Bank;

Š adopting resolutions on plans for issuance of corporate bonds or other securities and publiclisting;

Š adopting resolutions on redemption of the shares of the Bank;

Š revising the Articles;

Š adopting resolutions on the engagement or dismissal of accounting firms by the Bank;

Š examining and approving or authorizing the board of directors to approve proposals on theestablishment of any legal persons, material acquisition and merger, material investments,material disposal of assets and material guarantee matters and so on;

Š examining and approving the issues regarding changing the use of proceeds;

Š examining the issues regarding share incentive plans;

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Š examining and approving proposals raised by the shareholders who singly or jointly holdthree percent (3%) or more of the voting shares of the Bank;

Š examining and approving the connected transactions that shall be approved by theshareholders’ general meeting as stipulated by laws, administrative regulations, rules andrelevant regulations of the securities regulatory authorities of the locality where the sharesof the Bank are listed;

Š examining and approving other issues that shall be approved by the shareholders’ generalmeeting as stipulated by laws, administrative regulations, rules and relevant regulations ofthe securities regulatory authorities of the locality where the shares of the Bank are listedas well as the Articles.

Annual and Interim Shareholders’ General Meeting

There are two types of shareholders’ general meeting: annual shareholders’ general meetingand interim shareholders’ general meeting. The shareholders’ general meeting is generally convenedby the board.

The annual shareholders’ general meeting shall be held once a year within six (6) months afterthe end of the previous fiscal year. If the meeting has to be postponed due to special reasons, it shall bereported to the banking regulatory authorities of the State Council in time with the reasons stated.

An interim shareholders’ general meeting shall be convened within two (2) months from theoccurrence date of any of the following events:

Š the number of directors is less than two-thirds of the number of the board of the Bank or isless than the minimum quorum;

Š the outstanding balance of the Bank’s loss reaches one-third of the Bank’s total paid-upshare capital;

Š Shareholders holding ten percent (10%) or more of the Bank’s shares with voting rights,either individually or jointly, request in writing the convening of a shareholders’ generalmeeting;

Š the board deems it as necessary;

Š the board of supervisors proposes its opening;

Š other situations, as stipulated in laws, administrative regulations, rules and the Articles.

Notice of Shareholders’ General Meeting

When the Bank is to convene a shareholders’ general meeting, the board shall notify allshareholders with the location and time of the meeting and matters to be considered forty-five (45)days prior to the meeting. Shareholders to be present in the shareholders’ general meeting shall send awritten reply of attendance to the Bank twenty (20) days before the meeting is convened.

Shareholders who hold three percent (3%) or more of the shares of the Bank, either individuallyor jointly, may prepare an interim proposal and submit it in written to the board ten (10) days beforethe shareholders’ general meeting is convened. The board shall issue a supplementary notice for theshareholders’ general meeting within two (2) days of receipt of the proposal and submit such proposal

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to the shareholders’ general meeting for approval. The content of the interim proposal shall be withinthe scope of authority of the shareholders’ general meeting and there shall be specific topics anddetailed matters to be determined.

The Bank shall calculate the number of shares with voting rights based upon the written replyreceived twenty (20) days prior to the shareholders’ general meeting. Where the number of votingrights shares held by shareholders who are going to attend the meeting reaches one-half (1/2) of thetotal of shares with voting rights of the Bank, then the meeting can be held. Otherwise, the Bank shallinform the shareholders again, in form of an announcement about the matters to be discussed in themeeting, with the location, date and duration of the meeting to be held within five (5) days. The Bankmay convene such a shareholders’ general meeting after such announcement has been made.

The shareholders’ general meeting shall not vote and make a resolution on proposals notspecified in the notice or the supplementary notice or not in compliance with the previous provision.

The meeting notice for the shareholders’ general meeting shall satisfy the following conditions:

Š made in writing;

Š specifying the location, date and duration of the meeting;

Š describing the matters to be considered at the meeting;

Š providing the materials and explanations necessary for shareholders to make sensibledecisions regarding the matters to be discussed, including (but not limited to) specificterms and contracts (if any) for a proposed transaction, and a detailed explanation of itsorigin and sequence where the Bank proposes a merger, repurchase of shares, restructuringof shares or other form of restructuring;

Š where any directors, supervisors, president and other senior management members have animportant interest with regard to matters to be discussed, then the nature and extent of thatinterest shall be disclosed. Where the impact of the matters to be discussed by suchdirectors, supervisory personnel, general manager and other superior managers who areshareholders is different from the impact on other shareholders of the same type, then thatdifference shall be illustrated;

Š containing the full text of any special resolution proposed to be passed at the meeting;

Š providing a clear description stating that all shareholders have the right to attend theshareholders’ general meeting and to entrust a proxy, as necessary, who does not need tobe a shareholder of the Bank, to attend the meeting and also to put forward a resolution;

Š setting the deadline and place for the delivery of the proxy letter of the meeting.

Proxies

Any shareholder who has the right to attend and vote at a shareholders’ general meeting shallhave the right to entrust one or more persons (not necessarily shareholder(s)) as his/her proxy to attendthe meeting and vote. Such proxy may exercise the following rights in accordance with theshareholder’s entrustment:

Š the shareholder’s right to speak at the shareholders’ general meeting;

Š the right to require by himself/herself or jointly with others to make a resolution by voting;

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Š the right to vote by raising hands or ballot, except in circumstances where a shareholderhas appointed more than one proxy, such proxies can only exercise the voting right byballot.

Shareholders shall entrust proxies in the form of a proxy letter in writing, which must be signedby the entrusting party or its legal representative. If the entrusting party is a legal person or otherorganization, the document shall be affixed with the legal person’s seal or signed by the chairman of itsboard of directors, legal representative or duly entrusted proxy.

Where the shareholder is a legal person or other organization, the person empowered by theresolution of its legal representative, board of directors or other decision-making organization shallattend the shareholders’ general meeting of the Bank.

The proxy letter for voting shall be placed at the domicile of the Bank, or at other placedesignated in the notice of meeting, at least twenty-four (24) hours before the convening of the meetingto discuss relevant matters voted on through such proxy, or twenty-four (24) hours before thedesignated voting time. If the proxy letter is signed by a person authorized by the entrusting party, theletter of authorization or other authorization document shall be notarized. The notarized letter ofauthorization or other authorization document and the proxy letter for voting shall be placed at thedomicile of the Bank or other place designated in the notice of meeting.

Any form issued by the board of the Bank to the shareholders for the appointment of proxiesshall give the shareholder free choice to instruct their proxies to cast an affirmative or, negative vote orabstain from voting, and to give separate instructions on each matter to be voted during discussions atthe meeting. The proxy letter shall state that the proxy can vote of his/her own accord if the entrustingshareholder does not give any instruction.

If, before voting, the entrusting party has passed away, lost his/her ability to act, withdrawn theentrustment, withdrawn the authorization on the proxy letter, or transferred all his/her shares, the votecast by the proxy in accordance with the proxy letter remains valid so long as the Bank has notreceived the written notice regarding such matters before the commencement of relevant meeting.

Resolutions of Shareholder’s General Meeting

The resolutions of the shareholders’ general meeting are divided into two types: (i) generalresolutions, and (ii) special resolutions.

General resolutions made by shareholders’ general meeting shall be adopted by more than half(1/2) of the voting shares represented by the shareholders present at the meeting (including theirproxies).

Special resolutions made by shareholders’ general meeting shall be adopted by more than two-thirds (2/3) of the voting shares represented by the shareholders present at the meeting (including theirproxies).

Resolutions on the following matters shall be adopted in the form of general resolution by ashareholders’ general meeting:

Š business policy and significant investment plans of the Bank;

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Š election and replacement of directors, supervisors appointed from the shareholderrepresentatives and external supervisors, and decisions on matters concerning directors’and supervisors’ remuneration;

Š work reports of the board of directors and the supervisory board;

Š annual financial budget proposals, final account proposals, balance sheets, profitstatements and other financial reports of the Bank;

Š examining and approving the issues regarding changing the use of proceeds;

Š profit distribution and loss make-up plans of the Bank;

Š appointment and removal of auditors;

Š items other than those stipulated by laws, administrative regulations, rules or the Articlesand the stipulations hereof that shall be adopted through special resolution.

The following items shall be adopted by shareholders’ general meeting through specialresolution:

Š increase or reduction of the Bank’s registered capital;

Š such matters including, among others, merger, division, change of corporate form,dissolution, liquidation of the Bank;

Š plans for issuance of corporate bonds or other securities and public listing;

Š redemption of the Bank’s shares;

Š revision of the Articles;

Š examining and approving or authorizing the board of directors to approve proposals on theestablishment of any legal persons, material acquisition and merger, material investments,material disposal of assets and material guarantee matters and so on;

Š examining and approving the issues regarding share incentive plans;

Š other matters stipulated by laws, administrative regulations, rules, or the Articles, ordeemed by the shareholders’ general meeting through a general resolution as havingmaterial impact on the Bank and require the adoption through a special resolution.

Voting Rights (generally, on a poll and right to demand a poll)

When voting in a shareholders’ general meeting, shareholders (including their proxies) shallexercise their voting rights according to the voting shares held by them, with each share representingone voting right.

Shares held by the Bank do not enjoy voting rights, and will not be counted in the total votingshares represented by the shareholders present in the shareholders’ general meeting.

Shareholders shall vote by hand in a shareholders’ general meeting, unless relevant regulationsof the securities regulatory authorities of the locality where the shares of the Bank are listed requireballot voting, or the following persons require ballot voting before or after hand voting:

Š participants of the meeting;

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Š at least two shareholders or their proxies with voting rights;

Š one or several shareholders (including their proxies) holding more than 10% (including10%) of the voting shares in the meeting, whether individually or aggregately.

Unless someone proposes ballot voting, the presider of the meeting shall announce the adoptionstatus of the proposal according to the hand voting result, and record it in the meeting minutes as thefinal basis without demonstrating the affirmative or negative votes or their proportion for the resolutionadopted in this meeting.

The request for ballot voting can be withdrawn by the proposer.

Ballot voting requested for matters concerning the election of presider or termination of themeeting shall be conducted immediately; for other matters, the presider of the meeting shall decidewhen to conduct ballot voting. The meeting can continue to discuss other matters, and the voting resulttherefrom will still be deemed as the resolution adopted in this meeting.

During ballot voting, shareholders (including their proxies) with two or more voting rights donot necessarily use them all for affirmative or negative votes.

Classified Shareholders

Shareholders holding different types of shares shall be classified shareholders.

Classified shareholders shall enjoy the rights and assume the obligations stipulated by laws,administrative regulations and the Bank’s Articles.

Except shareholders of other types of shares, shareholders of domestic-listed shares andshareholders of overseas-listed shares are considered as shareholders of different types.

Variation of Rights of Existing Certain Classified Shareholders

If the Bank intends to change or abrogate the rights of classified shareholders, it may do so onlyafter such change or abrogation has been approved by way of a special resolution of the shareholders’general meeting and by a separate shareholders’ meeting convened by the affected classifiedshareholders in accordance with the Bank’s Articles.

In the following conditions, rights of a shareholder shall be deemed to have been changed orabrogated:

Š an increase or decrease in the number of shares of such type or an increase or decrease inthe number of shares of a type having voting rights, distribution rights or other privilegesequal or superior to those of the shares of such type;

Š a change of all or part of the shares of such type into shares of another type, a conversionof all or part of the shares of another type into shares of such type or the grant of the rightto such change;

Š a removal or reduction of rights to accrued dividends or cumulative dividends attached toshares of such type;

Š a reduction or removal of a dividend preference or property distribution preference duringliquidation of the Bank, attached to shares of such type;

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Š an addition, removal or reduction of share conversion rights, options, voting rights,transfer rights, preemptive rights to rights issues or rights to acquire securities of the Bankattached to shares of such type;

Š a removal or reduction of rights to receive amounts payable by the Bank in a particularcurrency attached to shares of such type;

Š a creation of a new type of shares with voting rights, distribution rights or other privilegesequal or superior to those of the shares of such type;

Š an imposition of restrictions or additional restrictions on the transfer or ownership ofshares of such type;

Š an issuance of rights to subscribe for, or convert into, shares of such type or other types;

Š an increase in the rights and privileges of shares of other types;

Š restructuring of the Bank causing shareholders of different categories to bear liability todifferent extents during the restructuring; or

Š an amendment or cancellation of the provisions of Special Voting Procedures forClassified Shareholders referred to in the Articles.

Interested shareholders shall not enjoy voting rights in a classified shareholders’ generalmeeting. The interested shareholders have the following meaning:

Š after the Bank has made a repurchase offer to all shareholders equally pro rata or made arepurchase by means of public transaction at the stock exchange in accordance with theArticles “interested shareholders” refer to the controlling shareholders defined in theArticles;

Š after the Bank has made a redemption by means of agreement outside the stock exchangein accordance with the Articles, “interested shareholders” refer to the shareholdersconcerned with this agreement;

Š in the Bank’s restructuring plan, “interested shareholders” refer to those shareholders whoassume responsibilities with smaller proportion than other shareholders of this kind orthose shareholders who enjoy different interests from other shareholders of this kind.

A resolution of a classified shareholders’ general meeting shall be made only after it is adoptedby more than two-thirds (2/3) of voting shares present at the classified shareholders’ general meeting.

Special procedures for voting by classified shareholders do not apply to the following cases:

Š after approval by the shareholders’ general meeting through special resolution, the Bankissues domestic listed shares and overseas listed shares every other twelve (12) months,either separately or simultaneously, and the domestic listed shares and overseas listedshares to be issued do not exceed 20% of this kind of shares already issued to the public;

Š the plan to issue domestic listed shares and overseas listed shares during the Bank’sestablishment is accomplished within fifteen (15) months from the date of approval of thesecurities regulatory authorities of the State Council; and

Š shares of the Bank held by its promoters, after approval from the securities regulatoryauthorities of the State Council or the authorized securities approval authorities of theState Council can be converted to overseas listed shares.

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Quorum for Meeting and Classified Shareholders’ General Meeting

The Bank shall calculate the number of shares with voting rights based upon the written replyreceived twenty (20) days prior to the shareholders’ general meeting. Where the number of votingrights shares held by shareholders who are going to attend the meeting reaches one-half (1/2) of thetotal of shares with voting rights of the Bank, then the meeting can be held. Otherwise, the Bank shallinform the shareholders again, in the form of an announcement about the matters to be discussed in themeeting, with the location, date and duration of the meeting to be held within five (5) days. The Bankmay convene such a shareholders’ general meeting after such announcement has been made.

When the voting shares represented by the shareholders to be present in the meeting reach morethan one-half (1/2) of the total voting shares of this kind in the meeting, the Bank can convene aclassified shareholders’ general meeting; otherwise, the Bank shall, within five (5) days, inform theshareholders again of the matters to be reviewed in the meeting, the meeting date and place throughpublic announcement, after which it can convene the classified shareholders’ general meeting.

Rights of Minority Shareholders in Relation to Fraud or Oppression

The controlling shareholders of the Bank have a fiduciary duty to the Bank and othershareholders. The controlling shareholders shall strictly comply with laws, administrative regulations,rules and the Articles when exercising their rights as investors, and shall not abuse their position togain improper benefits, or cause detriment to the legitimate rights and interests of the Bank or othershareholders.

Except for the obligations as required by laws, administrative regulations, rules or relevantregulations of securities regulatory authorities of the locality where the shares of the Bank are listed,the controlling shareholders shall not make any decisions that impair the interests of all or part of theshareholders concerning the following aspects when they exercise their rights as shareholders andexercise their voting rights:

Š exempting the responsibility of the director and the supervisor to act in good faith for themaximum benefit of the Bank;

Š approving the directors and the supervisors to deprive the property of the Bank (includingbut not limited to the opportunities that are favorable to the Bank) in any form for theirown benefit or for the benefit of others;

Š approving the directors and the supervisors to deprive the individual rights and interests ofother shareholders (including but not limited to any distribution rights, voting rights, butexcluding the reorganization of the Bank which is submitted to the shareholders’ generalmeeting for approval in accordance with the Articles) for their own benefit or for thebenefit of others.

The controlling shareholders shall strictly comply with laws, administrative regulations, rulesand relevant regulations of the securities regulatory authorities of the locality where the shares of theBank are listed as well as the conditions and procedures defined by the Articles when they nominatethe candidates for the director and the supervisor of the Bank. The candidates for director andsupervisor nominated by the controlling shareholders shall have the relevant professional knowledge aswell as the decision-making and supervision capacity. The resolution of the election by the generalmeeting of shareholders or the engagement by the board of director does not necessarily obtain the

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approval procedure of any shareholder. The appointment and removal of senior management membersby shareholders superseding the general meeting of shareholders and board of directors shall bedeemed as invalid.

The controlling shareholders of the Bank shall not directly or indirectly interfere with thedecision-making of the Bank as well as the management and operation activities conducted inaccordance with laws and shall not impair the rights and interests of the Bank and other shareholders.

The term “controlling shareholder(s)” herein shall refer to the person(s) satisfying any of thefollowing conditions:

Š acting alone or in concert with others, has the right to elect more than half of the directors;

Š acting alone or in concert with others, has the right to exercise or control the exercise ofmore than thirty percent (30%) of the issued and outstanding rights in the voting shares ofthe Bank;

Š acting alone or in concert with others, holds more than thirty percent (30%) of votingshares of the Bank;

Š acting alone or in concert with others, can de facto control the Bank in any other manner.

Board of Directors

The board shall exercise the following duties and powers:

Š convening the shareholders’ general meeting and reporting to the shareholders’ generalmeeting;

Š implementing resolutions passed by the shareholders’ general meeting;

Š deciding on business plans, investment plans and development strategies of the Bank;

Š formulating the Bank’s annual financial budget and final accounts;

Š formulating plans for profit distribution and coverage of loss of the Bank;

Š formulating plans for the increase or decrease of the Bank’s registered capital;

Š formulating plans for merger, division, dissolution and change of corporate form;

Š formulating plans for issuance of corporate bonds or other securities and public listing;

Š formulating plans for repurchase of the shares of the Bank;

Š formulating an amendment to the Articles;

Š approving the establishment of any legal persons, material acquisition and merger,material investments, material disposal of assets and material guarantee matters and so on,according to the authorization by the shareholders’ general meeting;

Š engaging or dismissing the president and the secretary of the Bank and determining his/herremuneration, bonus and penalty issues; appointing chairmen and members of variousspecial committees according to the nomination of the nomination and compensationcommittee;

Š engaging or dismissing the vice president and other senior management members (exceptthe secretary) who shall be engaged or dismissed by the board of directors under relevant

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laws according to the nomination of the president and determining their remuneration,bonus and penalty issues;

Š formulating basic management systems of the Bank such as risk management systems andinternal controls systems, and supervising the execution of such systems;

Š deciding or authorizing the president to decide the establishment of managementorganizations of the headquarters, the tier-1 branches, the branches and other organizationsdirectly under the headquarters and overseas institutions;

Š approving the internal regulations such as internal audit rules, mid-long term audit plans,annual income plans and internal auditing systems, deciding or authorizing the auditcommittee of the Bank’s board to decide audit budget, remuneration and engagement andremoval of the principals;

Š formulating and implementing throughout the Bank the clear-clued responsibility systemand accountability system; regularly evaluating and improving corporate governance ofthe Bank;

Š managing information disclosures of the Bank;

Š proposing the appointment or dismissal of auditors to the shareholders’ general meeting;

Š formulating related party transactions management systems, reviewing and approving orauthorizing the Related Party Transaction Control Committee under the board’s RiskManagement Committee to approve related party transactions (except for those relatedparty transactions that shall be reviewed and approved by shareholders’ general meeting inaccordance with laws); making special reports to the shareholders’ general meeting on theimplementation status of related party transactions management systems and the status ofrelated party transactions;

Š reviewing and approving motions proposed by various special committees of the board;

Š according to relevant regulatory requirements, hearing the work reports made by thepresident and other senior management members of the Bank so as to ensure the directorsobtain sufficient information in relation to the performance of their duties in time;supervising and ensuring the president and other senior management members performtheir management duties effectively;

Š exercising other powers vested by laws, administrative regulations, rules or the Articles aswell as authorized by the shareholders’ general meeting.

Disposal of Fixed Assets

When disposing of fixed assets, if the expected value of the fixed assets the board intends todispose of and the total value of the fixed assets already disposed of four (4) months before suchdisposal suggestion jointly exceeds 33% of the fixed assets value shown in the most recent balancesheet reviewed by the shareholders’ general meeting, the board must not dispose of or approve thedisposal of such fixed assets before such disposal is approved by the shareholders’ general meeting.

Disposal of fixed assets referred to in this article includes the transfer of some rights andinterests of assets, but excludes the provision of guarantees with fixed assets.

The effectiveness of transactions conducted by the Bank to dispose of fixed assets is not subjectto the aforesaid item.

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Chairman of Board of Directors

The chairman of the board shall exercise the following duties and powers:

Š presiding over the shareholders’ general meeting and reporting to the shareholders’general meeting on behalf of the board;

Š convening and presiding over the board’s meeting;

Š supervising and inspecting the implementation of resolutions of the board;

Š signing certificates of shares, bonds and others securities of the Bank;

Š signing other documents that shall be signed by the legal representative of the Bank;

Š exercising other duties and powers vested by relevant laws, administrative regulations,rules as well as authorized by the board of directors.

When the chairman of the board cannot perform or fails to perform his/her duties and powers,the vice chairman shall act on his/her behalf; when the vice chairman cannot perform or fails toperform his/her duties and powers, a director elected by more than half of all the directors shall act onhis/her behalf.

Resolutions of Board of Directors

Resolutions of board meetings shall be approved and adopted by more than half of the votescast by all directors, but for the following matters, the resolution shall be adopted by more than two-thirds (2/3) of the votes cast by all directors and the meeting shall not be held in the manner of writtensigning:

Š plans for profit distribution and recovery of losses;

Š plans for the increase or decrease of registered capital;

Š plans for merger, division, dissolution and change of corporate form;

Š plans for issuance of corporate bonds or other securities and public listing;

Š plans for repurchase of the shares of the Bank;

Š amendments to the Articles;

Š the establishment of legal persons, material acquisition and merger, material investments,material disposal of assets and material guarantee matters and so on;

Š engaging or dismissing the president, secretary to the board of directors and other seniormanagement members of the Bank who shall be engaged or dismissed by the board ofdirectors under relevant laws and determining their remuneration, bonus and penaltyissues; appointing chairmen and members of various special committees of the board;

Š proposing the appointment or dismissal of auditors to the shareholders’ general meeting;

Š other matters considered by more than half of all the directors of the board as being likelyto pose significant impact on the Bank and that shall be voted and adopted by more thantwo-thirds (2/3) of the directors.

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Board Secretary

The Bank shall have a board secretary, who shall be appointed and removed by the board ofdirectors.

The board secretary shall be a natural person who has the necessary professional knowledgeand experience, and the main functions and duties of the board secretary are as follows:

Š assisting directors in handling the daily work of the board of directors, providing directorswith or reminding them of and ensuring they understand the regulations, policies andrequirements of the relevant regulatory authorities in relation to the Bank’s operation, andassisting directors and the president in complying with laws, administrative regulations,rules, relevant regulations of the securities regulatory authorities of the locality where theBank’s shares are listed, the Articles and other relevant provisions in performing theirfunctions and powers;

Š being responsible for organizing and preparing documents of the shareholders’ generalmeeting and the board meetings, taking minutes of meetings, ensuring that decisions madeat meetings are made according to statutory procedures, and acquainting himself/herselfwith the implementation of resolutions of the board of directors;

Š being responsible for communication between directors and relevant bodies so as to ensuredirectors obtain sufficient information necessary for the performance of their duties;

Š ensuring that the Bank has complete organizational documents and records;

Š ensuring that the Bank prepares and submits the reports and documents required by thecompetent authorities according to law;

Š ensuring that the Bank’s register of shareholders is properly set up and keep the register ofshareholders;

Š being responsible for organizing and coordinating the information disclosure so as toenhance the transparency of the Bank;

Š handling the Bank’s relations with the regulatory authorities, investors, intermediaryagencies and the media and coordinate public relations of the Bank;

Š keeping important documents such as resolutions and minutes of shareholders’ generalmeetings and the board of directors, and ensuring that those people entitled to obtain therelevant minutes and documents of the Bank could obtain them in a timely manner;

Š keeping the seal of the board of directors and other relevant documents; and

Š other functions as may be authorized by the board of directors.

Special Committees of the Board of Directors

The board of directors of the Bank shall have a strategy committee, audit committee, riskmanagement committee (under which there shall be related party transactions control committee) and anomination and compensation committee. The board of directors may set up other special committeesand adjust the existing committees whenever necessary. Each special committee of the board ofdirectors shall be accountable to the board of directors and, according to the authorization by the boardof directors, assist the board of directors in performing its duties.

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Each special committee shall work out its annual work plans and meet regularly. Eachcommittee shall be composed of no less than 3 directors. Independent directors shall take the majorityof audit committee and nomination and compensation committee and act as the chairman in suchcommittees.

Strategy Committee

The strategy committee shall exercise the following duties:

Š considering plans for strategic development and making suggestions in that respect to theboard of directors;

Š considering annual financial budgets and final accounts and making suggestions in thatrespect to the board of directors;

Š considering the strategic capital allocation (such as capital structure and capital adequacy)and management objectives of assets and liabilities and making suggestions in that respectto the board of directors;

Š preparing plans for the overall development of various financial businesses and makingsuggestions in that respect to the board of directors;

Š considering plans for significant restructuring and re-organization and making suggestionsin that respect to the board of directors;

Š being responsible for designing significant investment and financing projects, consideringproposals in that respect as submitted by the management and making suggestions in thatrespect to the board of directors;

Š being responsible for the designing of merger and acquisition plans, considering proposalsin that respect as submitted by the management and making suggestions in that respect tothe board of directors;

Š considering the strategic development of domestic and overseas branches and subsidiariesand making suggestions in that respect to the board of directors;

Š considering plans for human resources, strategy development and making suggestions inthat respect to the board of directors;

Š considering plans for IT development and other special strategic development plans andmaking suggestions in that respect to the board of directors;

Š reviewing and evaluating the corporate governance structure so as to ensure that thefinancial reporting, risk management and internal control of the Bank meet the Bank’sstandards for corporate governance; and

Š functions required by law, administrative regulations, rules and regulations of thesecurities regulatory authorities of the locality where the shares of the Bank are listed aswell as authorized by the board of directors.

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Audit Committee

The audit committee shall exercise the following duties:

Š supervising our internal controls, reviewing our core business and management proceduresand their implementation, and examining and evaluating the compliance and effectivenessof the Bank’s principal business activities;

Š reviewing financial information and its disclosure, reviewing our significant financialpolicies and their implementation, supervising financial operations, and monitoring theauthenticity of our financial reports and the effectiveness of the management’simplementation of our financial reporting procedures;

Š examining, monitoring and assessing the performance of our internal audit functions,supervising the compliance of our internal audit policies, and evaluating the proceduresand performance of our internal audit departments;

Š proposing the appointment or replacement of our external auditors, adopting appropriatemeasures to supervise their performance, reviewing external auditors’ reports, andensuring external auditors’ ultimate responsibilities to the board of directors and auditcommittee;

Š facilitating communications between our internal audit departments and our externalauditors; and

Š functions required by law, administrative regulations, rules and regulations of thesecurities regulatory authorities of the locality where the shares of the Bank are listed aswell as those authorized by the board of directors.

Risk Management Committee

The risk management committee (under which there shall be related party transactions controlcommittee) shall exercise the follow duties:

Š examining and amending the Bank’s risk strategies, risk management policies and internalcontrol procedures and supervising and assessing the implementation and effects thereofaccording to the overall strategy of the Bank and making suggestions in that respect to theboard of directors;

Š supervising and assessing the establishment, organizational structure, working proceduresand effects of the risk management department and making suggestions for improvement;

Š supervising and assessing the risk control by the senior management in participate respectof credit, market and operation; and making suggestions for improving the Bank’s riskmanagement and internal control;

Š conducting regular assessments of the Bank’s risk status and making suggestions in thatrespect to the board of directors;

Š examining and approving significant risk management affairs or transactions that arebeyond the authority of the president or submitted by the president to the risk managementcommittee for consideration, according to the authorization of the board of directors;

Š identifying and reporting to the board of directors and the supervisory board on the Bank’srelated parties and informing the Bank’s related staff in a timely way about theidentification of related parties;

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Š conducting a preliminary review of the related party transactions subject to approval bythe board of directors or the shareholders’ general meeting and submitting the related partytransactions to the board of directors or the shareholders’ general meeting for approval;

Š reviewing and approving related party transactions and other matters regarding relatedparty transactions as authorized by our board of directors or maintaining records of therelated party transactions; and

Š functions required by law, administrative regulations, rules and regulations of thesecurities regulatory authorities of the locality where the shares of the Bank are listed aswell as those authorized by the board of directors.

Nomination and Compensation Committee

The nomination and compensation committee shall have the following duties:

Š formulating standards and procedures for the election of directors and senior managementmembers and submitting the proposed procedures and standards to the board of directorsfor approval;

Š proposing to the board of directors the candidates for directors, the president and thesecretary;

Š examining and proposing to the board of directors the candidates for senior managementmembers nominated by the president;

Š nominating the chairman and members of special committees of the board of directors;

Š formulating development plans for senior management members and key talents;

Š formulating assessment measures of directors, and compensation plans for directors andsupervisors (the compensation plans of supervisors need to be referred to the board ofsupervisors), and submitting them to the board of directors for approval and then to theshareholders’ general meeting for resolution;

Š assessing the performance and acts of directors, advising and proposing to the board ofdirectors the compensation of directors for approval and then reporting to theshareholders’ general meeting;

Š advising and proposing to the board of directors the compensation of supervisors forapproval and then reporting to the shareholders’ general meeting according to theassessment of supervisors given by the board of supervisors;

Š formulating and examining assessment measures and compensation plans for seniormanagement members, assessing the performance and acts of senior managementmembers and submitting them to the board of directors for approval, and then to theshareholders’ general meeting if the approval of shareholders’ general meeting isnecessary; and

Š functions required by law, administrative regulations, rules and all other functions as maybe required by the securities regulatory authorities of the jurisdictions where our shares arelisted or authorized by the board of directors.

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President

The president shall be responsible to the board and shall perform the following functions andpowers:

Š taking charge of the operation and management of the Bank and organizing theimplementation of resolutions of the board;

Š submitting the Bank’s operation and investment plans to the board, and organizing theimplementation of the plans after they are approved by the board;

Š drafting the Bank’s basic management system;

Š drafting and proposing to the board regarding the annual financial budget plans, finalaccount plans, profit distribution plans, loss recovery plans, plans about the increase orreduction of the Bank’s registered capital, resolution about the issuance of bonds or othersecurities;

Š drafting plans of establishment of management organizations of the headquarters, the tier-1 branches, the branches and other organizations directly under the headquarters andoverseas institutions;

Š formulating specific rules and regulations of the Bank;

Š proposing to the board the appointment and dismissal of vice presidents and other seniormanagement members who shall be engaged or dismissed by the board in accordance withlaws, administrative regulations and rules (except the secretary to the board of directors);

Š appointing or dismissing persons in charge of the Bank’s internal departments andbranches other than those to be appointed or dismissed by the board;

Š conducting or authorizing the senior management members and principals of the internaldepartments and branches to conduct daily operation and management activities accordingto the authorization of the board;

Š formulating plans to estimate the performance and remuneration levels of persons incharge of internal departments (except the internal audit department) and branches of theBank; and assessing the performance and remuneration levels of the persons in charge ofinternal departments and branches;

Š proposing and convening interim board meetings;

Š adopting emergency measures in the interests of the Bank and promptly reporting them tothe banking regulatory authorities of the State Council, the board and the board ofsupervisors, in the case of any significant unexpected incident or any other emergency;and

Š other functions and powers that should be exercised by the president according to laws,administrative regulations, rules, the Articles, decisions of the shareholders’ generalmeeting and of the board.

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The board of supervisors shall exercise the following functions and powers:

Š supervising the performance and fulfillment by directors and senior management membersof their respective duties and responsibilities, and interpellating directors and seniormanagement members;

Š supervising the performance of the board of directors and senior management;

Š requesting directors and senior management members to rectify any actions damaging ourinterests;

Š proposing removal of or initiating legal proceedings according to law against directors orsenior management members who violate laws, administrative regulations and rules, theArticles and resolutions of the shareholders’ general meeting;

Š conducting departure audits towards directors and senior management members whennecessary;

Š examining and supervising financial matters of the company;

Š checking such financial information as financial reports, business reports and profitdistribution plans to be submitted to the shareholders’ general meeting by the board ofdirectors, and in case of finding any doubt, entrusting certified public accountants andpracticing auditors in the Bank’s name to help recheck the information;

Š examining and supervising business decisions, risk management and internal control whennecessary and providing guidance to our internal audit departments;

Š drafting assessment measures of supervisors, assessing the performance and acts ofsupervisors, and reporting to the shareholders’ general meeting;

Š raising proposals to the shareholders’ general meeting;

Š proposing interim shareholders’ general meetings, and convening and presiding over theinterim shareholders’ general meetings in case the board of directors fails to perform itsduty of convening shareholders’ general meetings;

Š proposing interim meetings of board of directors; and

Š other functions and powers as may be stipulated by laws, administrative regulations andrules, or the Articles herein or conferred by the shareholders’ general meeting.

Directors, Supervisors and Senior Management Members

Directors’ Qualification Shares

A director is a natural person, who does not necessarily hold the shares of the Bank.

Power to Allot and Issue Shares

There is no provision in the Articles empowering the directors, supervisors and seniormanagement members to allot and issue shares.

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Any proposal to increase the registered capital of the Bank must be submitted for approval by aspecial resolution of the shareholder’s general meeting. Any such increase is subject to approval ofrelevant authorities.

Emoluments, Compensations or Payment for Loss of Office

With the prior approval of a shareholders’ general meeting, the Bank shall sign writtencontracts with its directors and supervisors in the matter of remuneration. The matter of remunerationincludes:

Š remuneration for the Bank’s directors, supervisors or senior management members;

Š remuneration for the directors, supervisors or senior management members of subsidiariesof the Bank (subsidiary companies);

Š remuneration for other services supporting the management of the Bank and its banksubsidiaries (subsidiary companies); and

Š compensation for a director or supervisor’s loss of posts or retirement.

Except for the aforesaid provisions, the directors and supervisors shall not file any lawsuitagainst the Bank and claim the benefits they shall obtain for the foregoing matters.

Loans to Directors, Supervisors and Senior Management Members

The Bank shall not, directly or indirectly, provide loans or loan guarantees for its directors,supervisors, presidents and other senior management members, nor shall it provide the same to theirrelated persons.

The following situations are not subject to the above prohibition:

Š the Bank provides loans or loan guarantee for its bank subsidiaries (subsidiarycompanies);

Š pursuant to the employment contracts approved by shareholders’ general meeting, theBank provides loans, loan guarantees or other funds for its directors, supervisors,presidents and other senior management members, to enable them to make payments forthe Bank or for the expenses arising from the performance of their responsibilities; and

Š the Bank may provide loans or loan guarantees for its directors, supervisors, presidentsand other senior management members and related persons based on normal commercialterms.

Borrowing Powers

The Articles do not specifically provide for the manner in which borrowing powers may beexercised nor do they contain any specific provision in respect of the manner in which such borrowingpowers may be amended, except for:

Š provisions which authorize directors to formulate proposals for the issuance of corporatebonds or other securities by the bank; and

Š provisions which provide that the issuance of debentures and other securities shall beapproved by the shareholders’ general meeting by a special resolution.

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Disclosure of Contractual Interests with the Bank

Where the Bank’s directors, supervisors, presidents or other senior management members aredirectly or indirectly relevant to the contracts, transactions or arrangements (except employmentcontracts between the Bank and its directors, supervisors, presidents and other senior managementmembers) signed or planned by the Bank, they shall notify the board of directors of the nature anddegree of such a relationship, no matter whether such matter, in general, shall be approved by the boardof directors.

Unless the interested directors, supervisors, presidents and other senior management membershave informed the board of directors of the matter, and the board has approved it at a meeting wherethey are not incorporated into the quorum and nor do they participate in the voting, the Bank shall havethe right to cancel such contracts, transactions or arrangements, except that the counterparty is aninnocent party who does not know related directors, supervisors, presidents and other seniormanagement members’ violation of their obligations.

The Bank’s directors, supervisors, presidents and other senior management members relevantto a certain contract, transaction or arrangement shall be treated as the interested parties.

Remuneration

The remuneration of directors shall subject to the prior approval of a shareholder’s generalmeeting, as referred to under the paragraph headed Emoluments, Compensation or Payments for loss ofoffice above.

Qualifications of Directors, Supervisors and Senior Management Members

The following persons shall not assume roles of directors, supervisors, presidents or othersenior management members:

Š those without capacity or with limited capacity for civil conduct;

Š those prosecuted for embezzlement, bribery, appropriation of properties or disruptingmarket economic orders within 5 years after the expiration of execution, or those deprivedof political rights for crimes committed within 5 years after the expiration of execution;

Š directors or managers of a bankrupt or liquidated company or enterprise responsible forthe liquidation or bankruptcy of such company or enterprise, within 3 years aftercompletion of the liquidation;

Š legal representatives of companies or enterprises who are personally accountable for theirviolation of laws and thus resulting in revocation of a business license, within 3 years afterthe business license being revoked;

Š individuals with large amount of outstanding debts;

Š those being investigated by judicial authorities for crimes committed and the cases havenot been closed;

Š those unable to assume roles of leadership as provided by laws and administrativeregulations;

Š Non-natural persons; and

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Š those judged by competent authorities as in violation of the provisions of related securitieslaws and regulations, and involving fraudulent or dishonest acts, within 5 years after thedate of judgment.

Persons assuming posts other than directors in the controlling shareholders or actual controllersof the Bank can not act as senior management members of the Bank.

Independence of Independent Directors and External Supervisors

Independent director(s) of the Bank refers to directors who do not hold any position other thandirector, or member or chairman of a specialized committee in the Bank, and those who have norelation with the Bank and its principal shareholders that may impair their independent and objectivejudgment.

External supervisor(s) of the Bank refers to supervisors of the Bank who do not hold anyposition other than supervisor and who have no relation with the Bank or any of its principalshareholders that may impair their independent and objective judgment.

In addition to the persons prohibited from serving as directors or supervisors of the Bank, thefollowing persons may not serve as independent directors or external supervisors of the Bank either:

Š persons who directly or indirectly hold more than one percent (1%) of total shares of theBank or who hold positions in such entities;

Š persons who hold positions in the Bank or in the enterprises with majority shares held bythe Bank or actually controlled by the Bank (not including the position of independentdirectors or external supervisors);

Š persons who met the aforesaid circumstances in the previous three years before assumingtheir office (not including the position of independent directors or external supervisors);

Š persons who hold positions in entities that have business connections or interests with theBank in the areas of law, accounting, audit, management consultation etc.;

Š any other persons who may be controlled or materially influenced by the Bank throughvarious ways;

Š close relatives of the persons stated in the above (1) to (5);

Š persons who work in state authorities; and

Š other persons specified by the banking supervisory authorities of the State Council,securities regulatory authorities of the locality where the shares of the Bank are listed andother relevant regulatory authorities as unqualified for serving as independent directors orexternal supervisors.

Close relatives refer to spouses, parents, children, brothers, sisters, grandparents andgrandparents-in-law.

Nomination and Election of Directors

Directors of the Bank comprise executive directors, non-executive directors, and non-executivedirectors comprise independent directors.

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Candidates for directors of the board shall be nominated by the board or the shareholders whoindividually or aggregately hold more than five percent (5%) of total voting shares of the Bank, andshall be elected by the general meeting of shareholders.

The board of directors, board of supervisors and shareholders who individually or aggregatelyhold more than one percent (1%) of total voting shares of the Bank can nominate candidates forindependent directors, who shall be elected by the general meeting of shareholders. Service term ofindependent directors is the same as that of other directors of the Bank. The qualification of holding aposition as independent director shall be submitted to and reviewed by the banking supervisoryauthorities of the State Council.

Nomination and Election of Supervisors

Supervisors of the Bank include supervisors representing shareholders, external supervisors andsupervisors representing employees. The proportion of the Bank’s supervisors representing employeesshall not be less than one third of the total number of supervisors, and the Bank shall have at least twoexternal supervisors.

Candidates for supervisors representing shareholders shall be nominated by the board ofsupervisors or the shareholders holding individually or jointly 5% or more of the voting shares of theBank, and elected by the general meeting of shareholders of the Bank.

Supervisors representing employees shall be elected and removed by employees.

The external supervisor of the Bank shall be nominated by the shareholders holdingindividually or jointly 1% or more of shares of the Bank and elected by the shareholders’ meeting.

Removal and Resignation of Directors

The shareholders’ general meeting shall not dismiss any director without justified reasons priorto the expiry of service term. However, under the premise of observance of relevant laws andadministrative regulations, the shareholders’ general meeting may dismiss any director during his/herservice term through a general resolution (except for the director’s claim that can be proposed inaccordance with any contract).

A director may resign prior to the expiry of his/her service term. When a director intends toresign, he/she shall submit a written resignation to the board. The board shall disclose this fact within 2days.

If, upon the expiry of a director’s service term, a new director cannot be elected in time, or theresignation of any director causes the number of directors to fall below the minimum number ofdirectors required by law, such director shall continue to perform his/her duties in accordance withlaws, administrative regulations and the Articles until a new director is elected and assumes his/heroffice.

Except in the situation aforesaid that resignation of any director causes the number of directorsto fall below the minimum number of directors required by law, the resignation of a director shallbecome effective when it reaches the board. The resignation of independent directors shall complywith the Articles.

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There is no provision in the Articles regarding retirement or non-retirement of directors underan age limit.

Removal and Resignation of Supervisors

No supervisor may be removed without justified reasons before the expiry of his/her term ofoffice.

A supervisor may offer to resign before the expiry of his/her term of office. A supervisor whointends to resign shall submit a written resignation to the board of supervisors. The provisionsconcerning the resignation of directors shall apply to supervisors.

Distribution of Profits

The Bank’s after-tax profits shall be distributed in the following order of priority:

Š making up for previous year’s losses;

Š contributing 10% of them to its statutory reserve fund;

Š making general provisions;

Š contributing to its discretionary reserve fund; and

Š paying dividends to its shareholders.

No further contribution is required when the cumulative amount of the Bank’s statutory reservefund reaches 50% of its registered capital. The shareholders’ general meeting shall decide on whetheror not to make a contribution to the discretionary reserve fund after contributing to the statutory reservefund and making general provisions. The Bank shall not distribute any of its profits to any of itsshareholders before offseting our losses and contributing to the statutory reserve fund or makinggeneral provisions.

Dividends and Other Methods of Profits Distribution

The Bank may distribute dividends in the form of cash or shares.

For dividends that are not claimed by anyone, the Bank may exercise the right of expropriationunder the precondition of complying with the relevant laws, administrative regulations and rules ofChina, but the right shall be exercised only after the applicable limitation period.

The Bank shall have the right to terminate sending dividend warrants to holders of overseas-listed shares by mail, but the Bank shall exercise the right only after a dividend warrant fails to beredeemed for two consecutive occasions, however the Bank can exercise the right after the firstoccasion on which such a dividend warrant is returned as undelivered.

The Bank shall have the right to sell the shares of shareholders of overseas-listed shares whoare untraceable in a way deemed appropriate by the board of directors, provided the followingconditions are met:

Š the Bank has distributed at least three dividends to the shares within 12 years, and thedividends are not claimed by anyone during the period;

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Š the Bank publishes announcements in one or more newspapers in the place where theBank’s shares are listed after the expiration of the 12-year period, stating its intention tosell the shares, and informs the securities regulatory authorities of the locality where theBank’s shares are listed.

The Bank shall appoint a proxy to receive payment for shareholders of overseas-listed shares.The proxy shall receive dividends distributed to overseas-listed shares and other payments from thebank on behalf of the shareholders concerned.

The proxy appointed by the Bank shall meet the requirements of the laws or the relevantprovisions of the securities exchange in the place of listing.

The proxy appointed by the Bank for shareholders of overseas-listed shares in Hong Kong shallbe a trust company registered in accordance with the Fiduciary Regulation in Hong Kong.

Accounts and Audit

The Bank shall establish its financial and accounting systems according to laws, administrativerules and the provisions of Chinese Accounting Standards formulated by the competent financialdepartment of the State Council.

The board of directors shall at each annual shareholders’ general meeting submit to theshareholders the financial reports prepared by the Bank required by the relevant laws, administrativeregulations and rules.

The Bank shall prepare its financial statement not only according to the Chinese accountingstandards and regulations but also the international accounting standards or the accounting standards inthe overseas-listing place. In case there are major differences between the financial statementsprepared according to the two accounting standards, they should be indicated clearly in the notes of thefinancial statements. When distributing the after-tax profit for the related accounting year, the Bankshall adopt whichever is the lower of the after-tax profit in the aforesaid two financial statements.

The Bank shall publish its financial report twice in each fiscal year, i.e. publish the interimfinancial report within 60 days after the end of the first six months of a fiscal year, and publish theannual financial report within 120 days after the end of a fiscal year. Other regulations of theregulatory authorities of the locality where the shares of the Bank are listed shall prevail.

Appointment, Removal and Resignation of Auditors

The Bank shall appoint an independent accounting firm that meets the relevant state provisionsto make audits of the annual financial reports and other financial reports of the Bank.

The term of appointment of the auditors shall be beginning from the date of the close of theBank’s annual shareholders meeting and ending on the date of the close of the next annualshareholders meeting.

The shareholders’ general meeting could decide to dismiss the auditors by adopting a generalresolution before the expiration of the term of office of the auditors, no matter what the terms of thecontract concluded between the auditors and the Bank stipulate. If the relevant auditors have the rightto make a claim to the Bank due to its dismissal, such right shall not be affected.

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If the auditors offer to resign, they shall make a statement to the shareholders’ general meetingas to whether the Bank is in any inappropriate circumstance.

The auditors may resign from their duties by depositing their written resignation notice at thelegal address of the Bank. The resignation notice shall take effect on the date of being deposited at theBank’s legal address or the later date indicated in the notice. The notice shall include the followingstatements:

Š stating that their resignation does not involve any circumstance that should be clarified tothe Bank’s shareholders or creditors; or

Š any statement about the circumstances that should be clarified.

The Bank shall send the copies of the notice to the relevant competent authorities within 14days from the date of receiving the aforesaid written notice. If the notice carries the statementsmentioned in (2) above, the Bank should deposit the duplicate copy of the statements in the Bank forshareholders’ reference. The Bank shall also send the duplicate copy of the aforesaid statements toeach shareholder of overseas-listed shares by postpaid mail, and the address on the register ofshareholders shall be the address of the recipients.

If the resignation notice of auditors carries any statement about the circumstances that shouldbe clarified, the auditors could ask the board of directors to convene a shareholders’ meeting to hear itsexplanation on the relevant circumstances of its resignation.

Procedure on Liquidation

The Bank shall be dissolved and liquidated according to law, if:

Š its shareholders meeting has resolved to do so;

Š it is required as a result of the merger or division of the Bank;

Š the Bank is unable to pay off its due debts and is therefore declared bankrupt according tolaw;

Š the Bank’s business license is revoked, or it is ordered to be closed down or cancelled dueto its violation of any law or regulation; or

Š the Bank encounters grave difficulties in its operation and management, continuedexistence will cause material harm to shareholders’ interests, and the problems could notbe solved through other means.

Dissolution of the Bank shall be reported to the banking regulatory authorities of the StateCouncil for approval.

If the board of directors decides the Bank shall carry out liquidation (except for liquidationresulting from the Bank’s declaration of bankruptcy), it shall state in the notice of the shareholders’general meeting convened for this purpose that the board of directors has conducted comprehensiveinvestigation of the Bank’s condition and believes that the Bank is able to pay off all its debts within12 months after starting the liquidation.

The powers and functions of the Bank’s board of directors shall terminate immediately afterpassing the resolution on liquidation by shareholders’ general meeting.

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The liquidation committee shall follow the directions of the shareholders’ general meeting toreport on its income and expenditures, the Bank’s business and progress of liquidation at least once ayear to the shareholders’ general meeting and make a final report to shareholders’ general meeting atthe end of liquidation.

The liquidation committee shall give notice of its establishment to the creditors within 10 daysof its establishment and publish an announcement of the establishment in a newspaper at least threetimes within 60 days from its establishment.

The creditors shall declare their claims to the liquidation committee within 30 days of the dateof receiving the notice or within 45 days of the date of the first announcement in case of not receivingthe notice.

The creditors shall explain the matters related to their claims and provide supporting materialswhen declaring their claims. The liquidation committee shall register the claims.

The liquidation committee shall not settle any debt with the creditors during the period of claimdeclaration.

Amendments to Articles

The Bank may make amendments to its Articles whenever necessary. No amendment to theArticles may conflict with any law or administrative regulation, rules, and regulations of the securitiesregulatory authorities of locality where the shares of the Bank are listed. The board of directors maymake amendments to the Articles according to a resolution and authorization by shareholders’ generalmeeting to amend the Articles .

Where any amendment made by a shareholders’ general meeting to the Articles involves anymatters that need to be approved by the relevant competent authority, such amendment shall besubmitted to such authority for approval. The Bank shall go through the alteration registrationaccording to law in case of involving the company registration matters.

Dispute Resolution

The Bank shall follow the following dispute settlement rules:

Š if any dispute or claim concerning the Bank’s business on the basis of the rights orobligations provided for in the Articles or in the Company Law or other relevant laws oradministrative regulations arises between a holder of overseas-listed shares and the Bank,between overseas-listed shares and a director, a supervisor, the senior managementmembers of the Bank or between a holder of overseas-listed shares and a holder ofdomestic investment shares, the parties concerned shall submit the dispute or claim forarbitration.

when a dispute or claim as described above is submitted for arbitration, such dispute orclaim shall be in its entirety, and all persons (being the Bank or shareholders, director,supervisors, the manager or other senior management members of the Bank) that have acause of action due to the same facts or whose participation is necessary for the settlementof such dispute or claim shall abide by arbitration.

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disputes concerning the definition of shareholders and the register of shareholders shall notbe required to be settled by means of arbitration;

Š a dispute or claim submitted for arbitration may be arbitrated, at the option of thearbitration applicant, by either the China International Economic and Trade ArbitrationCommission in accordance with its arbitration rules or the Hong Kong InternationalArbitration Centre in accordance with its securities arbitration rules. After the arbitrationapplicant has submitted the dispute or claim for arbitration, the other party must carry outarbitration in the arbitration institution selected by the applicant.

if the arbitration applicant opts for arbitration by the Hong Kong International ArbitrationCentre, either party may request arbitration to be conducted in Shenzhen in accordancewith the securities arbitration rules of the Hong Kong International Arbitration Centre;

Š unless otherwise provided by laws or administrative regulations, the laws of the PRC shallapply to the settlement by means of arbitration of disputes or claims referred to in Item (1);and

Š the award of the arbitration institution shall be final and binding upon each party.

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APPENDIX IX STATUTORY AND GENERAL INFORMATION

1. FURTHER INFORMATION ABOUT US

A. Incorporation

Our Company was established in the PRC under Company Law as a joint stock limitedcompany on October 28, 2005. Our Company has established a place of business in Hong Kong at33/F, ICBC Tower, 3 Garden Road, Central Hong Kong and was registered on July 18, 1996 as anoversea company in Hong Kong under Part XI of the Companies Ordinance, with Mr. Sun Xinrong ofFlat A, 4/F, Fu Tian Mansion, Taikoo Shing, Quarry Bay, Hong Kong appointed as the agent of ourCompany for the acceptance of service of process and notices on behalf of our Company in HongKong.

B. Changes in Share Capital

(a) Our company

As at the date of establishment of our Company, its initial share capital was RMB248 billiondivided into 248,000,000,000 domestic shares of RMB1.00 each, all of which were credited as fullypaid and were held by our promoters as follows:

Name of Promoters Number of Domestic Shares

Percentage of shareholdingin the share capital of our

Company

MOF . . . . . . . . . . . . . . . . . . . . . . . . . . 124,000,000,000 50%Huijin . . . . . . . . . . . . . . . . . . . . . . . . . 124,000,000,000 50%

During the two years prior to the date of this prospectus, we recorded the following changes inour registered capital:

Š on January 27, 2006, we entered into the Share Purchase Agreement with Dresdner,pursuant to which, we issued 6,432,601,015 shares to Dresdner for a consideration of€824.7 million;

Š on January 27, 2006, we entered into the Share Purchase Agreement with Goldman Sachs,pursuant to which, we issued 16,476,014,155 shares to Goldman Sachs for a considerationof US$2,582.2 million;

Š on January 27, 2006, we entered into the Share Purchase Agreement with AmericanExpress, pursuant to which, we issued 1,276,122,233 shares to American Express for aconsideration of US$200 million; and

Š on June 19, 2006, we entered into two Share Purchase Agreement with SSF, pursuant towhich, we issued 14,324,392,623 shares to SSF for consideration of RMB18,028,148,012.

Immediately after the Global Offering and A Share Offering, our registered capital will beRMB327,821,930,026, made up of 77,245,975,188 H shares of RMB1.00 each and 250,575,954,838 Ashares of RMB1.00 each (assuming neither of the over-allotment options of the Global Offering and AShare Offering is exercised).

Save as disclosed in this prospectus, there has been no alteration in our registered capital sinceour establishment.

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(b) Our subsidiaries

Our principal subsidiaries are referred to in the Accountants’ Report, the text of which is set outin Appendix I to this prospectus.

The following alterations in the registered capital of our principal subsidiaries have taken placewithin the two years preceding the date of this prospectus:

Pursuant to the Acquisition Agreement dated December 30, 2004 between ICBC and ICBC(Asia), ICBC transferred 100% of its shareholding in Chinese Mercantile Bank to ICBC (Asia) onAugust 12, 2005, in consideration of which ICBC (Asia) paid US$1,281,975 in cash and issued66,698,102 new ordinary shares. As a result of the issue of new shares, the issued share capital ofICBC (Asia) increased from HK$2,095,930,000 to HK$2,242,518,000.

Save as disclosed in this prospectus, there has been no alteration in the registered capital of anyof our subsidiaries.

C. Resolutions of our Shareholders

(a) Resolutions were passed by our shareholders on April 28, 2006, pursuant to which, amongother matters, our shareholders:

(i) approved the listing plan of our Company which included, among other things,

Š listing on the Hong Kong Stock Exchange through an initial public offering of Hshares;

Š as a part of Global Offering, offering of H shares in the United States to qualifiedinstitutional buyers (as such term is defined in Rule 144A under the U.S. SecuritiesAct) and outside of the United States in reliance on Regulation S of the U.S.Securities Act, offering of H shares to professional and institutional investors in HongKong and conducting a public offering without listing in Japan;

Š the issue and listing of A shares; and

Š the conversion of our Company into a domestic and overseas subscription joint stockcompany with limited liability.

(ii) authorized the board to draft, amend, sign and submit the applications, relevant reports ormaterials relating to the proposed listing of H shares and A shares to the relevantauthorities in the PRC and the Hong Kong Stock Exchange and to deal with approval,registration, filing, verification or other formalities; and

(iii) authorized the board to be responsible for implementation of the listing plan approved bythe shareholders in all aspects.

(b) Resolutions were passed by our shareholders on July 31, 2006, pursuant to which, among othermatters, our shareholders:

(i) approved the adjustment made to the listing plan of the Company which includedsimultaneous H and A shares listings on the Hong Kong Stock Exchange and ShanghaiStock Exchange respectively through initial public offering of H and A sharesrespectively;

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(ii) approved amendments to our articles of association to conform with the requirements ofthe Hong Kong Listing Rules and other applicable laws and regulations and authorized ourboard (who can, where necessary, authorize another party provided that our directors arereported and relevant approval from China Banking Regulatory Commission is obtained)to further amend our articles of association (apart from provisions relating to the functionsof the shareholders meeting and the board meeting, which need to be passed at ourshareholders meeting) in accordance with any comments from the relevant regulatoryauthorities in the PRC and the Hong Kong Stock Exchange; and

(iii) granted, subject to the completion of the Global Offering, a general mandate to our boardto allot and issue domestic shares (including A shares) and H shares (including shareoptions or convertible bonds) at any time, either separately or concurrently, within aperiod of up to date of the conclusion of the next annual general meeting of theshareholders or the date on which our shareholders pass a special resolution to revoke orchange such mandate, whichever is earlier, upon such terms and conditions and for suchpurposes and to such persons as our board in their absolute discretion deem fit, and tomake necessary amendments to the articles of association and to file such amendments tothe relevant administration bureau for industry and commerce for registration, providedthat, the number of domestic shares (including A shares) or H shares (including shareoptions or convertible bonds) to be issued shall not exceed 20% of the number of each ofour H shares and domestic shares (including A shares) in issue, respectively, as at thelisting date.

2. FURTHER INFORMATION ABOUT OUR BUSINESS

A. Summary of Material Contracts

We have entered into the following contracts (not being contracts entered into in the ordinarycourse of business) within the two years preceding the date of this prospectus which are or may bematerial:

(a) in connection with the issue of subordinated bonds in an amount up to RMB35 billion byus, we have entered into the following agreements:

(i) an underwriting agreement dated August 15, 2005 and entered into between usand (China Construction Bank Corporation);

(ii) an underwriting agreement dated August 15, 2005 and entered into between usand (Agricultural Bank of China);

(iii) an underwriting agreement dated August 16, 2005 and entered into between usand (Bank of China Limited);

(iv) an underwriting agreement dated August 15, 2005 and entered into between usand (Bank of Communications);

(v) an underwriting agreement dated August 16, 2005 and entered into between usand (CITIC Industrial Bank);

(vi) an underwriting agreement dated August 16, 2005 and entered into between usand (China Everbright Bank);

(vii) an underwriting agreement dated August 17, 2005 and entered into between usand (China Merchants Bank Co., Ltd.);

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(viii) an underwriting agreement dated August 15, 2005 and entered into between usand (China Minsheng Banking Corporation Limited);

(ix) an underwriting agreement dated August 15, 2005 and entered into between usand (Hua Xia Bank Co., Ltd.);

(x) an underwriting agreement dated August 16, 2005 and entered into between usand (Shanghai Pudong Development Bank);

(xi) an underwriting agreement dated August 17, 2005 and entered into between usand (Shenzhen Development Bank);

(xii) an underwriting agreement dated August 15, 2005 and entered into between usand (Industrial Bank Co., Ltd.);

(xiii) an underwriting agreement dated August 16, 2005 and entered into between usand (Guangdong Development Bank);

(xiv) an underwriting agreement dated August 16, 2005 and entered into between usand (Bank of Shanghai);

(xv) an underwriting agreement dated August 15, 2005 and entered into between usand (Bank of Beijing);

(xvi) an underwriting agreement dated August 15, 2005 and entered into between usand (Tianjin City Commercial Bank);

(xvii) an underwriting agreement dated August 15, 2005 and entered into between usand (Nanjing City Commercial Bank);

(xviii) an underwriting agreement dated August 16, 2005 and entered into between usand (Zhuhai City Commercial Bank);

(xix) an underwriting agreement dated August 22, 2005 and entered into between usand (Wuhan Urban Commercial Bank);

(xx) an underwriting agreement dated August 12, 2005 and entered into between usand (Shenzhen Commercial Bank);

(xxi) an underwriting agreement dated August 15, 2005 and entered into between usand (China Postal Savings and Remittance Bureau);

(xxii) an underwriting agreement dated August 12, 2005 and entered into between usand (China Life Insurance Asset Management Co.,Ltd.);

(xxiii) an underwriting agreement dated August 16, 2005 and entered into between usand (China Ping An Life Insurance Co., Ltd.);

(xxiv) an underwriting agreement dated August 15, 2005 and entered into between usand (Taikang Life Insurance Co., Ltd.);

(xxv) an underwriting agreement dated August 16, 2005 and entered into between usand (China Pacific Insurance (Group) Co.,Ltd.);

(xxvi) an underwriting agreement dated August 15, 2005 and entered into between usand (PICC Asset Management Co., Ltd.);

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(xxvii) an underwriting agreement dated August 15, 2005 and entered into between usand (China Galaxy Securities Co., Ltd.);

(xxviii) an underwriting agreement dated August 15, 2005 and entered into between usand (China Securities Co., Ltd.);

(xxix) an underwriting agreement dated August 16, 2005 and entered into between usand (Guotai Junan Securities Co., Ltd.);

(xxx) an underwriting agreement dated August 15, 2005 and entered into between usand (CITIC Securities Co., Ltd.);

(xxxi) an underwriting agreement dated August 15, 2005 and entered into between usand (Shenyin & Wanguo Securities Co., Ltd.);

(xxxii) an underwriting agreement dated August 16, 2005 and entered into between usand (China International Capital Corporation Limited);

(xxxiii) an underwriting agreement dated August 15, 2005 and entered into between usand (BOC International Securities Co., Ltd.);

(xxxiv) an underwriting agreement dated August 15, 2005 and entered into between usand (Changjiang Securities Co., Ltd.);

(xxxv) an underwriting agreement dated August 18, 2005 and entered into between usand (Great Wall Securities Co., Ltd.);

(xxxvi) an underwriting agreement dated August 15, 2005 and entered into between usand (GF Securities Co., Ltd.);

(xxxvii) an underwriting agreement dated August 16, 2005 and entered into between usand (First Capital Securities Co., Ltd.);

(xxxviii) an underwriting agreement dated August 15, 2005 and entered into between usand (China Minzu Securities Co., Ltd.);

(xxxix) an underwriting agreement dated August 15, 2005 and entered into between usand (Orient Securities Co., Ltd.);

(xl) an underwriting agreement dated August 17, 2005 and entered into between usand (Shanghai Securities Co., Ltd.);

(xli) an underwriting agreement dated August 18, 2005 and entered into between usand (West China Securities Co., Ltd.);

(b) a share purchase agreement dated June 19, 2006 and entered into between us and SSF(“SSF SPA In Cash”) in relation to the purchasing of newly issued shares in us by SSF inthe aggregate purchase price of RMB10,000,000,000. See “Our Strategic Investors andOther Investors” for details;

(c) a shareholders rights agreement dated June 19, 2006 and entered into between us, theMOF, Huijin and SSF in relation to the entitlement to enjoy all rights and undertake allobligations by SSF described in the SSF SPA In Cash. See “Our Strategic Investors andOther Investors” for details;

(d) a share purchase agreement dated June 19, 2006 and entered into between us and SSF(“SSF SPA In Land Use Right”) in relation to the purchasing of newly issued shares in us

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by SSF under a custody of MOF in the aggregate purchase price of RMB8,028,148,012 inthe form of contribution of the state-owned land use right as capital injection. See “OurStrategic Investors and Other Investors” for details;

(e) a shareholders rights agreement dated June 19, 2006 and entered into between us, theMOF, Huijin and SSF in relation to the entitlement to enjoy all rights and undertake allobligations by SSF described in the SSF SPA In Land Use Right. See “Our StrategicInvestors and Other Investors” for details;

(f) a share purchase agreement dated January 27, 2006 and entered into between us, Allianzand Dresdner (“Allianz SPA”) in relation to the purchasing of newly issued shares in us byAllianz through its wholly owned subsidiary Dresdner in the aggregate purchase price of€824.7 million. See “Our Strategic Investors and Other Investors” for details;

(g) a shareholders rights agreement dated January 27, 2006 and entered into between us, theMOF, Huijin, Allianz and Dresdner in relation to the entitlement to enjoy all rights andundertake all obligations by Allianz and Dresdner described in the Allianz SPA. See “OurStrategic Investors and Other Investors” for details;

(h) a share purchase agreement dated January 27, 2006 and entered into between us andGoldman Sachs (“Goldman Sachs SPA”) in relation to the purchase of newly issued sharesin us by Goldman Sachs in the aggregate purchase price of US$2,582.2 million. See “OurStrategic Investors and Other Investors” for details;

(i) a shareholders rights agreement dated January 27, 2006 and entered into between us, theMOF, Huijin and Goldman Sachs in relation the entitlement to enjoy all rights andundertake all obligations by Goldman Sachs described in the Goldman Sachs SPA. See“Our Strategic Investors and Other Investors” for details;

(j) a share purchase agreement dated January 27, 2006 and entered into between us andAmerican Express (“American Express SPA”) in relation to the purchase of newly issuedshares in us by American Express in the aggregate purchase price of US$200 million. See“Our Strategic Investors and Other Investors” for details;

(k) a shareholders rights agreement dated January 27, 2006 and entered into between us, theMOF, Huijin and American Express in relation to the entitlement to enjoy all rights andundertake all obligations by American Express described in the American Express SPA.See “Our Strategic Investors and Other Investors” for details;

(l) a strategic cooperation agreement dated January 27, 2006 and entered into between us andGoldman Sachs in relation to the provision of technical support and training by GoldmanSachs. See “Our Strategic Investors and Other Investors” for details;

(m) a promoters agreement dated October 13, 2005 and entered into between the MOF andHuijin, pursuant to which we were converted from a state-owned commercial bank to ajoint-stock limited company with a registered capital of RMB248.0 billion, dividing into248.0 billion shares with a par value of RMB1.00 each. The MOF and Huijin eachreceived 124.0 billion of our shares, representing 50% respectively of our shares upon ourre-incorporation.

(n) a foreign exchange option agreement dated April 30, 2005 and entered into between Huijinand us, pursuant to which we purchased from Huijin an option to sell to Huijin amaximum of US$12 billion at an exchange rate of US$1 to RMB8.2765 for a

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consideration of approximately RMB2,979,540,000.00. See “Financial Information” fordetails;

(o) a transfer agreement dated May 27, 2005 and entered into between Huarong and us inrelation to disposal of loss loans with a face value of RMB176 billion as of April 30, 2005by us to Huarong in consideration of the same amount;

(p) a transfer agreement, dated May 27, 2005 and entered into between Huarong and us inrelation to disposal of non-credit risk assets with a book value of RMB70 billion as ofApril 30, 2005 by us to Huarong in consideration of the same amount;

(q) a transfer agreement dated June 27, 2005 and entered into between China Orient AssetManagement Corporation and us in relation to disposal of doubtful loans with a face valueof approximately RMB121.29 billion as of April 30, 2005 by us to China Orient AssetManagement Corporation in consideration of the same amount;

(r) a transfer agreement dated June 27, 2005 and entered into between Huarong and us inrelation to disposal of doubtful loans with a face value of approximately RMB22.59 billionas of April 30, 2005 by us to Huarong in consideration of the same amount;

(s) a transfer agreement dated June 27, 2005 and entered into between China Great WallAsset Management Corporation and us in relation to disposal of doubtful loans with a facevalue of approximately RMB256.99 billion as of April 30, 2005 by us to China Great WallAsset Management Corporation in consideration of the same amount;

(t) a transfer agreement dated June 27, 2005 and entered into between China Cinda AssetManagement Corporation and us in relation to disposal of doubtful loans with a face valueof approximately RMB58.13 billion as of April 30, 2005 by us to China Cinda AssetManagement Corporation in consideration of the same amount;

(u) a placing agreement dated September 15, 2006 among us, China Life Insurance (Group)Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated, China InternationalCapital Corporation Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG,Hong Kong Branch and ICEA Capital Limited pursuant to which China Life Insurance(Group) Company agreed to subscribe for our H shares in the amount ofHK$4,400,000,000;

(v) a placing agreement dated September 15, 2006 among us, China Life Insurance CompanyLimited, Merrill Lynch, Pierce, Fenner & Smith Incorporated, China International CapitalCorporation Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG, HongKong Branch and ICEA Capital Limited pursuant to which China Life Insurance CompanyLimited agreed to subscribe for our H shares in the amount of HK$2,000,000,000;

(w) a placing agreement dated September 21, 2006 among us, Issamed Investments Limited,Cheung Kong (Holdings) Limited, Merrill lynch, Pierce, Fenner & Smith Incorporated,China International Capital Corporation Limited, Credit Suisse (Hong Kong) Limited,Deutsche Bank AG, Hong Kong Branch and ICEA Capital Limited pursuant to whichIssamed Investments Limited agreed to subscribe for our H shares in the amount ofHK$800,000,000. Cheung Kong (Holdings) Limited has entered into the placingagreement as the controlling shareholder of Issamed Investments Limited;

(x) a placing agreement dated September 21, 2006 among us, Turbo Top Limited, HutchisonWhampoa Limited, Merrill Lynch, Pierce, Fenner & Smith Incorporated, China

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International Capital Corporation Limited, Credit Suisse (Hong Kong) Limited, DeutscheBank AG, Hong Kong Branch and ICEA Capital Limited pursuant to which Turbo TopLimited agreed to subscribe for our H shares in the amount of HK$800,000,000.Hutchison Whampoa Limited has entered into the placing agreement as the controllingshareholder of Turbo Top Limited;

(y) a placing agreement dated September 21, 2006 among us, Chow Tai Fook NomineeLimited, Merrill Lynch, Pierce, Fenner & Smith Incorporated, China International CapitalCorporation Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG, HongKong Branch and ICEA Capital Limited pursuant to which Chow Tai Fook NomineeLimited agreed to subscribe for our H shares in the amount of HK$1,600,000,000;

(z) a placing agreement dated September 21, 2006 among us, Allied Stars Enterprises Inc.,CITIC Pacific Limited, Merrill Lynch, Pierce, Fenner & Smith Incorporated, ChinaInternational Capital Corporation Limited, Credit Suisse (Hong Kong) Limited, DeutscheBank AG, Hong Kong Branch and ICEA Capital Limited pursuant to which Allied StarsEnterprises Inc. agreed to subscribe for our H shares in the amount of HK$800,000,000.CITIC Pacific Limited has entered into the placing agreement as the controllingshareholder of Allied Stars Enterprises Inc.;

(aa) a placing agreement dated September 21, 2006 among us, Kingswell InternationalHoldings Ltd., Mr. Yung Chi Kin, Merrill Lynch, Pierce, Fenner & Smith Incorporated,China International Capital Corporation Limited, Credit Suisse (Hong Kong) Limited,Deutsche Bank AG, Hong Kong Branch and ICEA Capital Limited pursuant to whichKingswell International Holdings Ltd. agreed to subscribe for our H shares in the amountof HK$800,000,000. Mr. Yung Chi Kin has entered into the placing agreement as thecontrolling shareholder of Kingswell International Holdings Ltd.;

(bb) a placing agreement dated September 15, 2006 among us, Chinfit Limited, Shau KeeFinancial Enterprises Limited, Merrill Lynch, Pierce, Fenner & Smith Incorporated, ChinaInternational Capital Corporation Limited, Credit Suisse (Hong Kong) Limited, DeutscheBank AG, Hong Kong Branch and ICEA Capital Limited pursuant to which ChinfitLimited agreed to subscribe for our H shares in the amount of HK$1,600,000,000. ShauKee Financial Enterprises Limited has entered into the placing agreement as thecontrolling shareholder of Chinfit Limited;

(cc) a placing agreement dated September 22, 2006 among us, GIC Direct Investments Pte.Ltd., Merrill Lynch, Pierce, Fenner & Smith Incorporated, China International CapitalCorporation Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG, HongKong Branch and ICEA Capital Limited pursuant to which GIC Direct Investments Pte.Ltd. agreed to subscribe for our H shares in the amount of HK$ 2,800,000,000;

(dd) a placing agreement dated September 15, 2006 among us, Silver Pebble Holdings Limited,Kerry Holdings Limited, Merrill Lynch, Pierce, Fenner & Smith Incorporated, ChinaInternational Capital Corporation Limited, Credit Suisse (Hong Kong) Limited, DeutscheBank AG, Hong Kong Branch and ICEA Capital Limited pursuant to which Silver PebbleHoldings Limited agreed to subscribe for our H shares in the amount ofHK$1,600,000,000. Kerry Holdings Limited has entered into the placing agreement as thecontrolling shareholder of Silver Pebble Holdings Limited;

(ee) a placing agreement dated September 18, 2006 among us, Kuwait Investment Authority,Merrill Lynch, Pierce, Fenner & Smith Incorporated, China International Capital

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Corporation Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG, HongKong Branch and ICEA Capital Limited pursuant to which Kuwait Investment Authorityagreed to subscribe for our H shares in the amount of HK$ 5,600,000,000;

(ff) a placing agreement dated September 21, 2006 among us, Gavast Estates Limited,Mr. Chen Din Hwa, Merrill Lynch, Pierce, Fenner & Smith Incorporated, ChinaInternational Capital Corporation Limited, Credit Suisse (Hong Kong) Limited, DeutscheBank AG, Hong Kong Branch and ICEA Capital Limited pursuant to which GavastEstates Limited agreed to subscribe for our H shares in the amount of HK$1,440,000,000.Mr. Chen Din Hwa has entered into the placing agreement as the controlling shareholderof Gavast Estates Limited;

(gg) a placing agreement dated September 21, 2006 among us, Gentfull Investment Limited,Ms. Chen Wai Wai, Vivien, Merrill Lynch, Pierce, Fenner & Smith Incorporated, ChinaInternational Capital Corporation Limited, Credit Suisse (Hong Kong) Limited, DeutscheBank AG, Hong Kong Branch and ICEA Capital Limited pursuant to which GentfullInvestment Limited agreed to subscribe for our H shares in the amount ofHK$160,000,000. Ms. Chen Wai Wai has entered into the placing agreement as thecontrolling shareholder of Gentfull Investment Limited;

(hh) a placing agreement dated September 21, 2006 among us, Qatar Investment Authority,Merrill Lynch, Pierce, Fenner & Smith Incorporated, China International CapitalCorporation Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG, HongKong Branch and ICEA Capital Limited pursuant to which Qatar Investment Authorityagreed to subscribe for our H shares in the amount of HK$1,600,000,000;

(ii) a placing agreement dated September 21, 2006 among us, Joylight Limited, WinleadLimited, Merrill Lynch, Pierce, Fenner & Smith Incorporated, China International CapitalCorporation Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG, HongKong Branch and ICEA Capital Limited pursuant to which Joylight Limited agreed tosubscribe for our H shares in the amount of HK$800,000,000. Winlead Limited hasentered into the placing agreement as the controlling shareholder of Joylight Limited;

(jj) a placing agreement dated September 21, 2006 among us, Rupert International Limited,Kerrisdale Company Limited, Merrill Lynch, Pierce, Fenner & Smith Incorporated, ChinaInternational Capital Corporation Limited, Credit Suisse (Hong Kong) Limited, DeutscheBank AG, Hong Kong Branch and ICEA Capital Limited pursuant to which RupertInternational Limited agreed to subscribe for our H shares in the amount ofHK$800,000,000. Kerrisdale Company Limited has entered into the placing agreement asthe controlling shareholder of Rupert International Limited;

(kk) a placing agreement dated September 21, 2006 among us, United Overseas Bank Limited,Merrill Lynch, Pierce, Fenner & Smith Incorporated, China International CapitalCorporation Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG, HongKong Branch and ICEA Capital Limited pursuant to which United Overseas Bank Limitedagreed to subscribe for our H shares in the amount of HK$1,600,000,000.

(ll) a placing agreement dated October 5, 2006 among us, Bright Palace Investments Limited,East Advance Investments Limited, Hero Honour Investments Limited and UnitedDevelop Investments Limited, Mr. Woo Kwong Ching, Merrill Lynch, Pierce, Fenner &Smith Incorporated, China International Capital Corporation Limited, Credit Suisse (Hong

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Kong) Limited, Deutsche Bank AG, Hong Kong Branch and ICEA Capital Limitedpursuant to which Bright Palace Investments Limited, East Advance Investments Limited,Hero Honour Investments Limited and United Develop Investments Limited agreed tosubscribe for our H shares in the total amount of HK$1,600,000,000. Mr. Woo KwongChing has entered into the agreement as the controlling shareholder of Bright PalaceInvestments Limited, East Advance Investments Limited, Hero Honour InvestmentsLimited and United Develop Investments Limited; and

(mm) the Hong Kong underwriting agreement dated October 13, 2006 and entered into betweenus, the Joint Sponsors, the Joint Bookrunners and the Hong Kong underwriters. See“Underwriting” for details.

B. Intellectual Property

(a) As at the Latest Practicable Date, we are the registered owner of the following material patents:

Patent Patent NumberCertificateNumber Type Expiry Date

Devices for the handling of bank cards withdual accounts . . . . . . . . . . . . . . . . . . . . . . 02245724.0 546452 Utility Model August 15, 2012

Devices for the establishment ofciphercodes and authentication withUSBKEY by e-banks . . . . . . . . . . . . . . . . 200420000949.3 668828 Utility Model January 08, 2014

A real time system of checks forpayment . . . . . . . . . . . . . . . . . . . . . . . . . . 200420003390.X 690725 Utility Model February 05, 2014

An early warning real-time ATM terminalproblem detection device . . . . . . . . . . . . . 200420009939.6 740909 Utility Model December 09, 2014

A counterfeit prevention device for bills . . . 200520000614.6 772169 Utility Model January 18, 2015

(b) As at the Latest Practicable Date, we have filed applications for the following material patents:

PatentApplication

Number Type Application Date

Devices and methods for the handling of bank cardswith dual accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 02125742.6 Invention August 15, 2002

Devices and methods for the establishment of ciphercodes and authentication with USBKEY bye-banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200410028723.9 Invention March 15, 2004

A real time method and system for payment ofchecks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200410039539.4 Invention February 05, 2004

Decompression devices and equipment for writing &reading compressed intelligence cards . . . . . . . . . . . 200410068997.0 Utility Model July 15, 2004

Cashiers, card servers and data transmission system . . 200410054613.X Invention July 22, 2004Intelligence terminals, including the system and

methods of data exchanges of such terminals . . . . . . 200410071040.1 Invention July 27, 2004A communication method and system based on unreal

lines between the clients and the bank’s network . . . 200410070782.2 Invention July 26, 2004A kind of method and system based on the network

and used for the handling of data about the groupusers’ funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200410055104.9 Invention August 04, 2004

A self-service bill issuing method and system . . . . . . . 200410062321.0 Invention July 01, 2004A method and system for the financial e-bills . . . . . . . 200410062689.7 Invention August 06, 2004A method and system for self-service payment . . . . . . 200410055163.6 Invention August 09, 2004

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PatentApplication

Number Type Application Date

A method and system for the uniform authenticationbased on networks . . . . . . . . . . . . . . . . . . . . . . . . . . . 200410070910.3 Invention July 13, 2004

An automatic software testing system based on scriptsinterpretation tools . . . . . . . . . . . . . . . . . . . . . . . . . . 200410086041.3 Invention October 22, 2004

Terminals and servers . . . . . . . . . . . . . . . . . . . . . . . . . . 200410077867.3 Invention September 16, 2004A dynamic cipher codes establishment devices and

their password authentication methods . . . . . . . . . . . 200410074253.x Invention September 08, 2003An early warning real-time ATM terminal problem

detection device . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200410078302.7 Invention September 23, 2004An auxiliary method and system for the safety of the

computers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200410080825.5 Invention October 09, 2004A card data transaction system and method for the

purpose of making payment through networks . . . . . 200410009985.0 Invention December 09, 2004A method and system used for the identification of

RMB category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93111635.X Invention July 31, 1993A signing method with numbers . . . . . . . . . . . . . . . . . . 96117110.3 Invention September 25, 1996Comprehensive network system for tax payment by

way of credit cards . . . . . . . . . . . . . . . . . . . . . . . . . . 98110868.7 Invention May 20, 1998Emulation method and system for customer terminals,

servers and character terminals . . . . . . . . . . . . . . . . . 200510080373.5 Invention July 04, 2005A method and system that develop phonetics user

interface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200510012109.8 Invention July 07, 2005An electronic allocation system and method for bank

transfer based on the networks . . . . . . . . . . . . . . . . . 200510088854.0 Invention July 29, 2005A method and system that extends the external

equipments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200510102547.3 Invention September 08, 2005A wireless payment-making devices that can prevent

explosion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200520118576.4 Utility Model September 09, 2005A method and system for intercity authorization . . . . . 200510098380.8 Invention September 09, 2005A compatible and general method and system for

making payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200510115831.4 Invention November 09, 2005System and method for the upgrade of software

versions in the distributed business system . . . . . . . 200510086847.7 Invention November 10, 2005System and method for the centralized management

and scheduling of mass operations . . . . . . . . . . . . . . 200510123210.0 Invention November 15, 2005A method for making payments through agreement on

the Internet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200510135468.2 Invention December 27, 2005Parallel handling of mass operations . . . . . . . . . . . . . . 200610000403.1 Invention January 05, 2006

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(c) As at the Latest Practicable Date, we are the registered owner of the following materialtrademarks:

NameClass(Note) Place of registration Registration Date Expiry Date

RegistrationNumber

36 PRC March 07, 1999 March 06, 2009 1253831

36 PRC March 07, 1999 March 06, 2009 1253830

36 Hong Kong April 26, 2004 October 09, 2009 2004B05382(1)

36 PRC October 21, 1994 October 20, 2014 770116

36 U.S.A January 23, 2001 January 23, 2011 2422493

36 Singapore July 18, 1997 July 18, 2007 8860/97

36 Korea October 28, 1998 October 28, 2008 48651

36 Japan September 27, 1998 September 27, 2008 4254753

36 Macau July 07, 2004 July 07, 2011 N/013318

36 MadridInternational

Registration(2)

March 05, 2004 March 05, 2014 826389

36 PRC February 07, 1998 February 06, 2008 1149829

36 Singapore July 18, 1997 July 18, 2007 T97/08659G

36 Korea November 10, 1998 November 10, 2008 49297

36 Macau July 07, 2004 July 07, 2011 N/013317

36 MadridInternational

Registration(3)

March 05, 2004 March 05, 2014 826388

(1) As set out in the approval document issued by the Trademark Office of the State Administration for Industry & Commerce onDecember 30, 2005, this trademark has been designed as a famous trademark.

(2) Places of registration include the United States, Australia, Luxemburg, Germany, Kazakhstan, England and Russia.(3) Places of registration include Luxemburg, Germany, Kazakhstan, England and Russia.

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NameClass(Note) Place of registration Registration Date Expiry Date

RegistrationNumber

36 Hong Kong June 16, 1997 October 05, 2016 1997B06436

36 PRC October 14, 1994 October 13, 2014 769578

36 PRC July 21, 2004 July 20, 2014 3306794

36 PRC July 21, 2004 July 20, 2014 3306790

36 PRC July 21, 2004 July 20, 2014 3306791

Note:Class 36—Insurance, Finance, Monetary Issues, Real Estate Issues This class includes monetary and financial services provided by financialand monetary institutions, namely: (i) services provided by banks, foreign exchange brokers and settlement institutions; (ii) services providedby credit cooperatives, private financial companies, lenders, etc; (iii) services of investment trusts; (iv) services provided by stock andproperty brokers; (v) services related to the monetary business guaranteed by credit agents; (vi) services related to the issue of travellers’cheques and letters of credit; (vii) services provided by real estate administrators in relation to agents or brokers and services provided to theinsured and the insurer; (viii) services related to insurance, including services provided by insurance agents or brokers and services providedto the insured and the insurer.

(d) As at the Latest Practicable Date, we have filed applications for the following materialtrademarks:

Name Class (Note) Place of Application Application Date Application Number

1-45 PRC June 28, 2004 N/A(1)

36 Indonesia March 09, 2004 J0020040600006049

1-45 PRC June 28, 2004 N/A(1)

36 Indonesia March 09, 2004 J00200405999060481-45 PRC June 25, 2004 N/A(1)

1-8, 10-45 PRC June 25, 2004 N/A(2)

9 PRC June 24, 2004 4138511

36 PRC July 21, 2004 4180564

36 PRC May 13, 2005 4655178

36 PRC May 13, 2005 4655177

36 PRC August 24, 2005 4855594

36 PRC June 03, 2005 4698071

36 PRC June 03, 2005 4698068

(1) There are in total 45 separate application numbers.(2) There are in total 44 separate application numbers.

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(e) As at the Latest Practicable Date, we are the registered owner of the following material domainnames:

Domain name Registration Date Expiration Date

icbc.com.cn October 17, 2001 October 17, 2007

95588.com.cn December 7, 1999 December 7, 2007

icbc-ltd.com July 07, 2005 July 07, 2007

icbcasia.com July 19, 2000 July 19, 2009

icea.com.hk July 21, 2003 July 21, 2008

(f) As at the Latest Practicable Date, we are using the following material technologies:

Name Nature/Main Function

ApplicableBusiness

AreaSelf-

Developed Remarks

ICBC next generation Internet-banking system

A new generation of Internet-banking system, which is in linewith the development trends ofinternational financial businessand the competitionrequirements of domesticcommercial banks. It consists ofsuch sub-systems as corporateInternet-banking, personalInternet-banking, payment ofe-commerce on line, bank-enterprise interlink, internaladministration and gatewaywebsites.

e-bankingbusiness

Yes First prize forFinancialScientific &TechnologicalProgress, 2004

ICBC real-time clearance system A platform of real-timepayment and clearance businessprocessing in RMB, combiningremittance, settlement andclearance in one, which notonly covers such businesses asthe remittance of the fundssettled all over the bank, theallocation and borrowing &lending of the internal funds,but also satisfies the needs forthe funds settlement of variousoff-the-counter intra-citybusinesses within the businesssystem.

Thefields ofbankclearancebusiness

Yes Second prize forFinancialScientific &TechnologicalProgress, 2005

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Name Nature/Main FunctionApplicable

Business AreaSelf-

Developed Remarks

ICBC asset managementsystem

A system incorporating suchcredit and non-credit assets ascredits, bills, funds transactionand trade financing, etc., andsuch businesses as trust agencyand loan-transfer etc. in auniform platform for businessmanagement and risk control. Itis an important component ofthe all-function banking systemof ICBC.

Thebusiness ofbank assetsmanagement


ICBC system of uniformquotation and centralizedexposure-covering for foreignexchange transactions

A system covering businesscontrolling, quotation andexchange rates, exposures,exposure-covering, accountsclearance and collation betweenbusinesses, etc. so as to realizethe automatic processing of theforeign exchange business andthe clearance of accounts in theorder of outlets-sub branches-branches-provincial branches-head office.



ICBC parameter managementsystem

A set of management andcomputer application systemwhich is in line with thedevelopment trends of futureparameter management. It maynot only realize the businesscollation rules & regulationsand systems, but also fendingoff of the internally-controlledoperational risks to the lettertherein.



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(g) As at the Latest Practicable Date, we are the registered owner of the following materialcopyrights:

Computer SoftwareName

RegistrationNumber

Method ofAcquisition Scope of Right

Initial PublicationTime Registration Time

Applicablesoftware ofinternationalsettlementbusinessprocessing for theinternationalsettlement system(upgrade)

2005SR07058 Originalacquisition

Entire right February 21,2005

July 01, 2005

Applicablesoftware forinternational cardbusiness of theinternational cardsystem



July 14, 2005

Software ofintermediarybusiness platformfor theintermediarybusiness system(upgrade)



July 14, 2005

Applicablesoftware offoreign exchangetransactions forthe financialmarket system



July 14, 2005

Applicablesoftware ofbusinessprocessing ofdocumentationcentre for theinternationalsettlement system



August 12,2005

Applicablesoftware ofpersonal goldtransactions forthe financialmarket system



August 12,2005

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RegistrationNumber



Applicablesoftware of bankcard overdraftaccount and riskmanagement forthe assetsmanagementsystem



August 12,2005

Applicablesoftware for thedepositories of thefunds after thecustomertransactionsettlement for thefinanciale-channel system


Entire right May 23, 2005 September 30,2005

Applicablesoftware ofconsolidatedexternal datadelivery for thetechnical supportsystem


Entire right May 30, 2005 October 27,2005

Applicablesoftware ofcustomer accountcollation for thebusiness supportsystem



November 24,2005

Applicablesoftware for theinquiry about thehistorical detaileddata for thebackstage system


Entire right June 28, 2005 November 24,2005

Applicablesoftware ofpersonal housingfunds depositsmanagement forthe intermediarybusiness system


Entire right August 25,2005

February 27,2006

Applicablesoftware of inter-bank payment forthe intermediarybusiness system


Entire right December 01,2005

February 27,2006

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RegistrationNumber



Real-time billmonitoring andcontrolling system


Entire right May 18, 2003 February 27,2006

Applicablesoftware for thepersonal creditmanagementsystem


Entire right August 26,2005

February 27,2006

C. Our Borrowers

Our five largest borrowers accounted for less than 30% of the total balance of the borrowings asat the Latest Practicable Date.

3. FURTHER INFORMATION ABOUT OUR DIRECTORS AND SUPERVISORS

A. Particulars of Directors’ and Supervisors’ Service Contracts

Each of our independent non-executive directors (“INEDs”) and external supervisors (“ESs”)has entered into a service contract with us for a term of three years beginning on the respective dates ofthe INEDs’ and ESs’ appointment and ending on the date of the third annual general meeting followinghis or her appointment. Our INEDs and ESs are subject to rotation under our articles of association.The service contracts of our INEDs and ESs are subject to termination in accordance with theirrespective terms. Pursuant to our articles of association, the remuneration of our INEDs and ESs isdetermined by our shareholders in general meeting.

The contracts do not provide for compensation to our INEDs and ESs in the event of earlytermination of the contract or any bonus, commission or profit sharing arrangements.

Save as disclosed above, none of our INEDs and ESs has entered or proposes to enter into aservice contract with us (other than contracts expiring or determinable by us within one year withoutthe payment of compensation (other than statutory compensation)).

Save as disclosed above, none of our executive directors, non-executive directors or internalsupervisors has or is proposed to have a service contract with our Company (other than contractsexpiring or determinable by the employer within one year without the payment of compensation (otherthan statutory compensation)).

As of the date of this prospectus, none of our directors has provided personal guarantees infavour of lenders in connection with banking facilities granted to us.

B. Directors’ and Supervisors’ Remuneration

The aggregate remuneration paid and benefits in kind granted to the directors and supervisorsfor the year ended December 31, 2005 amounted to approximately RMB1,073,000. See “Appendix I—Notes to Financial Information 7” for details.

Under the arrangements currently in force, the aggregate remuneration payable to, and benefitsin kind receivable by, our directors and supervisors for the year ending December 31, 2006 areestimated to be approximately RMB7,650,000.

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C. Directors’ and Supervisors’ Interests and Short Positions in the Share Capital andDebentures of our Company and its Associate Corporations

Immediately following the completion of the Global Offering, none of our directors andSupervisors will have any interest or short position in the shares, underlying shares or debentures of usor any of our associated corporations (within the meaning of Part XV of the SFO) which will have tobe notified to us and the Hong Kong Stock Exchange pursuant to Division 7 and 8 of Part XV of theSFO (including interests and short positions which they are taken or deemed to have under suchprovisions of the SFO), or which will be required, pursuant to section 352 of the SFO, to be entered inthe register referred to therein or which will be required to be notified to us and the Hong Kong StockExchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, ineach case once the H shares are listed on the Hong Kong Stock Exchange. For this purpose, therelevant provisions of the SFO will be interpreted as if they applied to our Supervisors.

D. Substantial Shareholders and Persons who have an Interest or Short Position Disclosableunder Divisions 2 and 3 of Part XV of the SFO

So far as our directors are aware, immediately following completion of the Global Offering andA Share Offering (but without taking into account the exercise of the over-allotment options or any Hshares or A shares which may be taken up under the Global Offering and A Share Offering), thefollowing persons will have interests or short positions in our shares which would fall to be disclosedto us and the Hong Kong Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of theSFO:

Name CapacityNumber of

sharesApproximate percentage

of issued share capital (%)

MOF Beneficial interest 118,787,977,419 36.2355

Huijin Beneficial interest 118,787,977,419 36.2355

SSF Beneficial interest 17,670,237,785 5.3902

Goldman Sachs Beneficial interest 16,476,014,155 5.0259

Allianz Corporate interest 6,432,601,015 1.9622

Dresdner Beneficial interest 6,432,601,015 1.9622

So far as our directors are aware, immediately following completion of the Global Offering andA Share Offering and assuming that the over-allotment option is not exercised, the following partieswill be directly or indirectly interested in 10% or more of our subsidiaries’ registered capital carryingthe right to vote:

Name of interested party Name of group memberApproximate

percentage of shareholding (%)

The Bank of East Asia, Limited . . . . . . . . ICEA Finance Holdings Limited 25

Credit Suisse . . . . . . . . . . . . . . . . . . . . . . . ICBC Credit Suisse Asset ManagementCo., Ltd.

25

China Ocean Shipping (Group)Company . . . . . . . . . . . . . . . . . . . . . . . . ICBC Credit Suisse Asset Management

Co., Ltd.

20

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4. OTHER INFORMATION

A. Estate Duty

Our directors have been advised that no liability for estate duty under laws of the PRC wouldbe likely to fall upon us, and that Hong Kong does not charge estate duty.

B. Litigation

Save as disclosed in the section headed “Business — Legal and Regulatory” of this prospectus,no member of our group is engaged in any litigation or arbitration of material importance and, so far asthe directors are aware, no litigation/arbitration or claim of material importance in relation to us isknown to the directors to be pending or threatened against any member of our group.

C. Joint Sponsors

The listing of our H shares on the Hong Kong Stock Exchange is sponsored by ChinaInternational Capital Corporation (Hong Kong) Limited, ICEA Capital Limited and Merrill Lynch FarEast Limited.

China International Capital Corporation (Hong Kong) Limited has declared pursuant to Rule3A.08 of the Hong Kong Listing Rules that it is independent pursuant to Rule 3A.07 of the Hong KongListing Rules.

ICEA Capital Limited is our subsidiary and accordingly is not considered independent pursuantto Rule 3A.07 of the Hong Kong Listing Rules.

Merrill Lynch Far East Limited has declared pursuant to Rule 3A.08 of the Hong Kong ListingRules that it is independent pursuant to Rule 3A.07 of the Hong Kong Listing Rules.

D. Particulars of the Selling Shareholder

MOF (located at Nansanxiang, Sanlihe, Xicheng District, Beijing, China) is offering3,539,100,000 H Shares in the Global Offering. Up to an additional 530,865,000 H shares will be soldby MOF if the over-allotment option is exercised in full.

Huijin (located at Level 7, Ping’an Building, Financial Street, Xicheng District, Beijing, China)is offering 3,539,100,000 H shares in the Global Offering. Up to an additional 530,865,000 H shareswill be sold by Huijin if the Over-allotment Option is exercised in full.

E. Promoters

The promoters of our Company are the MOF and Huijin. Save as disclosed in the prospectus,within the two years immediately preceding the date of this prospectus, no cash, security or benefit hasbeen paid, allotted or given, or is proposed to be paid, allotted or given to the promoters named abovein connection with the Global Offering or the related transactions described in this prospectus.

F. Qualification and Consents of Experts

Each of the Joint Sponsors, Ernst & Young as our independent reporting accountants,Sallmanns (Far East) Limited as our property valuer and King & Wood as our PRC legal advisors have

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given and have not withdrawn their respective written consents to the issue of this prospectus with theinclusion of their reports and/or letters and/or valuation certificates and/or the references to their namesincluded herein in the form and context in which they are respectively included.

The qualifications of the parties who have given opinions in this prospectus are as follows:

China International CapitalCorporation (Hong Kong)Limited . . . . . . . . . . . . . . . . . . . . . Deemed licensed under the Securities and Futures Ordinance for type 1

(dealing in securities), type 4 (advising on securities), type 6 (advising oncorporate finance) and type 9 (asset management) as defined under theSecurities and Futures Ordinance

ICEA Capital Limited . . . . . . . . . . . . Licensed under transitional arrangement under the Securities and FuturesOrdinance for type 1 (dealing in securities) and type 6 (advising oncorporate finance) as defined under the Securities and Futures Ordinance

Merrill Lynch Far East Limited . . . . Deemed licensed under the Securities and Futures Ordinance for type 1(dealing in securities) and type 6 (advising on corporate finance) asdefined under the Securities and Futures Ordinance

Ernst & Young . . . . . . . . . . . . . . . . . Certified Public Accountants

King & Wood . . . . . . . . . . . . . . . . . . PRC legal advisors

Sallmanns (Far East) Limited . . . . . . Chartered Surveyors and Valuers

G. Binding Effect

This prospectus shall have the effect, if an application is made in pursuance hereof, ofrendering all persons concerned bound by all of the provisions (other than the penal provisions) ofsections 44A and 44B of the Companies Ordinance insofar as applicable.

H. Miscellaneous

(a) Save as disclosed in this prospectus:

(i) within the two years preceding the date of this prospectus, no share or loan capital of ourCompany or any of its subsidiaries has been issued or agreed to be issued fully or partlypaid either for cash or for a consideration other than cash;

(ii) no share or loan capital of our Company or any of its subsidiaries is under option or isagreed conditionally or unconditionally to be put under option;

(iii) no founders, management or deferred shares of our Company or any of its subsidiarieshave been issued or agreed to be issued; and

(iv) our bank does not intend to apply for the status at a Sino-foreign invested joint stocklimited company and does not expect to be subject to the PRC Sino-foreign Joint VentureLaw;

(v) within the two years preceding the date of this prospectus, no commissions, discounts,brokerages or other special terms have been granted in connection with the issue or sale ofany capital of our Company or any of its subsidiaries.

(vi) none of our directors, supervisors or any of the parties listed in paragraph F of thisAppendix is interested in our promotion, or in any assets which have, within the two years

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immediately preceding the issue of this prospectus, been acquired or disposed of by orleased to us, or are proposed to be acquired or disposed of by or leased to any member ofour group;

(vii) none of our directors, supervisors or any of the parties listed in paragraph F of thisAppendix is materially interested in any contract or arrangement subsisting at the date ofthis prospectus which is significant in relation to our business;

(viii) no amount or securities or benefit has been paid or allotted or given within the two yearspreceding the date of this prospectus to our promoter nor is any such securities or amountor benefit intended to be paid or allotted or given;

(ix) none of our directors or their respective associates has any interest in our top fiveborrowers or our top five depositors;

(b) Our Company has no outstanding convertible debt securities.

I. Employees Representative Supervisors

We have, at present, one employees representative supervisor and do not meet the requirementfor having the number of employees representative supervisors constituting at least one-third of thetotal members of our board of supervisors required under PRC laws. We will make adjustments assoon as possible after listing.

J. Share Appreciation Rights

Under the “Provisional Measures on the Implementation of Share Appreciation Rights by State-controlled Overseas Listed Companies” (“Provisional Measures”), the terms of our share appreciationright scheme should conform with the provisions of the Provisional Measures. According to theProvisional Measures, the total number of share appreciation rights which may be granted during theeffective period of the share appreciation rights scheme may not exceed 10 percent of the total issuedshare capital of the company.

K. Preliminary Expenses

Our preliminary expenses are estimated to be approximately RMB119 million and are payableby us.

L. Exemptions from Hong Kong Companies Ordinance Provisions and Parallel Rules underthe Hong Kong Listing Rules

The English language and Chinese language versions of this prospectus are being publishedseparately in reliance upon the exemption provided by Section 4 of the Companies Ordinance(Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L ofthe Laws of Hong Kong).

According to the valuation report set out in Appendix V to this prospectus, as of 31 August,2006, we held 25,424 properties with an aggregate floor area of approximately 25.26 million squaremeters and 76 properties which are under construction with an aggregate gross floor area ofapproximately 686,953 square meters upon completion. As of 31 August, 2006, we also rentedapproximately 7,677 properties with an aggregate floor area of approximately 2.09 million squaremeters in the PRC, Hong Kong and overseas. Owing to the substantial number of properties involved,

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we have applied to the SFC for an exemption and the Hong Kong Stock Exchange for a waiver fromstrict compliance with certain of the valuation report requirements contained in paragraph 34(2) of theThird Schedule to the Hong Kong Companies Ordinance and Rules 5.01, 5.06 and 19A.27(4) andparagraph 3(a) of Practice Note 16 of the Hong Kong Listing Rules, respectively, on the grounds that:

(a) it would be unduly burdensome to list all of the properties and show their particulars andvalues individually in this prospectus and the inclusion of such detailed information wouldbe irrelevant to potential investors in a commercial bank; and

(b) it would be unduly burdensome to prepare an English translation of the report, assubstantially all of the properties are located in the PRC and consequently the underlyingvaluation and title information is in Chinese.

The exemption has been granted by the SFC under section 342A(1) of the Hong KongCompanies Ordinance, subject to the following conditions:

(i) a valuation report in the Chinese language complying with all the requirements ofparagraph 34 of the Third Schedule to the Companies Ordinance will be made availablefor inspection in accordance with Appendix X—“Documents Delivered to the Registrar ofCompanies and Available for Inspection”;

(ii) the valuer’s letter and the valuer’s certificate containing a summary valuation of all theGroup’s property interests be included in this prospectus in the form set out in Appendix Vto this prospectus; and

(iii) this prospectus shall set out particulars of this exemption.

The waiver has been granted by the Hong Kong Stock Exchange from Rules 5.01, 5.06 and19A.27(4) and paragraph 3(a) of Practice Note 16 of the Hong Kong Listing Rules, subject to thefollowing conditions:

Š a full valuation report in Chinese complying with all the requirements under the ListingRules and paragraph 34 of Part II of the Third Schedule to the Companies Ordinance willbe made available for inspection in accordance with Appendix X—“Documents Deliveredto the Registrar of Companies and Available for Inspection”;

Š a summary valuation of all property interests of us and our subsidiaries, as set out inAppendix V to this prospectus, has been included in this prospectus; and

Š we obtain a Certificate of Exemption from the SFC in relation to compliance with relevantrequirements under the Companies Ordinance.

M. Joint Compliance Advisors

We have appointed China International Capital Corporation (Hong Kong) Limited and MerrillLynch Far East Limited as our joint compliance advisors (the “Compliance Advisors”) in compliancewith Rule 3A.19 of the Hong Kong Listing Rules.

We have entered into a compliance advisors’ agreement with the Compliance Advisors, thematerial terms of which are as follows:

(a) we appoint the Compliance Advisors as our compliance advisors for the purpose of Rule3A.19 of the Hong Kong Listing Rules for a a period commencing on the date of listing ofour H shares on the Hong Kong Stock Exchange and ending on the date on which we

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comply with Rule 13.46 of the Hong Kong Listing Rules in respect of our financial resultsfor the first full financial year commencing after the date of listing (which, for theavoidance of doubt, shall mean the financial year ending 31 December 2007), or until theagreement is terminated, whichever is earlier;

(b) the Compliance Advisors shall provide us with services, including guidance and advice asto compliance with the requirements under the Hong Kong Listing Rules and applicablelaws, rules, codes, regulations and guidelines, and to act as one of our principal channelsof communication with the Hong Kong Stock Exchange; and

(c) we may terminate the appointment of a Compliance Advisor if the Compliance Advisor’swork is of an unacceptable standard or if there is a material dispute (which cannot beresolved within 30 days) over fees payable to the Compliance Advisors as permitted byRule 3A.26 of the Hong Kong Listing Rules. Each of the Compliance Advisors will havethe right to resign or terminate its appointment by service of three months’ notice to us.

N. Financial Advisor

We have engaged Lehman Brothers Asia Limited as our financial advisor to provide financialadvisory services in relation to the Global Offering. Principal functions performed by our financialadvisor include: assisting the Bank in coordinating the work of other professional advisors; reviewingrelevant documentation in relation to the Global Offering; and advising the Bank on positioning,valuation and matters related to marketing of the Global Offering including syndicate structuring, roadshow, and demand and pricing analysis for book building. In addition to acting as financial advisor tothe Bank, an affiliate of Lehman Brothers Asia Limited is expected to act as co-lead manager of theInternational Offering tranche of the Global Offering. The Joint Sponsors have not relied on the workperformed by Lehman Brothers Asia Limited in relation to the Global Offering.

O. Joint Bookrunners

As joint bookrunners, Credit Suisse (Hong Kong) Limited and Deutsche Bank AG, Hong KongBranch are, together with the other Joint Bookrunners, responsible for leading the underwritingsyndicate in respect of the Global Offering, and carrying out the marketing “book building” process aswell as pricing in respect of the International Offering tranche of the Global Offering.

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APPENDIX X DOCUMENTS DELIVERED TO THE REGISTRAR OFCOMPANIES AND AVAILABLE FOR INSPECTION

1. DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES

The documents attached to the copy of this prospectus and delivered to the Registrar ofCompanies in Hong Kong for registration were copies of the white, yellow and green applicationforms, the written consents referred to in Appendix IX “Statutory and General Information—Qualification and Consents of Experts” and copies of the material contracts referred to in Appendix IX“Statutory and General Information—Summary of Material Contracts”.

2. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of HerbertSmith at 23 Floor, Gloucester Tower, 15 Queen’s Road Central, Hong Kong during normal businesshours up to and including Friday, November 10, 2006:

(a) our articles of association in Chinese and an English translation thereof;

(b) the accountants’ report prepared by Ernst & Young, the text of which is set out inAppendix I;

(c) the consolidated audited accounts of our company for each of the two financial yearsimmediately preceding the issue of this prospectus;

(d) the letter relating to the unaudited pro forma financial information, the text of which is setout in Appendix III;

(e) the letters relating to the profit forecast, the texts of which are set out in Appendix IV;

(f) the letter dated October 16, 2006, summary of values and valuation certificate relating tothe property interests of our company prepared by Sallmanns ( Far East ) Limited, the textsof which are set out in Appendix V, and the full valuation report (in the Chinese languageonly) of Sallmanns ( Far East ) Limited referred to in Appendix V;

(g) a list of the particulars of the Selling Shareholders referred to in Appendix IX;

(h) service contracts between the directors, supervisors and us referred to in Appendix IX;

(i) the material contracts referred to in Appendix IX;

(j) the written consents referred to in Appendix IX;

(k) the PRC legal opinion issued by King & Wood, the legal advisors to our company on PRClaw dated September 8, 2006, as described in Appendix VII; and

(l) copies of the following PRC laws, together with unofficial English translations thereof:

(i) Law of the PRC on Banking Regulation and Supervision;

(ii) the PRC Company Law, the Special Regulations and the Mandatory Provisions;

(iii) the PRC Commercial Banking Law;

(iv) the Law of the People’s Bank of China;

(v) the Securities Law of the PRC promulgated by the Standing Committee of the NPCon 29 December, 1998 which became effective on 1 July, 1999;

(vi) the Regulations of the State Council concerning Domestic Listed Foreign Shares ofJoint Stock Limited Liability Companies promulgated on December 25, 1995;

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APPENDIX X DOCUMENTS DELIVERED TO THE REGISTRAR OFCOMPANIES AND AVAILABLE FOR INSPECTION

(vii) the Opinion on the Further Promotion of the Regular Operation and In-Depth Reformof Companies Listed Overseas issued by the State Economic and Trade Commissionand the CSRC on 29 March, 1999;

(viii) the Arbitration Law of the PRC promulgated by the Standing Committee of the NPCon 31 August, 1994 and effective on 1 September, 1995;

(ix) the Civil Procedure Law of the PRC adopted at the fourth meeting of the seventhNPC, promulgated by the president of the PRC on 9 April, 1991.

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INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED

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Transcript of INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED